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A tax tribunal on Monday quashed the income tax department’s orders seeking to revise its earlier assessments for the year ended 31 March 2014 granting tax exemption to three Tata trusts that collectively own two-thirds of Tata Sons Ltd, the holding company of the group.

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) set aside the tax department’s 2019 orders initiating a review of the original tax assessment of Sir Dorabji Tata Trust, Sir Ratan Tata Trust and the JRD Tata Trust, three separate orders of the tribunal showed.

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Last year’s orders by the Income Tax Commissioner handling tax exemptions invoked a provision in the law that allows a review of past assessment orders where inadequacies are noticed.

These orders made a case that the original assessing officer had not pursued certain aspects such as the trusts’ mode of investments, control over the business of Tata Sons and payment to trustees by Tata Sons—matters that could lead to denial of the income tax exemption meant for charitable trusts.

The tribunal held that there was no violation in any of these. The tribunal’s upholding of the original assessment for assessment year 2014-15 is significant as it sets a precedent for subsequent years too.

The tax department’s effort to take a fresh look at the income tax break enjoyed by the Tata trusts appears to be a fallout of its internal tussle that led to the ouster of the chairman of the Tata group, Cyrus Mistry, who the tribunal said, had provided material to the tax department “within eight weeks" of his departure.

The three trusts were originally assessed to have ‘nil’ taxable income for assessment year 2014-15. The revision of this assessment was sought to be made as the tax break appeared to have been allowed without proper verification. One of the charges made by the commissioner (exemption) was that the trustees exercised control of affairs of Tata Sons and were, thus, not entitled to tax breaks.

ITAT said the revision orders were “devoid of legally sustainable merits" and were, therefore, quashed. The tax department is free to appeal against these in higher courts. That decision would hinge on the monetary threshold set for appeals at different judicial forums and whether a question of law is involved in the dispute. An email sent to Tata trusts remained unanswered at the time of publishing.

The tribunal observed that the three trusts together holding 66% in Tata Sons was part of a “complex, but an admirably well-intentioned model of ownership of the Tata group wealth, with greater emphasis on the public charities being an owner rather than ownership by promoter families".

It also said that these investments in Tata Sons were not for the purpose of investment in shares, but for sharing the fruits of the success of the Tata group for the benefit of the general public.

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