In a significant ruling, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the appeal filed by the Revenue against JN Tata Endowment for the Higher Education of Indians, affirming the entitlement of the charitable trust to the exemption available under Section 11 of the Income Tax Act, 1961.
JN Tata Endowment, a trust registered under Section 12A of the Income Tax Act, is primarily engaged in granting loan scholarships to Indian students for higher education abroad. For the Assessment Year (AY) 2011-12, the trust had claimed exemption under Section 11 of the Income Tax Act, contending that the scholarships disbursed to Indian students studying abroad constituted an application of income for charitable purposes within India.
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The Assessing Officer (AO) denied the exemption, observing that since the scholarships were used for overseas education, the application of income occurred outside India. The AO relied on the interpretation that both the application of funds and the charitable activities must be confined to Indian territory for the income to qualify for exemption under Section 11.
The Commissioner of Income Tax (Appeals) [CIT(A)] earlier allowed the trust’s appeal, directing the AO to grant the exemption. The CIT(A) relied on the ITAT’s earlier rulings in similar cases, including the Jamsetji Tata Trust case, where it was held that the disbursement of scholarships to Indian students for education abroad qualifies as an application of income for charitable purposes in India.
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The Revenue appealed to the ITAT, arguing that the CIT(A) erred in its judgement. However, the ITAT, after hearing the submissions and reviewing the material on record, upheld the CIT(A)’s decision.
The Tribunal bench of Judicial Member Pavan Kumar Gadale and Accountant Member Renu Jauhri observed that the application of income occurred in India when the scholarships were disbursed to the students, regardless of where the education took place.
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The ITAT’s dismissal of the Revenue’s appeal reinforces the principle that the geographical location where the charitable activity (education) is executed does not preclude the application of income within India, provided the funds are disbursed within the country.
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