NEW DELHI (TIP): A detailed audit by the Comptroller and Auditor General of India of some major trusts run by business houses and sports bodies has allegedly revealed misuse of income tax exemptions granted to them. Among them are at least two Tata trusts and a number of state cricket associations. The audit report, one of the first to be signed by the new CAG, S K Sharma, is to be tabled in Parliament in the winter session. In the meantime, the CAG has written to the finance ministry, which has advised the income-tax department to initiate action.

In the report, ‘Exemptions to Charitable Trusts and Institutions’, the CAG has said that some of the trusts have invested, or transferred to other trusts, large surpluses instead of spending the money for charitable purposes. According to the CAG, Jamsetji Tata Trust and Navajbai Ratan Tata Trust together invested over Rs 3,000 crore in ‘prohibitive modes’, meaning investments that cannot be accepted as charitable in nature. In the wake of the CAG audit, the government has initiated steps to recover over Rs 1,000 crore from the two trusts. All the Tata trusts together hold 66% in Tata Sons, the holding company of the $100 billion salt-to-software-to-steel conglomerate. The CAG’s audit covered over 80,000 of the six lakh-odd registered trusts in India.

A source close to the development said the two Tata trusts were the most prominent among them. The finance ministry has admitted to the CAG that the administration of Section 13(1)(d) of the Income Tax Act, which provides tax exemption to trusts, was flawed. Another 20 major trusts have illegally enjoyed IT exemption, the audit report said, but no details are as yet available. The section specifies that if a charitable trust has invested in ineligible securities, its income will not be tax exempt.

In other words, the charitable trust will lose its tax exemption status. The audit also reports that four state cricket associations-Maharashtra, Saurashtra, Baroda and Keralahave engaged in commercial activities, linked mostly to telecast rights, and received “irregular exemptions”. The CAG has said that the illegal acts of the state boards have resulted in revenue loss of over Rs 38 crores.

In response to a detailed questionnaire from TOI, AN Singh, managing trustee of the Sir Dorabji Tata Trust (of which the Jamsetji Tata Trust is an affiliate), said: “We are not aware of the recent audit of the CAG of India referred to by you. However, we confirm that a tax demand has been raised by the income-tax department against the trust in relation to the subject matter of your query. The department has stayed the recovery of demand against an interim tax payment made by the Trust, pending appellate proceedings.

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An appeal has been filed with the commissioner of I-T since there is a difference in opinion between the I-T department and the Trust on the legal interpretation of the relevant provisions of the Act. The proceedings are currently ongoing. It may also be mentioned here that the trust is governed by the provisions of the Bombay Public Trusts Act and had accordingly sought and obtained the prior approval of the Charity Commissioner as required by the Act before making the subject investment which was made to avail of an optimised and stable yield. In the opinion of the trust, there is no loss of revenue to the exchequer resulting from the said investment.”

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