TaxTMI 
TaxTMI 
2021 (7) TMI 325
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.... is deleted by the learned CIT - A. Therefore the learned AO is aggrieved and has raised following grounds of appeal:- BMA No. 01/Del/2020 : " 1. C1T(A) has ignored the findings of the AO formed on the basis of information received under the provisions of 'exchange of information Article' of India Singapore Double Taxation avoidance agreement (DTAA), wherein as per the account opening form assessee was the beneficial owner of the account. Details of his passport are mentioned as the identification document in the account. 2. During the assessment proceedings, assessee was categorically asked to submit unequivocal evidence in the form of money belonged to the assessee's son, Sh. Rajneesh Mehra. However, assessee has failed to make compliance in this regard. It is worthwhile to mention that as the account opening form contained the name of the assessee as beneficiary owner, onus lies on the assessee to provide evidence to support his claim that he was not the beneficial owner, thus he was not the beneficial owner, thus assessee failed to discharge his onus. 3. CIT(A) has failed to appreciate that if the intention was to confer all the benefits to Sh. Rajneesh Mehr....
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....erving upon the assessee the required Notice of Demand u/s 13 of The Black Money Act, 2015, in the prescribed "Form 1" (as per Rule 5). 6. That without any prejudice to the above, it is further objected that the Ld. A.O. has filed invalid appeal u/s 18(1) of The Black Money Act, 2015 before the Appellate Tribunal inasmuch as the same was required to be filed in prescribed "Form 3" [see Rule 7(2)] as against the "Form 36" under Rule 47(1) of the I.T. Rules so filed by the Ld. A.O. being the Appellant. 7. That the entire proceedings in the case of the assessee carried out under The Black Money Act, 2015, being from the assessment to the appeal before the Tribunal, are all flawed and illegal and being all beyond the provisions of the said Act, the entire proceedings may thus be quashed ab initio. " 4. Brief facts of the case shows that assessee is an individual and is earning salary from Essar Services India Ltd. A search was conducted in case of "Rakesh Agarwal Group" Baroda. Posts such inquiries and information obtained from foreign tax authorities under Double Taxation Avoidance Agreement, six trust companies were found involved in the transaction. One trust "Rajvin Ltd" is se....
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....018 that why the above sum of US$ 834,025.32 amounting to Rs. 56,647,000 should not be considered as Undisclosed Foreign Income and Assets under the Black Money (Undisclosed Foreign Income and Assets) Act 2015. 8. On 22nd November, 2018, assessee submitted a reply stating that AO has supplied page number 1 to 19 on 14 June 2016 being the account opening form of Watergate advisors Ltd for opening of the bank account in Clariden Lieu Ltd Singapore and stated that a. None of the above documents bear any of the signature of the assessee and assessee has neither signed the above documents and nor gone to that bank anytime. b. Watergate advisors Ltd belongs to the son of the assessee Mr. Rajneesh Mehra, who is a non-resident Indian since 1998. c. He is neither a shareholder nor a director of Watergate advisors Ltd at any point of time. d. Certificate of incumbency issued by the registered agents M/s Vista BVI Ltd on 12 March 2018 according to that certificate it confirms that Watergate advisors Ltd was incorporated in BVI on 18 March 2011 and his son Shri Rajneesh Mehra is the director and sole shareholder of it. e. Affidavit dated 17 August 2018 of Mr. Rajneesh Mehra confirmi....
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....mining the total income of the assessee at Rs. 122,377,070/- against the returned income of Rs. 65,730,070/- wherein addition of Rs. 56,647,000/- was made on account of credit appearing in the account of Watergate advisors Ltd in bank account number 806694 with Clariden Leu Ltd Singapore. 10. Assessee aggrieved with the order of the learned AO preferred an appeal before the learned CIT - A. Assessee challenged applicability of the black money act as per ground number 2 -5, these grounds were dismissed. As per ground number 6 - 15 assessee challenged the additions on the merits of the case. On the merits The learned CIT - A decided as Under:- "4.3 Ground no 6 to 15 related to the merits of the case stating that the said account does not belong to him and that he did not provide any money or received any money from the said account. It is seen from the order of the AO that during the assessment proceedings, the assessing officer had relied upon a bank account "opening form' to observe that the appellant's name was mentioned as the beneficial owner of such account and was thus liable to tax for all credits in the said account. It is not disputed that the said account belonged to ....
