Elderly Lady Claiming Declared Income Of Rs 1.7 lakh Directed To Pay Tax On Rs.196 Cr Stashed In Swiss Banks; ITAT Upholds Order By IT Commissioner(Appeals)

The Income Tax Appellate Tribunal, Mumbai bench recently upheld an order passed by the Commissioner of Income Tax (Appeals) holding octogenarian Renu Tharani, liable to pay tax on over Rs.196 crore that has been stashed abroad in HSBC Private Bank, Geneva, Switzerland in the name of Tharani Family Trust, of which the assessee is a discretionary beneficiary.

Vice President Pramod Kumar and Judicial Member Amarjit Singh of the Mumbai bench heard Renu Tharani’s appeal against an order passed by Commissioner of Income Tax (Appeals) wherein he confirmed the order passed by the Assessing Officer and issued notice under Section 148 of the Income Tax Act, in 2014, reopening tax assessment for the year 2005-06.

Appellant Renu Tharani had filed her income tax return for the year 2005-06 disclosing an income of Rs 1,70,800, but the Directorate General Of Income Tax (Investigations) found out that the assessee is having a bank account with HSBC Private Bank (Suisse), SA Geneva. Moreover, the bank statement of the said account reflected that the appellant had a peak balance of US$ 39738122 in the said account during the period 2005-06 which amounted to Rs.196,46,79,146 at the time. Based on this information, the order for re-opening tax assessment for 2005-06 was passed.

The appellant challenged the AO’s order before the Commissioner of Income Tax (Appeals). After perusing through the relevant facts of the case, CIT(A) concluded that Renu Tharani is the sole beneficiary of Tharani Family Trust, which in turn is the sole beneficiary of GWU Investments Ltd. GWU Investments Ltd having an address in Cayman Islands has investment managed by Haresh Tharani, appellant’s son.

Advocate Ved Jain appeared on behalf of the appellant and submitted that the assessee is admittedly a non-resident and since the impugned assessment was framed on the assessee in her residential status as “non-resident”, she was not required to disclose her foreign bank accounts, even if any. Also, the basis of taxability of income outside India, in India, is on the basis of residential status of the assessee, Jain argued.

Moreover, since March 23, 2004, the assessee is regularly residing in the United States of America, and after the financial year ended on March 31, 2006, she is a non-resident assessee. Thus, any amount credited in the bank account in question cannot be taxed in the hands of the assessee, and, when it cannot be so taxed, the very foundation of the impugned reassessment proceedings ceases to hold good in law, Jain argued.

However, the bench refused to accept these submissions and pointed out that the appellant’s Bangalore property was sold in the year ended March 2003, but yet income tax return continued to be filed at that address.

“It is not clear as to what was the basis of filing the income tax return at Bangalore but then let’s leave it at that for the time being. The income tax return filed by the assessee, a copy of which is placed before us at page 62 of assessee’s paper-book, does not at all tick the status as ‘non-resident’, but there is a clearly visible mark in the status as ‘resident’.”

The bench referred to the finding arrived at by DIT (Investigations) wherein it was held that GWU Investment Limited is the settlor of the Tharani Family Trust and has given all the funds for the same trust. But the appellant’s lawyers argued that she was neither a shareholder or director of GWU Investment.

Finally, the Tribunal observed -

“The assessee is not a public personality like Mother Terresa that some unknown person, with complete anonymity, will settle a trust to give her US $ 4 million, and in any case, Cayman Islands is not known for philanthropists operating from there; if Cayman Islands is known for anything relevant, it is known for an atmosphere conducive to hiding unaccounted wealth and money laundering, and that does not advance the case of the assessee. This is a jurisdiction which has double the number of companies than resident, most of which remain only on paper, and it will be no naïve to believe that these companies are located here, in a country with around 65,000 residents, for bonafide core activities, rather than the benefits of anonymity, secrecy and liberal tax laws.”

Thus, the bench dismissed the said appeal and upheld the order passed by the CIT(A) and declined to interfere in the matter

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