The Income Tax Appellate Tribunal (ITAT), Mumbai Bench in a major relief to the Tata Trusts quashed the revised assessment order passed by the tax department.
Facts of the case:-
The Commissioner of Income Tax had taken a view that the Trusts may have violated the provisions of section 13(1)(d) of the Income Tax Act during the assessment year 2014-15 and the Assessing Officer did not probe the breach adequately.
The first grievance of the Commissioner was that the payments made by trustees, including R. Venkataramanan and A.N. Singh, were in violation of the provisions of the trust deed. In addition to A N Singh, R Venkatraman was appointed Executive Trustee of the Trust, with effect from February 12, 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.
Interpretation of law:-
The Commissioner said that there was no effort by the assessing officer even to examine the reasonableness of payments made to the trustees in relation to the services rendered by the trustees, that some of the basic details were not even available during the assessment proceedings, and the fact that the payments to trustees were routed through Tata Sons Limited and Tata Services Limited should have provoked further detailed inquiries by the Assessing Officer.
According to the Commissioner, shows that the Assessing Officer, during the course of the assessment proceedings, did not conduct due inquiries in the matter, and it is this inertia of the Assessing Officer which has rendered the related assessment order erroneous and prejudicial.
Sir Dorabji Tata Trusts and Ratan Tata Trust argued that all the shares held during the financial year 2013-14 are either shares held prior to June 1, 1973, or subsequent accretions thereto by way of bonus. It further said that all these shares are held by it as corpus and the income earned by way of dividend from these shares is used by the trust for carrying out its charitable objects.
It said that there has been no change in the above position for more than four decades. In all the past years, the assessee has been more granted exemption under section 11. It has also submitted that section 263 cannot be applied to a matter on which no addition has been made by the revenue for several decades. On the issue of payments to trustees, the ITAT said that it is a common practice in the large business groups to have centralized entities providing services to all the group and related entities, particularly as it is not possible for each entity to have the benefit of their own standalone units dealing with support services.
“There is nothing unusual about it so as to warrant detailed investigations into the matter. We are unable to share the perceptions of the learned Commissioner in this regard,” the ITAT ruled.
The quorum consisting of Headed by the President Justice P P Bhatt and Vice President, Pramod Kumar said that the current financial period was over forty years after the cut-off date of June 1, 1973, and in none of those forty-plus years, 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 in 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,” ITAT said.
ITAT said that the Commissioner had acknowledged that Cyrus Mistry had flagged some of these issues after he was ousted as the Chairman of Tata Sons. “It is well known that Cyrus Mistry, a former Chairman of the Tata Group, was removed from his position in the Tata Group on October 24, 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,” ITAT said. His action of supplying documents to the income tax department, without any authorization of the company even though which was apparently obtained by him in the fiduciary capacity, almost immediately after being removed as Chairman of the Tata Sons, cannot be said to be influenced by call of the pure conscious and high ground of morality, the ITAT added.
“The investment in Tata Sons by the assessee trust is not thus for the purpose of investment in shares, but this shareholding being held by the assessee trust is undisputedly for the purpose of sharing 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 are qualitatively very different,” it ruled.