Tata Education and Development Trust Vs Asst. CIT Circle 2 (ITAT Mumbai)
In a major relief for Tata Education and Development Trust, the Income Tax Appellate Tribunal (ITAT) bench consisting of Justices PP Bhatt, President, ITAT, on 24th July ruled in favour of the trust in their appeal against commissioner income tax (CIT) appeal order wherein a demand of more than Rs.220 crore was levied by the tax department .ITAT also stayed the matter of that demand without any minimum pay.
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.
The controversy began after the Public Account Committee (PAC) of the Lok Sabha in 2018 sought an enquiry in the matter as it believed that exemption granted by the direct tax body was in violation of the I-T Act.
Concluding the matter, the Income-tax Appellate Tribunal (ITAT) on Friday stated that all other grounds of appeals will be “rendered, academic and infructuous”. “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,” it said.
The Appellate Tribunal also stated in its order that, “….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 Tribunal hoped that the admirable work being done by the Government of India, in pursuing such forward looking policies at the macro level, is not allowed to be overshadowed by the isolated situations like this, at the field level, which must be minimized by sensitising the authorities concerned. It observed, “An effort should be made to create a taxpayer friendly atmosphere by adopting just and fair approach at every level of the tax administration.”
FULL TEXT OF THE ITAT JUDGEMENT
1. These three appeals pertain to the same assessee, involve some common issues and were heard together. As a matter of convenience, therefore, all the three appeals are being disposed of by this consolidated order.
Core issue in appeal:
2. The common ground of appeal, raised by the assessee, requiring adjudication in both of these years, i.e. assessment years 2011-12 and 2012-13, is “whether or not the learned Commissioner of Income Tax (Appeals) [“CIT(A)”] was justified in denying deduction for the income applied outside India under section 11(1)(c) of the Income Tax Act, 1961 [“the Act”], even though the appellant has an order from the Central Board of Direct Taxes [“CBDT”] as required by the proviso to Section 11(1)(c) of the Act”.
3. Let us set out, in plain words, the controversy requiring our adjudication. The assessee trust had spent monies for creation of endowment funds, through contribution at the Cornell University USA, for scholarship of 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. The amounts spent on this account, for the assessment year 2011-12, was Rs 197,79,27,500, and, for the assessment year 2012- 13, was Rs 25,37,00,000. The question really is whether the amounts so spent by the assessee trust will be treated as permissible application of the trust income, and, accordingly, will be the assessee be eligible for tax exemption, under section 11, in respect of that income.
Facts of the case and developments leading to this litigation before us:
4. The assessee before us is a public charitable trust registered under Bombay Public Trust Act 1950 (now known as Maharashtra Public Trust Act 1950), as also as charitable institution under the Section 12A of the Income Tax Act, 1961. In both of these 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 1 1(1)(c). This amount, for the assessment year 2011 -12, was Rs 197,79,27,500, and, for the assessment year 2012-13, was Rs 25,37,00,000. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that in terms of proviso to Section 1 1(1)(c), unless the Central Board of Direct Taxes, by way of a general or special order, specifically approves that the income derived from property held under trust, applied for the purposes of specified under section 1 1(1)(c)(i) and (ii), shall not be included in the total income of the person in receipt of such income, it shall not be excluded from the total income of the person in receipt of such income. The Assessing Officer further noticed that as no such approval from the Central Board of Direct Taxes has been granted, the amounts remitted abroad for application of trust funds are required to be included in the income of the assessee. These amounts were thus added to the income of the assessee trust. Aggrieved, assessee carried the matter in appeal before the CIT(A), but, even as the appeal was pending before the learned CIT(A), the Central Board of Direct Taxes, vide order dated 10th November 2015, granted approval under section 11(1)(c), which was specifically “stated to have effect for the period covered by assessment years 2009-10 to 2016-17” and it permitted application of funds, by the trust, “for charitable purposes for grant of creation of endowment funds through contribution at the Cornell University USA, for scholarship of 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, as per details below” which included US $ 43.75 million for the assessment year 2011-12 and US $ 5 million for the assessment year 2012-13. Based on this approval issued by the CBDT, the Assessing Officer rectified, under section 154 of the Act, the assessment orders for the assessment year 2011-12, on 8th December 2015, and for the assessment year 2012-13, on 9th August 2016. The additions in question, i.e. on account of application of funds abroad without specific approval of the CBDT- Rs 197.79 crores for the assessment year 2011-12 and Rs 25.37 crores for the assessment year 2012-13, were thus deleted by the Assessing Officer himself. However, learned CIT(A) disregarded these rectification orders by observing that the rectification order under section 154 “does not merit consideration in this appeal as the present appeal has been filed against the order of the AO passed under section 143(3) of the Act”. He proceeded to hold that the CBDT’s approval dated 10th November 2015 “is not retrospective in nature”, that “the said order of the CBDT has been passed in response to assessee’s application dated 31st March 2015, and, therefore, it cannot apply to the assessment year 2011- 12 (and 2012-13)”, and that the related verifications, as is the condition precedent for allowing the benefit, was not carried out in the original assessment proceedings. The impugned additions were thus, in effect, restored by the learned CIT(A), even though, based on the CBDT approval, the Assessing Officer himself had deleted those additions in the rectification proceedings. Aggrieved by the action of the CIT(A), the assessee is in appeal before us.