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....nvolvement in the management and control of Watergate advisors Ltd, the involvement of Shri Rajneesh Mehra in the management and control of the said company has not been denied. Thus, even if management and control was partly in India and partly outside India, the said company does not qualify as an Indian resident as per provisions of Section 6 (3) of the Income Tax Act. Thus, Watergate advisors Ltd being a foreign company is not liable to tax in India or under the Black Money Act. Having examined the above, it is necessary to examine the purported beneficial ownership of Said bank account by the appellant. As The Black Money Act does not define "beneficial ownership', reference is drawn from explanation 4 to Section 139 (1) of The Income Tax Act, 1961 which defines a beneficial owner as follows:- "Explanation 4 - for the purposes of this Section, beneficial owner in respect of an asset means an individual who has provided, directly or indirectly, consideration for the assets for the immediate or future benefit, direct or indirect, of himself or any other person." Thus, the underlying nexus for a person to be defined as a "beneficial owner' is the infusion of funds into the ....
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....ects from the fact that the account opening form does not have any signatures of the appellant. The appellant's claim that no investment was made by him also appears to be correct as the credits in the said account came from Rajvin Ltd trust, which is as per the Memorandum of Family Arrangement created solely by Sri Rajneesh Mehra. This also reflects from the certificate of incumbency of Watergate advisors Ltd wherein Shri Rajneesh Mehra is the sole shareholder and director. The appellant's claim that he did not receive any funds from Watergate advisors Ltd also appears to be correct as per the confirmation from Matthew G Stock and G S Impex Pte Ltd stating that some business activities/share transactions have been undertaken by them with Shri Rajneesh Mehra in the last 20 years and on such account some US dollar 1,50,000 was still receivable by them from Rajvin limited. These confirmations have also not been denied or rejected by the AO. The appellant has also submitted and relied on an affidavit executed by Shri Rajneesh Mehra confirming the above facts, which was also placed before the AO during the assessment proceedings. The AO has not rejected or denied the contents of the ....
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....n in form No. 4 according to rule 7 (2) of Black Money and Imposition of Tax Rules, 2015. 12. The learned senior departmental representative vehemently supported the order of the learned assessing officer and submitted that a. name of the assessee is clearly reflected in the column of beneficiary owner of account in the account opening form, b. Details of his passport is mentioned as the identification document in the account and therefore the contention of the assessee cannot be accepted that he has not signed any document and account is not maintained by him. c. Though the learned assessing officer has not denied that son of the assessee Mr. Rajneesh Mehra is doing some business activities in Rajvin Ltd in last 20 years but it does not prove that account number 806694 is not maintained by the assessee and the owner of the account is Mr. Rajneesh Mehra. d. Return of the assessee does not show the disclosure of the above account. e. Account number 806694 is held in the name of Watergate advisors Ltd and Jatinder Mehra, but assessee is the beneficial owner of that account, if the assessee was merely a nominal settler of the trust, then the name of the beneficial owner on ....
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....tion, it is contention of the Assessee that the Assessment Order and the subsequent Demand both being invalid being beyond the provisions of the Black Money Act, 2015 may accordingly be quashed at source. ii. Ld. A.O. after determining the alleged undeclared foreign assets/account of Rs. 5,74,45,180/-, he went on to recompute and assess u/s 5 r.w.s 10(3) of the Black Money Act, the total income of the Assessee as under: Returned Income (as filed u/s 139(1) of the IT Act) : Rs. 6,57,30,030/- Add: undisclosed foreign asset (under Black Money Act) : Rs. 5,66,47,000/- Assessed Income Rs. 12,23,77,070/- Based on the above, the Ld. A.O. computed the total amount payable by the Assessee at Rs. 2,66,61,977/- by imposing tax on the said total income of Rs. 12,23,77,070/-Surcharge, Cess and interest u/s 234B of the Income Tax Act, on the said total sum, all of which are not applicable to charge of tax u/s 3 of the Black Money Act, 2015. iii. Action of the Ld. A.O. in the case of the Assessee whereby in his assessment u/s 10(3) of the Black Money Act, he has included the income returned under the income tax act, is grossly ultra vires the Act and thus the Assessment Order dated....
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.... for this purpose. iv. The Account Opening Form is nowhere signed by the Assessee. v. He referred to the provisions of Section 2 (11) of the black money act where undisclosed assets located outside India is defined and submitted that on the facts and circumstances of the case the assessee is not a beneficial owner, he referred to the order of the learned and CIT appeal, wherein the assessee has also disclosed the source of such investment in such bank account even otherwise and his explanation is not found to be incorrect by the assessing officer and still the AO has taxed the above amount in the hence of the assessee Under the black money act. He vehemently denied that assessee has provided the sources of the funds directly or indirectly for the immediate or future benefit of the assessee or any other person. He submitted that the source of the funds has been correctly explained by the learned and CIT - A which has not been disputed by the AO is not emanating from the assessee. He submitted that on 21/12/2011 credit of US dollars 8,26,161.57 emanated from Rajvin Ltd trust has been accepted by the assessee which has been also explained by the submitting the confirmation that th....
