9911796707
TMI Blog2021 (7) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... any interest. It is not also demonstrated that assessee exercises any control to appoint directors or control the management or policy decision of that company. This is also adequately narrated by the learned CIT A. Thus, the test of beneficial ownership as per the criteria laid down Under The Companies Act 2013 does not satisfy that assessee is a beneficial owner of the bank account owned by Watergate advisors Limited. Another law, which deals with the beneficial ownership, is The Benami Property (Prohibition) Act 1988. Section 2(12) The Benami Property (Prohibition) Act, 1988 defines beneficial owner to mean a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar. Benami property has been defined to mean any property, which is the subject matter of a benami transaction and also includes the proceeds from such property. 'Beneficial owner' has been defined as an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a juridical person . Testing the above facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not lead to taxability in the hands of the assessee Under the Black Money Act. We hold that assessee does not have beneficial ownership of the amount deposited in Watergate advisors Limited, assessee also do not held that asset. The learned CIT A has also held so giving the detailed reasons as reproduced above. The learned departmental representative could not show us any evidence that assessee is the owner or beneficial owner of the sum lying in the bank account of Watergate advisors Limited. The assessee has given an overwhelming evidence of the fact that money belong to the son of the assessee which were not at all controverted by the learned assessing officer. CIT A was correct in deleting the addition of ₹ 56,647,000/ in the hands of the assessee. - BMA No. 01/Del/2020 And C. O. No. 26 (Del) of 2021 [in BMA No. 01/Del/2020] - - - Dated:- 7-7-2021 - Shri Sudhanshu Srivastava, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri S. K. Tulsiyan, Advocate; Shri Karan Kumara, A.C.A.; Ms. Bhoomija Verma, Adv. For the Department : Ms. Shivani Bansal, Sr. D.R.; ORDER PER PRASHANT MAHARISHI, A. M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned therein, assessee is holding foreign account in the capacity of beneficial owner and credit entries are reflected in the said bank account. However, assessee has failed to disclose such income in Schedule A B of FA in his income tax Return. In view of the same, assessee's undisclosed foreign income attracts the Black Money Act and gets covered in this section 3 4 of the Black Money Act. 3. Assessee has also filed cross objections in C. O. No. 26/Del/2021 raising following grounds 1. That the Assessment Order dated 29/03/2019 passed by the Ld. Addl. CIT, Range-70, New Delhi Delhi (A.O.) u/s 10(3) of The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (The Black Money Act, 2015) is illegal, invalid and void ab intio and thus it is liable to be quashed at source. 2. That the Ld. A.O. has erred in law in computing u/s 5 r.w.s. 4(3) of the Black Money Act, 2015, the total undisclosed foreign income and asset at ₹ 12,23,77,070/- in spite of his clear admission that ₹ 6,57,30,070/- is the Returned Income u/s 139(1) of the Income Tax Act for the A.Y. 2016-17 which could have never formed part of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visors Ltd, a company incorporated in British Virgin Islands. 5. For assessment year 2016 17 assessee has filed his return of income declaring income of ₹ 6,57,30,070/ on 30 July 2016. On receipt of above information from The Additional Director Of Income Tax, Investigation, unit 6 (2), New Delhi on 22/7/2016, an interim report was submitted to the AO for further investigation and to take necessary action Under Black Money (Undisclosed Foreign Income And Assets) And Imposition Of Tax Act, 2015. Consequently notice u/s 10 (1) of the act was issued on 21/11/2016. The assessee submitted on 7/12/2016 that assessee did not have any foreign assets and no foreign sourced income from financial year 2009 10 till date. The assessee was asked to submit the trust deed and bank details. In response to that assessee submitted that he does not have the copy of the trust deed and Mr. Rajneesh Mehra, son of assessee, in order to show regard and respect towards the assessee wanted him to be a nominal settler of the trust. It was in deference to his business and Under his instructions and as per his request, assessee has agreed to become the nominal settler without having to invest, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee contested that he was not required to submit/disclose these assets in schedule FA in the return of income. 9. The learned assessing officer rejected the contentions of the assessee and noted that in assessee s return of income for assessment year 2010 11 to 2016 17, he has not declared foreign assets/income and has not declared any foreign bank account. However, as per the information available with learned AO, assessee is holding foreign account number 806694 and the beneficiary of account is the assessee. The account opening form also shows that the beneficiary of account is the assessee. The details of the passport of the assessee are mentioned in the account opening form as identity proof. Thus, AO held that it is evident that the assessee is holding foreign account and the credit entries are reflected in the account statement. Further the assessee has not disclosed income in schedule A and B of FA in his income tax return and therefore the assessee has not disclosed the foreign income/assets and therefore the provisions of the undisclosed foreign income attracts The Black Money Act. He rejected the argument of assessee that assessee is the only nominal settler of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Act. The contention of the appellant has been considered and the order of the AO has been perused. At the outset, it is apparent and undisputed that the said bank account number 806994 was owned and belonged to Watergate advisors Ltd, which was a company, incorporated in the British Virgin Islands. In order to charge the credits appearing in the accounts of such company, it must satisfy the condition for becoming a resident as per Section 6 of The Income Tax Act. The provisions of Section 6 (3) as applicable for assessment year 2016 17 state that (3) A company is said to be resident in India and in the previous year, if (i) It is an Indian company, or (ii) During that year, the control and management of its affairs is situated wholly in India. As per the certificate of incumbency available on record, the company is incorporated in British Virgin Islands and thus does not satisfy the provisions of Section 6 (3) (ii) as applicable for assessment year 2016 17 mandated the entire management and control of such company to be present in India for it to be considered as an Indian resident. As per the certificate of incumbency available on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocument during the assessment proceedings. The brief constituents of the said Memorandum of Family Arrangement are reproduced below- that it was created by Shri Rajneesh Mehra and signed by his family members that as per the memorandum, a trust was to be created by him for furtherance of education/vocational/technical skills, promoting hygiene and research on Hindu Scriptures that as per the said memorandum, Shri Rajneesh Mehra himself had to contribute a sum of US$ 50,000 and raise the remaining US$ 2 lakhs from like-minded friends, associates and affiliates that the said memorandum clearly mentions that it would incorporate a company and that the management and control of such trust and such underlying company would solely rest with Shri Rajneesh Mehra that the appellant and his wife would not be involved in the functioning, management or control of the trust or the company that Shri Rajneesh Mehra will out of love and respect appoints his father i.e. the appellant as the nominal settler that neither the appellant being the nominal settler, the beneficiaries or Shri Rajneesh in my himself shall draw any fees, remuneration or benefit from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of Black Money Act. Moreover, the primary ownership of the said bank account by Watergate advisors Ltd and the existence of Shri Rajneesh Mehra as the sole director and the shareholder has not been denied by the assessing officer. In the absence of such a denial and in the existence of the name of Rajneesh Mehra as the sole director and shareholder of Watergate advisors Ltd, the ownership of the bank account clearly rests with the company. The AO has not brought on record any evidence to show that the appellant owned Watergate advisors Ltd was solely responsible for its management and control. It is well known that a company belongs to its shareholders and is run by the directors. The underlying test of ownership is that in the event of liquidation of the company, the assets and liabilities rest with the shareholders. In the given case, such ownership of bank account of Watergate advisors Ltd and of Rajvin Ltd clearly rests with Mr. Rajneesh Mehra and has not been denied by the AO. There is no other evidence brought on record by the assessing officer to reject the ownership by Shri Rajneesh Mehra. In the light of the above, the appellant s contention that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India held by the assessee in his name or in respect of which he is a beneficial owner and he has no explanation about the source of such investment or the explanation given by him is not satisfactory, in the opinion of the assessing officer, then such income is required to be taxed according to the provisions of the law. Therefore, she submitted that as the assessee is the beneficial owner of the bank account, which is in the name of Watergate advisors Ltd, the learned assessing officer has correctly charged the above sum to the tax in accordance with the provisions of the act. g. Order of the learned CIT A in view of the findings of the learned assessing officer, unsustainable and deserves to be set-aside. 13. Coming to CO and Appeal of Ld AO , The learned authorised representative first challenged the assessment order on the ground that it suffers from invalidity for following reasons:- i. At the outset, before going on the merits of the case of the Assessee, it is the first and foremost contention of the Assessee, as raised in the Cross Objection filed by the Assessee vide Grounds 1 to 5, that the very Assessment Order dated 29/03/2019 passed by the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturned income and by imposing Surcharge, Cess and interest u/s 234B of the I.T. Act, not all of which are applicable to charge of tax u/s 3 of the Black Money Act, 2015. According to section 3 of the Black Money Act it clearly lays down that under the Black Money Act the charge of tax shall be 30% of the total undisclosed foreign asset and income. There is no surcharge, cess and any interest to be levied on the same. v. On jurisdictional grounds, it is the contention of the Assessee that the Assessment Order passed u/s 10(3) of the Black Money Act, 2015, and the subsequent Demand Notice both being invalid and being beyond the provisions of the Black Money Act, 2015 should accordingly be quashed at source. vi. He further objected that the Ld. A.O. has filed invalid appeal u/s 18(1) of the Black Money Act before the Appellate Tribunal in as much as the same was required to be filed in prescribed Form 3 (see Rule 7(2)) as against the Form 36 under Rule 47(1) of the IT Rules so filed by the ld. A.O. being the Appellant. 14. On the merits of the addition, he submitted that on the facts and circumstances of the case, the assessee does not have any foreign income or as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore the source of the fund in the bank account of Watergate advisors Ltd is fully explained. vi. He also referred to the memorandum of family arrangement submitted before the assessing officer as well as before the learned CIT A placed at page number 125 to 129 of the paper book which clearly shows that Rajvin limited is created by son of the assessee and assessee has not provided any funds in the trust. He also referred to the various clauses of the memorandum as well as the fund flow emanating from that Rajvin trust. vii. He also referred to the copy of the confirmation of G S Impex Pte Ltd, Singapore listed page number 124 of the paper book wherein it is evident that Sri Rajneesh Mehra was carrying on business and investment in Rajvin Ltd is emanating from Rajneesh Mehra. He also referred to the confirmation of Mr Matthew G stock who confirmed that he had a business relationship with Mr Rajneesh Mehra and he invested US$ 950,000 in Raja been between 2005 2008. This conformation also speaks about the details of the repayment of the above sum. He therefore submitted that all the funds in RajVin Ltd has emanated from Mr Rajneesh Mehra, the bank account owned by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the bank account of Watergate advisors Ltd in financial year 2011 12 13 cannot be taxed when there was no act. He submitted that challenge to the applicability of the black money act retrospectively is pending before the honourable Supreme Court and therefore it cannot be taxed. 15. Therefore he requested that the above addition made by the learned assessing officer is incorrect and correctly deleted by the learned CIT A. Thus he submitted that the order of the learned assessing officer suffers from serious the validity as well as the appeal filed is not in order, learned DR could not find any infirmity in the order of the learned and CIT A, the order of the AO deserves to be quashed and the order of the learned and CIT A should be applied. 16. We have carefully considered rival contentions and perused orders of lower authorities. Controversy in this case is that, based on the facts of the case of the Assessee and the allegations of the Ld. A.O., sole issue under appeal is regarding the Account Opening form of the Foreign Account A/c No. 806694 maintained in the Clariden Leu Ltd. Bank (Presently Credit Suisse) belonging to Watergate Advisors Ltd. (WAL), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets to be charged on its value in the previous year in which such assets comes to the notice of the assessing officer. U/s 2 (2) assessee is defined to mean a person being a resident other than NOR in India as defined in clause (6) of Section 6 of the income tax act. U/s 2 (12) undisclosed foreign income and assets is defined to mean the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India referred to in Section 4 and computer in the manner laid down in Section 5 of the act. U/s 2 (11) undisclosed asset located outside India means an asset including any financial interest in any entity located outside India held by the assessee in his name or in respect of which he is a beneficial owner and he has no explanation about the source of investment in such a set or the explanation given by him is in the opinion of the assessing officer unsatisfactory. Section 4 deals with the scope of total undisclosed foreign income and assets and Section 5 deals with the computation of total undisclosed foreign income and asset. Thus on careful look at Section 3 of the act it provides that irrespective of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is in substance and effect in conformity with or according to the intent and purposes of this act. 18. coming to the jurisdictional aspects raised by the assessee in the cross objection stating that the a. learned assessing officer has made an addition to the regular income of the assessee of the alleged foreign assets and thereafter framed assessment order computing the total income of the assessee including the returned income of the assessee as per the income tax act, as per ground number 2 of the CO b. charging of interest u/s 234B, surcharge and cess thereon etc as per ground number 4 of the CO c. issue of demand notice along with interest charged not served on the assessee in the required format in form number 1 u/s 13 of the black money at 2015 Would all not make any difference to the validity of the assessment made in view of the provisions of Section 81 of the act. In view of this, we dismiss ground number 2, 4 and 5 of the cross objection of the assessee. 19. Coming to the ground number 6 of the cross objection where the learned assessing officer has filed the appeal in form number 36 as prescribed Under the Income Tax Rules 1962 instead of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are distributed amongst its shareholders only. However, it is also stated by the assessee that Shri Rajneesh Mehra being the sole owner of the bank account, out of love and respect, mentioned the name of the Assessee, Jatinder Mehra, as the Beneficial Owner at column 4.3 of the Form, which is placed at page 183 of the paper book. The claim of the assessee is that Shri Jatinder Mehra, appellant/respondent being the father of the Assessee, out of gratitude and respect was merely named as the Beneficial Owner. For this proposition assessee submitted affidavit of shri Rajneesh Mehra dated 17/08/2018, wherein he clearly confirmed that the name of the Assessee, his father, was shown as the nominal beneficial owner in the Form out of respect and that the Assessee never received any money on account of the company WAL and that the Assessee did not ever sign any documents relating to the Company including the said Account Opening Form of the bank account of the company. 22. In view of these facts it is necessary to determine that Under what circumstances the undisclosed asset located outside India can be taxed in the hence of the assessee Under The Black Money (Undisclosed Foreign I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the previous year holds as a beneficial owner or otherwise, any asset located outside India or has assigning authority in any account located outside India or is a beneficiary of any asset located outside India, shall furnish the return of income verified and in prescribed manner. Thus, the income tax act casts a burden on specified assesse, if he holds as a beneficial owner any asset located outside India or has assigning authority in any account located outside India to file his return of income. The explanation 4 of that Section provides that for the purpose of this Section beneficial owner in respect of an asset means an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person. Therefore, to identify a beneficial owner of an asset, the said person should have nexus, direct or indirect to the source of the asset and he must have provided funds for the said asset. Thus, in order to identify a beneficial owner, one must verify the source of the asset. Now on perusal of said Bank Statement reveals as per the show cause notice that the total credits in the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee and their grandsons. The Assessee clearly had no beneficial ownership in the said Trust. Function of the Trust, it was laid out in the said MOA vide Clause IV that the management and control of the Trust and all its earnings solely rested with the Shri Rajneesh Mehra, Further, it was laid out that the Trust would not have any bank account and all sums raised from prospective investors would be deposited directly in a Bank Account which would be opened in the name of a Company which would be set up by Shri Rajneesh Mehra. Thus it was provided that the control of the trust would be with Shri Rajneesh Mehra and revocation of such trust was also at the sole discretion of Shri Rajneesh Mehra was provided. Company formed in accordance therewith was Watergate Advisors Limited ; it was laid out that such company being formed by Shri Rajneesh Mehra would solely be run by the Shri Rajneesh Mehra directly or indirectly. The Bank Account (here now being the A/C No. 806694) to be opened in the name of the Company would directly receive all the Trust funds and all sums raised would be invested by the Company on the directions of Shri Rajneesh Mehra. Further, it was provided that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eficial ownership is required to be understood with respect to its dictionary meaning and also other provisions of other statute also keeping in mind the nature of the object and purposes of the Black Money Act. 26. In Black s law dictionary the beneficial ownership is defined as one recognized in equity as the owner of something because use and title belonged to that person, even though legal title may belong to someone else, esp one for whom property is held in trust. 27. Similarly the Webster s dictionary also defines beneficial owner as one who is entitled to receive the income of an estate without its title, custody or control. 28. The beneficial ownership concept is also dealt with extensively in the corporate laws such as The Companies Act and various circulars issued by SEBI. The Companies Act 2013 prescribes maintenance of a register of beneficial ownership. Section 90(1) of The Companies Act 2013 states that :- 90. (1) Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five per cent or such other percenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT A. Thus, the test of beneficial ownership as per the criteria laid down Under The Companies Act 2013 does not satisfy that assessee is a beneficial owner of the bank account owned by Watergate advisors Limited. 33. Another law, which deals with the beneficial ownership, is The Benami Property (Prohibition) Act 1988. Section 2(12) The Benami Property (Prohibition) Act, 1988 defines beneficial owner to mean a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar. Benami property has been defined to mean any property, which is the subject matter of a benami transaction and also includes the proceeds from such property. Further, a benami transaction (subject to exceptions provided therein) means, (A) a transaction or an arrangement- (a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, with specified exceptions (B) a transaction or an arrangement in respect of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company. 2. Control shall include the right to appoint majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements 38. Thus the above losses that the primary conditions for a person to be considered as an ultimate beneficial owner under the PMLA, may be summarized as under: (a) Covers an individual (b) Owns a client of the reporting entity, which should be more than 25% of the shares or capital of profits of the company/ 15% in the case of client other than a company (c) Controls a client by virtue of shareholding or management rights or shareholder /voting agreements (d) Shares in a company or interest in an entity other than a corporate 39. Testing the transactions before us it is apparent that assessee does not own any share capital in case of Watergate advisors Limited as well as it also does not controls the above company as he does not have any shareholding or management rights in that company. 40. With respect to the mention of the name of the assessee in the account opening form as beneficial owner, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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