SIR RATAN TATA TRUST,MUMBAI SUBURBAN vs. ADDITIONAL /JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX, NFAC, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE MS PADMAVATHY S, AM & SHRI RAHUL CHAUDHARY, JM I.T.A. No. 4154/Mum/2023 (Assessment Year: 2014-15) Sir Ratan Tata Trust DCIT(Exemption)-2(1), Bombay House, 24, MTNL Tele Building, Homi Mody Street, Fort, Cumballa Hills, Peddar Road, Vs. Mumbai-400001 Mumbai-400026. PAN : AAATS1013P

Appellant) : Respondent)

I.T.A. No. 4156/Mum/2023 (Assessment Year: 2018-19) Sir Ratan Tata Trust Addl./Joint/Deputy/Asst. CIT, Bombay House, 24, National Faceless Assessment Homi Mody Street, Fort, Centre-2(1), Vs. Mumbai-400001 MTNL Tele Building, PAN : AAATS1013P Cumballa Hills, Peddar Road, Mumbai-400026. Appellant) : Respondent) Appellant/Assessee by : Shri P. J. Pardiwala a/w Shri Sukhsagar Syal, AR Revenue/Respondent by : Shri Sanyogita Nagpal, CIT-DR Date of Hearing : 22.07.2024 Date of Pronouncement 26.08.2024 :

2 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust O R D E R Per Padmavathy S, AM: 1. These two appeals by the assessee are against the orders of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre, Delhi [for short 'the CIT(A)'] both dated 29.09.2023 for Assessment Year (AY) 2014-15 & 2018-19. The issues contended in both the appeals are common and therefore these appeals were heard together and disposed of by this common order.

3 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust more than 85% of its income for charitable purposes as per the objects of the assessee and accordingly claimed exemption under section 11 of the Act. The assessee's case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer (AO) called on the assessee to furnish the details of assessee's holding in Tata Sons Ltd., against which the assessee has received the dividend income and as to why the dividend income earned by the assessee should not be brought to tax. The AO also called on the assessee to show cause as to why the provisions of section 13(1)(d) and section 13(2)(h) are not applicable in assessee's case.

Violation of section 13(1)(d) of the Act

4 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust 11(5) after 30.11.1983 is to be included in the taxable income of the assessee Trust. Accordingly the AO held that the exemption under section 11 is not available to the assessee for the reason that funds of the assessee trust remained invested in shares of Tata Sons Ltd during the current year which is in violation of section 13(1)(d).The AO placed reliance on the decision of the coordinate bench in the case of Jamsetji Tata Trust (ITA No. 7006/Mum/2013 for AY 2010- 11 for AY 2010-11) in this regard.

5 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust para 4.3 pg. 5 of AO's order) is factually incorrect and that the details does not pertain to the assessee. The ld. AR brought to our attention that the coordinate bench in assessee's own case for AY 2014-15 ([2020] 122 taxmann.com 273 dated 28.12.2020) in the appeal against the revision order section 263, has considered the issue of applicability of section 13(1)(d) on merits and held that that the investment of the assessee Trust were held as corpus and the provisions of section 13(1)(d) were not applicable to the assessee. Accordingly, the ld. AR summarized that the investments made by the Trust in Tata Sons which is held as corpus is covered by the exceptions under the proviso to section 13(1)(d) of the Act and therefore the exemption under section 11/12 cannot be denied.

6 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust

Section 11 not to apply in certain cases. 13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof— (a) **** (b) **** (c) **** (d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year— (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii) any shares in a company, other than— (A) shares in a public sector company; (B) shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th day of November, 1983: Provided that nothing in this clause shall apply in relation to— (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973; (ia) any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus shares allotted to the trust or institution; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation) acquired by the trust or institution before the 1st day of March, 1983; (iia) any asset, not being an investment or deposit in any of the forms or modes specified in sub-section (5) of section 11, where such asset is not held by the trust or institution, otherwise than in any of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1993, whichever is later;

7 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust (iii) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year. Explanation.—Where the trust or institution has any other income in addition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business. (emphasis supplied)

8 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust 1994-95 Bonus Shares received 1:1 21,158 42,316 1997-98 Bonus Shares received 1:2 21,158 63,474 1999-2000 Bonus Shares received 1:2 31,737 95,211 2000-2001 to No Variations - 95,211 2018-19 Total - As on 95,211 31.03.2014

