Bombay High Court
Nusli N. Wadia vs Assistant Commissioner Of Wealth Tax on 22 June, 1993
ORDER
S.P. Kapur, J.M. 30th April, 1991.
1. The assessee, an individual-resident/non-citizen, is in appeal for the asst. yr. 1984-85, for which the valuation date shown is 31st March, 1984. Assessment has been framed under s. 16(3) of the WT Act, 1957. Return was filed by the assessee on 28th September, 1984 declaring wealth of Rs. 16,26,200, while the assessment stood framed at Rs. 1,20,42,441. The assessee appealed and the learned first appellate authority - CWT(A), Central-I, Bombay-dismissed the appeal vide orders of 3rd January, 1990. The assessee is as yet aggrieved, hence was spread over three days. The addition being agitated upon by the assessee amounts to Rs. 1,01,61,850 and it has the following components :
(i) Rs. 93,02,545 being market value of shares of Bombay Dyeing & Mfg. Ltd.;
(ii) Rs. 2,00,000 representing advances to the two minor sons of the assessee;
(iii) Rs. 5,90,000 loans to M/s. Sunflower Investment & Textiles Ltd.; and
(iv) Rs. 69,305 representing cash and bank balance.
All these items relate to one company known as 'SIAL' - M/s. Sterling Industrial Agencies Pvt. Ltd., Kathmandu.
The feedback of the case along with the reasoning of the Assessing Officer stands reproduced hereunder for ready reference since it is thought expedient :
"The focal and contentious issue under consideration is the assessee's investment in a Nepal based concern named Sterling Industrial Agencies Pvt. Ltd. The relevant facts are as under :
The assessee declared wealth of Rs. 25.27 lakhs in his return of wealth for asst. yr. 1974-75, the valuation date being 31st March, 1972. This included 27,536 shares of Bombay Dyeing & Mfg. Ltd. (hereinafter referred to as BDMC) valued at Rs. 16,79,696. In the next year i.e. 1975-76, the returned asset of the assessee dwindled down to Rs. 11,70,900 on 31st March, 1975 relevant to asst. yr. 1975-76. The reason for the sharp drop is seen to be on account of advance of Rs. 22,26,000 made by the assessee to a concern called M/s. Sterling Industrial Agencies Pvt. Ltd. (hereinafter referred to as SIAL), a concern which is shown to be incorporated in Kathmandu, Nepal. This advance was financed primarily by sale of 26,965 shares of BDMC out of 27,536 shares held by assessee in earlier year, to SIAL itself. This means that 26,965 shares of BDMC were purchased by SIAL from assessee by the finances provided by the assessee himself. With the above sale, the shareholding of assessee in BDMC came down to 571 shares, which has been increased to 1672 shares at the end of the relevant previous year, helped by two bonus issues in the intervening period. It is clear that assessee to divest himself of 26,965 shares BDMC, earlier held by him, in favour of a Nepal based company, by providing finances to the said company to purchased the shares. The finances advanced by the assessee to the above Nepal based concern, were not disclosed by him in the WT returns of asst. yr. 1975-76 and afterwards, presumably because of assessee's claiming the status as non-citizen, whereby his assets located outside India will not be brought to wealth-tax. However, no indication about this investment in Nepal based concern was at any time given by the assessee in course of his IT & WT proceedings of different years. That the entire exercise of transferring funds to Nepal based concern and bringing the same funds back to India to purchased shares of BDMC and make different investment was a colourable attempt in tax avoidance, can be further reinforced from enumeration of the facts available in the record of SIAL.
SIAL was incorporated in Nepal sometime in 1970, with two initial subscribers, Smt. Vimladevi and Shri Shantadev Pathak with registered office at 21/639, Kamal Polhadi, Kathmandu, Nepal. The activities of this company between 1970 to February, 1975 are not known. It, however, was suddenly galvanised into active from March, 1975, when assessee sent from his bank account with Grindlays Bank sum of Rs. 3,18,000 in Nepal currency towards contribution as his share capital the said company and Rs. 32,08,250 in Nepalese currency as interest free advance with SIAL. Two other persons Shri Jagannath Upadhyay and Shri Shankar Aryal contributed Rs. 53,000 in Nepalese currency towards their share capital in the above company. With these funds SIAL purchased shares of BDMC. A part of these funds was transferred by SIAL to a bank account in Grindlays Bank Ltd., Fort, Bombay, where assessee also had an account, as mentioned earlier. It has been found that this bank account of SIAL in Grindlays Bank Ltd., Fort, Bombay was introduced and opened by assessee as Chairman of SIAL. Out of the funds transferred to Grindlays Bank Ltd., Fort Bombay, SIAL purchased some further shares of BDMC. All these shares of BDMC were purchased in a span of few days in 1975. The total shares of BDMC purchased by SIAL with the above funds were 52,865 worth Rs. 35,23,951 in Nepalese currency. As mentioned earlier out of 52,865 shares of BDMC purchased by SIAL, 26,965 shares were sold by assessee himself to SIAL. The total funds placed at the disposal of SIAL was Rs. 35,79,250 in Nepalese currency, out of which Rs. 35,26,250 in Nepalese currency was contributed by the assessee, which accounted for 98.5% of the total fund available and balance Rs. 53,000 in Nepalese currency was contributed by two other persons, viz., Jagdish Upadhyay and Shankar Aryal, which accounted for only 1.5% of the total funds available. The share capital of SIAL which continued still date, was Rs. 3,71,000 in Nepalese currency, out of which Rs. 3,18,000 in Nepalese currency was given by assessee and Rs. 53,000 in Nepalese currency was given by other two persons. Besides these three persons including assessee, there has been no other shareholder of SIAL at any time. The assessee has been acting as a chairman of the company, while the other two persons are acting as directors. While the assessee has not got any salary from the above company, the other two directors have been paid measly sums of salary around Rs. 3,600 Nepalese currency yearly.
