TaxTMI 
TaxTMI 
2015 (6) TMI 604
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....x. (3) On the facts and under the circumstances of the case and in law, the ld. CIT(A) erred in confirming levy of interest under section 234B. 2. The only issue arising in these grounds of appeal is whether a sum of Rs. 4,55,78,880/- received by the assessee from White Label Trust which was constituted under the laws of the Island of Jersey on 20.07.1993 by making ANZ Grindlays Trust Corporation (Jersey) Limited as Trustee. But subsequently the assessee has taken a plea before the Assessing Officer that the trustee has been changed and now HSBC Trust Company (BVI) Limited was appointed as Trustee of the White Label Trust on 08.08.2003. 3. Brief facts relating to this issue are that the Assessing Officer during the course of assessment proceedings noted that the assessee has credited in his capital account a sum of Rs. 4,55,78,880.50. When questioned, it was explained by the assessee that the assessee has received a sum of one million US Dollars from one Trust named White Label Trust which is registered out of India and the assessee has produced a certificate dated 28.11.2003 from the Trustee HSBC Republic Trust Company (BVI) Limited, in which the said company certified as....
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....llion US Dollars). The Assessing Officer noted that the Trust is a Private Discretionary Trust and in fact a Foreign Trust, not coming under the purview of the Indian Income Tax Act; and any fund distributed to any resident of India, therefore, undoubtedly, is chargeable to income-tax in the hands of the resident assessee. The question of capital or revenue receipt is irrelevant as it is income in the hands of receiving party and there is no provision in the Indian Income Tax Act to exempt such receipt. The only situation where the amount may be left out from chargeability arises when an agreement between the Government of India with a Foreign State exists, which is known as Double Tax Avoidance Agreement. It is only applicable when any amount is taxed by the Foreign Government and cannot be taxed again under Indian Income Tax Act. The situation in the present case is not one where Double Tax Avoidance Agreement is applicable. 3.2. The Assessing Officer was of the view that the other situation where remittance from outside India is non-taxable when amount is brought into India through nonresident (External) Account. Thus he was of the view that even if it is ascertained that the....
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....retionary Trust might have disposed the amount out of his past or current income. The Trust has paid no income tax as per Indian Income Tax Act. There is no evidence on record regarding tax payment in the country of its incorporation. The assessee has not paid any tax abroad. The amount received by the assessee in Switzerland during the year and brought into India can only be treated as income in terms of section 5 of the Income Tax Act, and accordingly he added the sum in the income of the asseessee. 4. When the matter went before the CIT, the assessee reiterated the submissions made before the Assessing Officer and relied on the decision of the Mumbai Tribunal in the case of Late Smt. Shantaben M. Patel in ITA No. 5000/Mum./2001 dated 17.02.2006 as well as the decision of the Hon'ble Supreme Court in the case of Provident Investment Co. Ltd. reported in 32 ITR 190 (SC), wherein the Hon'ble Supreme Court has laid down that if the case was not covered within the four corners of the law, no tax can be levied by inference or by analogy or by trying to probe into the intentions of the legislature. 5. Before the ld. CIT(Appeals), the assessee produced the following documents whic....
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....with power to declare such other trusts in respect of the same for the benefit of such beneficiary and generally in such manner as the trustees may in their absolute discretion determine including but without prejudice to the generality of the foregoing provisions for maintenance, education or advancement or for accumulation of income whether during minority or otherwise and with such discretionary trust and powers exercisable by such persons as the trustees shall in their like discretion determine. It was further contended by drawing our attention to clause (b) that the trustees were also authorized to accumulate the interest income of the trust fund and add the accumulation to the capital of the trust fund. 6.1. It was pointed out that as per Rule 5(d) the Trustees are authorized to pay whole or any part of capital of the Trust fund to any of the beneficiaries and accordingly the Trustees have exercised their powers and made the payment to the assessee, i.e. the beneficiary. It was further submitted that powers of the Trustees are mentioned in the Settlement Deed and for which our attention was drawn to Clause 8. In respect of appointment of the new Trustees, Our attention was....
