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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Income Tax Troubles of the Tata Trusts

On the last day of October 2019, the Mumbai-based principal commissioner of income tax (PCI-T) cancelled the 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. While the Tata Trusts have maintained that they surrendered their tax registration in 2015 itself, the I-T department, however, has questioned this decision and decided to reopen assessments for the six trusts.

 

Interestingly, we learn that all Tata Trusts have a clause that says all trustees must try and maintain tax free status granted to these trusts. But with the trusts surrendering their tax registration, the question is, wouldn’t this amount to breach of trust?

 

According to an observer, “Any citizen of India can file a case with the charity commissioner alleging breach of trust by the trustees. That would become a personal liability and raise the issue of their eligibility to continue as trustees”. 

 

An official from Tata Trusts, however, says there is no violation of the trust deed by surrendering tax exemption. “The Trusts' deeds do not stipulate that they cannot surrender exemption. There is no violation of the deeds,” the official says in an email. 

 

However, Page 3 of the deed of Jamsetji Tata Trust, clearly mentions that the trustees should make efforts to qualify for exemption from income tax. (see extracted image of the Trust deed below)

 

 

The official from Tata Trusts, however, says, the Trusts' Deeds do not stipulate that all Trustees must at all times maintain tax free status granted to these Trusts. "The Trusts' Deeds specify certain charitable purposes (e.g. advancement of education) for which the Trusts' funds will be utilised. All that the Trusts' deeds require the Trustees to do is to see that such purpose continues to remain 'charitable' under the I-T Act. The Trusts continue to utilise their funds solely for such charitable purposes, and have always been compliant in this regard. The object and purpose of the Trusts is to do charity in the specified fields. To maintain tax free status is not - it cannot be - the object or purpose of the Trusts," he added.

 

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, 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 issue came to limelight again when Cyrus Mistry was ousted from the office of chairman by the Tata Sons board in 2016, says a report from Business Standard. Quoting sources, the report says, Mr Mistry had submitted voluminous documents to the department after his dismissal and that led to further investigations.

 

The newspaper quotes a letter written by Mr Mistry in 2016, which says, "The very future of the Tata Group lies in how the trustees govern the Tata Trusts, since the main trust property is the holding of shares in Tata Sons."

 

"Mr Mistry said that if the trustees were to start managing the business, overstepping the entire governance structure in Tata Sons, they would jeopardise their legal status including tax exemptions, risking the future of the Tata Group. By then Income Tax department started probing the validity of exemptions given to Tata Trusts, which hold 66 per cent stake in the holding company Tata Sons," the report from Business Standard added.

 

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.

 

In 2018 too, the I-T department and Tata Trusts have locked horns in the Bombay High Court over show-cause notices issued by the tax authorities as they sought to cancel the Tata Trusts licence under Section 12(A) of I-T Act for tax exemption, says a report from Financial Express.

 

The report says, "As is known, R Venkataramanan’s Rs2.66-crore annual compensation has been under the income tax scanner and led it to withdraw tax exemption to the Sir Dorabji Tata Trust, the largest of all Tata trusts, in December 2018. The Trusts has contested the demand raised by the I-T department."

 

Mr Venkataramanan was managing trustee of Tata Trusts and had been the scanner in a bribery and lobbying case to change government policy involving AirAsia India which was being probed by the Central Bureau of Investigation (CBI), the report added.

 

In October 2018, Tata Trusts withdrew the writ petition that it had filed in the Bombay HC. 

 

In February this year, Mr Venkataramanan quit Tata Trusts. Next Month, NA Soonawala, who had a lifetime tenure, too stepped down from the trusteeship of the Sir Dorabji Tata Trusts and the Sir Ratan Tata Trusts citing health grounds. 

 

Last year, in April, a sub-panel of the Public Accounts Committee on Direct and Indirect Taxes had recommended a probe into alleged tax violations by Tata Trusts and has accused them of favouring foreign institutions like Harvard Business School (HBS) over the Indian universities. Quoting the panel, a report from BusinessWorld had said, "At a time when underprivileged students of universities such as Tata Institute of Social Sciences are protesting lack of basic funds and scholarships, it is difficult to comprehend the justification of spending million dollars of public charity money on foreign universities." 

 

This controversy also reached the American shores with a leading Conservative website questioning the globally prestigious institution for accepting "questionable funds" that should otherwise have been "used for the welfare of the poor." 

 

That was against "every tenet of good (corporate) governance", Alex Beard, director of a Washington-based global financial advisory firm and a former professor from Georgetown University, said in a signed article.

 

Mr Beard also questioned Harvard's moral obligation, asking if it would return the funds "or rectify it in some other way".

 

The 2010 donation agreement -- the largest from an international donor in the 102-year history of the Harvard -- between HBS Dean Nitin Nohria and business magnate Ratan Tata that resulted in the subsequent construction of Tata Hall in 2013 was under a parliamentary scrutiny in India.

 

"The committee's major concern was to check misuse of tax exemptions in cases where donations were made outside the country. The committee recommended knowing the usefulness of such donation for the country. And if it was not useful (to the country) then the taxes should be levied. It was meant for all such trusts and charitable institutions and not Tata Trusts alone," former BJP Rajya Sabha member Ajay Sancheti, who was part of the panel when it prepared the report, had told IANS.

 

In the article on dailycaller.com, Mr Beard had raised "an equally important concern" related to "the conspicuous role played by HBS Dean Nohria in this questionable transaction".

 

Five months before the announcement of the Tata gift on 4 May 2010, Mr Nohria, the article said, was appointed as the Dean. "His good fortune in landing such a large gift for the HBS endowment would initially seem logical for the new Indian-born dean and shouldn't have seemed suspicious. But three months before the completion of Tata Hall in September 2013, he was appointed a non-executive director to the board of Tata Sons, the holding company of Tata's companies," the article had said

 

India's oldest philanthropic organisation, the Tata Trusts were founded in 1892 and played a pioneering role in bringing about an enduring difference in the lives of communities they serve.

 

Guided by the principles and vision of proactive philanthropy of founder, Jamsetji Tata, the trust's purpose is to catalyse development in healthcare and nutrition, water and sanitation, education, energy, rural upliftment, urban poverty alleviation, arts, craft and culture.