The Income Tax Appellate Tribunal (ITAT) on Monday overturned a revised assessment order of the Commissioner of Income Tax – Exemptions (CIT) that had alleged violations by three Tata Trusts — Sir Dorabji Tata Trust, Sir Ratan Tata Trust and JRD Tata Trust.
The CIT had said the Trusts may have violated the provisions of Section 13(1)(d) of the Income Tax Act during assessment year 2014-15, and that the Assessing Officer (AO) did not probe the breach adequately.
The first grievance of the CIT was that the payments made to trustees, including R Venkataramanan and AN Singh, were in violation of the provisions of the trust deed. More than one trustee were paid over ₹1,000 per annum whereas, under the trust deed, only one should have been done so.
The CIT said the fact that the payments to trustees were routed through Tata Sons Ltd and Tata Services Ltd should have provoked further detailed inquiries by the AO.
The second issue raised by the CIT was that the Trusts had gained from their shares held in Tata Sons, when tax laws clearly prohibit a trust from investing its funds with an aim to make profits.
The three Trusts had argued that the AO had investigated these issues before allowing tax exemptions.
Upholding the Trusts’ position, the ITAT said, on the issue of payments to trustees, that it’s common practice in large business groups to have centralised entities providing services to all the group entities.
On the shares being part of a ‘corpus’, the ITAT said the current financial period is over 40 years after the cut-off date of June 1, 1973. In none of those 40-plus years was exemption declined on the grounds that the shares were not part of the corpus. “We cannot fault the conduct of the Assessing Officer in not disturbing, or even not probing, something being constantly accepted for over four decades — particularly when there is no occasion or trigger to re-examine that aspect of the matter in this particular year and when there is no change in legal or factual position in this particular year,” it said.
On Cyrus Mistry’s plaint
The ITAT further said the CIT had acknowledged that Cyrus Mistry had flagged some of these issues after he was ousted as the Chairman of Tata Sons.
“It is well known that Cyrus Mistry…within eight weeks of his removal, sends this material against the trusts in the Tata Group…to the Assessing Officer. The objectivity of the averments made by Cyrus Mistry…seems to be extremely doubtful,” it said.