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....that, based on all the evidences duly furnished by the Assessee and accepted in totality by the A.O. without any rebuttal, it is the fact of the Assessee that the Bank A/c No. 806694 was in the name of and clearly belonged the Company WAL of which the sole shareholder thus the sole owner was Shri Rajneesh Mehra. Thus, the Assessee can under no circumstances be held to the owner of the said Bank Account. xii. He submitted that it is a settled legal principle that taxation would arise either on account of contribution of assets or funds or on receipt of any distribution or benefit from such trust/structures/entities. In absence of either contribution of receipt on income that would be no implication for merely being named is a beneficiary in a bank account as all that a beneficiary of such an account has is a hope that the distribution will be made in his favour at the time of resolution. For this proposition, he relied on the decision of the honourable Supreme Court in case of Commissioner of wealth tax versus estate of HMM Vikramsinhji of Gondal. (2014) 225 taxman 166 (SC). xiii. He further submitted that the provisions of the black money act has come into effect and is applica....
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....the Black Money of the Assessee and order was passed. The learned CIT - A deleted the addition holding that the assessee is not the beneficial owner of the bank account and further the source of the fund in that bank account is emanating from Rajvin Limited trust in which the business receipts are credited belonging to the business dealings of son of the assessee Mr. Rajneesh Mehra . The bank account of Rajvin Ltd is also opened by the son of the assessee; the assessee has not provided any contribution/investment in the bank account of the Rajvin Ltd or Watergate advisors Ltd. He also considered the remand report of the learned assessing officer as well as the memorandum of family understanding, affidavits of the son of the assessee, information of two different parties. Therefore, the addition came to be deleted. 17. The Black Money Undisclosed Foreign Income And Assets) And Imposition Of Tax Act, 2015 is enacted on 26th of May, 2015 by act number 22 of 2015 and which came into force with effect from first day of April, 2016. The charge of tax is provided Under Section 3 of the act in respect of total undisclosed foreign income and assets of the previous year of the assessee at ....
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....ides that an assessing Officer can issue a notice in the year in which he discovers an undisclosed foreign asset or receives information about an undisclosed foreign asset/income provisions of Section 72 (C) which provides that a foreign asset shall be deemed to have been acquired or made in the year in which a notice u/s 10 is issued by the assessing officer and the provisions of this act apply accordingly. Wherein undisclosed foreign asset was acquired or offshore income earned prior to the date of coming into effect of the act and it is not taxed Under the income tax act, still Under the black money act, tax at the rate of 30% and penalty at the rate of 90% of the value of the asset can be recovered from such taxpayer. Over and above, the taxpayer may also be liable for prosecution. Provisions of Section 81 of the act provide that no assessment, notice, summons or other proceedings, made or issued or taken or purported to have been taken made or issued or taken in pursuance of any of the provisions of the act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such assessment, notice, summons or other proceedings, if such asse....
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....lidity of the appeal filed by the learned AO, no specific arguments were advanced on these three grounds, and therefore those are dismissed. 21. Now coming to the appeal of the ld AO, facts of the bank account shows that The Bank Account A/c No. 806694 maintained in the "Clariden Leu Ltd. Bank" (Presently Credit Suisse) is in the name of the foreign company "Watergate Advisors Ltd.' (WAL), whose sole shareholder and director is the son of the Assessee, Shri Rajneesh Mehra, who has been stated to be a non resident since 1998. The Bank Account Opening Form enclosed at pages 174-191 of the paper book, reveals at page 176 that the account stood in the sole name of the Company "Watergate Advisors Limited." Assessee has submitted a certificate of incumbency dated 12/03/2018 issued by the registered agent of WAL which was also submitted before the A.O., shows that the company WAL was incorporated in BVI on 18/03/2011 and that Shri Rajneesh Mehra was the sole shareholder and director of the said Company. Thus according to this certificate the ownership of the account rests exclusively with Shri Rajneesh Mehra as in case of liquidation or winding up of a company, all its assets and liabil....