Though the registered office of the company has shown in its IT return was at 6/94 Dharmpeth, Kathmandu, the entire activity of the company was confined to India. In the IT Returns of the company, the Indian address was given as c/o Shri Nusli Wadia, Neville House, Bombay from asst. yr. 1981-82 SIAL in its IT returns is only showing the above Indian address and is not mentioning its registered office address which is supposed to be in Kathmandu. The IT returns of SIAL, which have been filed from asst. yr. 1976-77 onwards, with the status as foreign company, have been signed mostly by assessee or his constituted attorney who have also signed the dividend warrants. SIAL in its IT return disclosed income from dividend from shares of BDMC, which constituted the only source of income of the company in most of the years, except in some years where some interest income was disclosed from the investments made by SIAL with BDMC and its other sister concern. This investment was also made out of the income generated from the dividend income arising out of the shareholding of the BDMC shares by SIAL. The initial shareholding of 52,865 shares of BDMC by SIAL purchased in 1975 as mentioned above, increased to 1,26,876 shares by July, 1979, helped by two bonus issues in October, 1976 and July, for which no investment was required to be made by SIAL. In April, 1983, SIAL purchased 5,075 convertible debentures of BDMC with its funds generated out of dividend income earned over the years. Conversion of 5075 debentures to shares in October, 83 made the total shareholdings at 1,31,951 shares of BDMC, which were shown to be held by SIAL as on 31st March, 1984, which is the valuation date of the assessee in the present assessment.
As mentioned earlier, the entire activity of SIAL was located in India, though its registered office was shown to be located in Kathmandu, Nepal. Its only activity in most of the years was only receiving dividend income out of shares of BDMC, which as mentioned earlier was initially acquired with the funds provided by the assessee. SIAL has also advanced money to minor sons of assessee and to concerns in which the relative/associates of assessee are substantially interested. The principal expenditure of SIAL in all the years was payment of salary of Rs. 7,000 approx. In Nepalese currency to directors Shri Jagannath Upadhyay and Shankar Aryal. Since the expenditure incurred for the running of the company was extremely small, almost the entire dividend income (and interest income in some years) has constituted the net income declared by the company. However, the company has paid tax at concessional rate of 25% on dividend income, as per the rate applicable to a foreign company. No dividend has been declared by the company in an year, which has resulted in creation of a large amount of reserve and surplus. The surplus funds available with the company were cycled among different concerns in which relatives/associates of the assessee were substantially interested, apart from providing loans to minor son of assessee, as mentioned earlier. The funds of SIAL have never travelled to any concern or person not connected with this group. Its bank a/c with Grindlays Bank, Fort, Bombay were mostly operated by assessee or his constituted attorney. Its main asset namely the shares of the BDMC have been pledged against the interest free loan provide by assessee as mentioned earlier."
The crux of the matter is that the Assessing Officer reasoned that the assets which were ostensibly held by SIAL should be considered in the hands of the assessee. For the purposes, he relied and invoked ratio of the decision of the Hon'ble Supreme Court in the now well-known and famous case of McDowell & Co. Ltd. vs. CTO . He further held that SIAL was used as a device and a front by the assessee to reduce his income-tax/wealth-tax liability since the assessee has transferred his assets to Nepal based company, which funds were subsequently brought back to India for purchase of shares of BDMC including some shares, which were held by the assessee earlier, and again these shares were pledged against the loan given by the assessee. Yet further the Assessing Officer reasoned and concluded that almost the entire initial funds of SIAL was contributed by the assessee, though the company is shown to have been located in Nepal, yet its entire activity is in India and conducted from assessee's premises. The assessee has maintained complete control over the affairs of the company including giving of surplus funds of the company as loans to assessee's two minor sons.
2. In appeal by the assessee, the learned first appellate authority upheld the reasoning and conclusions of the Assessing Officer. As a rider, he observed, 'that in the event of appellant getting Indian citizenship as a result either of the order of the Bombay High Court or the decision of the Government of India upon the application of the appellant, the protection of s. 6 will not be available to the appellant in respect of valuation dates following on or after the date of citizenship. In the impugned assessment order, the value of foreign assets has not been included because of s. 6 as the appellant had declared himself to be a non-citizen. It citizenship is granted to him, the market value of these assets will have to be included in the net wealth and relief claimed in the present appeal will be whittled down'.
He yet further put a rider that the present order of his has to be read within the above understanding and further that this order is subject to the order within will be passed by the Bombay High Court eventually on the issue of the citizenship.
He treated the appellant - assessee - as a non-citizen/resident/individual.
3. The assessee is as yet aggrieved and so naturally, hence this appeal and we have heard the learned authorised representatives of the parties at length on three dates, viz. 4th March, 1991, 5th March, 1991 and 6th March, 1991. We have also gone through the bulky paper book placed on file on behalf of the assessee and the Department. The learned authorised representative of the assessee has argued that since there was no restriction on remission of Indian currency between India and Nepal and further that there was a specific notification under the FERA to that effect, the assessee, a non-resident, could have remitted amounts to Nepal and there is nothing illegal in that. He further contended that the company, which is registered in Nepal, is a separate entity itself and by itself being a company registered in a foreign country and that company's holding of shares in India could, by no stretch of imagination, be clubbed as assets in the hands of the assessee while computing assessee's net wealth for this being charged under the provisions of the WT Act. Yet further, he contended that the assessee was a non-citizen, although resident in India, since in that case what is located outside India cannot be taken into account, the holding of shares as also the loans due from assessee's sons in the case of the foreign company, viz. the company registered in Nepal, could not be subjected to tax for the simple reasoning that the said company is being assessed in India under the provisions of the IT Act, 1961, on its dividend income, hence a recognition by the Department of its separated entity. For the sake of argument, conceding that the company registered in Nepal was an investment company of the assessee, yet it was an investment company and not a front company and it being located in Nepal, its holding of shares as an investment could not be assessed in the hands of the assessee. Yet further, he has contended that the spirit and ratio of the decision of the McDowell's case could not be invoked on the facts of the assessee's case because of the above reasoning. He has referred to paper book pages 651 and 657 specific paras 2 and 17 and has relied on the decisions reported as Ballarpur Collieries Co. vs. CIT (1973) 92 ITR 219 (Bom), CWT vs. Arvind Narottam (1988) 178 ITR 479 (SC), M. V. Villiappan & Ors. vs. ITO (1988) 170 ITR 238 (Mad), First WTO vs. S. B. Garware (HUF) (1986) ITD 711 (Bom) (a decision of the Tribunal) and a decision of the Tribunal, Bombay Benches, a copy of which has been placed on our file as assessee's paper book page 342. In nutshell, what the learned representative of the assessee has said is that since the assessee is having a status of resident/non-citizen, though resident in India, under s. 6 of the WT Act, 1957 his assets located abroad in a company, though that company is having interest and investment in India, could not be subjected to tax in the hands of the assessee.
