Endowment fund: ITAT rules in favour of Tata Education and Development Trust

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Published: July 24, 2020 10:29 PM

The amount spent on this account for the assessment year (AY) 2011-12 stood at Rs 197,79,27,500, and for AY 2012-13, it was Rs 25,37,00,000. 

The trust had appealed before the ITAT as to whether the amounts spent by it will be eligible for tax exemption under Section 11 of the Income Tax Act.

The Income Tax Appellate Tribunal (ITAT) has ruled in favour of Tata Education and Development Trust (TEDT) in a case pertaining to allowing I-T exemption on donations of over Rs 220 crore to two US-based universities. The trust had spent monies for creation of endowment fund at the Cornell University, US for scholarship for Indian students, as well as for collaboration between Indian and Cornell scientists. It also provided financial assistance to Harvard Business School for construction of a new executive building named Tata Hall.

The amount spent on this account for the assessment year (AY) 2011-12 stood at Rs 197,79,27,500, and for AY 2012-13, it was Rs 25,37,00,000. The trust had appealed before the ITAT as to whether the amounts spent by it will be eligible for tax exemption under Section 11 of the Income Tax Act. Section 11 provides certain conditions/ situations where income derived from a property held under a religious/ charitable trust is not liable to tax in hands of the trust.

Although the Central Board of Direct Taxes (CBDT) had approved exemption to these donations by the trust, Commissioner of Income Tax-Appeals (CIT-A) denied deduction for the income applied outside India under section 11(1)(c) of the I-T Act.

“We have decided this issue in favour of the assessee and thus allowed this ground of appeal. We, therefore, uphold the plea of the assessee, and delete the resultant disallowance of claim of exemption of Rs 197,79,27,500. The assessee gets the relief accordingly. In the result, appeal for the assessment year 2011-12 is allowed,” the ITAT said in its order.

With regard to the appeal filed for AY 2012-13, the ITAT said whatever has been decided for AY 2011-12 will equally apply here. “We, therefore, uphold the plea of the assessee, and delete the resultant disallowance of claim of exemption of Rs 25,37,00,000. The assessee gets the relief accordingly. In the result, the appeal filed by the assessee is allowed..,” the ITAT said.

The ITAT, while passing the order, said this is a “unique case” in which the CBDT has approved the exemption being granted in respect of payments made by the assessee trust to Cornell University and Harvard University, in which the Assessing Officer has duly given effect to the stand so taken by the CBDT.

“Yet a hyper-pedantic, even if a bonafide, approach of the learned CIT(A), seemingly more loyal to the CBDT than CBDT itself, has resulted in this wholly avoidable litigation which does not only clog the serious litigation before the judicial forums but also diverts scarce resources of the philanthropic bodies, like the assessee before us, to the areas which do no good to the society at large,” the ITAT said.

Nangia & Co LLP Partner Shailesh Kumar said the ITAT’s decision is in line with specific and very clear order passed by CBDT granting exemption to taxpayer even for the earlier years and it was a clear case of misinterpretation of CBDT’s order by the CIT(A).

“The ITAT gave an important finding that it was not open to the CIT(A) to review an order/ approval issued by CBDT, for which power lies with CBDT only. “The ITAT also gave another important finding that once the disputed adjustment/ addition was already deleted by tax officer in rectification proceedings, no ground survived before CIT(A) to decide in appeal and thus order passed by CIT(A) upholding the addition was incorrect,” Kumar added.

Amit Maheshwari, Tax Partner, AKM Global, said, “As rightly pointed out by the ITAT this has become a needless litigation because of the interpretation adopted 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.”

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