Six Tata trusts whose registration was cancelled by the income tax (I-T) department in October will challenge the order before the Income Tax Appellate Tribunal (ITAT), according to a report by The Economic Times.
The department had cancelled their registration alleging that they violated Section 13 of the Income Tax (I-T) Act, which prohibits a trust from holding shares of a company, unless it has been doing so since June 1, 1973.
The six trusts -- Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust, and Navajbai Ratan Tata Trust -- are likely to argue that they collectively hold less than 10% of Tata Sons, the conglomerate’s holding company.
“It can be seen that the trusts, created for charitable purposes, are being utilised for controlling large business group through Tata Sons. Clearly this is not the intention of the trust deed,” the I-T department said in its show cause notice (SCN), reviewed by the newspaper.
A Tata trustee contested the allegation saying, "We are a charitable trust and do not influence business decisions of the Tata Group. We may be seen as a majority shareholder in Tata Sons but that does not mean we are in any way involved. Our role does not go beyond core ethical issues."
The trustee told the newspaper that "this level of shareholding does not confer any control."
However, the I-T department has argued that the trusts were in violation of clause 4 of the trust deeds, which mandates its charitable nature.
According to the report, if the appeal goes against them, the trusts “shall be liable to pay tax on the accreted income within 14 days”, under the I-T Act.