Tax Case Study: Can Funding an Oxford Scholarship be a Business Expense?
Analyzing the Landmark Ruling of Harish Salve v. ACIT
By Gaurav Verma
In the world of taxation, the line between "philanthropy" and "business promotion" is often thin. For professionals—lawyers, doctors, architects, and consultants—building a brand is as crucial as the service they provide. But can you claim a tax deduction for the money spent on building that global reputation?
A landmark ruling by the Income Tax Appellate Tribunal (ITAT), Delhi Bench, in the case of Harish Narinder Salve v. ACIT, answered this with a resounding "Yes."
Here is a breakdown of the case facts and why this judgment is a game-changer for professionals.
The Facts of the Case
Harish Salve, one of India’s most prominent Senior Advocates, claimed a deduction of approximately ₹30 Lakhs (across multiple assessment years) as a business expense.
- The Expense: This money was paid to Exeter College, Oxford University, to fund an annual scholarship for Indian students.
- The Claim: Salve argued that this was not charity, but a revenue expenditure incurred to boost his professional profile in the UK and Singapore.
- The Rejection: The Assessing Officer (AO) disallowed the deduction. The tax department argued that the scholarship was a personal gift/charity and was not "wholly and exclusively" for the purpose of his profession.
The Core Dispute
"Is funding a scholarship 'Charity' (not deductible) or 'Business Promotion' (deductible under Section 37(1))?"
The Revenue Department argued that Salve was creating an "enduring benefit" (Capital Expenditure) or simply doing social good. They saw no direct link between paying a student's fees and winning a legal case.
The Assessee’s Argument: "It’s About Visibility"
Harish Salve contended that the legal profession has evolved. It is no longer just about arguing in court; it is about global networking. His arguments were twofold:
- Global Ambitions: He was focusing on expanding his practice into international arbitration in London and Singapore.
- Professional Nexus: By funding a scholarship at Oxford, he gained access to an exclusive network of academia, judges, and senior solicitors in the UK. This visibility was essential for getting international briefs.
He even demonstrated that a student funded by this scholarship later assisted him in the high-profile Vodafone tax case, proving a direct professional benefit.
The Verdict: A Win for Professional Branding
The ITAT ruled in favor of Harish Salve, allowing the deduction as a Revenue Expense.
Key Reasons for the Judgment:
- The "Mindset" Test: The Tribunal held that the tax officer cannot dictate how a professional should run their business. If the assessee (Salve) considers the expense necessary for his professional growth, the department cannot second-guess that commercial expediency.
- Intangible Gains are Real: The Tribunal recognized that in a learned profession, "goodwill" and "stature" are the main assets. Spending money to increase stature abroad is a legitimate business strategy.
- No Capital Asset Created: Since the scholarship did not result in a physical asset (like a building) but merely improved his efficiency and profitability, it was a revenue expense.
Key Takeaways for Professionals
This ruling establishes a significant precedent for Chartered Accountants, Lawyers, and Consultants:
- Promotion is Broad: "Business promotion" isn't limited to advertisements (which are often restricted for professionals anyway). It extends to scholarships, sponsorships, and networking events if a professional nexus can be proved.
- Documentation is Key: Salve won because he could link the expense to his strategic goal (international practice) and showed tangible results (hiring the scholar).
- Commercial Expediency: The courts respect the business judgment of the taxpayer over the opinion of the tax officer.