4. On his part, the learned Senior Standing Counsel, appearing for the Department, contended while relying upon the orders of the learned lower authorities that it was a colourable form of tax avoidance amounting to tax evasion and, relying r. 27 of the ITAT Rules, he wanted the Tribunal to apply the ration of the McDowell's case since, according to the learned Standing Counsel, the learned CIT(A) has decided this issue in favour of the assessee incorrectly/wrongly. He further contended that the company in Nepal was a puppet company - a sham one - and recent confidential enquiries made by the Department prove it to be so. He has also contended that the assessee has been waiting since the year 1975 to pick up from the shelf a device to avoid tax, which, on these facts, amounts to tax evasion inasmuch as, the company in Nepal has two local directors who were being paid partly sums of Rs. 300 each per month as directors because, in substance and in reality, the assessee is the sole owner of the company. The assessee having remitted amounts from his accounts in India to Nepal and then having brought the natural inference is that it is a device, a colourable one, and covered by the McDowell decision since bona fides cannot be proved. Pure and simple, the assessee remits the amount to Nepal and then again the remittance is brought back to India invested in a company wherein the assessee has eye and life stakes, thus avoiding income-tax/wealth-tax on the holding and the income. He has further contended that vis-a-vis the Nepal company, though numerically it is not so, on record it is a minority shareholder and the assessee has never participated in any proceeding/meeting of that company in Nepal, though he was the Chairman. The holding of the shares of the Bombay Dyeing & Mfg. Ltd. in India by Nepal company is a benami holding of the assessee, a colourable transaction having given a practical slang to it, hence no single bona fide transaction but a series of intergrated transactions premeditated and preordained to hoodwink the Revenue and the Department vis-a-vis income-tax and wealth-tax liability. Paper book page 14 has been pressed into service along with Craven (Inspector of Taxes) vs. White (Stephen) (1990) 183 ITR 216 (HL). Yet further, it has been contended that dividend received in India by that Nepal company has been reinvested as loans and to buy shares of BDMC to evade tax and it is a pure and simple case of tax planning, illegal tax avoidance, which amounts to tax evasion because it is device and a colourable transaction.
In fact, no genuine company is in existence in Nepal because it has no transactions other than investment in India in shares of Bombay Dyeing & Manufacturing Ltd. Yet further it has been contended that there being no other activity and although the assessee was Chairman for 14 years, he did not attend a single meeting of the board of directors in Nepal but is controlling the activities of the said company in India through an authorised attorney. The two local directors who has been paid Rs. 300 each per month have all along been dancing to the tune of the assessee and we have to consider this in the context of normal human conduct, circumstantial evidence and the shamness and ingenuineness of the company and the device and safety wall, if any, has to be exploded and veil of corporate entity has to be pierced. Referring to page 56 of Volume I of Commentary by the learned author Palkhivala, he has supported the order of the learned lower authorities and said that funds remitted from India with permission of Reserve Bank of India is not that relevant but the relevant is the conduct and circumstantial evidence to be read with the fact that the said company in Nepal has had no commercial transaction and sole investment is in India through the assessee in assessee's company CIT vs. Sri Meenakshi Mills Ltd. has been relied upon and the transactions of the Nepal company with the assessee's company BDMC and the sons of the assessee to whom loans have been given. Concludingly he said it is a manipulation, most ingenuine, covered by McDowell's case since there are circular integrated transactions and to appreciate the facts the circumstantial evidence has to be taken into account along with the normal human conduct while piercing the veil of the corporate (supra) is relied upon along with B. R. Bamasi vs. CIT (1972) 83 ITR 223 (Bom) and Workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd. vs. Anr. . Of course McDowell's case (supra) has been strongly relied upon. Juggilal Kamlapat vs. CIT has also been taken into reliance. Paper book page 2, pages 7 to 11, 21, 25, 28, 46, 47, and 51 have also been relied upon. H. A. Shah & Co. vs. CIT (1956) 30 ITR 618 (Bom) has been pressed into service. Yet further it has been contended that the Tribunal should get behind the smokescreen appreciate the facts as these really are look to series of integrated transactions and decide the issue piercing the veil and appreciating the facts in correct perspective, apply law as stands enunciated in (supra) and Workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd. & Anr. (supra). He has also contended that, on the facts and in the circumstances of the case, the assessee has manipulated the ingenuine and sham company in such a manner which borders on tax avoidance/evasion and total investment is made in shares or BDMC so that the assessee could maintain its hold on the said BDMC. Also it has been contended that the transactions is absolutely colourable, since the company in Nepal has no financial involvement but a paper company, a puppet company and although the assessee claims to have resigned as Chairman, yet he is controlling that Nepal company through his personal agent - authorised person - in Bombay at his office. Taking a cue from the Meenakshi Mills case (supra) and referring to page 616 and further (supra) he has contended that the facts and circumstances of the case go a long way to draw the inference that this is a case of tax evasion, inasmuch as, the company in Nepal is a personal entity of the assessee and he has given power of attorney on behalf of the company to one of his own men - Mr. Golpuria -, and though the assessee claims that he has resigned as Chairman, yet for all intent and purposes he is managing the affairs of the company through power of attorney - his own man - and this proves that the Nepal company is a puppet company and is still controlled by the assessee.
