Mumbai Tribunal deprecates Tax Authority's action in disallowing claim for application of income by way of donation to foreign universities approved by CBDT

The Mumbai Income Tax Appellate Tribunal has ruled that charitable trusts can claim donations made to foreign universities as an application of income, provided these are approved by the Central Board of Direct Taxes (CBDT). The Tribunal criticised the First Appellate Authority for disallowing such a claim, even after the tax authority had rectified its assessment to include the donation based on CBDT approval. The Tribunal emphasised consistency and the importance of adhering to CBDT's orders, noting that litigation could have been avoided.

• Mumbai Income Tax Appellate Tribunal (Tribunal), dated 24 July 2020,
• Tata Education and Development Trust.

BRIEF FACTS

1. In the case of Tata Education and Development Trust (Taxpayer), the Mumbai Tribunal held that the amount spent for charitable purposes outside India, which is approved by the Central Board of Direct Taxes (CBDT), is allowable as qualifying application of income in the hands of the charitable trust.
2. During the pendency of application for approval before the CBDT as required by the Income Tax Act,1961 , the Tax Authority did not allow spending by way of donations to foreign universities as application of income to the Taxpayer trust in concluded assessments.
3. The application made to the CBDT was initially rejected by the CBDT for want of establishing the condition as to how such spending abroad promotes international welfare in which India is interested.
4. However, on subsequent filing of detailed application, the CBDT approved the spending by an order for the relevant years under reference.
5. Basis the CBDT's order, the Tax Authority rectified the assessment order and allowed the spending as application of income in computing total income of the Taxpayer.
6. However, the First Appellate Authority , in an appeal filed against original assessment order, did not take cognizance of the rectification order of the Tax Authority and proceeded to examine the issue on merits.
7. The First Appellate Authority also did not follow the CBDT's order by citing various reasons. It also confirmed the disallowance made in the original assessment order.
8. The tribunal allowed the claim of the Taxpayer considering that the Tax Authority had already rectified the assessment order by granting deduction of the amount spent outside India, basis the CBDT's approval order.
9. The claim is in consonance with CBDT's order.
10. Also, the tribunal noted that a similar claim for other tax years was allowed in the past and applied the rule of consistency.
11. The tribunal further deprecated the action of the First Appellate Authority[ CIT(A)] which acted contrary to the CBDT's order on hyper pedantic grounds and held that litigation could have been avoided in this case.

DISCLAIMER: The case law produced here is only for information and knowledge of readers. The views expressed here are the personal views of the author and same should not be considered as professional advice. In case of necessity do consult with consultants for more understanding and clarification on subject matter.