While the Tata Trusts have maintained that they surrendered their tax registration in 2015 itself, the income-tax (I-T) department, however, has clarified that the move was a forced one after these six Trusts were found flouting the provisions of the I-T rules, says a report.
Quoting an order issued by the principal commissioner of I-T on 31 October 2019, a report from the Hindu Business Line says,
“This act (surrender of registration) on the part of the Trust, was not a voluntary act but was a fait accompli
. There is nothing on record to show that, but for this, the Trust would have suo motu
surrendered the benefits of exemption under Sections 11 and 12 of the Act.”
The order had cancelled I-T registration of six trusts from the Tatas, namely, Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust.
According the newspaper, in 2013, it was found that in 2001 the Trusts had received corpus donation from Tata Sons Ltd in the form of shares of Orchid Print India Ltd (later known as Tata Consultancy Services Ltd). These shares were later sold and re-invested by way of acquisition of redeemable preference shares of Tata Sons Ltd, it added.
This, the report says, amounted to a violation of the provisions of Section 13(1)(d) of the Act. This Section specifies the circumstances where tax exemptions would not be available for a trust. In 2015, the six Trusts approached the tax department seeking to surrender their registrations and gave up tax benefits from then onwards.
“Once the final fact-finding authority had confirmed the Trust’s violation of the aforesaid provisions, this Trust was left with no other alternative but to give up the benefits of registration. Therefore, it is obvious that this act (of surrendering registration) was not a voluntary act,” said the newspaper quoting from the order cancelling the Trusts’ registration, adding that it would be effective from October 2019 and not 2015.
Ratan N Tata is chairman of Tata Trusts comprising Sir Ratan Tata Trust and allied trusts, as well as Sir Dorabji Tata Trust and allied trusts. Some of the prominent names that feature as trustees in Tata Trusts are Vijay Singh (former defence secretary and ex-director of Tata Sons), Venu Srinivasan (chairman of TVS Group and former director of Tata Sons) and RK Krishna Kumar (former director of Tata Sons). Mr Krishna Kumar has a lifetime tenure as trustee.
In 2013, the Comptroller and Auditor General (CAG) pointed out that two trusts, namely, Jamsetji Tata Trust and Navajbai Ratan Tata Trust had invested Rs3,139 crore in 'prohibited modes of investment'. The CAG noted that the I-T department had given 'irregular tax exemptions' to these trusts, resulting in Rs1,066 crore escaping the tax net.
In July this year, the I-T department served notice to the Tata Trusts for reopening assessment and questioning their decision to 'surrender' registrations in 2015. Tata Trusts, however, decided last month, to contest the reopening of assessment by I-T department claiming that since they have already surrendered their registration, the levy of additional tax when 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.
In a statement, Tata Trusts, says, “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. 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 today’s order both factually and legally.”
The Trusts have also clarified that the order of cancellation is a culmination of the decision taken by these six Trusts in 2015 to surrender, of their own volition, their registrations under the I-T Act and not to claim the associated tax exemptions.
In the statement last week, Tata Trusts said, "The decision to surrender the registrations (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 works, which are the principal object and focus of the Trusts. 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 I-T Act and to not claim the associated income tax exemptions."
While the I-T department's order has cancelled the Trusts' registrations with immediate effect, Tata Trusts added that they believe that as a matter of law, and consistent with the I-T 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.
“We would also like to clarify that Trusts have not received any demand notice from the I-T 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,” the Trusts say.
The report from Business Line says according to the tax department, “…there is no legal provision in the Act for voluntary ‘surrender’ of registration.”
Quoting from the 31st October order, the report says, “Contrary to what has been stated by the Trust about its ‘voluntary’ surrender of registration, the fact is that correspondence shows that it was never confident in its belief that its registration stood cancelled. This becomes evident from its letter of May 2016 addressed to the commissioner of I-T (exemption) at Mumbai stating that it was their ‘understanding’ that their registration was cancelled, and it sought confirmation of the same from the commissioner.”
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