Donations for Cornell/Harvard: ITAT rules in favour of Tata Trust

24 Jul 2020, 10:18 by Our Bureau · BusinessLine

The Income Tax Appellate Tribunal (ITAT) has ruled in favour of the Tata Education and Development Trust in an appeal against ₹110-crore demand by the Income Tax Department.

The case pertains to assessment years 2011-12 and 2012-13 on money spent by the Trust for creating an endowment fund at Cornell University, US, to provide scholarships to Indian students, and granting financial assistance to the Harvard Business School for constructing an executive building to be named Tata Hall. It donated ₹197.79 crore in 2011-12 and ₹25.37 crore in 2012-13.

CBDT view

The question for ITAT was whether the amount spent by the Trust should be eligible for tax exemption for the donations under Section 11 of the I-T Rules pertaining to charitable trusts. In June 2014, the CBDT took the view that the money given to foreign institutions cannot be exempted because it did not promote international welfare in which India is interested as stipulated under the Section.

Based on this view, the assessing officer declined to grant exemption.

The Trust then moved a fresh application explaining how the endowment will benefit Indian students and executives who may otherwise be discouraged by the cost to study at Cornell and Harvard. In November 2015, the CBDT revised its stand and approved the claimed exemption. Following this, the assessing officer also withdrew the tax claim. However, the Commissioner of Income Tax (Appeals) took the view that the CBDT order was passed in 2015 and could not be applied retrospectively to tax claims for 2011-12.

Justices PP Bhatt, President, and Pramod Kumar, Vice-President, ITAT, observed that the CIT (A) was in error. “The claim of the assessee must be allowed, and, we order so,” their order said.

The ITAT also said that the way in which the CIT (A) revived an issue that had been closed by the Assessing Officer was completely incompatible with the government’s effort towards a taxpayer-friendly system and minimising litigation. The approach of the CIT (A) “seemingly more loyal to the CBDT than CBDT itself” led to this “wholly avoidable litigation”, it said.

‘Needless litigation’

Tax experts said the ITAT rightly pointed out that this was a needless litigation due to the interpretation by the CIT (A). “What was pending to be examined was the application to the income for purposes outside India. The contribution itself was not questionable. There was no debate on whether the contribution to Cornell and Harvard was to promote international welfare in which India is interested,” said Amit Maheshwari, Tax Partner, AKM Global, a consulting firm.