TaxTMI 
TaxTMI 
2022 (1) TMI 1467
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....the above assessment years, notices dated 19.2.2016 were issued under section 148 of the Act. The reasons for reopening of assessments have been similar for all the four assessments and are reproduced as under: - "Return of Income for A Y 2009-10 was e-filed on 24.11.2009 declaring total income of Rs. 1755920/-. Subsequently, the information was received from Singapore Tax Authorities that the assessee has a Bank Account in Singapore which was forwarded to the office of Pr. CIT-20 Mumbai by Pr. Pr. Director of Income tax (Investigation)-1, Mumbai vide letter No. Pr. DIT (Investigation)-1, Mu/Vilas Waman Katre/2015-16/861 dated 4.11.2015. The Pr .CIT - 20 Mumbai vide letter No. Pr. CIT.20/Vilas Waman Katre/2015-16 dated 9.11.2015 forwarded to JCIT-20(3), Mumbai. The JCIT. 20(3) Mumbai vide letter No. Jt. CIT 20(3)/Vilas W. Katre /2015-16 dated 13.11.2015 forwarded the letter along with the enclosure thereat hereto to the undersigned. The information received by the undersigned was carefully perused. This exercise revealed that the following are the documents to show that the assessee has beneficial interest in an offshore entity M/s Eagle Ridge....
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....ecimen signature at 3 places. This form is accompanied with the copy of his passport having no. G 1250829 and also has copy of the passport of his son Shri Vikram Vilas Katre with passport no. F 5237722. ix. The assessee has opened the bank account in A Y 2006- 07. The total of transactions / credits and portfolio investment during the previous year relevant to A Y 2009-10 were in US $ the value of which in Indian currency is Rs 671488587/-. However, the assessee has not disclosed these investments and credits made in the assets located outside India in the return of Income including source thereof for the purpose of calculating the taxable income in India. The assessee was a resident in India during the previous year relevant to assessment year under consideration and therefore his global income is taxable in India by virtue of section 5 of the Income tax Act. x. By virtue of the facts narrated in earlier paragraphs I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the I T Act." 4. The Assessee thereafter filed objections against the reopening of assessments and after considering various submissi....
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.... A. the Assessee was nominated as fiduciary/trustee by a nonresident individual residing in Singapore, in relation to a revocable offshore oral discretionary trust, during December 2005 (Trust); B. the non-resident entity Eagle Ridge Services Limited, incorporated in British Virgin Islands, constituted in September 2005 (Trust Vehicle), formed part of the trust structure; C. the Trust was governed under the laws of BVI, and managed out of Singapore; D. the Assessee was neither shareholder, nor director of the Trust Vehicle; E. the Assessee accepted office of trustee in December 2005, without consideration or obligation for contribution; F. beneficial ownership of assets/corpus of the Trust remained exclusively with the beneficiaries, until revocation; G. in consonance with the office of trustee, the Assessee was constituted as one among authorized signatories to the bank account of the non-resident company, which neither conferred exclusive signatory power nor vested beneficial ownership or management over the Trust Vehicle to the Assessee; H. by virtue of the Settlor reserving signatory rights in parallel with di....
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.... On the basis of above reasoning, the Assessing Officer concludes that the bank account No 8044349 of Eagle Ridge Services Limited belongs to the Assessee and the Assessee is the beneficial owner of the company M/s Eagle Ridge Services Limited. The exact additions made during the four assessment years are as under:- Asst Year Addition made (In Rs..) Dividend/ Interest (IN Rs..) Interest Capital gains Unexplained Investment - 69 Term Deposits u/s 68 2008-19 184784 184784 2009-10 75848581 131484 897566 1125116 56421361 17273054 2010-11 186764 186764 2011-12 3496730 3496730 Total 79716859 3628214 1269114 1125116 56421361 17273054 10. Aggrieved, the Assessee preferred appeal before the Commissioner of Income Tax (Appeals)- 49. Before Ld.CIT (A) assessee submitted the detailed submissions and the relevant summary is given below: A. On Re-opening of assessments i. The notice is is....