Rival contentions, and the facts as highlighted by the parties during the course of the arguments:
5. Shri Pardiwalla, learned senior counsel appearing for the assessee, begins by pointing out that principal issue in this appeal is with respect to claim of the assessee for exemption of income earned by the assessee trust in respect of the income applied for charitable purposes outside India. He submits that the appellant trust was constituted, in 2008, under the Bombay Public Trust Act 1950 (now known as Maharashtra Public Trust Act 1950), and had duly obtained its registration as a charitable institution under the Section 12A of the Income Tax Act, 1961. It was pointed out that admittedly there is no dispute about its objects being charitable in nature and this fact has been accepted as such all along by the Assessing Officer. It is submitted that during the previous years relevant to the assessment years 2009-10 to 2016-17, the assessee had spent monies, inter alia, on donations to two US based universities, namely Cornell University and Harvard University, pursuant to certain agreements. These payments were made with proper regulatory approvals of the Reserve Bank of India, and there is no dispute on that aspect. There is also no dispute, according to the learned counsel, that these amounts spent for the purposes for which the appellant trust was established. Learned counsel then submits that normally when an income of the trust is applied to the objects of the trust, ordinarily that it is exempted from tax. Elaborating upon this proposition, he invites our attention to the scheme of Section 11 of the Act, reads it out and points out that so far the amounts spent outside India are concerned, under section 11(c), the corresponding income is required to be treated as exempt, subject to condition, inter alia, that “the Board, by general or special order, has directed that it shall not be included in the total income of the person in receipt of such income”. It is thus submitted that, for such an expenditure being treated as a qualifying expenditure for the charitable purposes of the assessee and resultant exemption income of the assessee, there has to be a general or special approval of the Central Board of Direct Taxes. Learned counsel then invites our attention to the letter dated 26th May 2010 written by the assessee trust to Member, Central Board of Direct Taxes (a copy of which is placed before us at paper-book pages 1-4) which, inter alia, states as follows:
We present this Application for favour of an issue of Requisite Order as contemplated under the proviso to Section 11(1)(c) of the Income-Tax Act, 1961, for the Assessment Years 2009-10 to 2011-12.
1) Tata Education and Development Trust was founded in the Year 2008, by Mr. Ratan Naval Tata. [Trust Deed enclosed – Exhibit ‘Al The Trust has been registered as a Public Charitable Trust with the office of the Charity Commissioner, Maharashtra State, under E-25973 (BOM) [Certificate enclosed – Exhibit ‘B’). The Trust is also registered with the Commissioner of Income-Tax, Mumbai u/s 12-A(a1) under TR/42070 of September 15, 2008. [Certificate enclosed – Exhibit ‘C’]
2) Clause 5(1) the Trust Deed dated July 25, 2008 lays down that:
Across several countries globally, there have been significant scientific and technological developments, many of which have a crucial bearing on the growth and prosperity of India in the new emerging globalized world.
Subject to regulatory approvals, as may be necessary, the Trust will invest in projects in India or outside India that promote the development of knowledge and expertise in several areas vital for India’s growth and competitive ability. Projects that may be so established by the Trust by way of foundations or grants will cover several areas such as Nano Technology, agricultural sciences, climate change studies, ecological and human habitat studies, etc. The Trust will also support study and exchange programmes that promote the spread of knowledge by way of Scholarships and Freeships to students and teachers in Programmes in India or outside India with a view to bringing to bear upon Indian Institutions new technological initiatives and projects which foster the development of Indian capabilities. Foreign academic and research institutions will be duly selected for setting up such collaborative initiatives to be funded by the Trust in order to enhance India’s strength.
