Tata Education Trust gets Rs 220-crore exemption from ITAT

The matter pertains to Tata Trust's donation of $100mn to Harvard, Cornell

The Income-Tax Appellate Tribunal (ITAT) on Friday, in a setback to the I-T department, allowed tax exemption of over Rs 220 crore to a Tata Trust entity, regarding donation to two US-based universities between assessment years 2011-12 and 2012-13.

Earlier, the I-T department had slapped a Rs 100-crore tax demand on Tata Education and Development Trust (TEDT).

The matter pertains to the exemption allowed by the Central Board of Direct Taxes (CBDT) on the Trust’s cumulative donation of over $100 million during 2008-09 and 2015-16 to Cornell University and Harvard University — which also involves construction of a building named Tata Hall.

The controversy began after the Public Account Committee (PAC) of the Lok Sabha had, in 2018, sought enquiry in the matter as it believed that the exemption granted by the direct tax body was in violation of the I-T Act.

Concluding the matter, the ITAT stated that all other grounds of appeals would 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.”

Constituted in 2008, the TEDT had claimed exemption on foreign donations in AY2011-12 and 2012-13. The tax authorities denied exemption as the Trust showed “nil income” during the AYs, but claimed amounts remitted to these universities.

Tax authorities held that the amount spent by the Trust could not be treated as a permissible application of the trust’s income, and therefore not eligible for exemption under the I-T charitable trust provisions. The tax department finalised the assessment proceedings in March 2014, when it declined to grant exemption of income related to the application of funds outside India amounting to Rs 197.79 crore and Rs 25.37 crore, respectively.

Even though the CBDT had, in November 2015, granted special approval to the same, the CIT (Appeals) upheld the tax department order, saying the CBDT order was not retrospective in nature and therefore couldn’t apply to AY2011-12 and 2012-2013, for which the exemption was sought.

Aggrieved by the CIT (A), the Trust moved the tribunal, challenging the CIT (A) order, saying the CBDT’s approval was effective for the period covered by AY2009-10 through 2016-17.

The assessing officer contesting the matter reproduced the CBDT’s previous remark in which the board rejected the Trust’s plea on grounds that the Trust was not promoting international welfare in which India was interested. 

Subsequently, even when the board approved the plea, it stated that the approval was subject to verification by the assessing officer.

“We are of the considered view that the learned CIT(A) was in error while upholding the denial of claim of the assessee for exemption, in respect of the application of income of the trust outside India... We may, however, add that this is unique case in which the CBDT approved the exemption being granted in respect of payment made by the assessee trust… in which the assessing officer has duly given effect to the stand taken by the CBDT, which is yet a hyper-pedantic — even if bonafide — approach of the learned CIT(A), seemingly more loyal to the CBDT than CBDT itself,” the tribunal stated. Such approach of the CIT(A) results in wholly avoidable litigation and diverts scarce resources of philanthropic bodies. 

Macro level work done by such organisations should not be overshadowed by isolated situations like this. The tax administration should ensure everyone in the loop is adequately sensitised and help create a tax-friendly environment and minimise litigation, it added.