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....y viz Eagle Ridge Services Limited which is incorporated outside India. These do not establish that these documents belong the Assessee and therefore addition on the basis of these documents cannot be made. The income, if any belongs to a limited company incorporated outside India and not to the Assessee. vii. The assessing officer has at no point of time established that the said company is a fictitious company or a bogus company and the transactions although in the name or bank account of the said company actually belongs to the Assessee. Hence the transactions of the said company cannot be taxed in the hands of the Assessee. viii. The Income tax Acts treats companies and shareholders distinctly. The undisclosed income of share holders cannot be treated as the income of the company. The decision of Delhi High Court (which has been confirmed by the Supreme Court by rejecting the SLP) in the case of CIT Vs Lovely Exports (P) Ltd 216 CTR 195 it has been held that: It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as....
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....er invested any amount nor received any amount from it or for it. In such scenario, no amount can be taxed in the hands of Assessee under provisions of Income tax law. xii. There is no evidence with the Assessing Officer that the moneys deposited in the bank account has any nexus with the Assessee. The Assessee has income mainly from investment and salary from sources in India and has been filing annual income tax returns for more than last thirty years. The Assessing Officer has not established in any manner whatsoever that the Assessee has undertaken business operation of international transactions which will result in income to be earned abroad." 11. After considering the detailed submissions of the assessee, Ld. CIT (A) sustained the addition made by the assessing officer with the following observations: "8.3 The submissions of the learned counsel have been carefully considered along with the facts discussed by the AO in the assessment order. The undisputed facts are that the assessee opened the bank account of Eagle Ridge Services Ltd in Singapore and is the only authorised signatory of the Bank account. There are a lot of credit entries and investment ent....
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....fficer was justified in making the aforementioned additions in the hands of the assessee. The same are therefore upheld. These grounds of appeal are DISMISSED" 12. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal: 1.1 Ground no.1: On the facts and circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) erred in holding that notice under section 148 has been validly issued by the Assessing Officer. 1.2 Ground no.2: On the facts and circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer of re-opening of assessment under section 147 of the Act without appreciating the fact that there was no evidence that the income of the Appellant has escaped assessment and that the Assessing Officer therefore had no reason to believe that income of the Appellant has escaped tax. 1.3 Ground no.3: On the facts and circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) erred in confirming the following additions made by the Assessing Officer: a) Addition of Rs. 16....
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....e Appellant, has been omitted to be judicially considered. 1.8 Ground no.8: On the facts and circumstances of the case and in law, the Lower Authorities erred in overlooking that escapement (s. 147/148) proceedings were not initiated against Appellant in the capacity of a representative appellant or agent of the non-resident entity, and in any event, there was no scope for taxability in the hands of the Appellant in relation to a non-resident entity forming part of an offshore trust structure settled by a nonresident. 1.9 Ground no.9: On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in confirming the additions made by the Assessing Officer on basis of bank statement of Eagle Ridge Services Limited without following the principles of natural justice. 1.10 Ground no.10: On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in passing order without giving final notice for hearing to the Appellant and giving real and sufficient opportunity to defend. 1.11 Ground no.11: Without prejudice to the above grounds, the Learned Commissioner of....
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....o act as trustee, maintaining this fiduciary obligation in strict confidence, in the Settlor's best interests; (B) owing to the Assessee being well-acquainted with Mr. Haji Dilip Sarabhai, in view of a long-standing familial relationship, and on being explained that health and family concerns had led Mr. Haji Dilip Sarabhai to consider settling assets into a revocable discretionary trust, which would remain in operation for such duration as the Settlor considered appropriate, the Assessee signified consent to act as trustee, taking into consideration the fact that no restrictions exist under Indian law to a resident individual being nominated as trustee of an offshore trust established by a non-resident; (C) accordingly, in December 2005, steps were adopted by Mr. Haji Dilip Sarabhai, in consonance with the Assessee accepting office of trustee, to constitute the Assessee as authorized signatory of a bank account of the Trust Vehicle established in Deutsche Bank, Singapore, with corollary fiduciary rights in relation to Share Corp Limited, underlying the Trust Vehicle, and it is not axiomatic that the Assessee should by virtue of mere signatory powers be capable of....