Relying upon (1956) 30 ITR 618 (Bom) (supra), he argued that if that if for the earlier years the veil has not been pierced, there being no res judicata and estoppel, the reasoning for this year in the orders of the learned lower authorities have to be upheld, inasmuch as, the latest enquiries reveal that the company is a non-existent company in Nepal. Concludingly he argued that vis-a-vis earlier orders and the presently impugned orders, the presently impugned orders be upheld, inasmuch as, the Nepal company is a puppet company, board meetings were sham, income-tax/wealth-tax has been evaded, the transactions are preordained, not a case of tax planning but a colourable tax avoidance bordered on tax evasion since all the activities are in Bombay and controlled by the assessee and all these features prove that the Nepal company is ingenuine and sham. There are no minutes of the proceedings of any meeting, since nothing has been proved and nothing has been placed on record. There has been no commercial activity and no commercial advantage. Piercing the veil of the corporate entity, the McDowell's ratio applies since entire course of conduct is ordained and controlled by the assessee who is responsible for channelising the investment to his benefit hence all his mala fide and there are no bona fides. He accordingly wants the Tribunal to uphold the impugned orders and hold against the assessee.
In reply, on behalf of the assessee, it has been contended that the Nepal company was not at the address located is not an aspect discussed by the CIT(A); the Nepal company is not a sham and ingenuine company because it was incorporated in Nepal as per Nepal's laws; there is no prohibition in law that the Nepal company could not invest as an investment company in the shares of BDMC; suffering of loss as a dealer in share was there as a transaction and the WTO accepts it. As such, there was a business transaction and these can go like that - there is every likelihood - and even if it is not there, there is no illegality attached to that; there is not one transaction but integrated series of transactions is incorrect and after 1975 there has been no transaction. Craven vs. White (1990) 183 ITR 216 (HL) has been relied upon to support the case that if avoidance of wealth-tax/income-tax is legal and the transactions are legal, it is not bad in law; Nepal company has no commercial transaction since it is not a trading company but an investment company and s. 109 of the Act, i.e. the law itself recognizes such company; the learned counsel for the assessee conceded that the Nepal company is an investment company of the assessee and even if one pierces the veil, the transactions are genuine since the investment company has to make investments as advised and not to the dictates of the Department; that the assessee has not attended any board meeting is correct not even as a Chairman because he always acted as a non-working - simple director - in the manner. The learned counsel further contended that the Nepal Co. being an investment company and since Nepal is not a financial centre, the investment has to be in other countries and it was made in India since free flow of funds between India and Nepal is legally permissible under the laws of both the countries; assessee as a prudent man thought it advisable and as a practical proposition incorporated a company in Nepal, which is an investment company, since at the relevant time the assessee was non-citizen and wanted to have the benefit of s. 6 of the WT Act; that there is no harm in tax planning, if it is legal, and the facts prove that it is not illegal that a non-Indian non-citizen having the right to a flow of free remittance between India and Nepal thought it fit, and, as per the permission of the Reserve Bank of India, to have an investment company in Nepal; that McDowell's case ratio may be good law but the facts of assessee's case do not come within the mischief of that ratio since tax planning within the framework of the permissible provisions of the law in legal and having an investment company in Nepal and making investment in India is not illegal; that it is a general practice that total payment is made to a Chartered Accountant who manages a company on behalf of the shareholders/directors and finally that the Revenue has not made enquiries at the correct address because the previous address was changed and it was notified to the Nepal Company Law Authorities. Concludingly, he says that the assessee's case squarely fell within s. 6 since he is a non-Indian non-citizen, though resident and the orders of the learned lower authorities are required to be modified in terms of relief prayed for by the assessee.
5. In nutshell, the assessee's case is that since the assessee is a non-Indian non-citizen, though resident one, his assets being located in Nepal - out of India - s. 6 of the WT Act, 1957, applies and the Nepal company being an investment company of the assessee, to reiterate, non-citizen non-resident, the arrangements were perfectly valid in law. The assets as such were not includible under s. 6 of the WT Act, 1957 for assessment purposes 6 The case of the Revenue is that in view of the ratio of the decision of the Hon'ble Supreme Court in McDowell's case, the assessee has devised a systematic transaction - a series of transactions - a scheme-whereby capital has been flown from India to Nepal to float a dummy company - an ingenuine sham entity - and as such the investment by that Nepal company in India has to be held as investment of the assessee because for all intent and purposes the assessee is managing that show and has disguised the same as belonging to the Nepal company, which action borders on tax evasion.
7. We have the parties at length. The assessee has been granted a 'Certificate of Registration' by Ministry of Home Affairs, Government of India, registering the assessee as citizen of India under the provisions of s. 5(1)(a) of the Citizenship Act, 1955. The certificate is numbered 1880 and bears the date 5th November, 1990.
Sec. 5(1)(a) provides for 'citizenship by registration' of (i) persons of Indian origin who are ordinarily resident in India and have been resident for five years immediately before making an application for registration and (ii) minor children of persons who are citizens of India. The assessee has placed photostat copy of the certificate of registration on our file as page 509 of assessee's paper book (Vol. VI).
The Government of India in the Ministry of Home Affairs, vide letter No. 26013/233/89-IC/III of 5th March, 1990, informed Government of Maharashtra, General Administration Department, Bombay, that the assessee was to be registered as citizen of India under s. 5(1)(a) of the Citizenship Act, 1955 and vide this communique, the assessee was asked to renounce his present nationality by applying to British Mission in India/British High Commission in India in accordance with law of the country concerned (this is page 505 of assessee's paper book). Page 507 is the photostat copy of assessee's 'declaration of renunciation of British citizenship, British Overseas citizenship, British subject status. Here, the assessee while renunciating the British citizenship also declared that, 'I am about to acquire the following citizenship or nationality after making this declaration of renunciation'. Hereunder there is a mention of 'Indian citizenship'. This declaration bears the date 5th April, 1990.
