'Assistance To Law Students A Move To Create Goodwill, Develop Contacts': Harish Salve Seeks Deduction Of Foreign Scholarship; ITAT Allows

The Income Tax Appellate Tribunal, New Delhi, has accepted the claim of Senior Advocate Harish Salve for deduction of the foreign scholarship 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.

Under Section 37(1), expesnes for the purposes of business and profession can be deducted from income. Salve had claimed that the money spent by him to fund the foreign education of two students amounted to professional expenses as the funding was given to create global goodwill, develop contact and to increase his professional profile for the purpose of his international commercial practice in Lodon and Singapore.

He had claimed deduction of Rs.34,19,730/- for the assessment year 2013-14 and Rs.84,40,301/- for assessment year 2014-15 under the head "Assistance to Law Students".

The senior lawyer submitted that the said amounts were assistance paid to two Indian students to fund their scholarship at Oxford University.

The Assessing Officer rejected the claim for deduction saying that the scholarship expenses were not related to Salve's profession and that the same cannot be regarded as "incurred wholly and exclusively for the purpose of business/profession of the assessee".

The Commissioner of Income Tax confirmed the assessment, rejecting Salve's appeal.

In further appeal before the ITAT, Salve's representative argued that the foreign scholarship was a a 'business decision' as it was a move "not only to support the Assessee(Salve) in creating goodwill amongst academia in UK and in turn creating a name/develop contacts in legal fraternity but also to support the juniors in chambers who may go abroad become technical sound and help in preparing the cases involving complex issue of international taxation and commercial law".

It was submitted that Salve was focusing on international practice and spent considerable amount of time, taking on international arbitration work in London and other international centers such as Singapore. It was further submitted that since this whole profession is based on developing contacts and UK being a center wherein the academicians are an active part of legal fraternity, Salve decided to provide funding for education of Indian students in the Oxford University.

A two-member bench of the Tribunal noted that in 2019, a co-ordinate bench of the ITAT had allowed deduction of the foreign scholarship amount of  Rs. 28,45,372 for the assessment year 2011-2012 as professional expenses. The bench also noted that for the assessment year 2012-13 as well, similar deduction of foreign scholarship was allowed.

Following these precedents, the bench of K Narasimha Chary(Judicial Member) and R K Panda(Accountant Member) of the Tribunal allowed Salve's claim for deduction for 2013-14 and 2014-15 as well.

"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", the Tribunal said in the order passed on February 24.

In the 2019 decision, the ITAT had observed that  professionals follow "innovative ways" to increase their professional stature, and foreign scholarship was one of such means.

"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. Therefore, it is apparent that at least in the case of the professionals, the way they promote themselves, is changing very fast and the benefits of such expenditure are huge and wide. Therefore according to us the impugned expenditure incurred by the assessee is a revenue expenditure allowable u/s 37 (1) of the income tax act."

In that case,  the ITAT bench of Judicial Member Amit Shukla and Accountant Member Prashant Maharishi held that revenue has to think from the shoes of the assesee to determine a claim of deduction under Section 37(1) and the issue should be judged from the "mindset of the assesee".

"The level at which the assessee is carrying on the profession, perhaps, he might not have thought it proper to increases visibility by attending the conferences, seminars et cetera. He has different vision of carrying himself in the professional field to increases visibility and social status. He thought fit to set up a scholarship to Indian students in Oxford University. Thus, in the present case definitely there is a nexus between the expenditure incurred by the assessee and the professional services rendered by the assessee.", the ITAT had said.

Click here to read/download the ITAT order