Mumbai: Mere mention of a person’s name in the account-opening form of an overseas bank does not mean that such an individual is the beneficial owner of the bank account, according to a recent order passed by the Delhi bench of the Income Tax Appellate Tribunal (ITAT).
An I-T officer had held that Jatinder Mehra, who had ‘opened’ this bank account, had not disclosed this overseas asset in his tax returns and the stringent 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 Mehra’s hands.
However, the ITAT observed that Mehra had filed an affidavit disclosing complete details of the ownership of the bank account. Based on the solitary fact of his name mentioned in the bank account-opening form and lack of any other evidence relating to ownership or beneficial ownership over such an account, the sum could not be taxed in India in the hands of Mehra, ruled the ITAT.
In this case, an intricate set of facts were involved. Mehra’s name together with his passport details were on the account-opening form of a Singapore bank.
However, this account belonged to a foreign company — Watergate Advisors, incorporated in the tax haven of British Virgin Islands. Mehra’s son, a non-resident Indian since 1998, was the director and sole shareholder of this company. Under tax laws, overseas income held by a non-resident cannot be taxed in India.
It all began when a search was conducted in the case of Rakesh Agarwal Group, Baroda, and details of six trust companies came to light, one of which relates to this case heard by the ITAT. In April 2005, a Cayman Islands-based revocable trust was settled by Mehra, and the beneficiaries of this trust were his two sons and a grandson. The trust deed was revoked in December 2011 and the trust funds (Rs 5.7 crore, if converted into Indian rupees) were transferred into the Singapore bank account. It is this sum that the I-T officer sought to tax in the hands of Mehra, by applying the provisions of the Black Money Act.
At the first level of appeal, the Commissioner Appeals had ruled in favour of the taxpayer. But the I-T department filed an appeal with the tax tribunal. The ITAT observed that, in response to queries raised by the I-T officer, Mehra had submitted that he does not even have a copy of the trust deed. His son, in order to show regard and respect towards his father, had wanted him to be a nominal settler of the trust, without his having to invest, contribute or settle any amount to the trust.
Based on the entire facts, as the I-T department could not provide evidence that Mehra was the owner or beneficial owner of the sum lying in the Singapore bank account, the ITAT ruled in favour of the taxpayer.
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