Tax exemption for trusts: Spending in India or benefit in India?

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education to Indian students for overseas studies, the trust was spending for the charitable purpose of education outside India since the loan was given for spending on education outside India. Therefore, tax exemption was denied to the trust in respect of such loan scholarships given to students.

The tribunal held that the application of the money by the trust was complete once the funds were disbursed by the trust to the students in India, and therefore this was application for charitable purposes in India. According to the tribunal, the fact that the students spent the money on overseas education was not material for the purpose of the trust’s exemption, and therefore, the tribunal allowed the trust to be exempt from such expenditure on loan scholarships.

In doing so, the Tribunal followed a Delhi High Court decision, which had taken the view that the spending had to be in India, and not the purpose of the spending, to qualify for exemption. The facts of this case were such that the benefit was also flowing to students who were resident in India at the time of receiving the scholarships.

Such an interpretation of requiring the place of spending to be in India and not the charitable purpose does however give rise to a question as to why the law should be framed in such a manner, that money spent in India for the benefit of non-residents is eligible for tax exemption, while money spent outside India for the benefit of Indian residents is not. There are numerous such examples.

One was a case before the Karnataka high court, where payment was made to a foreign university by an Indian university, for foreign teachers who came to India to teach Indian students. The high court held that since the purpose was in India, the