CA NeWs Beta*: Rs 12,000-Crore Tax Blow: I-T Department Cancels Registration of 6 Tata Trusts

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Sunday, November 3, 2019

Rs 12,000-Crore Tax Blow: I-T Department Cancels Registration of 6 Tata Trusts

The Trusts clarified 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 Income Tax Act and to not claim the associated IT exemptions.

New Delhi: The Income Tax Department has cancelled the registration of six trusts operating under Tata Trusts, a move that could result in tax liability of about Rs 12,000 crore for the organisation. The cancellation order was on account of activities (performed by trusts) that are not commensurate with Articles of Association, according to an official.
The concerned entities are the Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust, and Navajbai Ratan Tata Trust. While these are not the main shareholding trusts, they hold 39,000 shares in Tata Sons, the parent company of the group, a person in the know said. Sir
Dorabji Tata Trusts and Sir Ratan Tata Trust are the main entities of Tata Trusts.
Tata Trusts is the largest shareholder of Tata Sons, with 66% stake.
The amount that the I-T Department wants Tata Trusts to pay is based on the accumulation of income of the last three assessment years 2015-16, 2016-17 and 2017-18, said two officials privy to the development.
In the 34-page order dated October 31, the tax department has invoked Section 115 (TD) of the I-T Act, a special provision introduced in 2016 with respect to certain category of trusts.
Under this, a trust whose registration is cancelled is required to pay tax on its “accreted” (past exempted income).
The section deals with additional income tax if the trust converts or merges into a non-charitable trust, or if gets dissolved and fails to transfer its assets/liabilities.
The order says that the registration of the six trusts has been cancelled with immediate effect, which makes the trust liable to pay additional tax on the accreted income. If this had been from the date of the surrender being offered, which was in 2015, the tax would have been levied only on earnings. According to the order, these entities will be taxed at the maximum rate of 42 per cent.
In an e-mail response to Business Standard, a Tata Trust spokesperson said: “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 further clarified 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 Income Tax Act and to not claim the associated I-T exemptions.
‘’The decision to surrender the registration (an option available in law) was taken in the best interests of the Trust, and to maximise the resources available to the Trust for their charitable work, which is the principal object and focus of the Trusts.’’ The statement said: ‘’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 assessment wing of the I-T department, Mumbai, had in July issued notices to these trusts, seeking explanation over surrendering the registration and also the accumulated income. People in the know said these trusts, after giving up the status of a charitable trust, have been paying taxes as non-charitable organisations.
The action by the I-T department was a follow up to the Co­m­ptroller and Auditor Genera­l’s (CAG) report of 2013, which said that the Trusts were earning huge profits, instead of performing activities for charitable purposes. The surplus funds were either used for creating fixed assets for earning more profit, or were transferred to other trusts rather than being used for charitable purposes, the CAG had said. This, the report claimed, was done to evade taxes. Following strong remarks by the audit body, the matter was shifted to the assessment wing of the tax department in 2018, which reopened the tax assessment of these trusts

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