9 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust Act, and in not examining whether the assessee is covered by the exceptions carved out under proviso to Section 13(1)(d). 31. So far as this aspect of the matter is concerned, we have noted that the Assessing Officer has extensively examined the compliance with the requirements of Section 11(5) and Section13(1)(d) of the Act. Vide letter dated 2nd December 2016, the Assessing Officer specifically asked the assessee “whether any investment of the trust for last three years is in contravention of Section 11(5) of the Income Tax Act, 1961. Also, whether any investment of the trust in the last three years is covered by the provisions of Section 13(1)(d), please specify the same”. In reply to this requisition, the assessee had duly furnished all the details of the investments held by the assessee. It was also categorically confirmed that these investments did not violate the provisions of Section 11(5) and 13(1)(d). In Annexure 1 to the letter dated 9th December 2016, the assessee filed complete details of all the scrips, the bifurcation of shares held as on 1 st June 1973 and subsequent bonus shares allotted in connection with the holdings as on 1st June 1973, and it was thus made clear that no investments were made after 1st June 1973. The complete specific details about holdings in each of these shares as on 1st June 1973, and accretion in these holdings on account of allotment of bonus shares thereafter, were in 9 pages- and copies of these details were also furnished before us at pages 216- 223 of the paper book filed before us. All these details were also furnished in the yearend financial statements, which were duly filed with the Assessing Officer. The Assessing Officer categorically notes this and observes that “the assessee has to follow the accumulation provisions of Section 11(2), specific modes of investment/ deposits under section 11(5) and other related provisions of Section 13”. Satisfied with the details filed by the assessee, the Assessing Officer had no issues with respect to section 11 and 15, and he noted that the income derived from property held under trust, which included these investments, is covered by the exemption under section 11 and, accordingly, he disallowed exemption of dividend under section 10(34). Learned Commissioner does not dispute these facts but adds that the Assessing Officer did not examine the fundamental question as to whether these shareholdings, as on 1st June 1973, were part of the corpus or not. Unless, according to the learned Commissioner, these shareholdings were held to be part of the corpus of the trust, these investments can not be held to be permissible investments under section 13(1)(d), and it is Assessing Officer’s not looking into this aspect of the matter that rendered the subject assessment order erroneous and prejudicial to the interests of the revenue. 32. There is no dispute with the proposition that in terms of the provisions of Section 11(1)(d)(iii) the assessee trust could not have invested in the shares of a company, other than in shares of a public sector company or shares prescribed

10 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust as a form or mode of investment under clause (xii) of Section 11 (5), after 30th November 1983. None of these conditions are satisfied in the present case. However, proviso to Section 13(1) (d) states that nothing in the clause, containing aforesaid provision, will apply to, inter alia, “ (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973; and (ia)any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus shares allotted to the trust or institution”. Therefore, as long as the shares are part of the corpus, as on 1st June 1973, or the shares are received as accretion to the shares being held to be part of the corpus, the provisions of Section 13(1)(c) will not come into play. 33. It is an admitted position that the shares becoming part of the investment, after 1 st June 1973, were accretion to the original shareholdings as on 1st June 1973 and these were allotted as bonus shares only. So far as the question of the shares being part of ‘corpus’ is concerned, the current financial period was over forty years after the cut-off date of 1st June 1973, and in none of those forty-plus years, the exemption was declined on the ground that these shares were not part of the corpus. There was no good reason to doubt these shares being part of the corpus. As we have noted earlier, an Assessing Officer can only be faulted for doing anything less than “what an Assessing Officer, in the course of his performance of his duties as an Assessing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bonafide in a real-life situation”. Viewed thus, we cannot fault the conduct of the Assessing Officer in not disturbing, or even not probing, something being constantly accepted for over four decades- particularly when there is no occasion or trigger to re-examine that aspect of the matter in this particular year and when there is no change in legal or factual position in this particular year. It may also be noted that, as pointed out to us by the learned counsel, the assessee trust was notified as an institution established for charitable purposes under section 10(23C)(iv), and this notification has been renewed from time to time. The conditions precedent for grant of notification under section 10(23C) were similar to section 13(1)(d) inasmuch as it was provided that if the funds were invested in modes other than those specified under section 11(5), the benefit of 10(23C) would not be available but an exception was made if such assets were to form part of the corpus as on 1st June 1973. On these facts, while granting the exemption under section 10(23C), Under Secretary in the Central Board of Direct Taxes, Govt of India, vide letter no 197/126/91-ITA-I dated 31st July 1992, had written a letter to the assessee trust seeking clarification whether all the shares form part of the corpus. The assessee trust, vide letter dated 21st August 1992, had clarified the said position, and it was only thereafter, on 10th May 1993, notification was issued by the Government of India notifying the assessee trust under section 10(23C). These facts, which are set out on page 17

