The cancellation of income tax registration of six Tata Trusts - Jamsetji Tata Trust, R.D. Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust - had started in 2013, when the Comptroller and Auditor General (CAG) found that the trusts had invested Rs 3,139 crore in "prohibited modes of investment" and it resulted in Rs 1,066 crore tax losses to the Income Tax department. But the issue came to limelight again when Cyrus Mistry was ousted from the office of chairman by the Tata Sons board in 2016. According to sources, Mistry submitted voluminous documents to the department after his dismissal and that led to further investigations.
However, the trusts which were under tax department's radar had decided to surrender their registration in 2015. "The Trusts would like to clarify that this order of cancellation is a culmination of the decision taken by these six Trusts in 2015 to surrender, of their own volition, their registration under the Income-tax Act and to not claim the associated income tax exemptions," Tata Trusts said in a statement on Friday.
Mistry, in his letter to shareholders of a few Tata group companies in December 2016, had demanded transparent governance structure in the trusts. "The very future of the Tata Group lies in how the trustees govern the Tata Trusts, since the main trust property is the holding of shares in Tata Sons," he had said.
Mistry said that if the trustees were to start managing the business, overstepping the entire governance structure in Tata Sons, they would jeopardise their legal status including tax exemptions, risking the future of the Tata Group. By then Income Tax department started probing the validity of exemptions given to Tata Trusts, which hold 66 per cent stake in the holding company Tata Sons.
The trusts are governed under the Maharashtra Public Trust Act and Income-tax Act. They are allowed to hold shares in a commercial entity despite being completely income tax exempt, given their charity work.
Mistry said that the governance charter across the Tata Group, including holding and operating the companies, requires repair to conform to company law and global best practices. Tata Group faces the challenge of complex inter-relationships between Tata Trusts and Tata Sons, and between Tata Sons and Tata Group companies. The governance failure at any of these three levels poses a serious risk to the future of Tata Group, Mistry claimed at that time. Mistry's family holds 18 per cent stake in Tata Sons.
In an e-mail to Tata Sons board in October 2016, and in subsequent legal filings, Mistry had raised "ethical concerns" with respect to certain transactions at AirAsia India, as well as the overall culture within the organisation. Mistry made some specific allegations against the then managing trustee R Venkataramanan, including his alleged role in overlooking fraudulent transactions to the tune of Rs 22 crore in AirAsia India, which is a joint venture between Malaysian budget airline AirAsia and Tata Sons.
The Central Bureau of Investigation (CBI) searched the office of Venkataramanan in June 2018 to find documents related to the Air Asia deal. He quit Tata Trusts in February after Income Tax department's investigation concluded that his salary of Rs 2.66 crore was exorbitant enough to disallow tax exemption to the Dorabji Tata Trust.
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