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Facts
The assessee, a charitable trust, applied for approval under Section 80G. The CIT(E) rejected the application, holding that the trust spent its funds outside India for scholarships, violating Section 11 of the Act.
Held
The Tribunal held that the payment of scholarships to Indian students for studies abroad, where the money was disbursed in India to Indian citizens, constitutes application of funds in India and does not violate Section 11. The impugned order of the CIT(E) was set aside.
Key Issues
Whether providing scholarships to Indian students for overseas education constitutes spending of trust funds outside India and a violation of Section 11 of the Income Tax Act.
Sections Cited
80G, 12AB(1)(b), 11, 11(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order dated 26.12.2024 of Learned Commissioner of Income Tax (Exemption), Mumbai [hereinafter referred to as the “CIT(E)”], wherein the request of Page | 1 K.M. & S.K. Trivedi Charitable Trust the applicant trust for approval u/s 80G in terms of the provision of section 12AB91)(b) of the Act has been rejected by the Ld. CIT(E).
The brief facts of the case are that, the assessee is a charitable trust, was constituted on 24.01.20225 by its trustee carrying out various charitable activities. The assessee filed an application in Form 10AB on 25.06.2024 and requested for approval u/s 80G of the Act under clause (iii) of first proviso to sub section (5) of section 80G of the Act. The said approval /application was rejected by the Ld. CIT(E) on the ground that the applicant trust has spent trust fund outside India in violation of section 11 of the Act.
Aggrieved by the order of Ld. CIT(E), assessee preferred the present appeal before us and has raised the following grounds of appeal:-
“1. That on the facts and in the circumstances of the case of the appellant and law Ld. CIT(E) has erred in rejecting the application in Form 10AB even after the appellant trust has complied with procedural requirements set out under Form 10AB.
2. That on the facts and in the circumstances of the case of the appellant and law Ld. CIT(E) has erred in rejecting the approval u/s 80G of the Act as it violates Section 11 because scholarships of Rs. 10,00,000/- were provided to Indian students for overseas education.
K.M. & S.K. Trivedi Charitable Trust 3. That on the facts and in the circumstances of the case of the appellant and law Ld. CIT(E) has failed to consider the object clause (xi) of the appellant Trust deed which is to grant financial help to students studying in school, college and also for post-graduate studies,
4. That on the facts and in the circumstances of the case of the appellant and law Ld. CIT(E) has ignored the fact that the scholarships were provided to Indian students in India and were utilized for higher overseas education.
5. That on the facts and in the circumstances of the case of the appellant and law Ld. CIT(E) has erred in considering the documents provided by the Trust including the names of the students and the purpose of utilising funds.
That the impugned order being contrary to law, evidence, and facts of the case may kindly be set aside, amended, and modified in the light of the grounds of appeal enumerated above and the appellant be granted such relief as is called for on the facts and in the circumstances of the case of the appellant and in law.
7. That each of the grounds of appeal enumerated above is without prejudice to and independent of one another.
8. That the appellant craves leave to reserve to himself the right to add, to alter or amend any of the grounds of appeal before or at the end of the hearing and to produce such further evidence, documents, and papers as may be necessary.”
K.M. & S.K. Trivedi Charitable Trust 4. We have heard Ld AR and DR and examined the record. At the outset, Ld. AR argued that the Ld. CIT(E) has misconstrued the spending of the fund by the trust outside India because it has not considered the reply submitted in response to the show cause notice and wrongly concluded that giving scholarship to 2 students to study in New York University and Cambridge University was spending of funds outside India. It is further stated that giving of scholarship to 2 students i.e. Mrs. Purva Phadke and Mr. Rhyam Sanjay Jain for study abroad is not spending outside India because the amount was given to Indian citizen and was paid in India which is clear from Clause (iv) and (v) of reply dated 09.12.2014 by the assessee as extracted below:-
“iv) The Trust considering the merits of the student considered a donation of Rs.5 lakhs which was paid by cheque no.431761 dated 23.07.2021 on Union Bank of India, M. S. Marg, Mumbai-400 023. v) i) Mr.Rhyam Sanjay Jain is an Indian citizen having Aadhar Card No.635319856270. ii) He has done hisGraduation from Aditya Birla World Academy, Tardev, Mumbai. iii) He has made an application to the trust requesting financial assistance to pursue further studies at Cambridge AICE.