8. In the face of the above evidence, it can safely be said that in relation to accounting period relevant to assessment year under appeal, the assessee was not citizen of India. The status of the assessee, as such, is, 'resident but not a citizen of India' and as a natural consequences thereto, foreign assets of the assessee are not includible in the hands of the assessee for assessment purposes since s. 6 of the WT Act, 1957 specifically provides for, 'exclusion of assets and debts outside India'. The said section reads as under :
'In computing the net wealth of an individual who is not a citizen of India or of an individual or an HUF not resident in India or resident but not ordinarily resident in India, or of a company not resident in India during the year ending on the valuation date -
(i) the value of the assets and debts located outside India; and
(ii) the value of the assets in India represented by any loans or debts owing to the assessee in any case where the interest, if any, payable on such loans or debts is not to be included in the total income of the assessee under s. 10 of the IT Act;
shall not be taken into account.
Explanation 1 : An individual or an HUF shall be deemed to be not resident in India or resident but not ordinarily resident in India during the year ending on the valuation date if in respect of that year the individual or the HUF, as the case may be, is not resident in India or resident but not ordinarily resident in India within the meaning of the IT Act.
Explanation 1A : Where in the case of an individual the value of an asset in India is represented by any debt owing to him, being any moneys to his credit in a Non-resident (External) Account, the interest payable on which is not to be included in his total income under cl. (4A) of s. 10 of the IT Act, the provisions of this section shall, in relation to such asset, apply subject to the modification that the reference in this section to an individual not resident in India shall be construed as a reference to a person resident outside India as defined in cl. (q) of s. 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973).
Explanation 2 : A company shall be deemed to be resident in India during in the year ending on the valuation date, if -
(a) it is a company formed and registered under the Companies Act, 1956 (1 of 1956), or is an existing company within the meaning of that Act; or
(b) during that year the control and management of its affairs is situated wholly in India.' Now coming to the Nepal company, the same was incorporated under the Nepal Companies Act in December, 1970. The Nepal company received Rs. 25,76,000 in Indian currency by way of advance from the assessee and this is said to be within the general permission granted by the Reserve Bank of India vide its notification of 1st January, 1974. The said notification No. FERA 7/74-RB dt. 1st January, 1974 under GSR 89 provides, inter alia, that,'in pursuance of sub-s. (1) of s. of the FERA, 1973 (46 of 1973), the Reserve Bank hereby directs that none of the prohibitions imposed by the various clauses of that sub-section shall apply to any transaction entered into in Indian Rupees by or with :- Indians, Nepalese or Bhutanese resident in Nepal or Bhutan.' It also provides further for the same exemption in relation to a branch situated in Nepal or Bhutan of any business carried on by a company or a corporation incorporated or established under any law in force in India, Nepal or Bhutan and yet further in relation to a branch situated in Nepal or Bhutan of any business carried on as a partnership firm or otherwise by Indians, Nepalese or Bhutanese.
(Extract taken from pages 80 and 81 of assessee's paper book (Vol. I), which, in terms, is a photostat copy of the notification taken from FERA, 1973. Reference is to s. 9 of the said enactment.)
9. The Nepal company, hereinafter to be called 'SIAL' (The Sterling Industrial Agencies Pvt. Ltd.), on 7th March, 1975, purchased 5000 equity shares of BDMC from the open market at the then prevailing market rate. Again 5000 more shares were purchased on 10th March, 1975. 12,000 + 16,965 on 12th March, 1975. 1100 or 25th March, 1975, 800 on 11th April, 1975, 12,000 on 29th April, 1975. These were purchased after taking permission of the Reserve Bank of India. On its part, BDMC (Bombay Dyeing & Mfg. Co. Ltd.) had also obtained permission of the Reserve Bank of India for issuing bonus shares to its non-resident shareholders. The said Nepal company, SIAL, had two other shareholders who were holding 53,000 ordinary shares of Rs. 10 each out of which Re. 1 each share was paid up. These two were directors of the SIAL - the Nepal company. SIAL is a regular income-tax assessee in India and has been assessed under the provisions of the IT Act, 1961 since the asst. yr. 1976-77. Assessment stand completed from asst. yr. 1976-77 onward ending with the asst. yr. 1987-88. Enquiries about the income of the said Nepal company SIAL have since been made by the Indian IT authorities from time to time. The assessee was a director of the Nepal company and resigned on 6th January, 1989.
10. The assessee has also been filing his income-tax returns as also wealth-tax returns under the relevant Indian enactments and he has been assessed accordingly. Page 63 of assessee's paper book details approvals granted by the Reserve Bank of India and these relate to approval of 10th November, 1976 for issuance of bonus shares to non-resident shareholders by BDMC; of 24th June, 1983 from Reserve Bank of India to SIAL - the Nepal company - in connection with the reckoning of the above purchase of debentures; of 10th October, 1983 from Reserve Bank of India to SIAL - the Nepal company - for the sale of non-convertible portion of debentures and approval of 24th September, 1987 from Reserve Bank of India to SIAL - the Nepal company - stating that there was no question of issuing holding licence in respect of 52,865 shares of BDMC by the Nepal company. The said (last) letter being very relevant stands reproduced hereunder :
'RESERVE BANK OF INDIA' Exchange Control Department CENTRAL OFFICE NEW CENTRAL OFFICE BUILDING BOMBAY-400 023.
24th September, 1987 ECCO.FID.(I)774/1251(SH)/87-88 M/s. Sterling Industrial Agencies Pvt. Ltd., C/o Mr. Nusli Na Wadia, Neville House, J. N. Heredia Marg, Ballard Estate, Bombay 400 038.
Dear Sirs, Request for issuance of holding licence in respect of 52,865 shares of the Bombay Dyeing & Mfg. Co. Ltd., (BDMC) Please refer to the correspondence resting with your letter dt. 6th January, 1987 on the captioned subject.
