The development comes after Tata Trusts decided last month to contest the reopening of assessment by the Income Tax (I-T) department, saying they already surrendered registration provisions under the I-T Act and the levy of additional income 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 July, the I-T department had served notices on a set of Tata Trusts seeking to reopen assessment and questioning their decision to “surrender” registrations in 2015. According to Section 115 (TD) of the Income Tax Act, a trust whose registration is cancelled is required to pay tax on its accumulated or “accreted” income.
The dispute dates back to 2013, when the Comptroller & Auditor General pointed out that Jamsetji Tata Trust and Navajbai Ratan Tata Trust had invested Rs. 3,139 crore in “prohibited modes of investment.” The CAG noted that the I-T department had given “irregular tax exemptions” to these trusts, resulting in Rs. 1,066 crore escaping the tax net.
The Trusts have 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 registrations under the Income Tax Act and not to claim the associated income tax exemptions.
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.
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.