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Sir Dorabji Tata Trust versus DCIT Case Study

keywords – Sir Dorabji Tata, Tata Trust, Income Tax, Dorabji Tata

Facts Of The Case

The assessee, in the present case, Sir Dorabji Tata Charitable Trust, is a public charitable trust. It is registered under Section 12A of the Income Tax Act, 1961 as a charitable institution as well as under the Bombay Trusts Act, 1950. The trust had filed its return of Income on the 30^th September, 2014 under Section 143(3) of the Income Tax Act. The assessment of which was completed on 30^th December, 2016 and the taxable Income was determined to be NIL. However, the commissioner of Income tax by notice set aside the order given by the assessing officer under Section 263. Hemce calling for issuance of a fresh order. The notice was passed because of reasons which includes;

Firstly, that the assessee-trust furnished the expenses for the year to Tata Services Ltd. Which also consisted of a consideration of 91,11,654 paid to one A.N. Singh. This was a payment rendered to him as a trustee in the trust. The Assessing officer had not verified the validity of the payment in accordance with the trust deed. The reasonableness of the matter and whether it requires a more intricate investigation also remained unchecked. 

Secondly, the Assessing officer failed to investigate whether the investments by the assessee trust was in conformity with section 11(5) and that the assessee was covered under the exceptions given in the proviso under Section 13(1)(d). The commissioner stated that the shares held by the assessee trust in Tata Sons Ltd have to be part of the main body of the trust in order for those investments to be permissible under Section 13(1)(d). Therefore, by due to no investigation by the assessing officer in this regard, the order of the subject assessment was erroneous and has negative impact on the interests of the revenue.

 Thirdly, the assessing officer has failed to check whether the assessee had control over the affairs of Tata Sons Ltd. And whether he benefitted in certain manner from such control by persons mentioned in section 13(3). If yes, the implications on tax from such benefit. Thus, in 2016, the CIT-E rejected an order of Tax Exemption by the assessing officer to three of the Tata Trusts namely Sir Ratan Tata Trust, JRD Tata Trust, Sir Dorabji trust. It was called it incorrect and contrary to the interest of revenue. The present case was filed in regards of the returns filed for assessment year 2014-15 by Sir Dorabji Tata Trust. 

Issues Involved

1. Whether Sir Dorabji Tata Trusts is eligible from exemption of tax?
2. Whether the trusts have violated the provisions of the Charitable trusts act by holding shares in the Tata Sons Ltd. Company?
3. Whether the Assessing Officer has failed to give the accurate order?
4. Whether the subsequent order passed by the Commissioner must be upheld or not?

CONTENTION OF THE PARTIES

Arguments On Behalf Of The Petitioner | Sir Dorabji Tata Trust

The petitioner contended that the required verifications and inquiries have already been conducted by the Assessing officer. Therefore, the provisions of Section 263 of the Income Tax act is not applicable in this case. The principal commissioner can call for revision if the order passed by the assessing officer is erroneous and is prejudicial against the interests of revenue. In the case of CIT v. D.G. Gopala Gowda, both the conditions need to be fulfilled in order for the revisional authority to pass an order under section 263. 

The assessee has further submitted that the word erroneous can only be used when the order of the assessing officer is not in accordance with law. According to the Black’s Law dictionary, the word erroneous means error involving deviation from law. If the AO acted according to the law to make a certain assessment, that action cannot be declared as erroneous only because there is difference in opinion between the AO and the commissioner. In the judgement of the CIT v. Anil Kumar Sharma, the Delhi High Court held that, the provisions under section 263 cannot be invoked merely because there is a difference in opinion. 

The assessee submits that the AO has applied his mind and investigated on the available facts and materials on record, hence, the order cannot be held as erroneous. The information required by the AO was submitted in due course of the proceedings. Further, the AO had sought information in order to fulfil both points that was mentioned in the notice. Thus, the AO had all the required material facts and had applied his rationality into the assessment order. Hence the order was not erroneous. Explanation 2 of section 263 has been amended into the IT Act through the Financial bill, 2015, in order to clarify or declare that, the order of the AO is erroneous to the extent it is prejudiced against the revenue interests.

