Scholarship payment is charitable expenditure when candiate is selected by a process as most deserving candidate – Allahabad High Court

Scholarship payment is charitable expenditure when candidate was selected by a process selecting most deserving one which was not related to members of the Society – Allahabad High Court

ABCAUS Case Law Citation:
ABCAUS 1192 (2017) (03) HC

The Substantial Question of Law raised:
Whether on the facts and circumstances of case, Tribunal is justified in upholding the order of Commissioner of Income Tax (Appeals) on the issue of deletion of the additional of Rs. 8,18,138/- made by Assessing Officer disallowing the claim of expenditure incurred on account of scholarship paid to one Mr. Adheesh Bhagat as it cannot be said to have been paid for charitable purposes. 

Assessment Year : 2006-07 and 2007-08
Date/Month of Pronouncement: March, 2017

Brief Facts of the Case:
The assessee was a registered society. It was granted registration under Section 12A of the Act and was running several educational institutions in State of U.P. In A.Ys. 2006-07 and 2007-08, the Assessing Officer (‘AO’) interalia disallowed payment of scholarship to one one student on the ground that it was not for charitable purpose and it would be considered as income of assessee.

Commissioner of Income Tax (Appeals) (“CIT(A)”) allowed the appeal preferred by the assessee. However, the Tribunal concurred with the view of the AO.

Observations made by the High Court:
Hon’ble High Court observed that the scholarship was paid for pursuing Engineering course from University of California, Los Angeles, USA. The candidate was selected after a process of selection and finding him most deserving candidate, scholarship was disbursed to the said incumbent. This was in the process of charitable object of Assessee Society for advancement of higher technical education to deserving students. It cannot be doubted that advancement of education is a ‘charitable purpose’.

The Hon’ble High Court stated that the candidate, beneficiary, was directly or indirectly not related to members of the Society nor otherwise has any bearing or connection with the Society Members. Financial status of the said student or other things were immaterial so far as purpose for which scholarship was concerned.

Held:
It was held that the payment of scholarship was admissible as charitable expenditure