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....ecision in the case of The Trustees of the Will of H.K. Brodle (deceased) -vs.- The Commissioners of Inland Revenue (1933) 17 Tax Cases 432 (KB) for the proposition of law whether the receipt is capital or revenue. Reliance was also placed on the decision of Stevenson (H.M. Inspector Taxes) -vs.- Wishart & Others (1987) 59 Tax Cases 740 for the proposition of the law that in the case of a discretionary Trust, payments made by the Trustees out of the Trust capital are capital in the hands of the recipient. Reliance was also place in the case of Parimisetti Seetharamamma - vs.- CIT reported in 57 ITR 532 (SC) for the proposition of the law that onus is on the Revenue to prove that the assessee has earned the income. Similarly reliance was placed on the following decisions:- (i) CIT -vs.- Kamal Behari Lal Singha [82 ITR 460 (SC); (ii) Udhavdas Kewalram -vs.- CIT [66 ITR 462, 465 (SC); (iii) CIT -vs.- Infosys Technologies Ltd. [297 ITR 167, 175 (SC); (iv) CIT -vs.- Chrestian Mica Industries Limited [109 ITR 517, 523 (Cal.); (v) Ramakrishnan (S.A.) -vs.- CIT [114 ITR 253, 255 (Mad.); (vi) Dilip Kumar Roy -vs.- CIT [94 ITR 1 (Bom.); (vii) Niyati B. Yodh -vs.- ACIT (2....
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.... ITD 1 (Jodh.) (TM). 9. Referring to the decision of Late Smt. Shantaben M. Patel, it was pointed out that the facts involved in this case are similar to the facts in the case of assessee. Our attention was drawn to para 7 for the proposition of the law that if the distribution was made out of the income of earlier years or out of corpus fund of the Trust, the income is not chargeable in the hands of the beneficiaries. 10. Ld. D.R., on the other hand, vehemently contended that the onus is on the assessee to prove that there was a valid descretionary Trust established out of India in accordance with the laws prevailing therein. Assessee is one of the benedficiary. Amount distributed by the Trust to the assessee beneficiary is out of the capital funds as well as out of the accumulated income of the trust. It was pointed out that the assessee did not file document before the Assessing Officer. On the basis of which it can be said that the assessee has discharged his onus to prove. It is only for the first time the following documents were filed before the CIT(Appeals):- (i) True copy of settlement deed,(2) Trust Ledger and transaction history report (2 pages); (3) White La....
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.... assessee produced the certificate dated 28.11.2003 from HSBC Republic Trust Company (BVI) Limited claimed to be the trustee of the Trust. This certificate reads as under:- "CERTIFICATE THE WHITE LABEL TRUSTTO WHOM IT MAY CONCERN 28th November, 2003 As Trustees of the White Label Trust, we confirm that the remittance of USD 1,000,000 to Dr. Som Datt, made on the 28th November, 2003 to his Bank account with Syndicate Bank, Nehru Place Branch, New Delhi-110 019, India has been made from the capital account of the Trust and is to be regarded as a capital distribution to Dr. Som Datt.Yours sincerely,Sd/- HSBC Republic Trust Company (BVII) Limited" The covering letter along with which the certificate was enclosed reads as under:- "HSBC Republic HSBC Republic Trust Services (Suisse) S.A. Dr. Som Datt, 55, Community Centre, East of Kailash, New Delhi,India110048 Geneva, 28th November, 2003 Dear Dr. Datt,Re.: The White Label Trust Please find enclosed the Certificate confirming that the USD 1 million recently transferred to your bank account by the trustees of the above trust, was a capital distribution to you. With kind regards, Yours sin....
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..... The Trust fund built up substantial capital fund since its establishment and M/s. HSBC Trust Company (BVI) Limited was appointed as Trustee of the White Label Trust on 08.08.2003. The Trustee exercised its discretion on 28.11.2003 in favour of the assessee and made a capital distribution to him for a sum of USD 10,00,000 (one million US Dollars). The Assessing Officer added the same in the income of the assessee as the assessee even did not produce the financial statement of the Trust so that the Assessing Officer could have verified whether there is a distribution of the amount made out of income of the earlier years, i.e. out of the capital fund. When the matter went before the CIT(Appeals), the assessee before the CIT(Appeals) submitted the following documents which were never produced before the Assessing Officer: (i) True copy of settlement deed,(2) Trust Ledger and transaction history report (2 pages); (3) White Label Trust Financial results for the period from 01.04.2003 to 31.03.2004 (6 pages). 15. Before us also, the assessee has submitted copy of the Settlement deed, Trust Ledger and transaction history report, White Label Trust Financial statement for the peri....
