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A file photo of Bombay House, the headquarters of Tata Sons
A file photo of Bombay House, the headquarters of Tata Sons

Tribunal rejects tax demand of over 100 cr against Tata Education & Development Trust

The Trust was arguing against the tax demand by the I-T Dept for AY2011-12 and AY2012-13 during which the trust had claimed nil income on basis of donations made to Cornell and Harvard universities in the US

Mumbai: The Income Tax Appellate Tribunal (ITAT) on Friday rejected a tax demand of over 100 crore against Tata Education & Development Trust, part of a clutch of philanthropic trusts, which control around 66% of Tata Sons, the holding entity of Tata Group . Terming the case as an avoidable litigation, the ITAT observed macro level work done by such organisations is not to be overshadowed by isolated situations like this and called for adequate sensitization to help create a tax friendly environment and minimise litigation.

Tata Education & Development Trust was arguing against the tax demand by the income tax department for assessment year 2011-12 and 2012-13 during which the trust had claimed nil income on basis of donations made to Cornell and Harvard universities in the US. This amount, for the assessment year 2011-12, was 197 crore and for the assessment year 2012-13, was 25 crore. The tax officer however observed that there was a lack of approval from the Central Board of Direct Tax (CBDT), thus the amounts remitted abroad for application of trust funds had to be included in the income for taxation. These amounts were thus added to the income for taxation leading to a tax demand of 100 crore.

Tata Education & Development Trust had argued that it was entitled to claim nil income since it was approved by CBDT. However, the assessing officer (AO) said that the CBDT had granted only a ‘conditional approval’, which was subject to verification by the AO tha included verifying the purpose for which the aforesaid amount was donated.

In October 2019 the Income Tax department had cancelled the registration of six allied trusts citing involvement in commercial entities. These include - Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust. The trusts were found to be in violation of provisions of income tax which prevents charitable trusts from holding shares in a company. The trusts have challenged this ruling.

“This is unique case in which the CBDT has approved the exemption being granted in respect of payments made by the assessee trust to the Cornell University USA and Harvard University USA, in which the assessing officer has duly given effect to the stand so taken by the CBDT, and yet a hyper-pedantic, even if a bonafide, approach of the learned CIT(A), seemingly more loyal to the CBDT than CBDT itself, has resulted in this wholly avoidable litigation which does not only clog the serious litigation before the judicial forums but also diverts scarce resources of the philanthropic bodies, like the assessee before us, to the areas which do no good to the society at large," said ITAT in the order.

“As rightly pointed out by the ITAT this has become a needless litigation because of the interpretation adopted by the tax man. What was pending to be examined was the application to the income for purposes outside India. The contribution itself was not questionable. There was no debate on whether contribution to Cornell and Harvard was to promote international welfare in which india is interested. That important fact was settled," said Amit Maheshwari, Partner, Ashok Maheshwary & Associates.

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