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

 

This Tax Alert summarizes a decision of the Mumbai Income Tax Appellate Tribunal (Tribunal), dated 24 July 2020, in the case of Tata Education and Development Trust (Taxpayer), wherein the Tribunal has held that the amount spent for charitable purposes outside India, which is approved by the Central Board of Direct Taxes (CBDT), shall be allowed as application of income in the hands of the charitable trust.

During the pendency of application for approval before the CBDT pursuant to specific provision of the Income Tax Laws, the Tax Authority did not allow spending by way of donations to foreign universities as application of income to the Taxpayer trust in assessments concluded. The application made to the CBDT was initially rejected by the CBDT for want of establishing the condition of the provision as to how such spending abroad promotes international welfare in which India is interested. However, on subsequent filing of detailed application, the CBDT approved the spending by an order for the relevant years under reference. Basis the CBDT order, the Tax authority rectified assessment order and allowed the spending as application of income in computing total income of the taxpayer. However, the First appellate authority (FAA) in an appeal filed against original assessment order, did not take cognizance of rectification order of the Tax authority and proceeded to examine the issue on merits. The FAA also did not follow the CBDT order by citing various reasons and confirmed the disallowance made in the original assessment order.

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 and that a similar claim for other tax years was allowed in the past and by applying rule of consistency, the Tribunal allowed the Taxpayer’s claim which was in consonance with the CBDT order. The Tribunal further deprecated the action of the FAA which acted contrary to the CBDT order on hyper pedantic grounds and held that litigation could have been avoided in this case