11 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust of the second compilation filed before us, do show that the assessee trust was accepted to be holding these shares as part of the corpus by the CBDT itself. When an issue has been decided in a certain way by the CBDT, it cannot normally be open to the field officers to question the correctness of that position- particularly when it’s a factual aspect, and this factual aspect has been found in a particular manner, and no interference in these settled facts is warranted on account of any particular reason. 34. & 35. **** “36. In any event, even if these investments were to be held to be contrary to the provisions of Section 11(5), all that could have been done by the Assessing Officer was to decline exemption under section 11 in respect of income from these investments, i.e., dividends, which, for the reasons we will set out now, is completely tax neutral for the assessee. In support of this consequence of investment being in violation of the provisions of Section 11(5), we may draw support from the following observations made by Hon’ble jurisdictional High Court, in the case of DIT Vs Sheth Mafatlal Gaganbhai Foundation Trust [(2001) 249 ITR 533 (Bom )]: In other words, only the non-exempt income portion would fall in the net of tax as if it was the income of an AOP. Section 11(5) lays down various modes or forms in which a trust is required to deploy its funds. Section 13(1) lays down cases in which section 11 shall not apply. Under section 13(1)(d)(iii), it has been laid down that any share in a company, not being a Government company, held by the trust after 30- 11-1983 shall result in forfeiture of exemption. By virtue of the proviso (iia) it has been laid down that any asset which does not form part of permissible investment under section 11(5) shall be disposed of within one year from the end of the previous year in which such asset is acquired or by 31-3-1993, whichever is later. In the present case, the assessee was required to dispose of the shares under the said proviso by 31-3-1993 [See the judgment of this Court in IT Appeal No. 81 of 1999 dated 14-9-2000]. The shares have not been disposed of even during the assessment year in question. Now, under section 164(2), it is, inter alia, laid down that in the case of relevant income which is derived from property held under trust for charitable purposes, which is of the nature referred to in section 11(4A), tax shall be charged on so much of the relevant income as is not exempt under section 11. Section 164(2) was reintroduced by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989. Earlier it was omitted by the Direct Tax Laws (Amendment) Act, 1987. However, the Legislature inserted a proviso by the Finance Act, 1984 with effect from 1-4-1985. By the said

12 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust proviso, it is, inter alia, laid down that where whole or part of the relevant income is not exempt by virtue of section 13(1)(d), tax shall be charged on the relevant income or part of the relevant income at the maximum marginal rate. The phrase ‘relevant income or part of the relevant income’ is required to be read in contradistinction to the phrase ‘whole income’ under section 161(1A). This is only by way of comparison. Under section 161(1A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, the tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases shows that the Legislature has clearly indicated its mind in the proviso to section 164(2) when it categorically refers to forfeiture of exemption for breach of section 13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax 37. The insertion of subsection (6) and (7) to Section 11, it may be added, is effective from 1st April 2015, and, therefore, the tax exemption under section 10(34), so far as the present assessment year is concerned, cannot be disturbed. In any event, since the income from dividends was exempt under section 10(34), as the aforesaid amendments had not come into effect at that point of time, it was completely tax neutral, even if these amendments can be said to have any influence on the taxability of dividends, as to whether or not income from the dividends in these shares is eligible for exemption under section 11 or not. As a matter of fact, the Assessing Officer has declined the exemption under section 10(34) only on the ground that the assessee was eligible for exemption under section 11 on this income. Therefore, even if the assessee is to be declined exemption under section 11 in respect of dividend income on these shares, he will be eligible for exemption under section 10(34). In the case of DIT Vs Jasubhai Foundation [(2016) 374 ITR 315 (Bom)], Hon’ble jurisdictional High Court has also observed as follows: …….The provisions, namely, sections 10 and 11 fall under a Chapter which is titled “Incomes Which Do Not Form Part of Total Expenditure” (Chapter III). Section 10 deals with incomes not included in total income whereas section 11 deals with income from property held for charitable or religious purposes. We have not found anything in the language of the two provisions nor was Mr. Malhotra able to point out as to how when certain income is not to be included in computing total income of a previous year of any person, then, that