3(a) Tata Education And Development Trust established an endowment fund through contribution totaling $50 million at Cornell University at USA to establish ‘Tata Scholarships for Students from India Fund” and “Tata-Cornell initiative in Agriculture and Nutrition Fund”.
Generations of Indian undergraduate students from India would be able to access educational opportunities in one of the best Universities in the world, ‘Cornell University’ to meet their ambitious goals.
– ‘Tata Scholarships for Students from India Fund” would provide financial assistance to only those undergraduate students with demonstrated financial need enrolled at Cornell University, who are citizens of India and who attended a secondary school in India.
‘Tata-Cornell initiative in Agriculture and Nutrition Fund’ (TACO-AN) is a second joint collaboration project with Cornell scientists and students their Indian counterparts working in public and private sector.
The activities conducted of Tata-Cornell Initiative in Agriculture and Nutrition (TACO-AN), are designed to encourage collaboration among Indian and Cornell scientists that will spur strategic investments designed to accelerate agriculture productivity, and reduce malnutrition among the rural poor in India.
Their main aim is to improve the livelihoods and nutritional status of rural poor in India. This core group is further supported by a Scientific Advisory Committee, who holds planning sessions at regular intervals.
(b) Considering the growing economic conditions in India, Tata Education and Development Trust recognizes the need to have dynamic Indian business leaders for developing and implementing sustainable strategies for doing business in India and around the world. The Trust is planning to launch an executive education program in an association with Harvard Business School, USA which would benefit many deserving Indian students. The Social Mission of the Executive Education’s is to enhance the School’s reach into communities that might not otherwise have ready access to intellectual capital, teaching expertise, and programme experience offered by Harvard Business School.
Harvard Business School plans to continue their commitment towards educating and training Indian business leaders in the years to come. Tata Education And Development Trust will provide financial assistance to Harvard Business School to construct Tata Hall at Harvard University which will provide classroom space, living quarters and common areas for Harvard Business School (HBS) Executive Education participants and programs. The Hall will comprise approximately 1,35,000 GSF consisting of 170 bedrooms. two 90-person classrooms, small seminar spaces, project rooms, living group spaces and administrative offices.
At present, more than 9,000 business leaders enroll in Executive Education programs at Harvard Business School (HBS) each year. With the construction of Tata Hall additional 1800 MBA and 100 Doctoral students will be benefited every year.
Having a building named Tata Hall on the Harvard Business School campus, in and of itself, will benefit India. Having the name of one of the largest and most well-respected business houses in India prominently displayed at Harvard Business School will provide tremendous global visibility for India and Indian business to a high powered, global group of business leaders.
4 We now request for the issue of the Order u/s. 1 1(1)(c) for the three years period covered by the Assessment years 2009-10 to 2011-12 for the reasons set out in the succeeding paragraphs:-
(a)(i) The “Tata Scholarships” is funded to provide:
– assistance to undergraduate students with demonstrated financial need enrolled at Cornell University, who are citizens of India and who attended a secondary school in India.
– assistance for enrollment of Tata Scholarship for international undergraduate studentswhich has now increased to 128 percent
– assistance preferentially to qualified students from the College of Architecture, Art and Planning; the College of Engineering; the Applied Economics and Management major in the College of Agriculture and Life Sciences; and major across colleges in the biological sciences, physical sciences, any other hard sciences as well as the social sciences.
(ii) The Tata-Cornell Initiative in Agriculture and Nutrition is funded to provide:
– Community Development & Research projects on problems facing the small holders of rain fed regions of central India (geographical focus).
– preferentially students of Cornell who are included in the conduct of the research (travel and research cos.) under guidance of Cornell faculty.
– more over towards the critical areas in the field of agriculture and human nutrition, which require immediate attention, such as: increasing production under stress conditions; resource conversation technologies; post-harvest handling and agro-processing; fortification and dietary diversity for enhanced nutrition in India
Payment Schedule:
Financial Year Amount
2008 – 2009 US $ 12.50 million
2009 – 2010 US $ 18.75 million
2010 – 2011 US $ 18.75 million
Total US $ 50.00 million
(b) Tata Hall at Harvard Business School
– To develop a locally relevant body of knowledge, including case studies and course materials for use in MBA and Executive programs in India and around the world. The focus will be on disseminating the knowledge created in India directly to businesses and school in the country.