K.M. & S.K. Trivedi Charitable Trust vi) The Trust considering the merits of the student considered a donation of Rs. 5 lakhs which was paid by cheque no. 662474 dated 28.08.2024 on Union Bank of India, M. S> Marg, Mumbai - 400023.”
It is therefore argued that the charitable trust has not spent any trust fund outside India and therefore the impugned order be set aside. In support of his arguments, Ld. AR relied on the judgment of Coordinate Bench of ITAT Mumbai in & 4275/Mum/2024 and the judgment of ITAT Delhi Benches in the case of India Brand Equity Fund vs. ACIT (2012) 23 taxmann.com 323 (Delhi). Ld. AR further relied on the judgment of Coordinate Bench of ITAT in the case of ITO vs. JN Tata Endowment for the Higher Education of Indians (2024) 165 taxmann.com 758 (Mum-Trib). Ld. AR further relied the other similar judgment of Coordinate Bench of ITAT in the case of ITO vs. JN Tata Endowment for the Higher Education of Indians (2024) 166 taxmann.com 126 (Mum-Trib) wherein one of us was the member of the Coordinate Bench.
6. On the other hand, Ld. DR submitted that making payment of trust fund as scholarship for studying outside India, is in violation of section 11 of the Act, therefore, argued that the appeal is liable to be dismissed.
K.M. & S.K. Trivedi Charitable Trust 7. We have considered the rival submissions and examined the record. From the perusal of trust deed, we find that giving scholarship is within the objective of the trust as is evident from the Clause (xi) mentioned in the trust deed as under:- xi) To give fees, stipends, scholarships, prizes, books, interest free loans and other help to students of either sex, irrespective of caste or creed, studying in schools, colleges, Technical and Professional Institutions, for the purpose of enabling them to prosecute higher studies including scientific or otherwise Research and for training.
8. Further, we notice that Ld. CIT(E) after examining the reply and evidence submitted by the assessee, rejected the application of the assessee. The relevant portion of the impugned order of Ld. CIT(E) is reproduced below:-
“3.1 Applicant's reply is neither satisfactory nor conclusive. The applicant has itself admitted that it has utilized trust's fund towards payment of the Fees of Universities based out of India. The applicant has argued that the donations are not given to New York University or Cambridge University directly. However, this argument is not valid as the utilization of fund is decided based on the final application of money and the actual beneficiary of such transaction. In the current case, donation made by the applicant trust was used for taking admission to Foreign Universities and the applicant trust was well aware of this fact beforehand and the applicant trust has never denied the same in its submission. Thus, the donation made by the applicant trust K.M. & S.K. Trivedi Charitable Trust towards paying fees to New York University and Cambridge University is a clear violation as per section 11 of the Income tax Act, 1961.
3.2 Further, as per section 11(1)(c) of the Income tax Act, utilization of the fund outside India is allowed for a charitable purpose which tends to promote international welfare in which, India is interested provided that the Board has approved the application of fund outside India. The assessee has not produced any such approval order received from Board regarding utilization of fund outside India as requested vide show cause notice dated 02.12.2024. Neither has it been established that the said donation is made for purpose to promote international welfare in which India is interested. Thus, the application of trust fund was utilized by the applicant trust without the requisite approval from the competent authority and thus it has violated the provisions of section 11 of the Act.
4. Since approval under section 80G is to be granted in terms of the provisions of section 12AB(1)(b) of the Act after being satisfied about the objects of the trust or institution, the genuineness of activities, and the compliance of all the conditions mentioned specifically in clauses (i) to (v) of section 80G(5) or any other law for the time being in force as are material for the purposes of achieving its objects. In view of the facts discussed above, the undersigned is unable to arrive at a satisfactory conclusion on these parameters. The applicant is not fulfilling the stipulated conditions prescribed for approval of application filed in Form 10AB. As such, the undersigned is left with no other options but to reject the application seeking approval under section 80G of the Act.