13 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust which is excluded from section 10 could be included in the total income of the previous year of the person/assessee. That may be a person who receives or derives income from property held under trust wholly for charitable or religious purposes. Thus, the income which is not to be included in computation of the total income is a matter dealt with by section 10 and by section 11 the case of an assessee who has received income derived from property held under trust only for charitable or religious purposes to the extent to which such income is applied to such property in India and that any such income is accumulated or set apart for application for such purposes in India to the extent of which the income so accumulated or set apart in computing 15% of the income of such property, is dealt with. Therefore, it is a particular assessee and who is in receipt of such income as is falling under clause (a) of sub- section (1) of section 11 who would be claiming the exemption or benefit. That is a income derived by a person from property. It is that which is dealt with and if the property is held in trust for the specified purpose, the income derived therefrom is exempt and to the extent indicated in section 11(1)(a) of the Income Tax Act, 1961. There is nothing in the language of sections 10 or 11 which says that what is provided by section 10 or dealt with is not to be taken into consideration or omitted from the purview of section 11 38. **** 39. These reasons are, however, not the only reasons as to why the stand of the Commissioner, in invoking section 263, is wholly unsustainable in law. Even on merits, for the reasons we will set out now, it is clear that the investments in questions were held as the corpus, and, as such, the provisions of Section 13(1)(d) were not attracted. 40. Explaining the scope of expression “corpus,” Hon’ble Karnataka High Court, in the case of DIT Vs Shri Ramakrishna Seva Ashram [(2013) 357 ITR 731 (Kar)] has observed as follows: 11. The word ‘corpus’ is not defined under the Act. We do not find any judgment explaining the meaning of ‘corpus’. In the Chambers 21st Century Dictionary, the meaning of the word ‘corpus’ has been given as under: (i) body of writings, eg: by a particular author, on a particular topic, etc.;

14 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust (ii) a body of written and/or spoken material for language research; (iii) anatomy any distinct mass of body tissue that may be distinguished from its surroundings. Latin: meaning-’body’. 12. In the Law Lexicon of P. Ramanatha Aiyar, 2nd Edition reprint- 208 the meaning of the word ‘Corpus’ is given as under: “ A Body; human body; an artificial body created by law; as a corporation; a body or collection of laws; a material substance; something visible and tangible; as the subject of a right; something having legal position as distinguished from an incorporeal physical substance as distinguished from intellectual conception; the body of estate; or a capital of on estate.” 13. The word ‘Corpus’ is used in the context of Income Tax Act. We have to understand the same in the context of a capital, opposed to an expenditure. It is a capital of an assessee; a capital of an estate; capital of a trust; a capital of an institution. Therefore, if any voluntary contribution is made with a specific direction, then it shall be treated as the capital of the trust for carrying on its charitable or religious activities. Then such an income falls under Section 11(d) of the I.T. Act and is not liable to tax. Therefore, it is not necessary that a voluntary contribution should be made with a specific direction to treat it as ‘corpus’, If the intention of the donor is to give that money to a trust which they will keep it in trust account in deposit and the income from the same is utilised for carrying on a particular activity, it satisfies the definition part, of the corpus. The assessee would be entitled to the benefit of exemptions from payment of tax levied. 14. In fact the Bombay High Court in the case of Trustees of Kilachand Devchand Foundation v. CIT [1988] 172 ITR 382/[1987] 32 Taxman 393 dealing with the said voluntary contribution made for a charitable purpose, held that for being eligible for exemption, the donations must be voluntary and of a capital nature. That cannot be applied to charitable or religious purposes if the income thereof they must be so applied. The contribution made expressly to the capital or corpus of trust fall within the purview of sub-section (2) of Section 12. Therefore, such contributions cannot be be deemed to be the income derived from

15 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust the property for the purpose of Section 11 of the said Act and provisions of Section 11 will not apply. 15. The Rajasthan High Court in the case of Sukhdeo Charity Estate v. ITO [1991] 192 ITR 615 (Raj.) dealing with such contributions held that, the principles enunciated in various cases when applied to the present case, leave no room for debate that the intention of the donor- trust as well as donee-trust was to treat the money as capital to be spent for Ladnu Water Supply Scheme. It is of no consequence whether the amount had since been paid to the State Government or kept in the account of the above-referred scheme by the assessee-trust. From whatever angle it may be seen, the deposited amount cannot be said to be income in the hands of the recipient-trust. Therefore, what ultimately reveals that,-(i) the intention of the donor and (ii) how the recipient-assessee treat the said income. If the intention of the donor is that the amount/donation given is to be treated as capital and the income from that capital has to be utilised for the charitable purposes, then the said voluntary contribution is towards the part of the corpus of the trust. Similarly, the assessee after receiving the amount, keeps the amount in deposit and only utilise the income from the deposit to carry out the charitable activities, then also the said amount would be a contribution to the corpus of the trust and the nomenclature in which the amount is kept in deposit is of no relevance as long as the contribution received are kept in deposit as capital and only the income from the said capital which is to be utilised for carrying on charitable and religions activities of the institute/corpus of the trust, for which Section 11(i)(d) of the Act is attracted and the said income is not liable for tax tinder the Act. [Emphasis, by underlining, supplied by us] 41. What essentially follows is that it’s not the declaration of an investment being a corpus investment but the fact of its being treated as capital and rather than using the investment for the purposes of the trust, using the income from investment for the purposes of the trust, which is determinative of its being in the nature of corpus investment. How the trust is treating the investment, i.e., in the capital field or not, is thus truly determinative of the investment being part of the corpus. Viewed thus, the mere fact of these investments being held as capital for at least more than four decades-as conclusively established by the material before the Assessing Officer, and only income from these investments being applied for the purposes of the trust, clearly establishes the fact of these investments being part of the corpus of the trust.

