ITAT To Hear Case About Tata Trusts’ Shareholding

The appeal by the Tata Trusts against the Income Tax Department, which had canceled their registrations in October 2019, is likely to be heard shortly.

The I-T Department is likely to tell the Income Tax Appellate Tribunal (ITAT) that six Tata Trusts wrongfully invested in shares of private companies (Tata Sons), which probably breached the object and purpose specified in their respective trust deeds.

The six trusts are the Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust. Together, they hold 39,000 shares of Tata Sons.

While Tata Trusts as a whole own 66% of Tata Sons, the six trusts have less than 10%, since the main shareholding trusts which are the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust which are not parties to this case.

The Tata Trusts are expected to argue that they were not in violation of the trust deed and had themselves surrendered their registrations in March 2015.

Section 11(5) of the Income Tax Act covers investments or deposits by a trust which has sought exemption under the act. Section 13(1)(d), which was amended in 2014, clearly states that one of the conditions attached to I-T Act registration is that a trust can’t own shares of a company, unless it held them as of June 1, 1973.

However, the Tata Trusts holds a sizeable chunk of the Tata Sons shares, which does not seem to qualify as charity as defined in the Income Tax Act.

The idea behind the 2014 amendment is that trusts engaged in charity should not hold shares of private companies or earn from them.

It may be recalled that the July 2019 show cause notice from the I-T Department to the Tata Trusts had stated that trusts created for charitable purposes are being used to control a large business group through Tata Sons.