2. We advise that in terms of the Reserve Bank Notification No. FERA 110/51-RB dt. 17th August, 1951 (as amended upto 13th March, 1963) Indian Rupee securities and shares could be freely issued or transferred to persons resident in Nepal without Reserve Bank of India's approval. This notification was, however, rescinded in 1977 vide Notification No. FERA 42/77-RB dt. 24th February, 1977. As your company had purchased the above shares of BDMC in 1975, the same was covered by the above notification of 17th August, 1951 and as such there is no question of issuing any holding licence to you for your shareholding mentioned above.
Yours faithfully, Sd/-
for Controller.
The assessee has been placing on the file of the IT Department analysis of his bank account right from the asst. yr. 1975-76, he has also placed information on the file of the Department about his shareholding sales and purchases. Pages 240 to 249 of assessee's paper book are copies of the assessment orders of SIAL under the provisions of the IT Act, 1961 and these relate to asst. yrs. 1978-79 onwards upto 1983-84. Copies of assessment orders of the Nepal company for the asst. yrs. 1984-85 to 1987-88 have also been placed on our file as assessee's paper book pages 252 to 258 and 261 to 264.
The Nepal company, as mentioned earlier, is a company incorporated in Nepal in the Ministry of Industries and Commerce and the Certificate of Incorporation has been placed on our file as assessee's paper book page 293. It bears the date 23rd December, 1970.
11. Assessee's paper book pages 294 and 295 are the copies of the approval granted by His Majesty's Government of Nepal authorising Mr. Nusli Wadia, the assessee, to make investment in the Nepal company, SIAL. The assessee holds 18,000 ordinary shares of Nepal currency of Rs. 10 each out of which Nepal currency Re. 1 is paid up, i.e., investment amounts to Rs. 18,000. He further holds 30,000 ordinary shares of Nepal currency of Rs. 10 each fully paid up. The total investment, as such, stands at Rs. 3,18,000. Shareholding by two Nepalese directors is Rs. 53,000 Nepal currency since they hold 53,000 ordinary shares of Rs. 10 each in Nepal currency but the paid up amount is Re. 1 per share. In terms of voting rights, the Nepalese shareholding is 53,000 shares and the assessee's is 48,000 shares. The resultant voting pattern in Nepalese shareholding is 52.48 and, the assessee's is 47.52. Since under the Nepalese Companies Law, partly paid up shares have equal voting rights as in the case of fully paid up shares. Page 306 of assessee's paper book is a certificate dt. 19th May, 1989 issued by N. Krishnaswamy & Co., Chartered Accountants of Kathmandu, Nepal, and this certificate certifies that the assessee has not attended any board of directors' meeting ever and further that the assessee is only a director and not a permanent chairman of the company.
There is no prohibition under the Nepalese Companies Law on investment made in India by any Nepali company and this stands proved by page 309 of assessee's paper book, which is again a certificate from the abovementioned Chartered Accountants - N. Krishnaswamy & Co.
12. Pages 495 to 504 of assessee's paper book and 505 to 509 were not before the learned lower authorities and we have admitted this evidence in the interest of justice for proper adjudication of the issue, inasmuch as, these are letters from the Central Government including certificate of registration and correspondence, etc., etc.
13. Coming to the Revenue's stand, they have placed on our file two paper books pages 1 to 71 and 1 to 55. Here also, some evidence is absolutely fresh and we have admitted the same also, as in the case of the assessee, being absolutely necessary for proper adjudication of the issue involved which is thought to be in the interest of justice. The Revenue says that the company is not in existence in the address mentioned earlier in the returns and as given to the IT Department either by the assessee or, else, by the Nepal company during assessment proceedings. The Revenue also wants the Tribunal to pierce the veil, i.e. to lift the veil of the Nepal company and to hod that transactions to be individual transactions of the assessee but, in our considered opinion, it is too late in the day, inasmuch as, the Nepal company has since been assessed on its income under the provisions of the IT Act, 1961 since asst. yr. 1976-77 and that income was income from dividend earned on shares held by the Nepal company of BDMC. That apart, the assessee has all along been placing on the file of the Department bank analysis of his vis-a-vis his shareholding with the Nepal company and the remittances. Yet that apart, the sale and purchase of the shares of the Nepal company are prefectly legal in law and the bonus shares, etc. issued to the Nepal company by BDMC were in accordance with the approval of the Reserve Bank of India. Remittance from India to Nepal is also permissible and is in accordance with the India. Remittance from India to Nepal is also permissible and is in accordance with the Indian laws as per notification issued under FERA, which notification has been referred to above in the body of this order.
Now if all the transactions are within the permissible limits of the law of the lands - the India and the Nepal - and if the assessee a non-citizen has been advised so to have a company in Nepal, which he concedes to be his investment company, the ratio of the McDowell's case will not apply, particularly when those transactions have been approved by the IT Department itself by assessing the income of the Nepal company as also the income/wealth of the assessee under the provisions of the It Act and WT Act as prevalent in India. If these transactions were valid and genuine right from the asst. yr. 1976-77 onward, then for the first time in relation to assessment year under appeal, these cannot be said to be hit by the ratio of the decision of the McDowell's case. The ratio of the decision of the McDowell's case cannot be applied on whims and choosing and, in this case, it is too late in the day because of the past history dating back to asst. yr. 1976-77. We hold accordingly.
14. Now coming to s. 6, which deals with 'exclusion of assets and debts outside India'. The assessee is an individual and, admittedly, not a citizen of India and his assets are his shareholding in the Nepal company and credit balances (if any) due from the said company. The said company had invested in India and that investment cannot be held to be that of the assessee, inasmuch as, the company in Nepal and the assessee are certainly two different entities - assessees. The assessee is an individual and his shareholding in the Nepal company as also other credit balances, if any, are certainly assets outside India since his shareholding is in the Nepal company and the investment of the Nepal company in India cannot be said to be assets of the assessee. In this view of the matter, the protection of s. 6 of the WT Act, 1957 is allowable to the assessee and his shareholding in the Nepal company as also credit balance (if any) is not includible in the hands of the assessee while computing assessee's net wealth. The resultant effect is that assets shown in the name of SIAL - Nepal company - and advances by the said company to the minor sons of the assessee; loans advanced by the said Nepal company - SIAL - to Sunflower Investment & Textiles Ltd. as also cash and bank balances of the said company could not have been assessed in the hands of the assessee.
