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.
 
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    COMMENTS

    Ramesh Poapt

    1 month ago

    however, tata is one of well managed trusts.

    GST collection drops 5.29% to Rs 95,380 cr in Oct, more worries for govt
    In more fiscal worries for the government, the Goods and Services Tax (GST) collection dropped 5.29 per cent to Rs 95,380 crore in the month of October 2019, on year-on-year basis.
     
    Out of the total GST collection in this period, the central GST (CGST) comprised Rs 17,582 crore and state GST (SGST) was Rs 23,674 crore. The integrated GST (IGST) stood at Rs 46,517 crore (including Rs 21,446 crore collected on imports) while cess was Rs 7,607 crore (including Rs 774 crore collected on imports).
     
    The total number of GSTR 3B Returns filed for the month of September up to October 31 was Rs 73.83 lakh.
     
    "The government has settled Rs 20,642 crore to CGST and Rs 13,971 crore to SGST from IGST as regular settlement. The total revenue earned by the central government and the state governments after regular settlement in the month of October, 2019, is Rs 38,224 crore for CGST and Rs 37,645 crore for the SGST," a Finance Ministry statement said.
     
    The monthly GST collection has fallen despite October being festive season and government announcing a slew of measures to boost the economy.
     
    "This looks like a difficult situation for the government. Many more steps would need to be taken to improve revenue collection. The government would have to ensure better compliance and increase in taxpayer base,"said Amit Bhagat, Partner, Dhruva Advisors.
     
    The lower GST collection reflects weak consumption demand and overall economic slowdown. The GST collection had fallen 19-month low to Rs 91,916 crore in the month of September.
     
    "The revenue during October, 2019 is declined by 5.29 per cent in comparison to the revenue during October, 2018. However, during April-October, 2019 vis-A-vis 2018, the domestic component has shown 6.74 per cent growth while the GST on imports has shown negative growth and the total collection has grown by 3.38 per cent," the Finance Ministry said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    shadi katyal

    1 month ago

    While Media and everyone talks of slow down in economy, every cabinet member has denounced that so now the question is simple If the economy is still expanding as per Govt and Finance Minister, why is GST taxes fallen

    Assessee Letters Cannot be Taken as Admission of Non-Disclosure or Unconditional Offer to Pay Tax: SC
    The Supreme Court has said that communications sent by the assessee cannot be taken as admission of non-disclosure or being a case of unconditional offer to pay tax. While setting aside an order passed by the High Court, the apex court also noted since the disclosure in question was made by the US-based parent company, it has no relevance for the taxpayer company in India. 
     
    The case was about undisclosed income and expenditure relating to Goodyear India Ltd by its US-based parent Goodyear Tyre & Rubber Co to the Securities and Exchange Commission (SEC). The US-based company had revealed amounts kept outside the books of Goodyear India in India without admitting the allegations made against it. 
     
    The Delhi High Court, in its order on 28 April 2008 had observed that "In view of the facts, which have emerged from the complaint made by the SEC in US as well as the letters sent by Goodyear India to the I-T department in India, there can be no manner of doubt that Goodyear India had certain amounts outside its books of accounts which were used for purposes that were not at all legitimate inasmuch as Goodyear India was funding foreign trips by Indian government officials and had made payments to the electricity undertaking for assuring continuous power supply to its factory premises.”
     
    The apex court, however, noted that Goodyear India, the assessee, had neither received the amount nor spent it. "It is not the case of the department that the amount referred to in the said disclosure has been received in the accounts of the assessee or spent for and on behalf of the appellant – assessee under instruction, so as to be treated as undisclosed income of the appellant," the bench said while setting aside the judgement of Delhi HC.
     
    In an order passed on 16 October 2019, a bench of Justice AM Khanwilkar and Justice Dinesh Maheshwari, said, "Our analysis of the said letters is that, they had been in refutal of the allegations contained in the news items, which were published around that time, when the communication was sent by the assessee to the (Income-Tax or I-T) department with an explanation and a without-prejudice offer."
     
    "...the two communications relied upon by the High Court cannot be taken as admission of non-disclosure nor being a case of unconditional offer to pay tax in that behalf. On the other hand, we find that the income tax appellate tribunal (ITAT) had exhaustively analysed the entire evidence, including the two letters and taken a view which, in our opinion, is a possible view. That being purely a finding of fact, no interference was warranted," the apex court said.
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    Charan Rawat

    1 month ago

    what can one say - here is a parent that states that incomes have not been disclosed . But Supreme Court says it is not admission of guilt. in that situation, will a written confession be an admission of guilt ? And is a sworn affidavit made to Court of any relevance ?

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