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....de India. It is in the form of a bank account number 806994 of a company Watergate advisors Ltd with Clariden Leu Ltd (Presently Credit Suisse) wherein $ 834,025.32 has been credited. Therefore, naturally the first text of having an asset located outside India is satisfied. The second condition whether this bank account as held by the assessee in his own name or not is not satisfied as it is held by the Watergate advisors Ltd a company who shareholder is Mr. Rajneesh Mehra, son of the assessee. Mr. Rajneesh Mehra is also the director of that company. The third condition that now required to be tested is whether the assessee is the beneficial owner in respect of such asset. The term "beneficial owner" is not defined under the black money act. However, the income tax act defines this term with respect to the requirement of the filing of the return of income u/s 139 of the income tax act. The proviso to Section 139 of the income tax act provides that a person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of Section 6, who is not required to furnish a return Under the provisions of Section 139 (1) of the act and who at any time during th....
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....jneesh Mehra, an NRI, was to form a Trust in any tax free jurisdiction and the father of Sh. Rajneesh Mehra i.e. assessee would be made the nominal settler for the said Trust out of love and respect. No settling amount or any other sum was to be contributed by the Assessee in the said Trust. Purpose of the Trust would be the furtherance of education/vocation/technical skills and for the furtherance of research on Hindu scriptures. Total Corpus of the Trust would be USD 250,000, out of which USD 50,000 was to be contributed by Shri Rajneesh Mehra and the balance USD 200,000 was to be raised from friends, associates, and affiliates. Beneficial ownership of the Trust, it was clearly laid out vide Clause V that the Assessee would merely be the Settler and the ultimate beneficiaries of the Trust would be the two sons of the Assessee and their grandsons. The Assessee clearly had no beneficial ownership in the said Trust. Function of the Trust, it was laid out in the said MOA vide Clause IV that the management and control of the Trust and all its earnings solely rested with the Shri Rajneesh Mehra, Further, it was laid out that the Trust would not have any bank account and all sums raised....
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....y fund directly or indirectly in any of the above entities. 25. However, as the entity involved where the money is found credited, it needs to be examined whether the assessee has "beneficial ownership' on these companies/entities. As stated earlier The Black Money Act 2015 does not define the term "beneficial ownership' and The Income Tax Act 1961 explanation 4 to Section 139 (1) defines the same. However, it is not necessary that to examine the provisions of The Black Money Act only the definition provided Under the Income Tax Act is required to be seen. According to provisions of Section 84 of The Black Money Act, only certain provisions of The Income Tax Act are made applicable to the black money act. This Section does not include the provisions of Section 139 (1) of The Income Tax Act. Therefore, the beneficial ownership is required to be understood with respect to its dictionary meaning and also other provisions of other statute also keeping in mind the nature of the object and purposes of the Black Money Act. 26. In Black's law dictionary the beneficial ownership is defined as "one recognized in equity as the owner of something because use and title belonged to that person....
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....ers holds the a) Specified beneficial interest; b) has the right to exercise or exercises significant influence or control. 32. Testing the case before us on the above parameters laid down by The Companies' Act it is apparent that there is no any arrangement, contract et cetera between Watergate advisors private limited or Mr. Rajneesh Mehra with the assessee. There is no demonstration by the revenue that assessee exercises any control as a shareholder of Watergate advisors limited over that company. There is no evidence that assessee has received any interest. It is not also demonstrated that assessee exercises any control to appoint directors or control the management or policy decision of that company. This is also adequately narrated by the learned CIT - A. Thus, the test of beneficial ownership as per the criteria laid down Under The Companies' Act 2013 does not satisfy that assessee is a beneficial owner of the bank account owned by Watergate advisors Limited. 33. Another law, which deals with the beneficial ownership, is The Benami Property (Prohibition) Act 1988. Section 2(12) The Benami Property (Prohibition) Act, 1988 defines beneficial owner to mean a person, whet....
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....ed the test of beneficial ownership in the context of Prevention Of Money Laundering Act where reference is made to the ultimate ownership or control of the entity. Provisions of Rule 9(3) of The Prevention of Money Laundering (Maintenance of Records) Rules, 2005 provides that : In the case of a company, "the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical persons, has/have a controlling ownership interest or who exercise control through other means. Explanation- For the purpose of this sub-clause 1. "Controlling ownership interest "means ownership of/entitlement to more than 25 per cent of the shares or capital or profits of the company. 2. "Control" shall include the right to appoint majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements 38. Thus the above losses that the primary conditions for a person to be considered as an ultimate beneficial owner under the PMLA, may be summarized as under: (a) Covers an individual (b) Owns a client of the reporting entity, which shoul....