16 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust 42. In view of the foregoing discussions, as also bearing in mind the entirety of the case, learned Commissioner was clearly in error in invoking powers under section 263 on the ground that the Assessing Officer failed to examine the investments of the trust complying with the provisions of Section 11(5) and Section 13(1)(d) of the Act. We disapprove his action on this point as well.

Violation of section 13(2)(h) of the Act

17 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust 14. The AO has held that the assessee has violated the provisions of section 13(2)(h) for the following reasons: (i) The AO concluded that Mr. Ratan Tata (referred by the AO as founder trust of the assessee) has invested in a concern in which he was the Chairman and that he is having substantial interest in Tata Sons Ltd. (ii) Tata Sons Ltd. is an interested party in terms of section 13(3)(b) of the Act as it has contributed more than Rs. 50,000/- to the assessee. (iii) The AO placed reliance in the case of Jamsetji Tata Trust for AY 2010- 11.

18 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust ordinate Bench in the case of JRD Tata Trust vs. ITO (ITA No. 3082/Mum/2018 for AY 2012-13) where under similar facts the Tribunal has held that being a Chairman in a company would not amount to holding substantial interest as per Explanation 3 to section 13. Therefore on that count also there would be no violation of section 13(2)(h) of the Act. Without prejudice to the above submissions, the ld. AR submitted that as per section 13(2)(h) the benefit of provisions of section 11 is not available, if the funds of the Trust are "invested" or remain invested in any previous year in any concern in which person referred to in section 13(3) of the Act has substantial interest. The ld. AR submitted that the assessee has received the equity shares in Tata Sons Ltd. as corpus donation and the assessee has not invested in the equity shares. Therefore, the ld. AR submitted that there is no violation of section 13(2)(h) on that count also.

19 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust partly by such person and partly by one or more of the other persons referred to in sub-section (3) *** (ii)

20 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust would have been violative of section 13(2)(h) if any of its trustees [or any other person referred to in sub- section (3)] held shares in the four companies carrying more than 20% voting power. In the course of the proceedings, the Annual Reports of all four companies for the F.Y. 2011-12 were submitted. Reference was made to the schedule containing disclosure of the shareholders holding more than 5% equity shares of the company and it was pointed out that neither Mr. Ratan N. Tata, nor any other persons referred to in sub-section (3) held more than 5% equity/voting power in any of the four companies. Therefore, the question of holding shares carrying more than 20% voting power in the companies does not arise. In light of the above, I am of the view that being a chairman in a company does not amount to holding a 'substantial interest' therein in terms of the clear mandate of Explanation 3 to section 13 of the Act. Hence, I am of the view that the assessee has not violated the provision of section 13(2)(h) of the Act and hence, on both grounds assessee succeeds. 19. We also notice that the coordinate bench in assessee's own case (supra) while adjudicating the appeal against the revision order under 263, has considered a similar issue and held that – 53. As noted by the learned Commissioner in para 9.4 of his order, "the assessee has submitted that none of the trustees as on 31-3-2014 hold substantial interest in Tata Sons Ltd and, therefore, the provisions of section 13(2)(h) of the Income- tax Act, 1961 are not applicable". His objection, however, is that "the submission of the assessee, however, requires verification because in section 13(3), there are different clauses the application of which needs to be examined to find out whether the investment is with any connected person" and that the assessee itself has more than 20% equity investment in Tata Sons Ltd. Learned Commissioner has also relied upon a decision of the Tribunal, in the case of Jamshedji Tata Trust v. JCIT [ITA No. 7006/Mum/2013; AY 2010-11], to justify the need for greater probe into the matter. These objections are, however, devoid of any legally sustainable merits. Once the assessee clarifies that none of the trustees have any substantial interest in Tata Sons Ltd, and Section 13(2)(h) is not applicable, that should be the end of the matter, unless, of course, there is anything on record, or in the knowledge of the Assessing Officer, which indicates to the contrary. The fact that the assessee trust itself had over 20% equity investments in Tata Sons Limited does not suggest or imply that the trustees must also be having 'substantial interest' in Tata Sons Limited. It is not even the case of the revenue, even today, nor is there any material even prima facie indicating that any of the persons specified under section 13(3) has substantial holdings in Tata Sons Ltd. It cannot, therefore, be open to the Commissioner to hold the order erroneous and prejudicial to the interests of the revenue that this aspect of the matter, regarding indirect or associated holding as emerging out of the

