ITAT accepts Harish Salve's IT Claim seeking deduction of foreign scholarship

OVERVIEW

The Income Tax Appellate Tribunal (ITAT) recently permitted Senior Counsel Harish Salve’s claim to deduct the monetary assistance given by him to two Indian students as ‘expenditure solely and exclusively for the purposes of business or profession’ under section 37 (1) of the Income Tax Act, 1961 (Harish Salve v. ACIT New Delhi).

The advocate had claimed a deduction of Rs. 34,19,730/- for the assessment year 2013-14 and Rs. 84,40,301/- for the year 2014-15 under the heading ‘Assistance to Law Students.’

FURTHER DETAILS

Under section 37 (1), expenses for the purposes of business and profession can be deducted from the income.

Salve, the assessee, claimed to have spent the money to fund the scholarship of two students at the Oxford University as ‘professional expenses’ as the money was funded to create ‘global goodwill, develop contact and to increase his professional profile for the purpose of his international commercial practice’ in Singapore and London.

“Since this whole profession is based on developing contacts and U.K. being a center wherein the academicians are an active part of legal fraternity, the assessee decided to provide funding for education of Indian students in the Oxford University.”

The Assessing Officer (AO), however, contended that the claims were similar to the ones made in the previous assessment years and hence it should be disallowed as the assistance were nowhere related to the profession of the assessee and cannot be claimed as an expense ‘incurred wholly and exclusively for the purpose of business/profession’ of the assessee.

The Tribunal noted that in 2019, a bench of the ITAT had permitted deduction of a foreign scholarship of Rs. 28,45,372 for the assessment year 2011-12 under professional expenses, and a similar deduction of foreign scholarship was allowed for the following year 2012-13 too.

“In the professional field there are innovative ways visualized by the professional to make themselves visible in the professional circle and to build their own professional profile for generating higher and value-added business. It may be, sponsoring a seminar, becoming knowledge partners, setting up the prizes and awards, creating the competitive award ceremonies, hosting vibrant summits of various states.”

RECENT DEVELOPMENTS

The Court thus placed reliance on the decision of the co-ordinate bench of ITAT, that had held that the ‘allowability of expenditure should always be judged from the mindset of the assessee.’

It was held that the AO cannot hold that the expenditure incurred by the assessee is not exclusively incurred for his profession, unless he thinks from the view of the professional like the assessee.

The ITAT thus decided to allow Salve’s claim, stating that,

“On the parity of facts of the cases on hand with the facts of earlier years, we are of the considered opinion that the consistent view taken by the Tribunal for earlier assessment years cannot be disturbed. While respectfully following the same, we direct the Assessing Officer to delete the addition.” 

CONCLUSION

Taking into consideration the aforementioned facts and contentions, the bench of Accountant member R.K. Panda and Judicial Member K. Narasimha Chary relied upon the 2019 order of ITAT and granted allowance to Salve’s plea.

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