15. In the net result, the assessee's appeal stands allowed in the above terms and to the above extent.
V. Dongzathang, A.M. 9th May, 1991
16. My learned brother has very concisely condensed and capsulised very complex and complicated issues in this order. One cannot but appreciate the deep and penetrating yet simple and clear exposition of law in so far as it relates to matters of Indian citizenship and incorporation of companies and its effects on taxation matters.
17. The only point which I intend to put forward is in regard to the question of exclusion of movable assets located outside India as per the provisions of s. 6(i) of the WT Act which reads as follows :
"6. In computing the wealth of an individual who is not a citizen of India or of an individual or an HUF not resident in India or resident but not ordinarily resident in India, or of a company not resident in India during the year ending on the valuation date -
(i) the value of the assets and debts located outside India."
18. The WT Act and the GT Act do not contain specific provisions for determination of the location of the assets. For the purpose of the ED Act, rr. 7 and 8 of the ED Rules, 1953 provide relevant procedures for determination of locality of movable assets. In line with these provisions, the CBDT issued guidelines in the form of instructions for ascertaining location of the shares, etc., for the purposes of WT Act as follows :
"The shares, stock debentures, stock in a company are located at the place where the company is incorporated."
19. This instruction has been issued in the aforesaid manner for a simple reason that the term "incorporation" under the Companies Act, 1956 fully covers all the relevant issues required for determination of the location of both movable and immovable assets including the domicile of the company itself. Sec. 146 of the Companies Act, 1956 stipulates that the company shall, from the day on which it begins to carry on its business or within 30 days of its incorporation, whichever is earlier, have a registered office to which all the communications and notices may be addressed. Special procedures also have been prescribed in a case where the company intends to run its business from a place other than its registered office or when it changes or removes the registered office to another locality within the same geographical limit and within the territory of India.
20. The situation or the location of the registered office of a company is important as it determines its domicile for all the purposes. The following primary documents are to be maintained in the registered office :
(i) Register of Members (s. 163)
(ii) Right of inspection (s. 163)
(iii) Register of directors (s. 303)
(iv) Account books unless decided otherwise
(v) Register of mortgages charges and copies of registered documents (s. 143)
(vi) Statement of account (in case of Banking and Insurance companies), published from registered office (s. 223)
(vii) Certificates of the documents
(viii) As per amended s. 147 full address of the registered office is to be published outside various offices and places of business of the company and also in all letter heads, bills and documents as specified in the section.
Keeping in view these detailed provisions, the Board issued instructions for determination of location of shares and stocks under the WT Act by simply stating that they are located at the place where the company is incorporated.
21. M/s. Sterling Industrial Agencies P. Ltd. was incorporated some time in 1970 with its registered office at Kamalpokhari, Kathmandu, Nepal. The real activities of the company commenced around the year 1975 when the assessee entered into certain transactions with it. The registered office by that time was changed to 6/94, Dharampath, Kathamandu, Nepal. According to the assessee the registered office shifted again to 20/103, Gyaneswar, Kathmandu w.e.f. 7th April, 1989.
22. The apparent is normally presumed to be the real unless otherwise proved. The status of the company and its credentials as also the shares held by the assessee should have been accepted as such as apparent from the record. But that presumption cannot be easily drawn in this case. As pointed out earlier by my learned brother, the Revenue have tendered before us some evidence which are absolutely fresh. Even so, having accepted the same, they cannot be easily brushed aside unless the same are disproved or totally over-turned. This obligation is all the more pronounced in our case as we are fact finding Tribunal and our finding on fact is final. Moreover, the question as to whether the asset is located is essentially one of fact and will have to be decided in the light of evidence. Therefore, the Tribunal has to refrain itself from deciding the question by presuming facts.
23. The Revenue have claimed that the company alleged to be having its registered office at 6/94, Dharampath has not actually existed at the address. It is further reported that no such company existed in the address at Sabitri Niwas, Dugambhil, behind Mercantile Corporation, New Rock, Kathmandu, Nepal where the company is stated to have shifted. It is, therefore, urged in this background and keeping in view that no rent has also been paid nor debited in the profit & loss account of the assessee-company for the year, the corporate veil be lifted and the assessee be treated as the real owner. Since these allegations made by the Revenue are quite serious and are likely to have a far reaching consequences if correct, learned counsel for the assessee was given time to rebut the same. The learned counsel Sri D. N. Harish by a written statement dt. 5th March, 1991 avers that the company has since shifted its registered office to 20/103, Gyaneswar since 7th April, 1989 and there is no element of truth in the allegations of the Revenue. He also seeks reliance on other documentary evidences filed along with statement.
24. On enquiry by the Bench the learned counsel could not give very convincing reply about the non-payment and non-debit or rent by the company in its account as alleged by the Revenue. The learned counsel also could not immediately make available relevant evidences like lease agreement or rent receipt in support of lease of the premises for its registered office by the company. Since a company of such magnitude cannot set up and run its business without proper registered office or head office in regular office premises and since the company would normally take any premises only after duly going through the formalities, it is very necessary and vital that the real state of affairs be brought on record and proved beyond any shadow of doubt by placing all relevant evidence on record and since the learned counsel also cannot be expected to produce anything and everything instantly, it is only meet and proper that more opportunity be given to the assessee by setting aside the order of the learned CIT(A) and restoring the case back to the Assessing Officer for fresh decision after giving full opportunity to the assessee to substantiate its claim. It is also necessary to bring on record and examine the provisions of the Companies Act, 2021 (1964) to Nepal in the context of the assessee-company and see how the company operates and conducts its business within the perimetre of this Act. These relevant and full facts are necessary to decide the location of the shares held by the assessee in terms of the provisions of the said Act and such finding should be based on material facts placed on the record.
