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

The assessee made detailed submissions before the AO in this regard. However, the AO did not accept the submissions of the assessee and held that the assessee's holdings in Tata Sons Ltd is in violation of section 13(1)(d) and accordingly the exemption under section 11 cannot be claimed by the assessee. The AO further denied the exemption under section 10(34) of the Act to the assessee for the reason that the Trust is not entitled for the said exemption. The AO also held that the Mr.Ratan Rata being a Trustee of the assessee is holding shares in Tata Sons Limited and therefore there is a violation of section 13(2)(h) and for that reason also the assessee is not entitled to claim exemption under section 11 of the Act.Accordingly, the AO assessed the income of the assessee at Rs. 10,49,40,140/-. On further appeal, the CIT(A) confirmed the additions made by the AO. The assessee is in appeal before the Tribunal against the order of the CIT(A).

The AO held that any income of the arising out of the investments in shares other than Public Sector Company or in the modes specified in section & 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.

The ld. AR submitted that the investments made in assessee's case is covered under the exceptions provided under the proviso to section 13(1)(d) of the Act according to which if any assets held by the trust where such assets form part of the corpus of the trust as on the 01.06.1973, then provisions of section 13(1)(d) are not applicable. The ld. AR further submitted that the equity shares held by the assessee as on 31.03.2014 consists of corpus donations which was received in the year 1919 along with the acquisition till 01.06.1973 and that the accretion to the corpus donations are all in the form of bonus shares to which section 13(1)(d) is not applicable. Accordingly, the ld. AR submitted that the equity holding of the assessee in Tata Trust is from the inception which it goes to prove that the holding is in the nature of corpus and therefore, covered by the exceptions carved out by the proviso to section 13(1)(d) of the Act. With regard to reliance placed by the AO in the decision of the Co-ordinate Bench in the case of Jamsetji Tata Trust (supra) the ld AR submitted that the facts in the said case are distinguishable from assessee's case for the reason that Jamsetji Tata Trust was formed only in the year 1974 and received shares after that and therefore the Tribunal held that exceptions under section 13(1)(d) are not applicable to the said Trust. The ld. AR submitted that the AO's observation that the assessee has invested a total sum of Rs. 21,96,667/- in the ordinary shares of Tata Sons (refer & 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.

The ld. DR on the other hand submitted that the AO has denied the benefit of section 11 mainly for the reason that the assessee has not produced any documentary evidence that the said investment in Tata Sons is held as corpus on or before 01.06.1973 for the exceptions to apply. Accordingly, the ld. DR supported the orders of the lower authorities.

We heard the parties and perused the material on record. The assessee claimed the dividend income from its holdings in Tata Sons Ltd., as exempt under section 10(34) of the Act. The AO invoked the provisions of section 13(1)(d) to hold that the of the assessee trust has invested otherwise than in forms or modes specified under section 11(5) and continue to remain so invested after 30.11.1983. Accordingly the AO denied the benefit under section 11 to the assessee. The contention of the assessee is that in assessee's case the exceptions provided under section 13(1)(d) are applicable and therefore the income of the assessee cannot be brought to tax. Therefore before proceeding further we will look at the relevant provisions of section 13(1)(d) which reads as under –

The contention of the revenue is that funds of the assessee Trust that were invested before 01.03.1983 in Tata Sons Ltd which is not a modes specified in section 11(5) of the Act continue to remain so invested or deposited after the 30.11.1983. The assessee's argument is that shares of Tata Sons acquired till 01.06.1973 are held as Corpus and the accretions to the said shares were only out bonus which is also covered by the exceptions as highlighted above. In this regard it is relevant mention that the ld AR during the course of hearing drew our attention to order of the AO for AY 2018-19, where the details of shares of Tata Sons Ltd are tabulated as under – Year of Particulars No.Of Cummulative acquisition Shares no.of Shares 1919 Shares received as per Will of Sir Ratan Tata 690 690 1957 Purchase from Lady Sylla Petit Nusly D. Petit & 35 725 Dina Petit 1962 Purchase from Darab R.T. Tata 9 734 1967 Bonus Shares 1:1 734 1,468 1967 Subdivision of shares 6,606 6,606 1969 Less: Sold to Sterling Investment Company (900) 5,706 1973 (after Bonus Shares received 1:2 2,854 8,560 01.06.1973) 1974 (+) Purchase of Shares 30 8590 1974 (-) Shares Gifted to NavajbaiRatan Tata Trust (625) 7,965 1979 (+) Bonus Shares 1:3 2,654 10,619 1979 (+) Purchase of Shares 4 10,623 1989-90 Shares Gifted to SarvajikSeva Trust (44) 10,579 1992-93 Bonus Shares received 1:1 10,579 21,158 & 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

From the above table it is clear that holding of the assessee Trust as of 31.03.2014 mainly consists of bonus shares and that the acquisitions prior to 01.03.1983 are not continued to be held (refer Sale & Gifts above). Therefore in our considered view there is merit in the submission that the provisions of section 13(1)(d)(ii) is not applicable to assessee's case and that the holdings in Tata Sons Ltd., are covered by the exception as provided in section 13(1)(d).

