Income-Tax dept withdraws exemption granted to Dorabji Tata Trust

Move is linked to managing trustee's 'significant' compensation

The income-tax department has withdrawn the exemption granted to Sir Dorabji Tata Trust, one of the oldest and biggest philanthropic organisations in the country, in a move that could adversely hit the $103-billion salt-to-software Tata group. The withdrawal order was issued on December 31, 2018, after the authorities found violation of certain conditions required for claiming tax exemptions. 

Confirming the development, an I-T official said, “The exemption claimed under Section 11 has been denied for violation of condition under Section 13 of the I-T Act.” The alleged violation relates to “significant compensation paid to the Trust’s managing trustee R Venkataramanan’’, he pointed out. The compensation of Venkataramanan (referred to as Venkat) is beyond the permissible limit under the I-T Act, according to sources in the tax department. 

An e-mail sent to Tata Trusts, chaired by Ratan Tata, did not elicit any comment. Sources in the know said the I-T order was being contested. The last date to file an appeal was January 31. 

The Sir Dorabji Tata Trust, along with the Sir Ratan Tata Trust, is the biggest under the umbrella of Tata Trusts, a cluster of charitable organisations controlling 66 per cent of Tata Sons, the holding company of the group. 

Section 11 of the I-T Act deals with the exemption of income derived from property held in a trust or other organisations linked to religious or charitable purposes. 

R Venkataramanan, Managing Trustee of Sir Dorabji Tata Trust

Explaining the process, a source in the I-T department said an assessing officer would verify the ‘exempt’ on the basis of what one has filed for. In this case, a compensation amount of Rs 2.5 crore has been reflected in the Trust’s audited books for assessment year 2015-16. The tax department had issued notices last year, seeking explanation on the amount paid. However, submissions made by the Trust were not satisfactory, he said. “So, accordingly, the order has been issued.’’ 

“Excessive payment has been made to the managing trustee, who is one of the categories of persons mentioned in Section 13(3) of the I-T Act, despite the cost of the service being lower,’’ according to the official privy to the order.         

A source close to the Trust said the compensation to the managing trustee was as per the ‘deed’ . Any call on compensation is taken by board of the Trust, he said, adding the position of a managing trustee is different from a trustee. “A managing trustee is more like a CEO or MD of a company,’’ he added.  This is not the first time that Tata Trusts is facing a tax-related challenge. In 2013, a report by the Comptroller and Auditor General (CAG) had flagged the issue about Tata Trusts earning a huge profit by spending less on charitable purposes and accumulating it as surplus.  

Tata Trusts was established in 1919, but the activities took off in a big way when Sir Dorabji Tata set up a trust in 1932. Over the years, the significance of the Trusts has grown in terms of its commercial interest in the Tata group and the power it holds, even as charity remains a core area, according to people in the know.

I-T heat on Tatas

The allegations

• Sir Dorabji Tata Trust violated conditions for tax exemption 

• Compensation paid to managing trustee beyond permissible limit 

• Excessive payment reflects in assessment of FY16 books 

• Notices sent to Trusts after review of the books

What Tata insiders say

• The Trust deeds have the compensation clause 

• Board decides the terms of compensation to trustee 

• Will contest the denial of tax exemption