ITAT quashes Taxing of Swiss Account Funds of Non-Resident

The Income Tax Appellate Tribunal (ITAT) quashed the re-opening of Amrita Jhaveri’s case for both financial years (2005-06 and 2006-07) and addition of an income of Rs 2.3 crore, the rupee equivalent of the balances appearing in HSBC bank accounts in Geneva.

If income from a foreign asset has eluded tax in India, cases can be reviewed within 16 years after the end of the relevant assessment year.

The tax tribunal decided that Income Tax cannot re-open the case of a non-resident under section 147 read with 148 of the Income Tax Act, based on imprecise and generic information, merely on ‘legal technicalities’ and without getting into ‘the merits of the case’.

Jhaveri, who preserved her Indian passport, married a British citizen and lives in London. She is a non-resident under the I-T Act, which means her offshore income is not taxed in India. This tax status is determined by the number of days spent in India during a certain time, not by citizenship. Jhaveri is an active buyer and seller of art. She has also been making money through consulting and commission.

She kept an NRE account (established by non-residents to deposit foreign earnings in India) and an NRO account (for depositing money generated in India) in India. She had paid tax in India on her income from India, such as capital gains, dividends, and interest, and had submitted Income Tax filings.

The Swiss bank data were discovered when the French authorities provided information via ‘base notes’ following a large breach by an HSBC Geneva employee-turned-whistleblower who sought sanctuary in France. In Jhaveri’s case, I-T investigators deduced from a ‘base note’ that she was the only beneficial owner of accounts kept in the name of Amaya Limited, a business incorporated in the tax haven of Seychelles. This company’s only shareholder, beneficiary, and director was Jhaveri.

In answer to the I-T officer’s questions, she stated that because she is a non-resident, maintaining an overseas bank account should be of no significance because money earned or derived outside India is not subject to Indian income tax in the hands of a non-resident.

Deposits in these accounts are for paintings sold or commissions for the sale/purchase of paintings outside of India. She claimed that even if an art piece was carried or imported from India and sold outside the country, it would not be taxed in India since she was a non-resident at the time of the transaction.

The commissioner (appeals) confirmed the I-T official’s varied reasons for revisiting the cases. For example, the bank accounts revealed some payments to Mossack Fonseca and Associations – a leak of data from this legal company had shown how the affluent and famous had laundered money in the ‘Panama Papers’ controversy. He also agreed that a number of elements indicate that the Seychelles firm was used to conceal Jhaveri’s business revenues from either Indian or UK tax authorities.

However, the ITAT bench of S Rifaur Rahman and Amit Shukla stated in its judgement dated May 9 that “nowhere can it be inferred that any amount that has been deposited is from income earned in India.” They stated that if there is any doubt regarding the Seychelles business and the deposits made in the foreign bank account, it is up to the UK tax authorities to investigate the matter.

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