One more argument of the ld AR is that the shares of Tata Sons Ltd., are not acquired as "investments" using the fund of the assessee Trust but received as corpus donations and on that count also section 13(1)(d) is not applicable. The ld AR also argued that the shares were received at the time of formation of the Trust which goes to prove that it forms part of the corpus of the assessee Trust. The ld AR also made a without prejudice submission that even if the dividend income is held to be taxable for violation of section 11(5), it is otherwise exempt under section 10(34) which the AO has denied saying the Trust is not entitled to claim exemption under section 10(34). We notice that the coordinate bench has considered all these issues while adjudicating the appeal against the revision order under section 263 of the Act for AY 2014-15 in assessee's own case (supra) has given the following findings on merits –

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.; & 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’.

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 & 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.

From the perusal of the above findings, we notice that the coordinate bench while quashing the revision order has given categorical findings with regard to the merits of the issue on the applicability of section 13(1)(d) of the Act to assessee Trust. Therefore considering the facts presented in the earlier part of this order and respectfully following the ratio of above decision of the coordinate bench, we hold that the AO is not correct in denying the benefit of section 11 to the assessee on the ground that section 13(1)(d) is applicable in assessee's case.

The ld. AR with regard to the contention of the AO that Mr.Ratan Tata is the founder Trustee submitted that it is factually incorrect and that the Trust was founded by (i) Mr. Nabazbai Ratanji Tata, (ii) Mr. Dorabji Jamsetji Tata, (iii) Mr. Ratanji Dadabhai Tata, (iv) Mr. Phiroz Cursetji Setna and (v) Mr. Burjorji Jamasji Padshaw. The ld. AR therefore submitted that the AO has erroneously invoke the provisions of section 13(2)(h) by holding that the assessee continue to hold the investments in a concern in which the person referred to in section 13(3) has substantial interest. The ld. AR further submitted though Mr.Ratan Tata during the year under consideration was one of the Trustees and he holds only 3,368 equity shares of Tata Sons Ltd which only 0.83% of the total capital of Tata Sons Ltd. The ld. AR brought to our attention that as per explanation 3 to section 13(3) a person is deemed to have substantial interest in the company / concern if its shares carrying not less than 20% of the voting power are, at any time during the previous year, owned beneficially by such person. Since in the given case Mr.Ratan Tata is holding only 0.83% of the shares, the ld AR argued that he does not have substantial interest in Tata Sons Ltd., and accordingly there is no violation of section 13(2)(h). With regard to whether Mr.Ratan Tata holding the position of Chairman the ld. AR relied on the decision of the Co- & 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.

The ld. DR on the other hand relied on the order of the lower authorities.

We heard the parties and perused the material on record. The AO has denied the benefit of section 11 for the reason that besides violating the provisions of section 13(1)(d), the assessee has also violated the provisions of section 13(2)(h). The reason for holding so is that the Mr.Ratan Tata, is considered as a person having substantial interest as per section 13(3) since he is a shareholder and a Chairman of Tata Sons Ltd the shares of which are held by the assessee. In this regard it is relevant consider the provisions of Explanation 3 to section 13 of the Act which reads as under – Explanation 3.—For the purposes of this section, a person shall be deemed to have a substantial interest in a concern,— (i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or

With regard to the contention that Mr.Ratan Tata holds substantial interest by virtue of he being the chairman of Tata Sons Ltd., we notice that the coordinate bench in the case JRD Tata Trust (supra) has considered a similar issue and held that –

Applying the aforesaid definition to the facts of the present case, the assessee's shareholding in the four companies even if held prior to 1st June, 1973 & 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.

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 & 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.

The facts for the year under consideration is that none of Trustees including Mr.Ratan Tata is holding more than 20% of the voting powers in Tata Sons Ltd and therefore as per the provisions of explanation 3 to section 13, there is no violation of provisions of section 13(2)(h). Further we note from the decision of co-ordinate bench of ITAT Mumbai in the case of JRD Trust (supra) that being a chairman in a company would not amount to holding substantial interest therein as per explanation to section 13(3). It is also relevant to note that the contention of the revenue that Tata Sons Ltd. has contributed more than Rs. 50,000/- is not supported by any evidence and the revenue did not bring anything on record to substantiate the same. In view of these discussions and considering the above decisions of the Tribunal we hold that the provisions of section

The ld. AR during the course of hearing drew our attention to the findings of the CIT, stating that the AO vide order dated 17.07.2018 under section 154 has rectified the deduction given towards application of funds to the extent of 85% while computing the assessed income (refer page 57 of CIT order). The ld. AR in this regard submitted that the said finding is factually incorrect and there is no such order under section 154 of the Act. The ld. DR did not rebut the submissions of the AR.

