No tax on the foreign account if Indian non-beneficial owner: Income Tax Appeal Tribunal
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MUMBAI: Mere mention of a person’s name in a foreign bank’s account opening form does not mean that such person is the beneficial owner of the bank account, according to a recent order issued by the Delhi Bank the Income Tax Appeal Tribunal (ITAT).
An IT manager had estimated that Jatinder Mehra, who had “opened” this bank account, had not disclosed this asset abroad in his tax returns and that the strict provisions of the Black Money Act would apply. Thus, he sought to tax the Rs 5.7 crore (being the funds in this account) in the hands of Mehra.
However, ITAT observed that Mehra had filed an affidavit disclosing full details of the ownership of the bank account. Based on the sole fact of his name mentioned in the bank account opening form and the absence of any other proof relating to the ownership or beneficial ownership of such an account, the sum could not be taxed. in India in the hands of Mehra, ruled the ITAT.
In this case, a complex set of facts were involved. Mehra’s name along with her passport details were on a Singapore bank account opening form.
However, this account was owned by a foreign company – Watergate Advisors, incorporated in the tax haven of the British Virgin Islands. Mehra’s son, a non-resident Indian since 1998, was the director and sole shareholder of this company. Under tax laws, foreign income held by a non-resident cannot be taxed in India.
It all started when a search was carried out in the case of Rakesh Agarwal Group, Baroda, and the details of six trust companies were revealed, one of which concerns this case heard by ITAT. In April 2005, a Cayman Islands-based revocable trust was established by Mehra, and the beneficiaries of this trust were her two sons and a grandson.
The trust deed was revoked in December 2011 and the trust funds (Rs 5.7 crore, if converted to Indian rupees) were transferred to the Singapore bank account. It is this sum that the computer scientist sought to tax in the hands of Mehra, by applying the provisions of the Black Money Act.
At the first level of appeal, the Appeals Commissioner ruled in favor of the taxpayer. But the IT department has filed an appeal with the tax court. ITAT observed that in response to questions from the IT manager, Mehra said he did not even have a copy of the trust deed. His son, in order to show esteem and respect for his father, wanted him to be a nominal settlor of the trust, without having to invest, contribute or pay an amount to the trust.
On the basis of all the facts, the IT department could not prove that Mehra was the owner or the beneficial owner of the sum in the Singapore bank account, the ITAT ruled in favor of the taxpayer.
An IT manager had estimated that Jatinder Mehra, who had “opened” this bank account, had not disclosed this asset abroad in his tax returns and that the strict provisions of the Black Money Act would apply. Thus, he sought to tax the Rs 5.7 crore (being the funds in this account) in the hands of Mehra.
However, ITAT observed that Mehra had filed an affidavit disclosing full details of the ownership of the bank account. Based on the sole fact of his name mentioned in the bank account opening form and the absence of any other proof relating to the ownership or beneficial ownership of such an account, the sum could not be taxed. in India in the hands of Mehra, ruled the ITAT.
In this case, a complex set of facts were involved. Mehra’s name along with her passport details were on a Singapore bank account opening form.
However, this account was owned by a foreign company – Watergate Advisors, incorporated in the tax haven of the British Virgin Islands. Mehra’s son, a non-resident Indian since 1998, was the director and sole shareholder of this company. Under tax laws, foreign income held by a non-resident cannot be taxed in India.
It all started when a search was carried out in the case of Rakesh Agarwal Group, Baroda, and the details of six trust companies were revealed, one of which concerns this case heard by ITAT. In April 2005, a Cayman Islands-based revocable trust was established by Mehra, and the beneficiaries of this trust were her two sons and a grandson.
The trust deed was revoked in December 2011 and the trust funds (Rs 5.7 crore, if converted to Indian rupees) were transferred to the Singapore bank account. It is this sum that the computer scientist sought to tax in the hands of Mehra, by applying the provisions of the Black Money Act.
At the first level of appeal, the Appeals Commissioner ruled in favor of the taxpayer. But the IT department has filed an appeal with the tax court. ITAT observed that in response to questions from the IT manager, Mehra said he did not even have a copy of the trust deed. His son, in order to show esteem and respect for his father, wanted him to be a nominal settlor of the trust, without having to invest, contribute or pay an amount to the trust.
On the basis of all the facts, the IT department could not prove that Mehra was the owner or the beneficial owner of the sum in the Singapore bank account, the ITAT ruled in favor of the taxpayer.
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