ITAT quashes the revised assessment order of Tax Department and grants relief to Tata Trusts

ITAT quashes the revised assessment order of Tax Department and grants relief to Tata Trusts

The Income Tax Appellate Tribunal (ITAT), granted a major relief to the Sir Dorabji Tata Trusts (Tata Trusts) by quashing the revised assessment order passed by the Deputy Commissioner of Income Tax Dy. CIT(E)

Facts of the case

Tata Trusts, the assessee (appellant) is a public charitable trust, set up in the year 1932, registered under the Bombay Trusts Act, 1950. It is also registered as a charitable institution under Section 12A of the Income Tax Act, 1961 (IT Act). It had filed its return of income on 30 September 2014, and its assessment, under Section 143(3) of the Act, was completed on 30 December 2016 determining 'Nil' taxable income.

On 31 December 2018, the Deputy Commissioner of Income Tax- Exemption Dy. CIT(E) (respondent) had issued an revised assessment order wherein it denied exemption to the Trust for alleged violation of certain conditions relating to 'significant compensation' paid to Managing Trustee R. Venkataramanan. In the order,it was pointed out that the compensation of Mr. Venkataramanan was beyond the permissible limit underthe IT Act. The order also pointed out at the Trust's deed and emphasized that Mr. Venkataramanan's payment was "excessive".

According to the respondent, there was a huge difference in the percentage of the remuneration paid to trustees in the case of trust and other trusts. The executive trustee of the Trust gets over 1.18% of the total income, which is not reasonable, while others get a maximum of 0.15%.

Arguments on behalf of the appellate

The assessee challenged the correctness of the order passed by the respondents under Section 263 read with Section 143(3) of the IT Act for the assessment year 2014-15. It was argued that the respondent erred in initiating proceedings under Section 263 of the Act against the Appellant. It was also submitted that the respondent erred in holding that the assessment order passed by the Assessing Officer was erroneous. It had erred in alleging that the Assessing Officer did not enquire whether the payment to Trustees was as per the Trust Deed and reasonable as required under the provisions of the Act.

It was argued on behalf of the appellant that all the shares held during the financial year 2013-14 were either share held before 1 June 1973 or subsequent accretions thereto by way of bonus. It was further submitted that all the shares held by the trust are based on the income earned out of its charitable objects. The appellants submitted that Section 263 of the Act could not be applied to a matter on which no addition has been made by the revenue for several decades.

Arguments on behalf of the respondent

The respondent was of the view that the assessee may have violated the provisions of Section 13(1)(d) of the Income Tax Act during the assessment year 2014-15 and that the Assessing Officer did not probe the breach adequately. The respondent contended that the payments made by trustees, including R. Venkataramanan and A.N. Singh, violated the provisions of the trust deed.

It was further alleged that Mr. Venkatraman was appointed as the Executive Trustee of the Trust, from 12 February 2014, and more than Rs. 1,000 per annum was paid to more than one trustee, whereas, in terms of the trust deed, only one trustee could have been paid more than Rs. 1,000.

The respondent alleged that the assessing officer did not put any effort to examine the reasonableness of payments made to the trustees regarding the services rendered by the trustees. It was pointed out that the payments made to trustees were routed through Tata Sons Limited and Tata Services Limited, it was sufficient for the assessing officer to initiate an inquiry against the trustees. It was submitted by the respondent that the assessing officer has rendered the related assessment order erroneous and prejudicial.

Observations of the ITAT

The matter was listed before the ITAT and it stated that it is a common practice in the large business groups to have centralized entities providing services to all the group and related entities. ITAT stated, "There is nothing unusual about to warrant detailed investigations into the matter. We are unable to share the perceptions of the learned Commissioner in this regard."

The Coram headed by President Justice P P Bhatt and Vice President, Pramod Kumar stated that the current financial period was over forty years after the cut-off date of 1 June 1973. For the whole period, the exemption was declined on the ground that these shares were not part of the corpus. "There was no good reason to doubt these shares being part of the corpus. We cannot fault the conduct of the Assessing Officer is not disturbing, or even not probing, something being constantly accepted for over four decades- particularly when there is no occasion or trigger to re-examine that aspect of the matter in this particular year and when there is no change in legal or factual position in this particular year."

The ITAT further stated, "It is well known that Cyrus Mistry, a former Chairman of the Tata Group, was removed from his position in the Tata Group on 24 October 2016, and within eight weeks of his removal, he sends this material, against the trusts in the Tata group including the assessee, before us, to the Assessing Officer. The objectivity of the averments made by Cyrus Mistry, in such a situation and to say the least, seems to be extremely doubtful."

The decision of the ITAT

The ITAT ruled, "The investment in Tata Sons by the assessee trust is not thus for the investment in shares, but this shareholding being held by the assessee trust is undisputedly to share the fruits of the success, of the Tata Group, for the benefit of the general public at large. The investments made by a charitable institution in furtherance of its objects, and the investments being held by a charitable institution, as its core corpus, for the furtherance of its objects is qualitatively very different."