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....the Settlor to induct his son Mr. Nirav Haji Sarabhai, also a non-resident and citizen of Singapore, as beneficial owner of the Trust Vehicle jointly with Mr. Haji Dilip Sarabhai [Paper Book @ page 253]. Among diverse documents constituting record of revocation of the Trust by Mr. Haji Dilip Sarabhai, acting in his capacity as Settlor, are the letter of Share Corp dated 6 February 2012 to Mr. Haji Dilip Sarabhai confirming it holds shares in the Trust Vehicle on behalf of Mr. Haji Dilip Sarabhai [Paper Book @ page 250], a Board Resolution dated 6 February 2012 of the Trust Vehicle recording that Mr. Haji Dilip Sarabhai is authorized signatory of the bank account [Paper Book @ page 251], a subsequent letter dated 13 February 2012 recording joint beneficial ownership of both Mr. Haji Dilip Sarabhai and his son Mr. Nirav Haji [Paper Book @ page 253], followed by a Board Resolution dated 13 April 2012 recording the name of Nirav Dilip Haji Sarabhai to be added as co-signatory, with grant of authority to both Mr. Haji Dilip Sarabhai and Mr. Nirav Dilip Haji Sarabhai to operate the bank account of the Trust Vehicle [Paper Book @ page 252], all of which conclusively establish cessation of....
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....ashovardhan Birla v. DCIT, Central Circle-4(1), WTA No. 2 to 8/Mum/2020 (AYs 2007-08 to 2013-14, order dated 24.12.2020, Para 32), it has been held that offshore trusts / entities incorporated in offshore jurisdictions are liable to be taxed in their respective offshore jurisdictions, and as such, it must follow that the Trust Vehicle is liable to tax in the country of its incorporation. 9. As to mere signatory powers and/or bank records of the Trust Vehicle maintained within the ambit of their governance frameworks, including in relation to anti-money laundering compliances, the Mumbai Bench of this Hon'ble Tribunal, in the case of Yashovardhan Birla v. CIT(A)-51, Mumbai (order dated 3 September 2021 in BMA No. 01/Mum/2021, Para 39), and the Delhi Bench of the Hon'ble Tribunal in ACIT v. Shri Jatinder Mehra (order dated 7 July 2021 in BMA No. 01/Del/2020, Para 37 to 41), relying inter alia upon the ruling of the Mumbai Bench of this Hon'ble Tribunal in the matter of Kamal Galani v. ACIT (order dated 10 September 2020 in ITA Nos. 138- 142/Mum/2019, Para 13, 14), have concluded inter alia that bank accounts in foreign jurisdictions pertaining to offsho....
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.... to offer negative proof, has been denounced by the Hon'ble Supreme Court and this Hon'ble Tribunal. Reliance is placed on Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC) - Pg. No. 4 & 5; Late Shri Bhushan Lal Sawhney, through L.R / Wife Smt. Sneh Lata Sawhney v. DCIT Mumbai ITAT order dated 01.06.2021 - Para 6.1.12; Kamal Galani v. ACIT-23(3), Mumbai (Mumbai ITAT order dated 10.09.2020 in ITA Nos. 138 to 142/Mum/2019) - Para 12 & 14; DCIT (IT), Mumbai v. Hemant Mansukhlal Pandya [2018] 100 taxmann.com 280 (Mumbai - Trib.) - Para 17; Biren V. Savla v. ACIT [(2006) 155 Taxman 270 (Mum)] - Para 25 & 26. 12. Information received and/or data gathered by the Investigation Wing was bound to have been duly enquired into by the Assessing Officer, who instead failed to analyze the detailed explanation offered supported by documentary material furnished by the Assessee, and instead based the assessment order on mere conjecture and surmise, along with legally untenable conclusions. Persons in charge of the business and affairs of the Trust Vehicle were best equipped to offer explanations, however none appears to have been sought by the Assessing Officer. If any su....