We have already held that the benefit under section 11 cannot be denied to the assessee on the ground on violation of section 13(1)(d) & 13(2)(h). Therefore, the deduction allowed towards application of funds on the ground that assessee is not entitled for exemption under section 11 is not sustainable. Accordingly the AO is directed to allow the deduction claimed by the assessee towards application of funds. It is ordered accordingly.

For AY 2018-19 the assessee filed the return of income on 30.10.2018 admitting total income of Nil. The AO held that the assessee has violated the provisions of section 13(1)(c), 13(1)(d) and 13(2)(h) and accordingly assessed the income of the Trust at Rs. 254,60,58,091/-. On further appeal the CIT(A) upheld the order of the AO.

With regard to applicability of section 13(1)(d) and section 13(2)(h), we have while adjudicating the appeal for AY 2014-15 already held that these & 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.

The AO during the course of hearing noticed that certain additions were made in the preceding AY towards payments made by Tata Sons Ltd. to the Trustees of the assessee. The AO accordingly issued a notice under section 133(6) to the Tata Sons to provide the details of payments made, services rendered and whether the payments made are commensurate with the services rendered by the Trustees for the year under consideration. In response Tata Sons Ltd. provided the following details towards payments have been made to the Trustees.

The AO held that the Trustees of the assessee excise influence over the decision making of Board of Tata Sons Ltd. through nominee directors and that this creates opportunities for the Trustees to take benefit from the company & 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:

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.

We heard the parties and perused the material on record. The AO in the present case invoked the provisions of section 13(1)(c) for the reason that the Trustees of assessee Trust have received certain payments towards there past services from Tata Sons Ltd whose shares are held as corpus in assessee's Trust. The contention of the AO is that the Tata Sons Ltd, made the payment which is not commensurate with the services for the reason that the assessee Trust is holding the shares of Tata Sons Ltd and therefore section 13(1)(c). From the plain reading of the provisions of section13(1)(c), it is clear that the section gets attracted when the Trust applies / uses its income directly or indirectly for the benefit of persons as mention in sub-section 3 of section 13. In assessee's case we are unable to appreciate how the AO applied the said provisions for the reason certain payment received by the Trustee. The payments are received for the past services rendered by the Trustees from Tata Sons Ltd, and there is no application / use of the income of the assessee. Therefore on the plain facts itself we are of the view that the AO is not correct in invoking the provisions of section 13(1)(c) of the Act. We also notice that the coordinate bench in assessee's own case (supra) while adjudicating the appeal against the revision order under 263, has held the similar view and the relevant findings of the Tribunal are extracted below – 59. We have also taken note of the allegations about the trustee receiving certain benefits from Tata Sons Ltd, even though, as we will see a little later, whatever alleged benefits have been taken by the trustees from Tata Sons Ltd are as & 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.

The AO held that the assessee has violated the provisions of section 2(15) of the Act for the reason that the assessee engaged in business by having control over the business of Tata Sons Ltd. The AO drew this conclusion from the fact that the assessee Trust is holding 23.56% of the shareholding in Tata Sons Ltd., and that one of the ex-Directors of Tata Sons Ltd., Mr.Cyrus Mistry had submitted certain documents in support of the allegation that the business of Tata Sons Ltd., is controlled by the Trustees of the assessee Trust. The AO relied on the documents and the email communications submitted by Mr.Cyrus Mistry before NCLT in this regard. The CIT(A) confirmed the order of AO.

The ld AR submitted that the assessee Trust has voting rights by virtue of the shareholding in Tata Sons Ltd., and there is no restriction to exercise the said & 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 DR on the other hand supported the order of the lower authorities. The ld DR argued that the assessee Trust by virtue of shareholding in Tata Sons Ltd., and by having the right to nominate directors to the Board of Tata Sons Ltd., is indirectly running the business and therefore the lower authorities have

We heard the parties and perused the material on record. Assessee Trust holds 23.56% of the shares of Tata Sons Ltd and the assessee Trust along with Sir Dorabji Tata Trust has the right to appoint / remove 1/3rd of the Board of Directors. The AO held that the assessee Trust has violated the provisions of section 2(15) for the said reason i.e. assessee is carrying on the activity in the nature of business. The AO had also relied on the fact that ex-Director of Tata Sons Ltd, Mr.Cyrus Mistry has submitted certain documents before the NCLT alleging that the business of Tata Sons Ltd by the Trustees. So the issue that needs to be considered here is whether the assessee being the shareholder of Tata Sons Ltd., is engaged an activity in the nature of business by exercising control the business of the said company and by having the right to appoint or remove 1/3rd of the board of directors. In this regard it is relevant to take note of the following observations of the coordinate bench is assessee's own case (supra) – 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.

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 & 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.

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.

The assessee raised ground in both AY 2014-15 and AY 2018-19 with regard to interest under section 234B & 234C and penalty under section 270A of the Act. These grounds are consequential and does not warrant separate adjudication.

In the result, both the appeals of the assessee in both AY 2014-15 and AY 2018-19 are allowed.