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Facts
The assessee trust, registered u/s 12A, granted loan scholarships amounting to Rs. 3,47,50,026/- to Indian students for overseas higher education, claiming exemption under Section 11 of the Income Tax Act. The Assessing Officer disallowed this, contending that the application of income for charitable purposes must occur within India.
Held
The CIT(A) deleted the disallowance, relying on the **Jamsetji Tata Trust** precedent which held that education grants to Indian students for overseas education fulfil Section 11 conditions. The Tribunal found the facts identical to the precedent and upheld the CIT(A)'s order, stating that the situs of money application, not the place where objects become effective, is relevant for exemption.
Key Issues
Whether loan scholarships provided by a trust to Indian students for overseas education constitute application of income for charitable purposes in India eligible for exemption under Section 11 of the Income Tax Act.
Sections Cited
11, 11(1)(c), 11(1)(c)(ii), 12A, 260A
AI-generated summary — verify with the full judgment below
PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 13.03.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2012-13, raising following grounds:
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"Whether on the facts and in the circumstances of the case and in law, 1. "Whether on the facts and in the circumstances of the case and in law, 1. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to allow the benefit of exemption u/s the Ld. CIT(A) erred in directing the AO to allow the benefit of exemption u/s the Ld. CIT(A) erred in directing the AO to allow the benefit of exemption u/s ll of the Income ll of the Income-tax Act without appreciating the fact that the application of tax Act without appreciating the fact that the application of fund utilized for grants fund utilized for grants/scholarships used for overseas education are /scholarships used for overseas education are governed u/s 11(1)(c) of the Act and hence cannot be treated as application governed u/s 11(1)(c) of the Act and hence cannot be treated as application governed u/s 11(1)(c) of the Act and hence cannot be treated as application for charitable purpose in India?" for charitable purpose in India?" 2. "Whether on the facts and in the circumstances of the case and in law, 2. "Whether on the facts and in the circumstances of the case and in law, 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in d CIT(A) erred in directing the AO to allow the benefit of exemption u/s irecting the AO to allow the benefit of exemption u/s 11 of the Income 11 of the Income-tax Act on the basis of the order of the Hon'ble ITAT in the tax Act on the basis of the order of the Hon'ble ITAT in the case of Jamestji Tata Trust Case without appreciating the fact that the case of Jamestji Tata Trust Case without appreciating the fact that the case of Jamestji Tata Trust Case without appreciating the fact that the Department has not accepted the said decision on mer Department has not accepted the said decision on merits and has filed an its and has filed an appeal u/s 260A to the Hon'ble High Court vide appeal u/s 260A to the Hon'ble High Court vide ITXA 1847/2014, which is ITXA 1847/2014, which is pending adjudication before the Hon'ble High Cour pending adjudication before the Hon'ble High Court." 2. Briefly stated, facts of the case are that the assessee trust is Briefly stated, facts of the case are that the assessee trust is Briefly stated, facts of the case are that the assessee trust is registered with the office of Charity Comm registered with the office of Charity Commissioner under the issioner under the Bombay Public Trusts Act, 1950 and also Bombay Public Trusts Act, 1950 and also registered registered u/s 12A of the Income-tax Act, 1961 (in short ‘the Act’). As per the objects of the tax Act, 1961 (in short ‘the Act’). As per the objects of the tax Act, 1961 (in short ‘the Act’). As per the objects of the trust stated in the trust deed trust stated in the trust deed, the assessee trust grants loan assessee trust grants loan scholarship to Indian students in India Indian students in India for their higher education for their higher education overseas. The trust filed its return of income on 27.09.2012 overseas. The trust filed its return of income on 27.09.2012 overseas. The trust filed its return of income on 27.09.2012 declaring Nil total income declaring Nil total income after claiming exemption u/s 11 of the claiming exemption u/s 11 of the Act. The return filed by the assessee was selected for scrutiny and Act. The return filed by the assessee was selected for scrutiny and Act. The return filed by the assessee was selected for scrutiny and statutory notices under the Act w statutory notices under the Act were issued and complied with. ere issued and complied with. While computing the While computing the exemption u/s 11 of the Act , exemption u/s 11 of the Act , the Assessing Officer disallowed application of income towards loans given as Officer disallowed application of income towards loans given as Officer disallowed application of income towards loans given as scholarship to various students scholarship to various students for higher education abroad higher education abroad aggregating to Rs.3,47,50,026/ aggregating to Rs.3,47,50,026/-.