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.... hands of a third person. The framework of s. 68 requires: (i) credit of amounts in the books maintained by an assessee; (ii) credit of a sum during the previous year; and (iii) the assessee offers no explanation about the nature and source of such credit found in the books; or where the explanation offered by the assessee in the opinion of the AO is not satisfactory. Explanations about the nature and source of sum so credited can properly only be offered by the non-resident entity in whose books/bank accounts such cash credit occurs. The AO erred in purporting to invoke s. 68 qua sums lying to the credit of the bank account of a non-resident entity as cash credit in the hands of the Assessee, (para 5.7 @ pg. 137). In any event, without prejudice, the opening balance of sums lying to the credit of the non-resident entity cannot be taken into account for computing taxable income of the Assessee under s. 68. Reliance is placed on rulings in: ITO v. Meghna A. Modi (order dated 31.07.2015 in ITA No. 1611/Ahd/2011) - Para 4 & 5; and Chetan Gupta v. DCIT (order dated 07.06.2018 in ITA No. 1788/Del/2016) - Para 13(7). Under s. 69 of the Act, investments not recorded in the books....
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..... DCIT (Int. Tax) [2017] 78 taxmann.com 174 (Mumbai - Trib.) Para 9 CORPORATE DISTINCT JURIDICAL ENTITY FROM SHAREHOLDER 7. Calcutta Tramways Co. Ltd. v. CWT [1972] 86 ITR 133 (SC) Pg. 6 OFFSHORE ENTITY TAXABLE IN JURISDICTION OF SOURCE OR RESIDENCE 8. Yashovardhan Birla v. DCIT, Central Circle-4(1), WTA No. 2 to 8/Mum/2020 (AYs 2007-08 to 2013-14, order dated 24.12.2020) Para 32 STRICT INTERPRETATION OF S. 68, 69, S. 139 - EXPLN 4/5: INCOME-TAX ACT 9. PCIT v. Aarham Softronics [2019] 102 taxmann.com 343 (SC) Para 20 SCOPE OF SECTION 69 OF INCOME-TAX ACT 10. Biren V. Savla v. ACIT, Central Circle-11 [2006] 155 TAXMAN 270 (MUM.) (MAG.) Para 25 & 26 ONUS ON REVENUE UNDER S. 68/69 TO ESTABLISH BENEFICIAL OWNERSHIP OF INCOME OR INVESTMENT IS THAT OF ASSESSEE 11. Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC) Pg. No. 4 & 5 12. Late Shri Bhushan Lal Sawhney, through his L.R / Wife Smt. Sneh Lata Sawhney v. DCIT Mumbai ITAT order dated 01.06.2021 Para 6.1.12 13. Kamal Galani v. ACIT-23(3), Mumbai (Mumbai ITAT order dated 10.09.2020 in ITA Nos. 138 to 142/Mum/2019) Para 12 & 14 14.....
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....to a revocable offshore oral discretionary trust, during December 2005 (Trust); ii. the non-resident entity Eagle Ridge Services Limited, incorporated in British Virgin Islands, constituted in September 2005 (Trust Vehicle), formed part of the trust structure; the Trust was governed under the laws of BVI, and managed out of Singapore; iii. the Assessee was neither shareholder, nor director of the Trust Vehicle; iv. the Assessee accepted office of trustee in December 2005, as claimed by the assessee that it is without consideration or obligation for contribution, v. beneficial ownership of assets/corpus of the Trust remained exclusively with the beneficiaries, until revocation; vi. in consonance with the office of trustee, the Assessee was constituted as authorized signatories to the bank account of the non-resident company, which neither conferred exclusive signatory power nor vested beneficial ownership or management over the Trust Vehicle to the Assessee; vii. by virtue of revocable trust and the Settlor reserving signatory rights in parallel with directors of the nonresident company, Assessee is one among the other authorised....