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....r dated 28.11.2003 has been written by the HSBC Republic Trust Services (Suisse) S.A. not by HSBC Republic Trust Company (BVI) Limited, which has been claimed to have become trustee of the Trust w.e.f. 08.08.2003. We noted that although the assessee has filed certificate dated 28.11.2003 to have been issued on behalf of the trustee but from the certificate it is not apparent in what capacity a person has signed it mentioning M/s. HSBC Republic Trust Company (BVI) Limited as trustee and what is the lucus standi of m/s hsbc republic trust services (Suisse) S.A. with reference to the impugned trust and how M/s. HSBC Republic Trust Services (Suisse) S.A. has come into picture. The Ld. Senior Advocate also expressed his inability to explain the same. 17. We noted from the Trust Deed that the trustees are empowered to have the accounts audited as per Clause 19 of the regulations. This regulation reads as under:- "Power to have accounts audited The Trustees shall have power from time to time and at such intervals as they shall in their absolute discretion think fit to cause the accounts kept by them hereunder to be examined or audited by such person or persons as they shall desig....
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....hedule to the Settlement Deed. This third schedule reads as under:- "THE THIRD SCHEDULE hereinbefore referred to:(the Beneficiaries) 1. Som Datt (2) Usha Dutt (3) Anjali Anand (4) Sadhna Singh (5) Anuradha Datt Munjal (6) Latika Datt Abbot (7) Charu Datt Bhatia (8) Som Datt Foundation" The name of HSBC Republic Trust Company (BVI) Limited does not appear in the third schedule and, therefore, we asked the query from the ld. Sr. Advocate how HSBC Republic Trust Company (BVI) Limited became the trustee but he could not express his view for the appointment of HSBC Republic Trust Company (BVI) Limited as the trustee. 21. Even we noted that Clauses 15(f) and 15(g), which are relevant for us for the appointment of the trustee read as under:- "15(f) - On every change in the trusteeship a memorandum shall be endorsed on or permanently annexed to this Settlement stating the names of the Trustees for the time being and shall be signed by the persons so named and any person dealing with the Trust shall be entitled to rely upon such memorandum (or the latest of such memoranda if more than one) as sufficient evidence that the Trustees named therein are the dul....
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....ed assessment year, but no accounts relating to the earlier year have been filed so that it could be ascertained whether the assessee has got the income accrued in the earlier years out of which the amount has been distributed by the trustee to the assessee as beneficiary of the discretionary trust . The accounts although has not been audited and has not been approved by the trustees except that certified true copy has been signed as a trustee on behalf of M/s. HSBC Trust Company (BVI) Limited. Even we noted that no date has been mentioned on which date these accounts have been signed or approved by the trustees. In our opinion, when assessee makes a claim that the amount received by him is a capital receipt and has been paid out of the capital fund, the onus is on the assessee to prove that the amount has been paid by the Discretionary Trust out of the capital fund. In a case where the assessee claims that the money has come out of a source out of India, heavy onus lies on the assessee to adduce evidence and prove that the money has come from out side India not as an Income but as a Capital receipt specially when the assessing officer does not have any jurisdiction over the source....
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....ically asked the ld. Sr. Advocate in respect of the earlier period accounts and also the nature of the activities being carried out by the Trust, but this was not explained to us. In view of our aforesaid observations, we are of the view that this is a case where the assessee has not discharged his onus that he received the amount from M/s. White Label Trust out of their capital funds or out of the income which has been earned by Trust in the earlier years. On the basis of the evidence filed by the assessee, in our view, the genunity of the Trust, the trustee as well as the money being withdrawn out of the capital funds is not proved. We also noted that under section 142(1) of the Act, the Assessing Officer is authorized while making an assessment to enquire of from the assessee or ask the assessee to submit the information on such file or matters on which he may desire. The Assessing Officer as has been pointed out by us earlier, has asked the assessee to submit the information and all the information whatever has been asked by the Assessing Officer, in our opinion, are the relevant information, but the assessee did not produce those information. Part of the information were submi....
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....ney has been received by him out of the capital funds of the Trust. In the case of Parimisetti Seetharamamma -vs.- CIT 57 ITR 532 (SC), this decision, in our opinion, supports the case of the Revenue for the proposition of the law that where the receipt is of the nature which is not taxable, the burden of proving that it is not taxable lies upon the assessee. In the case of CIT -vs.- Kamal Behari Lal Singha reported in 82 ITR 460 (SC), we noted that the issue relates to the payment of dividend out of salami or compensation for land acquisition. The Hon'ble Supreme Court took the view that the sum distributed as dividend did not change the true nature of the receipt; a receipt was what it was and not what it was called. The facts of this case, in our view are different from the case before us and this case does not deal with the discharging of onus. In the case of Udhavdas Kewalram -vs.- CIT reported in 66 ITR 462 (SC), we noted that the Hon'ble Supreme Court has clearly laid down that Income Tax Appellate Tribunal performs a judicial function under the income Tax Act and it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appe....
