Donations for Cornell / Harvard: ITAT rules in favor of Tata Trust

The Income Tax Appellate Tribunal (ITAT) appealed against the Income Tax Department’s £ 110m claim in favor of the Tata Education and Development Trust.

The case relates to the 2011-12 and 2012-13 valuation years for funds the Trust spent on establishing a foundation fund at Cornell University in the United States to provide grants to Indian students and financial support to the Harvard Business School Building an executive grant building called Tata Hall. It donated £ 197.79 crore in 2011-12 and £ 25.37 crore in 2012-13.

CBDT view

The question for ITAT was whether the amount spent by the trust on donations should be tax free in accordance with Section 11 of the I-T Rules for Nonprofit Trusts. In June 2014, the CBDT considered that the money that is made available to foreign institutions cannot be exempted because it does not promote the international welfare that India is interested in, as set out in the section.

Based on this view, the evaluator refused to grant an exemption.

The trust then submitted a new application explaining how the foundation benefits Indian students and executives who may otherwise be discouraged by the cost of studying in Cornell and Harvard. In November 2015, the CBDT revised its status and approved the requested exemption. Following this, the auditor also withdrew the tax claim. However, the Commissioner of Income Tax (Appeals) considered that the CBDT regulation was adopted in 2015 and could not be applied retrospectively to tax claims for 2011-12.

Judges PP Bhatt, President, and Pramod Kumar, Vice President of ITAT, found that the CIT (A) was flawed. “The claim of the assessee must be permissible and we order this,” says the order.

ITAT also said that the way in which CIT (A) revived a subject closed by the auditor was completely inconsistent with government efforts to create a tax-friendly system and minimize litigation. CIT (A) ‘s approach “to appear to be more loyal to the CBDT than the CBDT itself” led to this “fully avoidable litigation,” it said.

“Unnecessary litigation”

Tax experts said ITAT was right to point out that due to the interpretation by CIT (A) this was an unnecessary litigation. “What still had to be examined was the application for income for purposes outside of India. The contribution itself was not questionable. There was no debate about whether the contribution to Cornell and Harvard was to promote the international prosperity that India is interested in, ”said Amit Maheshwari, tax partner of AKM Global, a consulting firm.

Read also: ITAT’s Young Indian ruling can support Tata Trusts’ tax war

Also read: Tata Trusts case: CBDT prefers three I-T officials because of late action


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