ITAT orders Swiss bank account holder to pay tax on Rs 196 crore stashed abroad

New Delhi: In a landmark judgment, Income Tax Appellate Tribunal (ITAT), Mumbai has directed that over Rs 196 crore lying in an individual's Swiss foreign account be taxed. A Swiss bank account holder, Renu T Tharani, with a declared annual income of Rs 1.70 lakh, in her tax filing on July 29, 2006, will now have to pay taxes on the stashed amount abroad.

The assessee raised as many as 19 grounds of appeal, but her plea was dismissed as the tribunal observed that the amount found in her Swiss Bank account was over 11,500 times more than her annual income. The ITAT confirmed the addition in respect of her account with HSBC Private Bank (Suisse), SA Geneva.

In response to the notice issued by the department of income tax, the assessee had denied ownership of the foreign account and objected to reopening of assessment.

The department recorded that the income to the extent of US$3,97,38,122 has escaped assessment and issued her a show-cause notice under section 148 of the Income Tax Act.

In 2006, the assessee filed her income and had declared an annual income of around Rs 1.70 lakh. The department in 2014 decided to reopen the assessment.

The tribunal recorded, "The assessee is not a public personality like Mother Teresa that some unknown person, with complete anonymity, will settle a trust to give her US$4 million, and in any case, Cayman Islands is not known for philanthropists operating from there; if Cayman Islands is known for anything relevant, it is known for an atmosphere conducive to hiding unaccounted wealth and money laundering."

It further observed, "This is a jurisdiction which has double the number of companies than resident, most of which remain only on paper, and it will be no naïve to believe that these companies are located here, in a country with around 65,000 residents, for bonafide core activities, rather than the benefits of anonymity, secrecy and liberal tax laws."
"Cayman Island is one of the few jurisdictions in the world where public records of the beneficiaries of firms and companies, like GWU Investments Ltd, are not maintained, and it is only with effect from 2023, that is if the promises made by the Government of Cayman Islands can be believed at face value, that such public records will be maintained," it noted.

It also observed that "assessee is closely involved with the transaction and it is inconceivable that the assessee will have no direct knowledge of the owners of the underlying company and settlers of the trust which has her, as she herself puts it as the beneficiary of such a huge amount. This inference is all the more justified when we take into account the fact that the assessee has been non-cooperative and has declined to sign the consent waiver."

The IRAT observed that the following questions remain unanswered.

1. If Renu Tharani denies the ownership or any connection with the account in individual capacity or as a trustee or as a beneficiary in anyform, has it been notified to HSBC Geneva?

2. Did she or the trust or any other person or beneficiary report income which accrued or arisen from the account after she came to notice the existence of account at least to Indian IT authorities or authorities in any other tax jurisdiction?

3. What is the status of the account now? Does the asset exist now? If not the appellant, who received the same?

4. Who operates the account now? Who has control over the account? If not the appellant, who has authorised the transactions in the account?

"None of them could be answered with documentary evidence. These are strong background factors which goes against the appellant and cements the case against her," the ITAT noted.

The tribunal observed that "there is nothing to controvert this fact stated in the base note and since the assessee has declined consent waiver in this case, the assessee cannot decline correctness of the details obtained from the HSBC Private Bank."

The tribunal observed series of coincidences, right from the HSBC account being closed after the information contained in the base note coming out and to the underlying company being removed from the name of Registrar of Companies in Cayman Islands.

It also noted assessee's living in complete denial about any knowledge about HSBC Private Bank account in her name to her lack of information about the company which is holding the US$ 4 million for her, and, despite assessed being purportedly so clean in her affairs, her thwarting any efforts of the income tax department to get at the truth by declining to sign the consent waiver form.

"The assessee is a beneficial owner of GWU investment Ltd, Cayman Islands", the ITAT concluded.

The landmark decision is likely to pave a way for the government to unearth black money lying stashed in tax havens.