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The Public Accounts Committee (PAC) has recommended to the Parliament that the Tata Trusts' charitable registration should be cancelled as they do not conform to norms of investments or expenditure, reports Financial Express. If Tata Trusts loses its charitable status, the tax implications will be huge.

According to PAC, the Trust is investing money in prohibited modes of investment which public charitable trusts cannot do. PAC also says that Tata Trusts' is claiming that dividend income is exempt from the requirement which says 85% of a trust income should be used for charitable purposes.

The matter is under litigation in the Bombay High Court where the Income Tax Department is seeking cancellation of Tata Trusts licence.

On its part, Tata Trusts says it had surrendered its registration — under Section 12AA of the Income Tax (IT) Act — in March, 2015 and had filed returns for 2015-16 without claiming any tax benefits under the trust law.

The two main issues of the ongoing case at the Bombay High Court are:

1) Tata Sons gifted shares of Tata Consultancy Services (TCS), called Orchid Print then, to Tata Trusts in 2000. In 2008, the trust sold these shares and invested the bulk amount in the preference capital of Tata Sons. This is against the trust law which says investments can't be made in private companies. They can only be made in bank deposits, government securities, public sector undertakings etc.

2) Under trust law, 85% of the income earned has to be spent on charity.

On both counts, Tata Trusts violates the law, say the IT department and PAC.

PAC says that Tata Educational and Development Trust (TEDT) donated $100 million to Cornell University and Harvard Business School which is contravention of the trust law as this is neither charity nor international welfare where India's interests were served.

The PAC says the government's flip flop on the issue is perplexing. In June, 2014, the government rejected TEDT's claim for tax exemption saying public charitable trusts should only invest money where public interest is involved. However, in November, 2015, TEDT was given clearance to donate $100 million.