Arguments On Behalf Of The Respondent | DCIT

In response to the contentions of the assessee regarding the necessary investigations and verifications being conducted by the Assessing officer and that Section 263 is not applicable, the commissioner put forth its own responses. It stated that the assessee had been asked about the details of any amount paid to a person under section 13(3). The same was however denied by the assessee. Although from the facts, it was clearly seen that a trustee named A.N. Singh under section 13(3) was paid remuneration by the trust. Further, the assessing officer overlooked details of other amounts paid to individuals. 

Even if payment made to the trustees is permitted under the Trust deed, it must be in proportion to the services rendered by the trustee. Hence, it is expected of the assessing officer to check the reasonableness of the payment which was not done by him. Further, that neither did the A.O. have the basic details regarding the remuneration paid to the trustees. Nor a copy of the Form 10B which is submitted by auditors who provide details of use of property or income for the benefit of person under Section 13(3) of the IT Act. Thus, the A.O has failed to conduct due verifications and enquires about the payment or remuneration paid by the trust to the trustees to find out any benefit acquired by trustees and other individuals connected to the trust.

Section 13(1)(c) states that if the trust has benefit any person under section 13(3) directly or indirectly, then the exemption provided under section 11 and 12 are not applicable to the assessee. Section 13(3) defines persons such as trustees and their relatives, individuals with similar concerns etc. Since, the assessing officer has failed to conduct proper investigations and verifications, it is a proper situation where the jurisdiction under section 263 of the Income Tax Act. 

Further, the chairman, Mr. Cyrus Mistry wrote a letter which was received on 26^th December, 2016. It had 2 files containing documents that backed up his contention. As to the the trustees having a lot of control over the affairs of the business. The assessing officer failed to investigate the evidence by Mr. Mistry. Instead utilize the material evidence provided to him in order to draw a logical conclusion. Hence, the assessment of the assessing officer was erroneous. The learned commissioner of Income tax Department concluded that in order to avail exemption under section 10 on dividend income, the entire income of the trust and its purpose needed to be demonstrated.

Further, since the assessing officer failed to conduct proper inquiry in this case, there is a jurisdiction under Explanation (2) of section 263. Which is declaratory in nature. Explanation (2) of section 263 was inserted through an amendment in the Finance Bill, 2015. IT states that an order passed by the asessing officer can be held erroneous by the commissioner or principal commissioner.

• If it is passed without conducting due verification and inquiry.
• If it has provided any relief without investigating into the claim,
• if the order does not comply with the direction issued by the board under section 119,
• if the order has not been passed according to a decision where the assessee was prejudicial to revenue.

However, the Court relied on the judgements of Torrent Pharmaceuticals Ltd. v. DCIT and Narayan Tatu Rane. It was claimed that since the explanation is clarificatory in nature, it would not dilute the basic necessities mentioned under Section 263(1) of the IT Act. Thus, section 263 can be applied in this case. Thus, the learned commissioner set aside the order of the assessing officer under section 143(3) of the IT Act.

Observation And Decision Of The Court

The court stated that the assessing officer had sought for all the information required on the matters mentioned in the show cause notice under section 263. He had applied his own mind coupled with the information provided to him by the assessee. Hence, the order by the assessing officer was not erroneous. All the required information was submitted to the AO and hence, he had complete information of the assessment proceedings.

Further, all the remuneration paid to the trustees was in consonance with the Trust deed and the Income tax act. The assessee had applied for more income than that required by the act. The surplus was being accumulated without prejudice. Hence, the assessed income would be NIL. Therefore, there was no tax effect and the order of the AO was not prejudicial to the interests of revenue. The investments made by the assessee trust was not for investment in shares, but for the benefit of general public. 

Written By – Debangana Ray

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