2011 (4) TMI 865 - HC - Income Tax

Demand - Assessee in default - Commission - Revise return - Re-opening of assessment - two petitioners viz. Ravina and Associates Private Limited and Ravina Khurana have accepted and admitted their liability to pay tax including the amounts/incomes deposited in their bank accounts in NatWest Bank London - the money in the NatWest Bank London is subject matter of the restraint order passed by the court of U.K. on the letter of rogatory of the Special Judge Delhi - The facts of the present case do not compel and commend us to accept the contention of the petitioners Regarding applicability of section 220(7) - In the present case income had arisen in Russia and not in U.K - The petitioners have not relied upon claimed or stated that there was any bar and embargo in the laws of Russia against the remittance of the said income to India - In fact it cannot be so pleaded because admittedly payments have been made by the Russian company to the petitioners and have been deposited abroad in a third country in the NatWest Bank London - Nothing prevented or prohibited the petitioners from bringing the proceeds to India but the petitioners-assessees by their own conduct have slashed away and kept the money in their bank accounts in London - In the result the writ petition are dismissed

Summary

Issues Involved:
1. Stay of recovery of outstanding tax demand.
2. Legality of the Commissioner of Income-tax's order rejecting the stay application.
3. Applicability of Section 220(7) of the Income-tax Act, 1961.
4. Allegations of corruption and illegal gratification.
5. Validity of tax assessments and revised returns.
6. Jurisdiction and equitable considerations for recovery from foreign accounts.

Issue-Wise Detailed Analysis:

1. Stay of Recovery of Outstanding Tax Demand:
The petitioners, Ravina and Associates Private Limited and Ravina Khurana, sought a stay of recovery for outstanding tax demands amounting to Rs. 54,91,15,497 and Rs. 5,02,17,426, respectively. They alternatively requested that the outstanding amounts be recovered from their accounts in NatWest Bank, London.

2. Legality of the Commissioner of Income-tax's Order:
The petitioners challenged the order dated 7-1-2010 by the Commissioner of Income-tax, Delhi-V, which rejected their application for a stay of demand. The court found no merit in the petitioners' argument that they could not be treated as assessees in default under Section 220(7) of the Income-tax Act, 1961.

3. Applicability of Section 220(7) of the Income-tax Act, 1961:
Section 220(7) states that an assessee shall not be treated as in default if the income arises in a country whose law prohibits or restricts remittance to India. The court outlined three conditions for this provision to apply:
1. The income must arise in another country.
2. The laws of that country must prohibit or restrict remittance to India.
3. The assessee should not be treated as in default for the part of the tax that cannot be remitted.

The court concluded that the income in question arose in Russia, not the U.K., and there was no bar on remittance from Russia to India. The petitioners' conduct of keeping the money in their London accounts did not entitle them to protection under Section 220(7).

4. Allegations of Corruption and Illegal Gratification:
The Central Bureau of Investigation (CBI) registered a criminal case alleging that officials of NTPC and the Russian company Techno Prom Export were involved in a conspiracy to receive illegal gratification. The funds in question, deposited in NatWest Bank, London, were alleged to be crime proceeds. The court noted that these allegations were subject to criminal proceedings and did not directly impact the tax recovery process.

5. Validity of Tax Assessments and Revised Returns:
Ravina and Associates Private Limited and Ravina Khurana admitted their liability to pay tax on amounts deposited in their NatWest Bank accounts, which were not declared in their original returns. The revised returns were filed after the CBI initiated investigations. The court found that the petitioners' claim of ignorance about the need to declare these amounts in India was "too far-fetched" and "preposterous."

6. Jurisdiction and Equitable Considerations for Recovery from Foreign Accounts:
The petitioners argued that the tax should be recovered from their foreign accounts based on equity and fair play. The court rejected this argument, noting that the petitioners' conduct did not justify exercising equitable jurisdiction in their favor. Additionally, the funds were subject to a restraint order by a U.K. court, and the petitioners might not have any right to claim the money if it was deemed corruption or bribe money.

Conclusion:
The court dismissed the writ petitions, finding no merit in the arguments presented by the petitioners. The petitioners were ordered to pay consolidated costs of Rs. 20,000 to the respondents.