ITAT Restores Tax Exempt Status For Tata Trusts

The Mumbai bench of the Income Tax Appellate Tribunal has quashed a revision order issued by the income tax commissioner against three Tata Group trusts that had sought to revise their nil return of income for assessment year 2014-15

A two-member bench of Justice PP Bhatt and Pramod Kumar observed that the orders were devoid of any legally sustainable merits and were passed with a “glaring” non- application of mind.

The Income Tax Department sought to revise the trusts’ nil returns of income for AY 2014-15 based on information from Cyrus Mistry, former director of Tata Sons Ltd., and other facts.

The tribunal observed the commissioner relied on information received from Mistry to dislodge the facts established from assessments done by the tax department over the decades.

The tax commissioner had passed a revision against the Dorabji Tata Trust, JRD Tata Trust and Ratan Tata Trust in March 2019, alleging they made large reimbursements to Tata Group entities against the services rendered by the trustees, which was more than the remuneration limit prescribed under the trust deeds.

Tax Department’s Allegations

The income tax commissioner sought a revision of the trusts’ income on the following grounds:

• One of the trusts reimbursed Rs 2.5 crore against the expenses incurred by Tata Services Ltd., between FY 2011-12 to 2013-14. Out of this, Rs 91 lakh was against the amount paid by the company to AN Singh for the services rendered by him as a trustee. Similar reimbursements were also allegedly made against the amounts paid to R Venkataramanan, vice-president at Tata Services.
• The reimbursements exceeded the limit prescribed in the trust deed which placed a cap of Rs 1,000 on the fees that can be paid to each trustee.
• The assessing officer also failed to make verify whether the trusts had indulged in any prohibited mode of investment in shares, which can result in denial of tax exemption.

Trusts’ Rebuttal

The three trusts rebutted the tax department’s allegations arguing that no remuneration was paid to Venkataramanan during AY 2014-15 while the reimbursement against remuneration to Singh was against his services as a managing trustee and his expansive roles and responsibilities.

The trusts also argued that the payments made to the trustees were as per the trust deed and in compliance with the income tax law. As such, a revision will not bring any change in the total assessed income. As the law stipulates that revision can only be against an order which is against the interest of the tax department, no such order can be passed in the present case.

ITAT’s Findings

The appellate tribunal quashed the revision orders on the following grounds:

• The commissioner could not have passed a revision order since the trust deeds did not put a limit on the remuneration payable to managing trustee.
• The commissioner also failed to apply his mind to the undisputed facts in the case. For instance, the assessing officer had already included dividend income of Rs 95 crore in the gross receipt of one of the trusts, checked the application of such income and denied exemption.
• The trust’s appeal against this denial is pending before the appeals commissioner. Yet, the commissioner passed an order again directing the assessing officer to examine if the entire income was applied for the purpose of the trust.

There was a clear and glaring non-application of mind by the department to even undisputed material facts of the case, the tribunal concluded.

The tribunal later issued a corrigendum to its earlier order saying the information sent by Mistry was in response to specific summons by the Income Tax Department, which were issued on the directors of Tata Sons Ltd., including him.