I-T dept gave 'irregular' exemptions worth Rs 3k cr: CAG

Dept charged with registering 799 trusts without verifying documents

The Income Tax Department gave "irregular" tax exemptions to the tune of Rs 3,019.21 crore to several trusts, including those run by the Tatas, state cricket associations and religious and educational bodies, a Comptroller and Auditor General (CAG) report said.

According to the CAG report tabled in Parliament on Friday, the Income Tax Department allowed irregular exemptions to Jamshedji Tata Trust and Navajbai Ratan Tata Trust, on investments to the tune of Rs 3,139 crore that cannot be accepted as part of expense under charity. Thus, the IT department did not collect Rs 1,066.95 crore, the CAG said.

The CAG said it had noticed that 14 such cases involving a tax effect of Rs 1,090.03 crore where the accumulation arising from capital gains were not either invested in specified mode or computed carefully. "The Ministry accepted the audit observation (in this regard) and initiated remedial action," it said.

The auditor said Jamshedji Tata Trust and Navajbai Ratan Tata Trust earned Rs 1,905 crore and Rs 1,234 crore on account of capital gains during assessment years 2008-09 and 2009-10 respectively and "invested the same in prohibited mode of investment which is in contravention to the provisions of section 13 (1) (d) of the Income Tax Act (dealing with investment)".

The assessing officer should have brought the investment aggregating Rs 3,139 crore to tax at maximum marginal rate under the Income Tax Act, the CAG said.

It said the IT department allowed irregular exemptions on TV rights from the BCCI to four cricket associations – Kerala, Maharahstra, Saurashtra and Baroda – resulting in non-levy of tax to the tune of Rs 37.23 crore.

The CAG said under Section 2 (15) of the Income Tax Act, a public utility activity cannot be treated as "charitable" if it involves carrying on of any activity in the nature of trade, commerce or business.

Referring to the Saurashtra Cricket Association case, CAG said it collected TV subsidy of about Rs 35 crore in three years, but spent only a small amount on promotion and development of sport.

The CAG also said that the IT Department allowed irregular exemptions to 30 trusts involving tax effect of Rs 59.61 crore where voluntary contributions, received without specific directions, were taken to corpus fund instead of treating at income.

The auditor noted a case from Karnataka to highlight that the Income Tax department gave registration or approval to 799 trusts without verifying documents.

The CAG said Perioalumni, which was created without any trust deed or Memorandum of Association, was granted registration by the Davengere office of the IT department in March 2008.

The CAG recommended that the government could evolve a mechanism so that trusts are not allowed accumulations consistently through strict monitoring of Form 10 invariably in all cases to cover all assessments.

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