ITAT ruling: Tata Trust gets Rs 223 crore endowment spend exempt from tax

The order was referring to the fact that CBDT had approved the exemption for payments made by the assessee trust to the Cornell and Harvard Universities USA and was subsequently given due effect by the assessing officer but was overturned by the CIT (appeal).

In a relief to Tata Education and Development Trust, the Income Tax Appellate Tribunal (ITAT) in Mumbai ordered that over Rs 223 crore of the Trust’s income be exempted from tax in a case related to assessment year 2011-12 and 2012-13. The funds were used by the Trust to create endowment funds at Cornell and Harvard Universities in the United states.

The assessee, a public charitable trust, had spent Rs 197.8 crore and Rs 25.4 crore, respectively in two consecutive assessment years towards endowment funds for Indian students, as well as for foreign collaboration project between Indian and Cornell scientists, and grant of financial assistance to Harvard Business School for construction of a new executive building named Tata Hall.

Commenting on the conduct of CIT (appeal), the Tribunal in its order said that “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 order was referring to the fact that CBDT had approved the exemption for payments made by the assessee trust to the Cornell and Harvard Universities USA and was subsequently given due effect by the assessing officer but was overturned by the CIT (appeal).

For these two assessment years, the assessee had returned nil income, but had also claimed amounts remitted to the educational universities outside India as application of income under section 11(1)(c). However, tax exemption under this section for use of income outside India is applicable only if Central Board of Direct Taxes (CBDT) approves it.
In the absence of approval during the relevant assessment year, the assessing officer disallowed exclusion of the amount from trust’s income. However, in November, 2015 the assessee was granted CBDT’s approval to exclude from income the funds used for specific purpose outside India for assessment years 2009-10 to 2016-17. Subsequently, the assessing officer deleted the addition to income.

However, the CIT (appeal) disallowed this deletion on the grounds that CBDT approval was granted in 2015, and it wasn’t applicable retrospectively to assessment years 2011-12 and 2012-13. This was overturned by the tribunal.
The CIT (appeal) stance came under criticism from the tribunal which said the “view taken in the matter by the CIT(A) in reviving an issue which was already concluded by the assessing officer in favour of the assessee, and in the assessing officer defending the action of the CIT(A), is inherently incompatible with much appreciated and very forward looking approach of the government of India towards minimising litigation and thus creating a taxpayer friendly environment.”