Tata Trusts Contest Income-Tax Department’s Move To Reopen Assessment, Surrender Their Registrations In 2015

Two Tata Trusts have contested the reopening of assessment by the Income Tax Department.

The Tata Trusts have taken the position that they already surrendered registration provisions under the Income Tax Act.

Hence the levy of additional income 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, the Trusts have stated.

It may be recalled that in July, the Income Tax Department had served notices on a set of Tata Trusts seeking to reopen assessment, questioning their decision to ‘surrender’ registrations in 2015.

According to Section 115 (TD) of the Income Tax Act, a trust whose registration is cancelled is required to pay tax on its accumulated or ‘accreted’ income.

The issue dates back to 2013, when the Comptroller & Auditor General (CAG) had pointed out that the Jamsetji Tata Trust and the Navajbai Ratan Tata Trust had invested Rs 3,139 crore in what it called “prohibited modes of investment.”

The CAG had noted that the Income Tax Department had given “irregular tax exemptions” to these trusts, resulting in Rs 1,066 crore in taxes not levied.

In March 2015, the Tata Trusts surrendered their registrations (under 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, after the CAG’s observations and subsequent remarks by a sub-panel of the Public Accounts Committee (PAC) in 2018, the matter was transferred to the I-T department’s assessment wing which has now sought an explanation from the trusts.

As per the PAC’s report, the two Tata trusts invested in prohibited modes of investment despite the law strictly forbidding public charitable trusts from holding such assets after 1973.

The Income Tax Department is of the view that after invoking provisions of 115 (TD) after considering the fair market value of the trusts’ total assets as well as net liabilities, the tax would amount to at least Rs 1,800 crore.