Black money: ITAT rules against 3 ‘beneficiaries’ holding a/c in Alpine tax haven

MUMBAI: Five years after Germany gave New Delhi a list of Indians with secret bank accounts in the Alpine tax haven Liechtenstein, the first tribunal ruling has gone in favour of the government.

The case pertains to three Kolkata-based individuals – Mohan Manoj Dhupelia, Ambrish Manoj Dhupelia and Ms Bhavya Manoj Dhupelia – whose names figure in the list of 18 resident Indians who have allegedly stashed money abroad. With the Modi government telling the Supreme Court that it is “committed to disclose the names of persons holding illegal money abroad”, the decision by the Mumbai bench of the Income Tax Appellate Tribunal (ITAT), a quasi-judicial authority, could serve as a benchmark for several disputes relating to Swiss bank accounts in future.

The tribunal on October 31 dismissed the appeals by the Dhupelias, and upheld the stand of the Income Tax Department which said that the three members of the Dhupelia family are beneficiaries of the Ambrunova Trust which has an account with LGT Bank in Liechtenstein. The tribunal, according to persons who have been tracking the case, is of the view that funds lying in the bank account of the trust reflect unaccounted income of the assessees (i.e, the Dhupelias).

When asked whether the individuals concerned would move high court to challenge the tribunal’s decision, Dr K Shivaram, the advocate who represented the Dhupelias, said, “The appeal was dismissed but I don’t know the details. I have not received a copy of the order. I have not heard anything so far from them (Dhupelias). One can take a decision only after going through the full order.”

TAXING TRUST BENEFICIARIES

Shivaram had argued that neither do the names of Dhupelias appear in the list of beneficiaries of the trust nor had they received any benefit from the trust. The Dhupelias had denied any knowledge of the trust and claimed that they had not received any money from it.

The trust, formed in March 1997, had a balance of $2.4 million as on December 31, 2001 in its account with LTG Bank of Liechtenstein. The tribunal, it is understood, has referred to the documents in possession of the Income Tax Department.

These documents were officially received by the Indian authorities in agreement to a probe by a permanent sub-committee on investigation of United States Senate.

Many senior tax professionals are awaiting the full text of the tribunal order to get a sense of its stand on trusts. In a discretionary trust (like Ambrunova), the beneficiaries and their shares are not fixed but are determined by the settler of the trust. “Unlike a specific trust where the beneficiaries are known and their entitlements are fixed, the income of a discretionary trust cannot be treated as income of the beneficiaries if there has been no distribution to the beneficiaries,” said chartered accountant TP Ostwal, an expert on the subject. Sharing a similar view, Dilip Lakhani, another senior Mumbai-based chartered accountant said, “In case of discretionary trusts, a beneficiary can be taxed only when he or she has received benefit from the trust as the beneficiary is not a party to the creation of the trust.” According to tax circles, many Swiss bank account holders in the now famous HSBC Geneva list (that was shared by France) are beneficiaries of discretionary trusts that had opened accounts with the British bank.

Thus, in the light of information collected by the tax department, a subsequent view on the matter by the high court would be crucial. Typically, a trust deed has signatures of the trustees and settlers but not necessarily that of the beneficiaries. However, while beneficiaries are not legally required to be physically present for the activating the bank account, they have to submit copies of passport.

The tax department had acted soon after Germany handed over the list of account holders to India. On March 30, 2009, it had served Dhupelias a notice under section 148 of the Income Tax Act relating to assessment year 2002-03. In mid-May that year, the assessing officer furnished reasons for reopening the assessment and in October 2009, the assessees denied the allegations. Dhupelias moved the Tribunal after the Commissioner of Income Tax (Appeals), the first appellate authority, confirmed the order of the assessing officer in February 2011. Subsequently, the assessees moved the tribunal, which after hearing the case on October 8, 2014, pronounced its order, dismissing the assessees’ appeal, in end-October.

LIECHTENSTEIN’S SECRETS

It appears that the Indian tax office has been on a stronger ground (at least initially) in dealing with the Liechtenstein account holders as against the 600-odd named in the HSBC Geneva list. Thanks to the probe by the US house panel, the tax department seems to be in possession of necessary documents like account opening forms, trust deeds and transaction details of LTG account holders.