5. In conclusion, this application for grant of approval stands rejected.”
We have also gone through the cases relied by Ld. AR, we have noticed that the identical question on similar facts was decided by the Page | 7 K.M. & S.K. Trivedi Charitable Trust Coordinate Bench in the case of K.M. & S.K. Trivedi Charitable Trust vs. CIT(E), AY 2024-25 dated 21.02.2025 (supra) in which both of us were the Member of the Bench and the relevant portion is extracted below:-
We have heard Ld AR and DR and examined the record as well as disputed clause of the objects of the trust. At the outset, it is pointed out by Ld. AR that the impugned order passed by the Ld. CIT(E) is not legally sustainable because there was no violation of section 11 of the Act in assessee’s trust. Secondly, it is argued that Ld. CIT(E) in para 4 of the impugned order has not reproduced the entire clause c(v) and c(x) of the objects of the trust deed. Thirdly, it is argued that the charitable activities as per objects of the trust are to be carried out in India and no money is to be received or spent outside India and Ld CIT(E) while rejecting the application has misdirected itself. In support of his argument, Ld. AR relied on the judgment of Coordinate Bench of ITAT in the case of ITO vs. JN Tata Endowment for the Higher Education of Indians (2024) 165 taxmann.com 758 (Mum-Trib). He further relied the other similar judgment of Coordinate Bench of ITAT in the case of ITO vs. JN Tata Endowment for the Higher Education of Indians (2024) 166 taxmann.com 126 (Mum-Trib) wherein one of us was the member of the Coordinate Bench. The relevant portion of the order of Coordinate Bench in ITR (2024) 166 taxmann.com 126 Mumbai (supra) is reproduced below:-
5. We have heard rival submission of the parties and perused the relevant material on record. The assessee trust claimed loans granted to Indian students as scholarship for their overseas education as application of for the purpose of exemption u/s 11 of the Act. But according to the Assessing Officer income should have been applied for charitable purpose on education within Indian territories and not outside India. According to him, mere fact that persons to whom payments have been made for charitable purpose is Indian and payment has been made in Indian territory is not sufficient but the activity related to charitable purpose for which payment is made, should also happen within Indian territory. Before the Ld. Page | 8 K.M. & S.K. Trivedi Charitable Trust CIT(A), the assessee relied on the decision of the Co-ordinate Bench of the Tribunal in the case of Jamsetji Tata Trust (supra). The Ld. CIT(A) after considering that facts of instant case being identical to facts of Jamsetji Tata Trust (supra), he deleted the disallowance observing as under: "6.2.1. The appellant in its reply has reiterated the stand taken before the AO and has also relied on the judgment of the Hon'ble ITAT in the case of the Jamsetji Tata Trust vs. Joint Director of Income-tax (Exemption) Range-II, (2014) 44 taxmann.com 447 (Mum.-Trib.) wherein the Hon'ble ITAT has held that the education grant given to the Indian Students in India for education/higher education abroad fulfills the conditions of application of money for such purpose in India. The appellant has also submitted that the Hon'ble ITAT while delivering this judgment has clearly held that the facts in the case of National Association of Software and Services Companies which was relied upon by the AO were distinguishable. The relevant part of the Judgment of the Hon'ble ITAT is as under: 10.5 We have considered the rival submissions and perused the relevant material. The assessee has given grant to 97 scholars studying in various institutions and universities outside Indian and the total amount of grant is Rs. 1,53,50,000/. The assessee paid the grant in India and for the purpose of education of Indian students/persons, thus the charitable purpose of the grant is education of indian persons. The application of income of the assessee completes at the point when the assessee released the grant which took place in india. The decision relied upon by the revenue is not applicable in the facts of the present case as the application of income took place in India and for the purpose of education of Indian students/persons. Therefore, for taking education by beneficiary from abroad would not amount to application of income of the assessee outside India. In the case of Bharata Kalanji (supra) the Chennai Bench of this Tribunal while deciding a question arising from the payment of Rs. 1.55 lakh made to a travel corporation of Indian for sending a troop on tour. The AO treated the expenditure as application of income of the trust for charitable purpose. However CIT revised the assessment and was of the opinion that this expenditure K.M. & S.K. Trivedi Charitable Trust was prohibited and was not applied for purpose of trust in India and, therefore, not eligible for exemption u/s 11. The main object of the trust was to advance, propagate, increase and promotion of Indian classical and Folk arts and Indian music etc. The trust was invited by the Government of Nigeria to give certain dance performance abroad. Accordingly the trust sends a troop and paid a sum of Rs. 1.55 lakh being the passage money to the Travel Corporation of India. The Tribunal held in para 6 as under:- "6. The crucial question is only whether the conditions in section 11 are complied with. That section states that the income derived from property held under trust wholly for charitable purposes shall not be included in the total income to the extent to which such income is applied to such purposes in India. The question is whether this section requires the application of money in India or the carrying out of the purposes in India or both. The contention of the revenue is that apart from the money being spent in India even the purpose must be carried out in India. The section itself contradicts this contention. Section 11(1)(c)(ii) provides that income applied to such purposes outside India is exempt in the case of trust created before 1- 4-1952 subject to the approval of the Board. This underlines the principle that Governments do not forego their revenue in favour of charges paid outside their countries and hence the relevant consideration is whether the situs of the application of the money and not the place in which the objects of the trust may become effective. It may be pertinent to refer to section 16(10) which exempts scholarships granted to meet the cost of education where also the CBDT itself does not consider scholarship granted for education abroad as money spent outside India. Similarly in the present case of such a wide object of exemption u/s 11 of Rs. 3,47,50,026/- αε income applied to charitable purpose in India. The grounds of appeal 1,2 and 3 are allowed." (emphasis supplied externally) 5.1 In the above case relied upon by the ld CIT(A), the coordinate bench held the disbursal of loan scholarship to students in India for study overseas as application K.M. & S.K. Trivedi Charitable Trust of income for charitable purposes in India. As the facts and circumstances of the instant case are identical to the facts of decisions relied upon by the Ld. CIT(A) therefore, we uphold the order of the Ld. CIT(A) on the issue in dispute. The grounds of appeal
of the Revenue are accordingly dismissed.