21 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust scheme of section 13(3), has not been thoroughly investigated. In any event, there was nothing to trigger or justify such a thorough probe. The decision of the coordinate bench in Jamshedji Tata Trust (supra) is in the case of some other assessee, not this assessee, and there is nothing to justify the application of section 13(2)(h) in this case. The relevant observation made in the said decision is anyway a sweeping observation based on conviction, rather than material on record, as it states that "As far as the violation of clause (h) of section 13(2) is concerned we find that the author of the assessee trust and its relative definitely have a substantial interest in the Tata Sons Ltd, therefore, the investment in the shares of Tata Sons Ltd is a clear violation of clause (h) of section 13(2)". No basis of this observation, or relevance of the same to the present fact situation, is evident from the material on record. We see no relevance of this observation in the present context. We are thus unable to find anything in support of the contention that any direct or indirect benefit under section 13(1)(c) read with section 13(2)(h) was obtained by the specified persons under section 13(3), or that lack of reasonable inquiries in this regard would render the subject assessment order erroneous and prejudicial to the interests of the revenue. When none of the specified persons under section 13(3) are stated to have any substantial interest in Tata Sons Ltd, and when there is nothing on record to even suggest incorrectness of this averment of the assessee, the question of direct or indirect benefit under section 13(1)(c) read with section 13(2)(h) does not arise, and, as is well settled, provisions under section 263 cannot put into service to make some roving and fishing inquiries.

22 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust 13(2)(h) cannot be applied in assessee's case and the benefit of section 11 cannot be denied for that reason.

ITA No. 4156/Mum/2023- AY 2018-19

23 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust sections are not applicable to assessee Trust and that the benefit of section 11 cannot be denied. The facts for AY 2018-19 are identical and the AO/CIT(A) for this year have given similar reasons for denying the benefit of section 11 to the assessee Trust. Therefore we are of the view that our decision in AY 2014-15 are mutatis mutandis applicable for AY 2018-19 also. Accordingly we hold that the assessee has not violated the provisions of section 13(1)(d) and 13(2)(h) and that benefit of section 11 cannot be denied to the assessee.

Violation of provisions of section 13(1)(c)

Sr. No. Name of Ex-Director Payment Rs. In Nature of Payment Lakhs 1 Mr. R.N. Tata 510.47 Retirement pension including perquisites.* 2 Mr. N.A. Soonawalla 99.00 Retirement pension including perquisites.* 3 Mr.Amit Chandra 75.00 Non-executive director commission **

24 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust which can constitute direct or indirect benefit as per provisions of section 13(1)(c) of the Act. The AO held that no proper justification is provided for payment of such huge sums to the Trustees which is in clear violation of section 13(1)(c). The assessee submitted before the AO that these payments were made as per the Board Resolution of Tata Sons Ltd. and that these were paid towards past services rendered by the Trustees. However, the AO did not accept the submissions of the assessee and held that the assessee is not entitled for exemption under section 11 since there is a violation of section 13(1)(c). The relevant observations of the AO in this regard are extracted below:

“5.7 It is evident from the facts regarding the payments made by TSL to the persons mentioned above that, there are variations and inconsistencies in the payments made to persons having similar profile. TSL has chosen to not provide any basis or justification for making said payments. It is hard to believe that a listed company like TSL would not be having a stated policy and procedure for making payments of remuneration and perquisites to the persons holding senior positions in the organisation. TSL was specifically asked to provide substantiation and the rationale for making the said payments. In absence of any explanation, the undersigned have no option but to draw conclusions on the basis of the bare facts before me. As per the facts of the payments, as enumerated earlier, there are inconsistencies and variations in the payments made to similarity positioned persons. It is also not known whether the payments were commensurate to the services provided. In such circumstances, the undersigned is compelled to conclude that the provisions of section 13(1)(c) are attracted in this case on account of inconsistent and unsubstantiated payments made by TSL to the persons specified u/s 13(3) of the act. The provisions of section 13(1)(c) are as under: 13. (1) Nothing contained in section 11/or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a)……. (b)[***] (c) in the case of a trust for charitable or religious purposes or a charitable or Religious institution, any income thereof-