– To deepen faculty understanding of and exposure to Indian management issues, trends, and practices. HBS will be global in scope, the faculty will be knowledgeable about the most important, relevant and interesting management issues and practices everywhere in the world, with a special interest in India.
– To strengthen ties with important constituencies in the region (including companies, institutions, and HBS alumni). These relationships will be critical to School’s distinctive strategy. The work in the region will be guided by an advisory panel of leading business and government leaders in India.
Payment Schedule:
Financial Year Amount
2010 – 2011 US $ 25 million
2011 – 2012 US $ 5 million
2012 – 2013 US $ 5 million
2013 – 2014 US $ 5 million
2014 – 2015 US $ 5 million
2015 – 2016 US $ 5 million
Total US $ 50 million
5) We shall be extremely grateful if the requisite order is issued at your earliest convenience, with a view to enable the Trust to continue its activities effectively. The delay, if any, in making Application u/s 1 1(1)(c) for the Assessment Years 2009-2010 to 2011-2012 may please be condoned. Since, the part of the Income of the Trust is applied outside India, it is necessary to apply for an Order u/s.1 1(1)(c) and hence this Application.
6. Learned counsel submits that this plea of the assessee, however, did not find favour, at that point of time, with the Central Board of Direct Taxes. Vide letter dated 2nd June 2014, a copy of which is placed before us in pages 5-6 of the paper-book, the CBDT declined approval under proviso to Section 1 1(1)(c) and observed as follows:
4. After examining the information and documents as filed by the applicant from time to time, it is noted that while the aforesaid activities may be philanthropic in nature and for the purpose of aiding Higher Education, supporting research projects in the field of agriculture and nutrition, and beneficial for citizens of India in general, these cannot be said to be for a cause, which tends to promote international welfare in which India is interested as stipulated under section 11(1)(c). The aforesaid activities do not fit within the parameters prescribed under section 11(1)(c) which restricts the activities to be specific towards promotion of international welfare in which India is interested.
5. Thus, in view of the fact that the proposed activities of the Trust are not tending to promote “international welfare in which India is interested” the same are not covered for the purpose of section 11(1)(c) of the Act. I am therefore directed to convey that the application u/s 11(1)(c) filed by the Trust is rejected by the CBDT.
7. Learned counsel submit that it was in this backdrop that the Assessing Officer, during the course of assessment proceedings under section 143(3) for the assessment years 2011-12 and 2012-13, which were finalized on 28thMarch 2014 and 3rd March 2015 respectively, declined to grant exemption of income relatable to the application of funds, outside India, amounting to Rs 197,79,27,500, and Rs 25,37,00,000 respectively. Aggrieved by the stand so taken by the Assessing Officer, the assessee had carried the matter in appeal but the assessee also, in the meantime, moved a fresh and more comprehensive application, justifying that it was a fit case for CBDT’s approval under proviso to Section 11(1)(c), and its approval as such. Learned counsel then took us through the fresh application dated 31st March 2015, a copy of which is placed before us at pages 7 onwards on the paper-book filed by the assessee. This application, inter alia, submitted as follows:
1.1 TEDT is a public charitable trust founded by Mr Ratan Naval Tata in the year 2008. The Trust has been registered as a Public Charitable Trust with the office of the Charity Commissioner, Maharashtra State, under E-25973 (Bom). TEDT is also registered under Section I2AA of the Act and is eligible to claim exemption under Section 11 of the Act.
Copies of the Trust Deed along with born the abovementioned registration certificates are attached as Annexure 1.
1.2 The Trust has been set up, inter-alia with the object to invest in projects in India or outside India that promote the development of knowledge and expertise in several areas vital for India’s growth and competitive ability. The projects that may be established by the Trust by Wily of foundations or grants will cover several areas such as namo technology, agricultural sciences, climate change studies, ecological and human habitat studies, etc. The Trust will also support study and exchange programs that promote the spread of knowledge by way of scholarships and freeships to students and teachers in respect to programmes in India or outside India with n view to introduce Indian institutions to die new technological initiatives and projects which foster the development of Indian capabilities. Foreign academic and research institutions will be duly selected for setting up such collaborative initiatives that will be funded by the Trust in order to enhance India’s strength.
1.3 In furtherance of its charitable objects like promoting education, research, etc., TEDT has made/ will make the following grants:
