Profits of sick industrial company for computation of MAT liability; “Beneficial Ownership” of a Family Trust's foreign bank deposits and lot`s more..…!!
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We are glad to present to you the 215th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
Recently, the Mumbai bench of the Tribunal in the case of Renu T Tharani (“the assessee”) [TS-6762-ITAT-2020(Mumbai)-O], held the peak credits appearing in the HSBC bank account of one GWU Investments Ltd, a Cayman Islands Company, shares of which were held by the family trust of the assessee, as taxable in the hands of the assessee (Indian beneficiary). It was held that non-signing of 'consent waiver' disproved the assessee’s 'conduct'.
In this backdrop, Bharath Janarthanan (Advocate, KB Legal Chambers) discusses the observations of the Tribunal in the context of “Identification of beneficial ownership”. The author states that the requirement of providing the details of “beneficial owner”, to identify the “natural persons” (and not intermediary legal persons) who ultimately owns or controls the entity or on whose behalf the transactions are being conducted, are purely to collate information and documents and carry out customer due diligence from the anti-money laundering regulations perspective. The author accordingly opines that it does not automatically imply that the funds lying in such bank accounts automatically belong to such identified beneficial owners available at their disposal and representing their undisclosed income / asset. The author signs off concluding that “Not co-operating with the investigation in India has its own consequences but that by itself cannot be sufficient enough to draw an adverse inference qua the taxability of the sum under the Act…”
Click here to read the article titled, “Beneficial Ownership” of a Family Trust's foreign bank deposits
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Key Takeaways from Handpicked Rulings
1) ITAT: Having participated in the assessment proceedings, assessee cannot challenge issuance of notice u/s. 143(2) - ITAT rejects Assessee additional grounds raised first time before the Tribunal challenging the issuance of notice u/s.143(2); Notes that there is evidence regarding issuance of the notice u/s 143(2) which has not been returned unserved and also clear from the assessment order that the assessee has appeared from time to time before the AO; Accordingly, observes that “Therefore, it would be presumed that the letter sent for selection of scrutiny u/s 143(2) has been duly served to the assessee and assessee participated in the assessment proceedings”............Click here to read and download ITAT Order
Editorial Note: Click here to read “Taxsutra Database Insight - Compendium: Notice u/s 143(2), is it mandatory!”
2)ITAT: Quantum additions being deleted, no default on non-compliance to notice u/s. 142(1); Penalty u/s. 271(1)(b) liable to be deleted– ITAT sets aside penalty order us/ 271(1)(b), noting that additions on merit have already been deleted by the CIT(A) and no further appeals are pending, states that “there may not be a default on the part of the assessee and at best it could be considered as a technical default, for which, ...penalty should not be levied ...for failure to comply with the notices u/s. 142(1)”..............Click here to read and download ITAT order
DB Note: SC in [TS-5569-SC-2018-O]dismissed Assessees` appeal against HC upholding penalty u/s 271(1)(b) for non-compliance of the notice u/s 142(1); In another recent ITAT ruling in [TS-8857-ITAT-2019(Delhi)-O] upheld levy of penalty u/s 271(1)(b) for non-compliance of notice u/s 142(1) of the Act. ITAT noted that AO is both of the investigator and adjudicator and assessee has not made out a case of any reasonable cause for failure in furnishing the information before the AO; One may also refer [TS-10349-ITAT-2018(Delhi)-O] ITAT had upheld the penalty levied u/s 271(1)(b) for not submitting “consent letter” for verification of alleged foreign swiss bank accounts.
3) Revenue to withdraw penalty order passed during lockdown period, without considering assessee's hardship - HC disposes Assessee’s writ in terms of statement made by the Senior Standing Counsel of the Income Tax Department that the Revenue will withdraw the impugned penalty orders u/s 271C and shall afford an opportunity to the petitioner to reply to the Show cause notices [SCN]; Directs that “Immediately after the lockdown is withdrawn by the Government of India [GOI], a period of two weeks should be granted to the petitioner to reply to SCN issued by the AO”.............. Click here to read and download HC Order
4) ITAT - Reduction u/s 115JB towards profits of sick industrial company available only till net worth becomes positive – ITAT rules in Revenue’s favour for AYs 2013-14 and 2014-15, holds that relief under Explanation 1(vii) to Sec.115JB(2) would be available only till net worth becomes positive; Notes that Assessee was discharged by Sick Industrial Companies (Special Provisions) Act, 1985 [SICA] on 16/08/2011 and its net worth turned positive by virtue of implementation of revival scheme and holds that “the assessee would be precluded from relief u/s 115JB in view of Explanation 1(vii) to Section 115JB (2) and therefore, no relief would be available from AY 2011-12 onwards”; Distinguishes Tube Investments of India ................ Click here to read and download ITAT order
DB Note : Explanation 1(vii) to Sec.115JB(2) provides for reduction of “the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.”
5) Madras HC rejects Bangalore based assessee’s writ against SETCOM order absent Jurisdiction – Madras HC dismiss Assessee’s Writ against the order passed by Settlement Commission [SETCOM], noting that the assessee and the assessing authorities are at Bangalore, holds that merely because the order under challenge had been passed by the Chennai Bench of the SETCOM, the cause of action cannot be said to arise within the territorial jurisdiction of this court (Madras HC); Notes that, when the events leading to the filing of the proceedings before the .................... Click here to read and download HC Judgment
6) HC: Section 57 of the TP Act is applicable, whether sale of immovable property is conducted ‘by a court’, ‘out of court’ and ‘in execution of a decree’ – HC allows petitioner’s appeal and sets aside the impugned order of the District Judge, observes that “there can be little ground for divergence that the provisions of Section 57 of the Transfer of Property Act [TP Act] would come to play in a case of this nature, whether the sale been conducted by the court or in execution of a decree or by parties outside court”; HC notes, that Section 57 also provides that in the case of sale of immovable property subject to ..............Click here to read and download HC Judgment
In this backdrop, Bharath Janarthanan (Advocate, KB Legal Chambers) discusses the observations of the Tribunal in the context of “Identification of beneficial ownership”. The author states that the requirement of providing the details of “beneficial owner”, to identify the “natural persons” (and not intermediary legal persons) who ultimately owns or controls the entity or on whose behalf the transactions are being conducted, are purely to collate information and documents and carry out customer due diligence from the anti-money laundering regulations perspective. The author accordingly opines that it does not automatically imply that the funds lying in such bank accounts automatically belong to such identified beneficial owners available at their disposal and representing their undisclosed income / asset. The author signs off concluding that “Not co-operating with the investigation in India has its own consequences but that by itself cannot be sufficient enough to draw an adverse inference qua the taxability of the sum under the Act…”