25 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust

(i) if such trust or institution has been created or established after the Commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income ensures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in subsection (3): 5.8 The opening lines of clause (1) and the opening lines of sub-section (c), if read together, makes it clear that nothing contained in Section 11 or Section 12 shall operate so as to exclude from the total income of the previous year, any income of such charitable or business institution. In view of the above provisions and the factual findings discussed in earlier paragraphs the benefit of Section 11 or Section 12 cannot be given to the assessee trust in respect of its entire income. Accordingly, the exemption u/s. 11 claimed by assessee trust is, hereby, denied.” 27. The ld. AR submitted that the provisions of section 13(1)(c) are applicable only in cases where the Trust making the payment out of the income of the Trust and not when the Trustees are receiving the payment. The ld. AR further submitted that these payments are made by Tata Sons Ltd. as per the Board Resolution for the past services rendered by the Trustees and the only reason for invoking section 13(1)(c) is that the payments could not be substantiated. The ld. AR further submitted that since the payments are made towards past services the details pertaining to whether the payments are commensurate with the services rendered could not be substantiated by the assessee and this cannot be basis for denying benefit of section 11. The ld. AR also brought to our attention to the fact that in the case of Tata Sons Ltd. the impugned payments have been allowed as a deduction. The ld. AR further brought to our attention that in assessee's own case against the order passed under section 263 the Tribunal has held that there is no violation of section 13(1)(c) of the Act.

26 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust 28. The ld. DR on the other hand submitted that when payments received by the Trustees from Tata Sons Ltd. is not properly substantiated when the AO has correctly made the addition for the reason that the Trustees are taken benefit from Tata Sons Ltd. Accordingly, the ld. DR supported the order of the lower authorities.

27 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust consideration of their services rendered in the past to Tata Sons Ltd, and have nothing to do with their role as trustees as such, it is important to bear in mind the fact that in order to invoke 13(1)(c), the "benefit" has to be out of the trust property. The assessee trust has made investments in Tata Sons Ltd, but that does not mean that Tata Sons Ltd is a property of the assessee trust- a proposition blatantly erroneous in law and in concept. What has been paid to the persons holding office as trustees, though in consideration for other roles played by them such as former directors and employees, has nothing to do with the determination of benefits to the trustees. The pension payments to Ratan N Tata and N A Soonawala, for example, have been held to be wholly and exclusively for the purposes of the business of Tata Sons Ltd. [ITA No. 4630/Mum/16], and, therefore, the stand that these payments amounted to benefit to the trustees is ex facie incorrect.

Violation of section 2(15) of the Act

28 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust rights by the assessee. The ld AR further submitted that the assessee being a shareholder has the right to nominate directors as per the Articles of Association of Tata Sons Ltd., and as held by the Hon'ble Supreme Court in the case of Vodafone International Holdings BV v. Uol ((2012) 6 SCC @ 637- 638) control and management is a facet of holding of shares and cannot be dissected from the shares themselves. The ld AR also submitted that even assuming the assessee Trust has control over Tata Sons Ltd., it does not follow that the Trust is engaged in carrying on of any activity in the nature of trade, commerce or business that is in violation of section 2(15) of the Act. The ld AR argued that the rights of the assessee trust by being shareholder bring with it a degree of control, but the same does not mean the Trust ceases to be a charitable institution or loses its charitable objects or the company (Tata Sons) becomes the "property" of the Trust or the business of the company becomes the "business" of the Trust.

The ld AR further argued that dividend yielded from shareholding is taxed as 'income from other sources' and not as 'business income and therefore mere shareholding in a company cannot be termed as a commercial / business activity, unless such shareholding is byway of trading in stock and shares. The ld AR also relied on the findings of the coordinate bench in assessee's own case (supra) adjudicated against the revision order under section 263, where the Tribunal has considered the issue of whether the assessee Trust is engaged in business by exercising "control" over the business of Tata Sons Ltd.

29 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust correctly held that the assessee has violated the provisions of section 2(15) of the Act.

56 . A lot of emphasis is placed by the learned Commissioner on the stand that since the assessee trust controls Tata Sons Ltd, the assessee trust is not entitled to the benefit of sections 11 and 12. 57. The concept of control over a company in which investment is made by the assessee trust is completely alien to the scheme of the Income-tax Act, 1961, so far as taxation of charitable institutions is concerned. Unless there is a specific disabling clause to that effect, merely because the assessee trust has control over the investee company, the benefits envisaged for the charitable institutions, which meet other statutory requirements, cannot be declined. Once it is found that the assessee trusts hold shares in a certain company, all that is required to be seen is whether these shares are held validly under section 11(5) read with Section 13(1)(d) of the Act- an aspect which has been found to be in order in the light of the detailed analysis earlier in this order. No legal embargo on the voting rights of the assessee trust or legal restrictions in the rights of the assessee trust to invest in the companies in which investments have been made have been shown to