On further appeal the Ld. CIT(A) following the decision of the n further appeal the Ld. CIT(A) following the decision of the n further appeal the Ld. CIT(A) following the decision of the Co-ordinate Bench of the Tribunal in the case of J ordinate Bench of the Tribunal in the case of Jamsetji Tata ordinate Bench of the Tribunal in the case of J Trust v. Jt. DIT (Exemption) [2014] 44 taxmann.com 447 Trust v. Jt. DIT (Exemption) [2014] 44 taxmann.com 447 Trust v. Jt. DIT (Exemption) [2014] 44 taxmann.com 447
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(Mumbai-Trib.) deleted the disallowance and deleted the disallowance and directed to grant directed to grant exemption u/s 11 of the Act exemption u/s 11 of the Act in respect of loan scholarships as in respect of loan scholarships as application of income application of income.
the Revenue is in appeal before us by way of raising 4. Aggrieved, the Revenue is in appeal before us by way of raising the Revenue is in appeal before us by way of raising grounds as reproduced above. grounds as reproduced above.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The assessee trust claimed loans nt material on record. The assessee trust claimed loans nt material on record. The assessee trust claimed loans granted to Indian students as scholarship for their overseas granted to Indian students as scholarship for their overseas granted to Indian students as scholarship for their overseas education as application of for the purpose of exemption u/s 11 of as application of for the purpose of exemption u/s 11 of as application of for the purpose of exemption u/s 11 of the Act. But according to the Assessing Officer income should have . But according to the Assessing Officer income should have . But according to the Assessing Officer income should have been applied for charitable purpose on education within Indian applied for charitable purpose on education within Indian applied for charitable purpose on education within Indian territories and not outside India. According to him, mere fact that territories and not outside India. According to him, mere fact that territories and not outside India. According to him, mere fact that persons to whom payment to whom payments have been made for charitable purpose have been made for charitable purpose is Indian and payment has been made in I payment has been made in Indian ndian territory is not sufficient but the activity related to charitable purpose icient but the activity related to charitable purpose for which icient but the activity related to charitable purpose payment is made, should also happen within Indian territory also happen within Indian territory. Before the Ld. CIT(A), the assessee relied on the decision of the Co- Before the Ld. CIT(A), the assessee relied on the decision of the Co Before the Ld. CIT(A), the assessee relied on the decision of the Co ordinate Bench of the Tribunal in the case ordinate Bench of the Tribunal in the case of Jamsetji Tata Tr of Jamsetji Tata Trust (supra). The Ld. CIT(A) he Ld. CIT(A) after considering that facts of instant case after considering that facts of instant case being identical to facts of Jamsetji Tata Trust (supra), he deleted the being identical to facts of Jamsetji Tata Trust (supra), he being identical to facts of Jamsetji Tata Trust (supra), he disallowance observing as under: disallowance observing as under:
“6.2.1 The appellant in its reply has reiterated the stand taken before the 6.2.1 The appellant in its reply has reiterated the stand taken before the 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 and has also relied on the judgment of the Hon'ble ITAT in the case of 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 the Jamsetji Tata Trust vs. Joint Director of Income-tax (Exemption) Range tax (Exemption) Range- II, (2014) 44 taxmann.com 447 (Mum. (2014) 44 taxmann.com 447 (Mum.-Trib.) wherein the Hon'ble ITAT has Trib.) wherein the Hon'ble ITAT has
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held that the education grant given held that the education grant given to the Indian Students in India for to the Indian Students in India for education/higher education abroad fulfills the conditions of application of education/higher education abroad fulfills the conditions of application of education/higher education abroad fulfills the conditions of application of money for such purpose in India. The appellant has also submitted that the money for such purpose in India. The appellant has also submitted that the 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 Hon'ble ITAT while delivering this judgment has clearly held 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 the case of National Association of Software and Services Companies which the case of National Association of Software and Services Companies which was relied upon by the AO were distinguishable. The relevant part of the was relied upon by the AO were distinguishable. The relevant part of the was relied upon by the AO were distinguishable. The relevant part of the Judgment of the Hon'ble ITAT is as under: Judgment of the Hon'ble ITAT is as under: 10.5 We have considered the rival submissions and perused 10.5 We have considered the rival submissions and perused 10.5 We have considered the rival submissions and perused the relevant material. The assessee has given grant to 97 scholars relevant material. The assessee has given grant to 97 scholars relevant material. The assessee has given grant to 97 scholars studying in various institutions and universities outside Indian and studying in various institutions and universities outside Indian and studying in various institutions and universities outside Indian and the total amount of grant is Rs. 1,53,50,000/. The assessee paid the the total amount of grant is Rs. 1,53,50,000/. The assessee paid the the total amount of grant is Rs. 1,53,50,000/. The assessee paid the grant in India and for the purpose of grant in India and for the purpose of education education of Indian students/persons, thus the charitable purpose of the grant is students/persons, thus the charitable purpose of the grant is students/persons, thus the charitable purpose of the grant is education of indian persons. The application of income of the education of indian persons. The application of income of the education of indian persons. The application of income of the assessee completes at the point when the assessee released the assessee completes at the point when the assessee released the assessee completes at the point when the assessee released the grant which took place in india. The decision relied upon by grant which took place in india. The decision relied upon by 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 revenue is not applicable in the facts of the present case as 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 application of income took place in India and for the purpose of application of income took place in India and for the