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....e law relating to Trust is embodied in Indian Trusts Act, 1882 which considers that: A. Trusts can be oral and written; B. Different stake holders like settlor, trustee and beneficiary are distinct entities with consequential rights and obligations; C. A trustee can have, at best, legal ownership, but no beneficial ownership in relation to assets of the trust, unless the trustee were among the nominated class of beneficiaries in a specific trust D. Upon the exercise of power of revocation in relation to a Trust, the trust stands extinguished. 19. At the same time, we observe that the Income Tax Act does acknowledges the existence of oral trusts within the framework of Section 160(1)(v) read with section 164A, as well as the Indian Trusts Act, 1882. Offshore trust structures are governed by laws of incorporation of the respective countries in which they are incorporated, which in this case, are governed by the laws of British Virgin Islands. The coordinate Bench in the case of Yashovardhan Birla v. DCIT, Central Circle-4(1), WTA No. 2 to 8/Mum/2020 (A.Ys 2007-08 to 2013-14, order dated 24.12.2020, Para 32), has held that offshore trusts / ....
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....from India." 20. With regard to the signatory powers and bank records of the Trust Vehicle, the matter is clearly settled by the coordinate Bench of this Tribunal in the case of Yashovardhan Birla v. CIT(A)-51, Mumbai (order dated 3 September 2021 in BMA No. 01/Mum/2021, Para 39), also in the matter of Kamal Galani v. ACIT (order dated 10 September 2020 in ITA Nos. 138-142/Mum/2019, Para 13, 14), and the Delhi Bench of the Tribunal in ACIT v. Shri Jatinder Mehra (order dated 7 July 2021 in BMA No. 01/Del/2020, Para 37 to 41), and where they have concluded inter alia that bank accounts in foreign jurisdictions pertaining to offshore entities cannot, merely because the assessee is declared as 'beneficial owner' for anti-money laundering, purposes be treated as belonging to the assessee. The extract of the decision is given below: "37. We notice from the record that the bank balance are in the name of offshore companies, trusts and joint accounts of the family members. As far as the bank balance in the offshore companies and trusts are concerned, they are separate taxable entities and the companies which are having bank accounts are governed by the trustee....
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....income. But the 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 upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee." 24. Similar views were denounced by the coordinate bench in the case of Late Shri Bhushan Lal Sawhney, through L.R / Wife Smt. Sneh Lata Sawhney v. DCIT dated 01.06.2021; in the case of Kamal Galani v. ACIT23(3) dated 10.09.2020 in ITA Nos. 138 to 142/Mum/2019); in the case of DCIT (IT), Mumbai v. Hemant Mansukhlal Pandya [2018] 100 taxmann.com 280 (Mumbai - Trib.); Biren V. Savla v. ACIT [(2006) 155 Taxman 270 (Mum)]. 25. With regard to the nature of additions that have been made under section 56, 68 and 69 of the Income Tax Act, the Hon'ble Supreme Court has clearly laid out the Principles of strict interpretation of a taxing statute in the case of PCIT v. Aarham Softronics [2019] 102 taxmann.com 343 (SC) [Para 20] and therefore a....
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....the language used; there is no room for searching intendment nor drawing any presumption. Furthermore, nothing has to be read into nor should anything be implied other than essential inferences while considering a taxation statute." 26. The Assessing Officer has held income of the Eagle Ridge Service Limited, the Trust Vehicle liable to tax in the hands of the Assessee, under the head of 'income from other sources' u/s 56 of the Act, overlooking both settled principles of 'real income', and limitations in relation to treatment of income in the hands of a non-resident in the absence of 'source' or 'residence'. 27. The structure of section 68 requires the following conditions to be fulfilled: (i) credit of amounts in the books maintained by an assessee; (ii) credit of a sum during the previous year; and (iii) the assessee offers no explanation about the nature and source of such credit found in the books; or where the explanation offered by the assessee in the opinion of the AO is not satisfactory. 28. In the case of the Assessee, the explanations about the nature and source of sum so credited can proper only be offered by the non-resident entity i....