6. In the result, the appeal of the Revenue is dismissed.
5. On the other hand, Ld. DR supported the impugned order of Ld. CIT(E) and stating that the appeal is liable to be dismissed.
6. We have also examined the disputed clause of the trust which are extracted below:-
Clause c(v):- “Awarding scholarships and fellowships in cash or in such other form and on such terms and conditions as the Trustees may think fit for the purposes of undertaking prosecuting and encouraging studies PROVIDED THAT such scholarships and fellowships shall be awarded to deserving students and those studying in schools, colleges, universities and other educational institutions in India or abroad and who cannot afford, and have no means to prosecute the same PROVIDED FURTHER THAT in case of students studying abroad such scholarships and fellowships should be awarded in India.”
Clause c(x):- “To render financial help to needy persons to enable them to obtain medical treatment either in India or abroad in cash or in such other forms and on such terms and conditions as Trustees shall deem fit PROVIDED HOWEVER that in case of medical treatment to be obtained abroad, financial help should be rendered in India.”
On perusal of the contents of the trust deed as extracted above, it is evident that the charitable activity will be carried out in India as money will be disbursed for education and medical aid in India and not abroad. The facts and circumstances of the case before us are exactly similar to the facts of the case decided by the Coordinate Bench of ITAT Mumbai wherein one of us was member of that Bench in K.M. & S.K. Trivedi Charitable Trust the case of ITO vs. JN Tata Endowment for the Higher Education of Indians (supra). Therefore, respectfully following the earlier judgment of Coordinate Bench, we are of the considered view that there is no violation of section 11 of the Act in assessee’s trust and the impugned order passed by the Ld. CIT(E) is not legally sustainable in the eyes of law and accordingly, we set aside the impugned order passed by Ld. CIT(E) and restore the matter to the file of Ld. CIT(E) for fresh adjudication of the case of assessee for grant of approval u/s 80G(5)(iii) of the Act after considering the documents brought on record by the assessee and following the judicial precedents therein. The appellant/assessee shall present its case before the Ld. CIT(E) within 90 days of this order.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
9. On the similar facts in the case in hand, both the students to whom scholarship of Rs. 5 lakhs each was given are Indian citizen and the money is deposited through Indian Bank A/c. i.e. Union Bank of India, M. S. Marg, Mumbai. There is nothing on record to show that the donations were given directly to the New York or Cambridge University. Thus, the money was disbursed in India for the purpose of facilitating needy Indian students to study abroad and it is permitted in the trust deed and its objective to spend trust money on donation of needy students. Therefore, we conclude that the assessee has established that the trust fund has been spent in India as the money was disbursed for donation in India and not abroad. K.M. & S.K. Trivedi Charitable Trust 10. Thus, following our earlier similar decision in (supra), we are of the opinion that there is no violation of section 11 of the Act by the assessee trust and the impugned order passed by the Ld. CIT(E) is not legally sustainable in the eyes of law and accordingly, we set aside the impugned order passed by Ld. CIT(E) and restore the matter to the file of Ld. CIT(E) for fresh adjudication of the case of assessee for grant of approval u/s 80G(5)(iii) of the Act after considering the documents brought on record by the assessee and following the judicial precedents therein. The appellant/assessee shall present its case before the Ld. CIT(E) within 90 days of this order.
In the result, the appeal filed by the assessee is allowed for statistical purposes.