purpose of education of education of Indian students/persons. Therefore, for taking Indian students/persons. Therefore, for taking education by beneficiary from abroad would not amount to education by beneficiary from abroad would not amount to education by beneficiary from abroad would not amount to application of income of the assessee outside India. In the case of ication of income of the assessee outside India. In the case of ication of income of the assessee outside India. In the case of Bharata Kalanji (supra) the Chennai Bench of this Tribunal while Bharata Kalanji (supra) the Chennai Bench of this Tribunal while Bharata Kalanji (supra) the Chennai Bench of this Tribunal while deciding a question arising from the payment of Rs. 1.55 lakh made deciding a question arising from the payment of Rs. 1.55 lakh made deciding a question arising from the payment of Rs. 1.55 lakh made to a travel corporation of Indian for sending a troop on tou to a travel corporation of Indian for sending a troop on tou 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 treated the expenditure as application of income of the trust for treated the expenditure as application of income of the trust for charitable purpose. However CIT revised the assessment and was of charitable purpose. However CIT revised the assessment and was of charitable purpose. However CIT revised the assessment and was of the opinion that this expenditure was prohibited and was not the opinion that this expenditure was prohibited and was not the opinion that this expenditure was prohibited and was not applied for purpose of trust in India and, therefore, applied for purpose of trust in India and, therefore, 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, exemption u/s 11. The main object of the trust was to advance, exemption u/s 11. The main object of the trust was to advance, propagate, increase and promotion of Indian classical and Folk arts propagate, increase and promotion of Indian classical and Folk arts propagate, increase and promotion of Indian classical and Folk arts and Indian music etc. The trust was invited by the Government of and Indian music etc. The trust was invited by the Government of and Indian music etc. The trust was invited by the Government of Nigeria to give certain dance performance Nigeria to give certain dance performance abroad. abroad. Accordingly the trust sends a troop and paid a sum of Rs. 1.55 lakh being the trust sends a troop and paid a sum of Rs. 1.55 lakh being 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 passage money to the Travel Corporation of India. The Tribunal held passage money to the Travel Corporation of India. The Tribunal held in para 6 as under: in para 6 as under:— "6. The crucial question is only whether the conditions in "6. The crucial question is only whether the conditions in section 11 are complied with. That section states that the complied with. That section states that the income derived from property held under trust wholly for income derived from property held under trust wholly for charitable purposes shall not be included in the total income charitable purposes shall not be included in the total income to the extent to which such income is applied to such to the extent to which such income is applied to such purposes in India. The question is whether this section purposes in India. The question is whether this section requires the application of money in India or the carrying out requires the application of money in India or the carrying out of the purposes in India or both. The contention of the of the purposes in India or both. The contention of the revenue is that apart from the money being spent in India revenue is that apart from the money being spent in India even the purpose must be carried out in India. The section even the purpose must be carried out in India. The section itself contradicts this contention. Section 11(1)(c)( ii) Section 11(1)(c)( ii) provides that income applied to such purposes outside provides that income applied to such purposes outside India is exempt in the case of trust created before 1 India is exempt in the case of trust created before 1-4- 1952 subject to the approval of the Board. 1952 subject to the approval of the Board. This
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underlines the principle that Governments do not forego their o not forego their revenue in favour of charges paid outside their countries and revenue in favour of charges paid outside their countries and hence the relevant consideration is whether the situs of the hence the relevant consideration is whether the situs of the application of the money and not the place in which the application of the money and not the place in which the objects of the trust may become effective. objects of the trust may become effective. It may be pertinent to refer to section 1 of 16 which exempts nent to refer to section 1 of 16 which exempts scholarships granted to meet the cost of education scholarships granted to meet the cost of education where where also also the the CBDT CBDT itself itself does does not not consider consider scholarship granted for education abroad as money scholarship granted for education abroad as money spent outside India. Similarly in the present case of such a Similarly in the present case of such a wide object of exemption u/s 11 of Rs. 3,47,50,026/ de object of exemption u/s 11 of Rs. 3,47,50,026/- as income applied to charitable purpose in India. The grounds of 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 In the above case relied upon by the ld CIT(A) , the coordinate 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 d the disbursal of loan scholarship to students in India for d the disbursal of loan scholarship to students in India for study overseas as application of income for charitable purposes in study overseas as application of income for charitable purposes in study overseas as application of income for charitable purposes in India. As the facts and circumstances As the facts and circumstances of the instant instant case are identical to the facts of facts of decisions relied upon by the Ld. CIT(A) decisions relied upon by the Ld. CIT(A) therefore, we uphold the order of the Ld. CIT(A) on the issue in therefore, we uphold the order of the Ld. CIT(A) on the issue in therefore, we uphold the order of the Ld. CIT(A) on the issue in dispute. The grounds of appeal of the Revenue are accordingly dispute. The grounds of appeal of the Revenue are accordingly dispute. The grounds of appeal of the Revenue are accordingly dismissed.
In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on nounced in the open Court on 24/07/2024. /07/2024.
Sd/- - Sd/- Sd/ (SUNIL KUMAR SINGH (SUNIL KUMAR SINGH) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 24/07/2024 Rahul Sharma, Sr. P.S.
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Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.
BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai