*****Tax tribunal’s views differ in Thakkar ruling – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/india/tax-tribunals-views-differ-in-thakkar-ruling/articleshow/91220256.cms

Synopsis

The cases relate to South Mumbai residents, Dilip Thakkar, a reputed chartered accountant, and his wife Indira Thakkar whose father had set up an offshore trust having an account in HSBC Geneva — the private banking arm of the British bank which has been in the eye of the storm for a decade, ever since cash-starved sovereigns have been trying get their hands on money lying in tax havens.

It’s never black and white when it comes to matters of `black money’. In identical facts, relating to the same year, the same tax tribunal has taken diametrically opposite views for two members of the same family for their links with a Swiss bank account.

The cases relate to South Mumbai residents, Dilip Thakkar, a reputed chartered accountant, and his wife Indira Thakkar whose father had set up an offshore trust having an account in HSBC Geneva — the private banking arm of the British bank which has been in the eye of the storm for a decade, ever since cash-starved sovereigns have been trying get their hands on money lying in tax havens.

In the case of Dilip Thakkar, a reputed chartered accountant, the Income Tax Appellate Tribunal, Mumbai, a quasi-judicial authority, has upheld the Income tax (I-T) department’s decision to reopen an old case. However, another bench of the same tribunal has ruled that Mrs. Thakkar’s returns cannot be reopened as the time period for any reassessment has long lapsed.

The IT department had reopened both cases in 2015 for the assessment year 1999-2000 (i.e, financial year beginning April 1, 1998). According to the tax office, the Thakkars had derived financial benefits from the maturity proceeds of State Bank of India’s Resurgent India Bonds (RIBs) which were foreign currency deposits launched in August ’98 to woo NRI money with high interest returns. The Thakkars said the investments in RIBs were made by the offshore trust set up by Indira Thakkar’s father. But according to the department, the overseas family trust was merely a “colourable device to route unaccounted money through the RIB channel” and that the “maturity proceeds of RIBs do not constitute the corpus of the trust”.

For the dispute to reach a closure through the courts, Thakkars’ tax returns for AY 1999-2000 have to be reopened. But the Thakkars argued this was not possible on the basis of a Delhi High Court verdict (better known as the Brahm Dutt case), whose analysis by the two benches of the Mumbai ITAT has led to divergent rulings.

The I-T Act was amended in 2012 to empower tax authorities to go back and reopen completed tax assessments (where concealed overseas assets were detected) up to 16 years as against six years for other taxpayers. However, the judicial interpretation (as per Brahm Dutt ruling) of the amendment was that it can be invoked “prospectively” (and not “retrospectively). In other words, the law could be used only in cases which had not become “time barred”. So, if information on foreign deposits in 1999 was unearthed in 2015, reopening was not possible as the 1999-2000 assessment had reached a finality in 2006.

tax

In the case of Indira Thakkar, ITAT stood by the Brahm Dutt ruling, describing it as the “binding precedent on the issue”. However, another bench of ITAT Mumbai, giving its ruling two days later (on February 16, 2022) on her husband Dilip Thakkar’s matter said that the Delhi High Court did not take into account a key explanation under Section 149 (of the amended IT Act) which gives the law ‘retrospective’ effect. According to the second ITAT interpretation, the department can go back till 1996-97 in reopening old assessments.

When contacted by ET, Dilip Thakkar said, “The order of the Hon Tribunal in case of my wife, Mrs Indira D Thakkar was received by Speed Post on 28th April 2022 & I am surprised that two Division Benches of Hon Mumbai Tribunal have given contradictory judgments on the same issue, one agreeing with the decision of Hon Delhi HC which is a higher authority while another Bench has disagreed with it.”

The rulings of ITAT can be challenged before the High Court, particularly if there is a substantial question before the law. The power to reopen could mean tax claims and another round of long tussle in the court between the Thakkars and the taxman. Many tax and legal practitioners would find which way the cases go.

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