A four-year-long probe by the income tax department has gone against six Tata trusts and their licences have been cancelled, the group said in a press statement late on Friday.
The six trusts facing income tax department action are Jamsetji Tata Trust, R.D. Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust.
The probe was launched in 2015 following a 2013 report by the Comptroller and Auditor General (CAG). In the report, the CAG said Jamsetji Tata Trust and Navajbai Ratan Tata Trust had invested ₹3,139 crore in “prohibited modes of investment".
It said the tax department had given “irregular tax exemptions" to these trusts, resulting in a loss of ₹1,066 crore to the exchequer.
Following this, in 2015, the trusts decided to surrender their registration. In July this year, the taxman served a show cause notice, questioning the surrender of the licence and seeking to reopen the tax assessment case.
Under the Income Tax Act, when a trust surrenders its licence it needs to pay the tax on its accumulated income. In its reply, Tata Trusts said the provision could not be applied to them.
“The Trusts would like to clarify that this order of cancellation is a culmination of the decision taken by these six Trusts in 2015 to surrender, of their own volition, their registration under the Income Tax Act and to not claim the associated income tax exemptions," Tata Trusts said in the press statement issued on Friday.
The decision to surrender the registration (an option available in law) was taken in the best interests of the trusts and to maximize the resources available to them for their charitable work, which is the principal objective and focus of the trusts, it added.
Tata Trusts is likely to challenge the taxman’s order.
“The Trusts are examining the order and will take necessary next steps in accordance with the law. The Trusts have effective legal options to vindicate their grievances against today’s order both factually and legally," said Tata Trusts.
So far, the tax department has not raised a tax demand notice. However, the department can raise a demand based on the assessment of the preceding financial years and can levy an interest.
“While the tax department’s order has cancelled the Trusts’ registration with immediate effect, we believe that as a matter of law and consistent with the department’s own decision in the past, the cancellation should take effect from 2015, when the registrations were surrendered and the Trusts themselves consented to cancellation," Tata Trusts clarified, saying the tax demand, if any, should be for years prior to 2015.