The ITAT is the final fact-finding authority. An appeal can be filed with the courts only if a question of law is involved. Thus, it is likely that these Trusts can finally heave a sigh of relief.
Interestingly, the ITAT bench also frowned upon the action of Cyrus Mistry, who soon after being removed as chairperson of Tata Sons, had handed various documents to the I-T department that he had obtained in a fiduciary capacity.
In a boldly worded statement, the ITAT order stated, “This kind of conduct is unheard of in the civilised corporate world. The inputs from those engaged in a rivalry with an assessee should be taken with a reasonable degree of circumspection and should not be placed on such a high pedestal so as to relegate all other material facts and accepted past assessment history of the case into insignificance.”
The returns filed by Dorabji Tata Trust, Ratan Tata Trust and JRD Tata Trust, claiming the tax exemption benefits under section 11, were accepted by the respective I-T officers. Subsequently, the commissioner of I-T (exemptions) served notices under section 263, seeking to revise the orders of the I-T officers. The notices were on the grounds that adequate verification had not been undertaken by the officers concerned and the assessment orders were prejudicial to the interest of the revenue.
A key common ground in all the notices was these Trusts controlled Tata Sons and hence they were not eligible for the tax exemption. Saddled with unfavourable revisionary orders, the Tata Trusts filed an appeal with the ITAT.
In the lead case of Dorabji Tata Trust, the ITAT bench comprising president P P Bhatt and VP Pramod Kumar observed, “The concept of control over a company, in which investment is made by the trust, is completely alien to the scheme of the Income Tax Act, so far as taxation of charitable institutions is concerned… Merely because the trust has control over the investee company, the benefits envisaged for charitable institutions, which meet other statutory requirements, cannot be declined.”
A similar observation was made by the bench in the case of the other two trusts. The ITAT also held that the Trusts validly hold shares in Tata Sons and other group companies.
Tax experts explain that restrictions for investment in shares apply to a trust which seeks tax-exempt status. If a trust wishes to be tax-exempt, shares can be held by it only if these shares form part of the corpus of the trust as on June 1, 1973. The Tata Trusts provided the requisite details and submitted that any subsequent accretions after this date were by way of bonus shares. All shares were held in compliance with the provisions of the Act.
The ITAT bench noted the unique business model of ownership of Tata Sons, a holding company, which has investments in Tata Group companies. It added that majority shareholding in Tata Sons is “collectively” in the hands of various Tata Trusts. The rights, granted under the Articles of Association of Tata Sons, are granted to the charitable institutions on a “collective” basis and not an “individual” basis. An individual trust cannot be said to be having control over the affairs of Tata Sons, held the ITAT.
The show-cause notice seeking to revise the favourable order of the I-T officer had questioned the sum of Rs 91 lakh paid to A N Singh, managing trustee of Dorabji Tata Trust. This sum was reimbursed by the trust to Tata Services. According to the commissioner (exemptions), the trust deed entitled him to a remuneration of Rs 1,000 only. The trust submitted that the deed entitled the trustees to appoint a managing trustee and fix his remuneration.
As regards another issue that was raised, the trust pointed out that during the year covered under litigation, it had not reimbursed any sum to Tata Sons for services rendered by R Venkataramanan. Lastly, regarding the allegations about trustees receiving certain benefits from Tata Sons, the ITAT held that these are as consideration for services rendered to the company (as directors or employees) and has nothing to do with their role as trustees.