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....hat Income Tax Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision. This decision, in our opinion, will not apply to the facts of the case before us. In the case before us, the assessee has submitted on the basis of the certificate issued by M/s. HSBC Republic Trust Company (BVI) Limited the claim that the other trustees of a Trust, in which the assessee is a beneficiary, have made the payment to the assessee. We have already held that the assessee could not prove before us the appointment of M/s. HSBC Republic Trust Company (BVI) Limited as a trustee, therefore, how this certificate issued by such Trust will assist the assessee. We have already referred to the decision of the Hon'ble Supreme Court in the case of Kale Khan Mohammad Hanif -vs.- CIT reported in 50 ITR 1 (SC), wherein it has clearly been laid down that the source of a sum of money found to have been received by the assessee is on him. It is for the assessee to show that the receipt was not his income. In view of the clear-cut....
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.... of the assessee and therefore the assessee has to first prove that the amount credited to his account has arisen to him as capital receipt with the nature and source of such income. 30. In the case of CIT -vs.- Kamalini Khatau reported in 209 ITR 101 (SC), we noted that no doubt the Hon'ble Supreme Court took the view that the income of a discretionary trust which is within the accounting year distributed to and received by the beneficiary would be subject to assessment in the hands of the assessee and tax thereon would be recoverable from him. Such income would squarely fall within the broad sweep of total income under section 5 and the beneficiary would be liable to assessment and recovery of tax thereon under section 4. The issue about the genuinity of the Trust and the genuinity of the appointment of the trustee as well as the financial account of the Trust were not in dispute in that case. This decision, therefore, in our opinion, will not assist the assessee. So far as the decision of Moti Trust -vs.- CIT reported in 236 ITR 37 (SC) is concerned, in our opinion ,this decision is also not applicable to the facts of the case. In this decision, the Hon'ble Supreme Court foll....
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....ficer does not have any jurisdiction as the Indian Income Tax Act extends to the territory of India. In the case before us, we are of the firm view that the assessee has not discharged the burden of prove as lie on the assessee specially the fact the assessing officer cannot have enquiry made in jersey and all the facts were in the knowledge of the assesse. 34. We have also gone through the decision dated 17.02.2006 of JCIT -vs.- Late Smt. Shantaben M. Patel L/H Sri Manubhai K. Patel in ITA No. 5000/Mum./2001 on which ld. Sr. Advocate has vehemently relied and contended that impugned case before us is duly covered by the said decision of the ITAT, Mumbai Bench. After going through the decision, we noted that in that decision the Hon'ble Tribunal under Para 7 held as under:- "7. We have heard both the parties. The ld. CIT(A) has discussed the issue elaborately. The resolution was passed on 02.04.1997, i.e. the second day of the previous year and such huge income could not have arisen to the Trust in one day. We agree with the findings of the ld. CIT(A) that the distribution was made out of the income of the earlier years or out of the corpus fund of the Trust. As per the secti....
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....nary Trust. This decision, therefore, is not applicable to the facts of the case. Similarly we noted that the decision in the case of Uma Polymers Private Limited -vs.- DCIT reported in 100 ITD 1 (JODH.) (TM) does not relate to the money received by the assessee out of the Discretionary Trust. 34. It is not denied by the ld. Sr. Advocate that the money has been credited by the assessee in his books of account and, therefore, in our view, once an amount is credited into the books of the assessee, onus is on the assessee to prove the nature and source of the said amount to the satisfaction of the Assessing Officer in view of the clear mandate of the provisions of section 68. Hon'ble Supreme court has also taken the same view even prior to the introduction of section 68 under the Income Tax Act, 1961 in the case of Kale Khan 50 ITR 1(SC) as has been discussed by us in the preceding paragraph. Similar view has been taken by the Hon'ble Supreme Court in the case of CIT -vs.- Devi Prasad Vishwanath Prasad reported in 72 ITR 194 (SC), in which the Hon'ble Supreme Court held as under:- "There is nothing in law which prevents the Income Tax Officer in an appropriate case in taxing bot....