30 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust us. Quite clearly, therefore, the assessee trust validly holds these shares in Tata Sons Ltd, there is no legal embargo on the voting rights of the assessee trust or the manner in which these rights are exercised, and there are no legal restrictions to the rights that the assessee trust can have like any other shareholder in the company in which investments are made. There is no question of the assessee trust not exercising its rights as a shareholder in any manner less than an ordinary shareholder, as the position of the assessee trust, as a shareholder, is the same as that of any other shareholder. It is the duty of the assessee trust to protect the assets held by the assessee trust in a fair and reasonable and lawful manner. 58. As we have noted, the business model of ownership of Tata Sons Ltd, a holding company having investments in the group companies, is somewhat unique in the sense that majority shareholding in this holding company is collectively in the hands of various charitable institutions, including the assessee before us, and the articles of association of Tata Sons Ltd has, in recognition of this ownership model, granted certain rights to these charitable institutions on a collective basis- as long as these charitable institutions collectively hold not less than 40% of the shareholdings in Tata Sons. It is important to bear in mind the fact that these rights have been granted to these charitable trusts, and the assessee before us is only of these trusts, on a collective basis, and not to this assessee alone. Therefore, these rights, even if material, are not relevant in so far as control by this assessee is concerned. The assessee trust cannot, therefore, be said to be having control over the affairs of Tata Sons. In any case, as held by Hon'ble Supreme Court in the case of Arcelor Mittal India (P.) Ltd. v. Satisk Kumar Gupta & Ors. [2019] 2 SCC 1, the expression 'control' implies a 'positive and proactive' power and not 'merely a negative or reactive power'. Undoubtedly, by virtue of article 104 B of the articles of association, the Tata Trusts can collectively nominate one-third of the prevailing number of directors, but these directors on their own cannot pass the resolutions, they can at best stall the resolution in the exercise of their powers. Nothing much turns on these rights under the article of association, on which so much emphasis has been placed by the learned Commissioner because, given the fact that Tata Trusts collectively hold the majority, these provisions are really infructuous. These provisions would have been of practical relevance only when the collective shareholdings of Tata Trusts were to be less than the majority but more than 40% of shareholdings. Whatever rights Tata Trusts have with respect to Tata Sons is whatever any majority shareholders would have had in Tata Sons anyway. As long as the investments in Tata Sons meets the tests of what is permissible in law, an issue that we have decided in favour of the assessee for the detailed reasons set out earlier in this order, no objection can be taken to the powers that flow from such shareholdings or any powers within the limits of those powers.

31 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust 35. Though the Tribunal has not directly held that the assessee has not violated the provisions of section 2(15) as argued by the ld DR, the Tribunal has clearly held that whatever rights the assessee Trusts is having with respect to Tata Sons Ltd., is whatever any majority shareholders would have had in Tata Sons Ltd., anyway and that section 11 benefits cannot be denied for that reason. Therefore the assessee Trust cannot be held to be engaged an activity in the nature business merely for the fact that it has certain rights conferred by virtue of being the shareholder in Tata Sons. The ld AR brought to our attention that the right to nominate 1/3rd of Board of Directors in Tata Sons Ltd., is to protect the shareholding interest of the assessee Trust and the Directors thus nominated constitute a minority (1/3rd) and cannot / do not conduct any business activity. In this regard it is relevant to take note that the Hon'ble Supreme Court in the case of Tata Consultancy Services Ltd vs Cyrus Investments Pvt Ltd (Civil Appeal No.440-441 of 2020 dated 26.03.2021) has observed that "a person nominated by a charitable Trust to be a Director in a company in which the Trust holds shares also holds a fiduciary relationship with the Trust and fiduciary duty towards the nameless, faceless beneficiaries of those Trusts". (Para 19.24 in page 334 of PB) Therefore in our considered view there is merit in the submission that the right to nominate persons to be a director of Tata Sons Ltd., is to protect the interest of assessee Trust and the numerous beneficiaries who are benefitted by the activities of the Trust by utilizing the Dividend earned from Tata Sons Ltd., which is a major source of income for the assessee Trust. The fact that the income of the Trust consists of Dividend and other donations and does not include any income from business proves that the assessee is not engaged in any activity in the nature of business. Further the income of Tata Sons Ltd is taxed in its own hand and not in the hands of the assessee also supports the contention that the assessee Trust is not engaged in any business activity. In view of these

32 ITA No. 4154 & 4156/Mum/2023 Sir Ratan Tata Trust discussions and judicial pronouncements above, we hold that the Trust is not hit by the proviso to section 2(15) of the Act and accordingly, exemption under section 11 of the Act cannot be denied to the assessee Trust. It is ordered accordingly.

Order pronounced in the open court on 26-08-2024.

Sd/- Sd/- (RAHUL CHAUDHARY) (MS. PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai