Tata education trust’s charity in US not income: ITAT


MUMBAI: Tata Education and Development Trust (TEDT), set up by Ratan Tata in 2008, has obtained a favourable order from the Income Tax Appellate Tribunal (ITAT – Mumbai bench). Donations made by the trust outside India to US-based universities Cornell and Harvard will be treated as an application of income by the trust.
Thus, donations of nearly Rs 198 crore and over Rs 25 crore made to these US universities during the financial years 2010-11 and 2011-12 will not be treated as the income of the trust. The ITAT overturned the additions of these sums to the trust’s income, that were made by the commissioner of income tax (appeals). TEDT’s charitable objective was to invest in projects in India or overseas that promote the development of knowledge and expertise in several areas vital for India’s growth and competitive abilities.
At Cornell, TEDT established an endowment fund through contributions totalling $50 million to enable generations of Indian undergraduate students to access educational opportunities. A donation of a likewise sum to Harvard was for construction of the ‘Tata Hall’, which would provide classroom and residential facilities within the campus for its executive education programme participants. This would also provide tremendous global visibility for India and Indian business.

Section 11(1)(C) of the I-T Act states that income derived from property held under a trust created after April 1, 1952, for charitable purpose, which tends to promote international welfare in which India is interested shall be exempt to the extent to which such income is ‘applied for this purpose outside India’. However, for such exemption, an approval of the Central Board of Direct Taxes (CBDT) is required.
In this case, at the time of assessment, the CBDT’s approval was not on the table and, accordingly, the I-T officer added these sums to the trust’s income. However, while the approval was pending before the appellate commissioner, TEDT obtained CBDT’s approval (including for the years covered by the litigation). The I-T officer duly rectified his order. This did not augur well with the appellate commissioner and the litigation reached the ITAT.
The heavyweight ITAT bench comprising president P P Bhatt, and vice-president Pramod Kumar, towards the conclusion of their 51-page order, had sharp words for the actions of the appellate commissioner. The I-T officer had duly given effect to the exemption granted by the CBDT in respect of payments made to these US universities, they noted.
“Yet a hyper-pedantic, even if a bona fide, approach of the learned commissioner of income tax (appeals), 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-trust before us, to the areas which do no good to the society at large.”
The ITAT bench concluded, “We hope that the admirable work being done by the government in pursuing such forward-looking policies at the macro level is not allowed to be overshadowed by isolated situations like this at the field level, which must be minimised by sensitising the authorities concerned. An effort should be made to create a taxpayer-friendly atmosphere by adopting a just and fair approach at every level of the tax administration.”



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