I-T tribunal stays tax demand against Tata Education and Development Trust

The Income-tax Appellate Tribunal (ITAT) on Thursday stayed a tax demand against one of the entities of Tata Trusts, which owns a majority share in the group’s holding company Tata Sons. 

The Rs 100-crore tax demand on Tata Education and Development Trust was raised last year by the I-T department owing to cancellation of registration on past exempted income. This was part of a larger case involving cancellation of registration of a clutch of six entities under Tata Trusts with an estimated Rs 10,000-12,000-crore tax implication. 

The matter has been referred to a larger Bench to see if the amendment curtailing tribunal powers to grant stay is legally tenable and if yes whether it’s mandatory. The matter is likely to be heard next on July 6.

 In the October 2019 order, the tax department had invoked a provision, under which a trust whose registration is cancelled is required to pay tax on its accreted income. Following this, these trusts approached ITAT against the move in November last year. 

The issue arises out of amendment in the provision to Section 254 (A) that sought to curtail the powers of ITAT in stay matters, unless 20 per cent of the tax demand is deposited by the assesses. Earlier, ITAT could grant a stay on collection of demand by the department without any payment. 

Tatas have argued that the amendment is “directive and not mandatory”. So, ITAT can still grant stay without payment of any demand by an assessee so far as they show adequate assets in the balance sheet in case demand has to be collected by the tax department later. 

So, the appellate tribunal has referred the matter to a special Bench to decide if the amendment is mandatory or just a directive and what kind of assets should be shown by assessee before they can be granted stay by ITAT. 

Meanwhile, the tribunal directed the assesses (Trust) to file an undertaking setting out investments to the tune of such amount that it will not dispose off, so that the ITAT has confidence they can pay the demand if it arises. 

Arguing a stay application, representing Tata Education Trust, Senior Advocate Percy Pardiwalla argued that the said amendment to Section 254(2A) deals with the tribunal power is directory, not mandatory and does not curtail the powers of the Ttribunal.

Giving some practical examples, Pardiwalla contended that holding the provision as mandatory would result in patently "incongruous legal position, a situation which is completely arbitrary, unconstitutional and contrary to the well settled scheme of law”. 

ITAT further identifieed questions surrounding the fate of appeals filed before the amendment came into force, as also with respect to the manner in which, and nature of which, security is to be offered by the assessee under the amended first proviso etc. 

“On such important pan-India issues of far-reaching consequence, it is desirable to have the benefit of arguments from stakeholders in different part of the country,” ITAT said.