The Income-Tax department has directed Tata Trusts to justify the misuse of tax exemption which was meant for charitable purposes, according to Business Standard. It has summoned the trust's executive trustee R Venkataramanan to explain the case on Friday evening in Mumbai.

The I-T department's move is based on a Comptroller and Auditor General (CAG) report of 2013 which stated that the trusts were minting profits instead of using it for charitable purposes. Business Standard stated that according to the CAG report, the surplus funds are either used to create fixed assets for gaining more profit or are transferred to other trusts rather than for charitable purposes to avoid tax. The CAG audit stated that 22 trusts under scrutiny had accumulated surpluses of Rs 819 crore.

The report also said that the I-T department allowed irregular exemptions to Jamshetji Tata Trust and Navajbai Ratan Tata Trust, which invested Rs 3,139 crore in prohibited modes arising from accumulations of capital gains involving a tax effect of Rs 1,066.95 crore. "Thus, the assessment officer should have brought investments aggregating Rs 3,139 crore to tax at maximum marginal rate as per provision under section 164(2) read with proviso there under. It resulted in short levy of tax of Rs 1,066.95 crore," the Business Standard quoted the report.

According to the 2013 report, in the assessment year 2009 and 2010, Jamshetji Tata Trust and Navajbai Ratan Tata earned Rs 1,905 crore and Rs 1,234 crore on account of capital gains. They violated provisions of Section 13(1)(d) of the Income Tax Act by investing the gains in prohibited mode of investments.

The article said that the Ministry of Finance had promised to take the right action and the I-T department summoning Venkataramanan is a part of that action.