Income tax department cancels registration of six Tata Trusts
CAG noted that the I-T dept had given "tax exemptions" to them, resulting in Rs 1,066 cr escaping tax.
“The Trusts would like to clarify that this order of cancellation is a culmination of the decision taken by these six Trusts in 2015 to surrender, of their own volition, their registration under the Income Tax Act and to not claim the associated tax exemptions. The decision to surrender the registration (an option available in law) was taken in the best interests of the Trusts and to maximise the resources available to the Trusts for their charitable work which is the principal object and focus of the Trusts,” Tata Trusts said in a statement late on Friday.
The statement reiterated the stand of the Tata Trusts that the cancellation should take effect from 2015. “While the tax department’s order has cancelled the Trusts’ registration with immediate effect, we believe that as a matter of law and consistent with the department’s own decision in the past, the cancellation should take effect from 2015, when the registrations were surrendered and the Trusts themselves consented to cancellation.”
Tata Trusts said they are studying the order and will take legal recourse soon.
“The Trusts are examining the order and will take necessary next steps in accordance with the law. The Trusts have effective legal options to vindicate their grievances against the order both factually and legally,” said the statement from Tata Trusts.
According to sources familiar with the issue, the tax authorities have ‘refused’ to accept the Trusts’ contention that the cancellation should be with effect from 2015. Sources said the I-T department will soon send a demand notice.
“There is no merit in the Trusts’ contention that since they have surrendered their licence in 2015, provisions of Section 115 (TD) cannot be applied. The cancellation order has been passed, and it will be followed by a demand notice that amounts to several thousand crores,” said a person privy to the development.
According to Section 115 (TD) of the I-T Act, a trust whose registration is cancelled must pay tax on accumulated income.
In July, the tax department had served notices on the six Tata trusts seeking to reopen assessment and questioning their decision to ‘surrender’ registrations in 2015.
Replying to the notice last month, the Trusts said they had already surrendered their registration provisions under I-T Act, and that the levy of additional tax — which accrues if a charitable trust converts into or merges with a non-charitable trust or transfers its assets on dissolution to a non-charitable institution — cannot be applied to them, sources told ET.
In the statement, the Trusts said they hadn’t received a demand notice. “We would also like to clarify that Trusts have not received any demand notice from the Income Tax Department pursuant to the cancellation order, as has been speculated in certain sections of the media. It is equally surprising how the issue of seizure of the Trusts’ assets has been raised today.”
The dispute dates back to 2013, when the Comptroller & Auditor General (CAG) pointed out that Jamsetji Tata Trust and Navajbai Ratan Tata Trust had invested Rs 3,139 crore in “prohibited modes of investment”. The CAG had noted that the I-T department had given “irregular tax exemptions” to these trusts, resulting in Rs 1,066 crore escaping tax.
In March 2015, the Tata Trusts moved the tax department to surrender registrations (under Section 12AA of the I-T Act) while admitting that some of their assets were not in compliance with the provisions of Section 13(1)(d) of the Act. However, following the CAG’s observations and subsequent remarks by a subpanel of the Public Accounts Committee (PAC) of Parliament in 2018, the matter was transferred from the division looking into tax exemptions to the I-T department’s assessment wing, that has now sought an explanation from the Trusts.
The Trusts, according to the PAC report, were investing in prohibited modes of investment despite the law forbidding public charitable trusts from holding such assets after 1973.