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Several Tata Trusts, including Navajbai Ratan Tata Trust (NRTT), have moved the Bombay high court to challenge a show-cause notice issued by the income tax (I-T) commissioner to cancel the trust’s registration under a provision of the Income Tax Act, which would result in withdrawal of tax exemption.
The I-T commissioner (exemptions) had on March 8 issued notice to NRTT because of alleged “non-compliance” of rules that govern use of trust funds. It wanted the trust to show cause why its registration under section 12A should not be cancelled. Any such cancellation would render withdrawal of income tax exemptions to the trust.
The trust, through its trustees, including Ratan Tata, has filed the petition against I-T commissioner and 17 others to quash the notice for having been issued “without jurisdiction”, and since the registration itself was surrendered in 2015. The matters are scheduled to be heard by the high court on April 26.
Withdrawal of registration could mean that section 115TD of the I-T Act — which was introduced with effect from June 2016 — would kick in, which provides for a one-time tax payment of 30% of fair market value of assets of the trust.
An e-mail to Tata Trusts didn’t elicit any reply. NRTT is a public charitable trust created by a deed dated December 23, 1974. According to the notice, “Some of the activities of the trust are not in compliance with provisions of section 13(1) of the Act.”
In its petition challenging the show-cause notice, NRTT said that the department had not taken into consideration the fact that the trust has no subsisting registration under section 12A of the Act. It said it had surrendered the registration in March 2015 as it was no longer beneficial to it in view of its holding shares, which could result in its registration being cancelled. The trust’s case is that, over a week after it wrote a letter to surrender its registration, the department had issued a show-cause notice asking why its registration should not be withdrawn or cancelled. The same day, the trust’s representatives appeared before the commissioner and agreed to the cancellation. In 2015-16, the returns were filed without claiming benefit of exemption, yet the department sought to assess the trust.
NRTT had challenged the assessment and ultimately the assessment proceedings were transferred to an office whose jurisdiction is over ‘non-exempt’ trusts. The trust said that any order of cancellation would “cause severe injury” to the public charitable trust, as it could become liable to pay tax on fair value of its assets. The assets’ value would be substantial.