Opinions of the tax court diverge in the Thakkar judgment

It’s never black or white when it comes to ‘black money‘. In identical facts, relating to the same year, the same tax court took diametrically opposed positions 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 reputable chartered accountant, and his wife Indira Thakkar whose father had set up an offshore trust with an account at HSBC Geneva — the private banking arm of the British bank which set up been in the eye of the storm for a decade, since cash-strapped sovereigns tried to get their hands on cash sitting in tax havens.

In the case of Dilip Thakkar, a reputable chartered accountant, the Mumbai Income Tax Appeal Tribunal, a quasi-judicial authority, upheld the decision of the Income Tax (IT) Department to reopen a old case. However, another bench in the same court has ruled that Ms Thakkar’s returns cannot be reopened as the deadline for any reassessments has long passed.

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

For the dispute to reach closure in court, Thakkars’ tax returns for AY 1999-2000 must be reopened. But the Thakkars argued that this was not possible based on a verdict from the Delhi High Court (better known as the Brahm Dutt case), the analysis of which by both benches of the Mumbai’s ITAT led to divergent decisions.

The IT law was amended in 2012 to empower the tax authorities to go back and reopen completed tax notices (when assets hidden abroad have been detected) up to 16 years compared to six years for others taxpayers. However, the judicial interpretation (consistent with Brahm Dutt) of the amendment was that it could be invoked “prospectively” (not “retrospectively”). In other words, the law could only be used in cases that had not become “prescribed”. Thus, while information on foreign filings in 1999 was unearthed in 2015, reopening was not possible because the 1999-2000 assessment had reached its completion in 2006.

In the case of Indira Thakkar, the ITAT supported Brahm Dutt’s decision, describing it as the “binding precedent on the issue”. However, another bench of ITA Mumbai, delivering its decision two days later (February 16, 2022) on her husband Dilip Thakkar’s case, said the Delhi High Court failed to consider a key explanation under article 149 (of the amended computer law). ) which gives the law “retroactive” effect. According to the second interpretation of the ITAT, the department can go back to 1996-97 to reopen the old assessments.

When contacted by ET, Dilip Thakkar said: “The Hon Tribunal order in the case of my wife Mrs Indira D Thakkar was received by Speed ​​Post on 28th April 2022 and I am surprised that two divisional benches of the Hon Mumbai Tribunal gave conflicting opinions. judgments on the same issue, one agreeing with the decision of Hon Delhi HC which is a higher authority while another bench disagreed with it.

Decisions of the ITAT can be challenged in the High Court, particularly if there is a question of substance before the law. The power to reopen could mean tax claims and another long court battle between the Thakkars and the taxman. Many tax and legal experts would find out which way business is going.

Comments are closed.