MUMBAI: It has reported that six Tata Trusts on Monday moved the Income Tax Appellate Tribunal (ITAT) against their registration cancellation date by the I-T department.
A report by Times of India said that the Trusts’ have not contested the cancellation of the registrations but its effective date. The department had cancelled the Trusts’ registrations from October 31, 2019.
According to rules, if a charitable organisation’s registration is cancelled after June 1, 2016, it will have to pay exit tax. Though the I-T department has not raised a tax demand on the Trusts yet, they will become liable to pay if the October 31, 2019, order is upheld by the ITAT. Hence, the Trusts want their registrations to be cancelled retrospectively, that is before the introduction of exit tax on June 1, 2016.
The Trusts’ argument is that they had offered to “surrender” their registrations on February 26, 2015, and hence, that should be considered as the cancellation date by the department. However, the department didn’t accept the Trusts’ request as there is no provision in law for “surrendering” registrations.
The Trusts decided to “surrender” their registrations after an October 1, 2014, rule mandated that registrations will be cancelled if charitable organisations hold investments in equity shares. The Trusts hold about 40,000 shares, or 9%, of Tata Sons — the holding company of the $113-billion Tata conglomerate. The six foundations — Jamsetji Tata Trust, Navajbai Ratan Tata Trust, Sarvajanik Seva Trust, Tata Education Trust, RD Tata Trust and Tata Social Welfare Trust — received Tata Sons’ shares as “corpus donations” between 1974 and 1990. However, this was in violation of rules as Section 13 of the I-T Act prohibited charitable organisations from holding equity shares of commercial business from June 1, 1973.
Even though they held non-compliant shares, those didn’t lead to cancellation of registrations as rules didn’t have any provisions for the same, said Trusts sources. “The only consequence was that the income derived from the non-compliant shares would be ineligible for tax exemption.” It was on October 1, 2014, that rules mandated cancellation of registrations of Trusts not in compliance with Section 13.
The October 31, 2019, I-T order said that “…Trusts created for charitable purposes are being utilised for controlling large business group of Tata Sons clearly not the intention of the trust deeds”. The Trusts argued that the Companies Act doesn’t prohibit them from holding equity shares as well as exercising their voting rights over investee’s activities. “Whether Trusts control Tata Sons or not doesn’t fall under I-T department’s domain,” said Trusts sources.
A major fallout of I-T cancelling the Trusts’ registrations is that they also lose the 80G status. Which means that donors will not get any I-T exemptions for contributions made to the six Tata Trusts. Some months ago, it was decided that Tata companies will contribute a chunk of their CSR funds to Tata Trusts.
