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ITAT quashes revised assessment order passed by tax department against three Tata trusts

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In a major relief for three of the Tata Trusts, the Income Tax Appellate Tribunal (ITAT) Monday quashed revised assessment orders issued by the income tax (IT) department on alleged prohibited mode of investments by these trusts in shares and a revision order passed by department on the salaries paid to two of its trustees including reimbursement paid to R. Venkataramanan, the ex-managing trustee of the Tata Trusts.

The three trusts include Ratan Tata Trust, Dorabji Tata Trust and JRD Tata Trust.

Tata Trusts was not immediately available for comment.

The bench comprising of Justice PP Bhatt and member Pramod Kumar in the Dorabji Tata trust case held, “… the impugned revision order as devoid of legally sustainable merits. We, therefore, quash the impugned revision order,” reads the order.

The bench further observed that the department failed to apply its mind. “…the observations so made by the learned Commissioner show that he has not even applied his mind to the undisputed facts of the case. If he had cared to look at the subject assessment order, he would have noticed that the Assessing Officer has already included the dividend income of Rs 95,63,30,094 in the available gross receipts of the assessee trust and examined the application of the said income. That is beside the point that such an action was contrary to the claim of the assessee that once this income of Rs 96,63,30,094 is held to be exempt under section 10(34), it cannot be brought to taxation under section 11 of the Act, and the rejection of the said claim is the subject matter of assessee’s appeal before the CIT(A),” the order reviewed by ET states. “…Clearly, what was being directed by the learned Commissioner was already done by the assessing officer (AO), and, therefore, these directions clearly show that there was a clear and glaring non-application of mind to even undisputed material facts of the case. We, therefore, cannot approve justification of the subject assessment order being held to be ‘erroneous and prejudicial to the interests of the revenue’ for this reason as well. No other reason is pointed out to us,” the order adds.

When reached for comment, senior chartered accountant, TP Ostwal, engaged by the Trust in the said matter, refused to comment. “…We have also taken note of the allegations about the trustee receiving certain benefits from Tata Sons Ltd, even though, as we will see a little later, whatever alleged benefits have been taken by the trustees from Tata Sons Ltd are as consideration of their services rendered in the past to Tata Sons Ltd, and have nothing to do with their role as trustees as such, it is important to bear in mind the fact that in order to invoke 13(1)(c), the “benefit” has to be out of the trust property. The assessee trust has made investments in Tata Sons Ltd, but that does not mean that Tata Sons Ltd is a property of the assessee trust- a proposition blatantly erroneous in law and in concept,” the order mentions. “…What has been paid to the persons holding office as trustees, though in consideration for other roles played by them such as former directors and employees, has nothing to do with the determination of benefits to the trustees. The pension payments to Ratan N Tata and N A Soonawala, for example, have been held to be wholly and exclusively for the purposes of the business of Tata Sons Ltd (ITA No. 4630/Mum/16), and, therefore, the stand that these payments amounted to benefit to the trustees is ex facie incorrect,” it further added.

On the reimbursements paid to the two trustees namely AN Singh and Venkataramanan, the trust had argued that ,” no remuneration was paid by the trust to Venkataramanan for AY 2014- 15”.

Six of the Tata Trusts namely – Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust are stuck in a bitter tax dispute with the income tax department. In October, 2019 by the way of an order issued by the office of the principal commissioner of income tax, Mumbai, on October 31, the department cancelled the registration of these trusts.

In July of that year, the tax department had served notices on the six Tata trusts seeking to reopen assessment and questioning their decision to ‘surrender’ registrations in 2015. Subsequently replying to the notice , 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.

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 sub-panel 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.

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