25. The facts to be brought on record and the finding to be recorded has special significance in the present case as the Hon'ble Bombay High Court, we are informed, is awaiting the order of the Tribunal and its finding for deciding the case of the assessee for the earlier assessment years pending before it. Only when relevant and full facts are brought on record, their Lordships can adjudicate and decide the issue. It is, therefore, paramount that the full facts be placed on the record. We, accordingly, set aside the order of the learned CIT(A) and restore the matter back to the file of the Assessing Officer for fresh decision as indicated above.
CH. G. Krishnamurthy, President (AS THIRD MEMBER) 22nd June, 1993.
This appeal filed by the assessee against the orders passed by the WTO, Central Circle - 10, Bombay came before me as a Third Member under s. 255(4) of the IT Act, 1961 as applied to WT Act. The point of difference of opinion on which the learned Members of the Tribunal who heard this appeal could not agree was :
"Whether the appeal should be allowed or set aside for fresh decision for the reasons advanced by each of the Members ?"
2. I have heard Shri D. M. Harish for the assessee and S/Shri T. U. Khatri and D. C. Pant for the Department and have perused the records, the orders passed by my learned Brothers and considered the arguments addressed to me.
3. The assessee, an individual, a non-citizen for the purpose of WT Act filed his return of wealth declaring a wealth of Rs. 16,26,000 for the wealth-tax asst. yr. 1984-85. Thereafter a revised return was filed making certain revisions in the valuation of shares and one or two other minor adjustments with which I am not directly concerned in this matter. The assessment was, however, made on a total wealth of Rs. 1,20,42,441. The main difference arose on account of the following additions which were in dispute :
(i) Rs. 93,02,545 representing the market value of shares of Bombay Dyeing & Mfg. Ltd. added to the assessee's wealth;
(ii) Rs. 2,00,000 representing advances to the two minor sons of the assessee added to the assessee's wealth;
(iii) Rs. 5,90,000 being loans advanced to M/s. Sunflower Investment & Textiles Ltd.; and
(iv) Rs. 69,305 representing cash and bank balances.
4. There was a company called Sterling Industrial Agencies Pvt. Ltd. (SIAL) registered in Kathmandu, Nepal some time in the year 1970 relevant for the asst. yr. 1971-72, in which the assessee is directly and primarily interested. The relevance of this Nepal company will come a little later but before that I have to notice certain facts which have a direct nexus to this company. For that purpose I have to go back to the asst. yr. 1974-75. In this asst. yr. 1974-75, the assessee declared a wealth of Rs. 25.27 lacs which consisted of the value of 27,536 shares of Bombay Dyeing & Mfg. Ltd. valued at Rs. 16,79,696. For the immediately next asst. yr. 1975-76, the assessee had transferred a sum of Rs. 22,26,000 to the above named Nepal company Sterling Industrial Agencies Pvt. Ltd. (SIAL for short). As a consequence the wealth declared came down to Rs. 11,70,900. This advance of Rs. 22,26,000 made to SIAL was financed out of the sale proceeds of 26,965 shares of Bombay Dyeing & Mfg. Ltd. to SIAL itself. The conclusion to be drawn was that the said SIAL purchased the shares of Bombay Dyeing & Mfg. Co. Ltd. from out of the finances provided by the assessee himself. The amount advanced to the said Nepal company SIAL was not disclosed by the assessee in his wealth-tax returns thereafter because the status of the assessee has then become a non-citizen and for the purposes of WT Act a non-citizen is not obliged to disclosed and pay wealth-tax on the assets located outside India. A significant observation made by the WTO was, no indication about this investment to Nepal concern was made by the assessee either in the course of income-tax or wealth-tax proceedings of any year. It was then pointed out that with the money available in Nepal, the assessee was bringing the same back to India and was purchasing shares of the Bombay Dyeing & Mfg. Co. and was also making different investments and all this exercise was considered by the WT Department as an attempt for tax avoidance.
5. Now glancing at the affairs of SIAL, it would be seen that this company was incorporated in Nepal some time in 1970 with two initial subscribers namely, Smt. Vimladevi and Shri Shantadev Pathak with registered office at 21/639, Kamal Polhadi, Kathmandu, Nepal. Though the activities of this company between 1970 and February, 1975 were not known, suddenly from March, 1975 it sprung into life and its activities began to surface when the assessee sent from his bank account with Grindlays Bank Ltd. Fort, Bombay to SIAL bank account Rs. 3,18,000 in Nepal currency towards contribution of his share capital; and also another sum of Rs. 32,08,250 in Nepalese currency as interest free advance. Two other persons Shri Jagannath Upadhyay and Shri Shankar Aryal contributed between themselves Rs. 53,000 in Nepalese currency towards their share capital. It was with these funds thus provided by the assessee and share capital as mentioned above, that the SIAL purchased shares of the Bombay Dyeing & Mfg. Co.
6. It was also found that SIAL opened a bank account in Grindlays Bank Ltd., Fort, Bombay where also the assessee had an account and it was the assessee who introduced the SIAL to Grindlays Bank Ltd. With the moneys that the SIAL deposited in Grindlays Bank Ltd., Fort, it purchased some further shares of the Bombay Dyeing & Mfg. Co. The total value of the shares thus purchased with the above funds were 52,865 shares worth Rs. 35,23,951 in Nepalese currency. So on an analysis, it was found that out of the 52,865 shares that SIAL acquired, 26,965 shares were sold by the assessee itself to that company and out of the money of Rs. 35,79,250 available with that company Rs. 35,26,250 was contributed by the assessee himself (nepalese currency). The amount contributed by other two share holders was very meagre and marginal.
7. Another fact that came to the notice was that the assessee had been acting as the Chairman of the said company while the two other persons were acting as Directors. The assessee did not draw any salary from the said company while the others were paid nominal sums towards their salaries. Though the registered office of the company was shown at 6/94, Dharampath, Kathmandu, the entire activity of the said company was carried on in India. In the income-tax return file the Indian address was given as that of the assessee. Other than the dividend received from Bombay Dyeing & Mfg. Co., there was no other income in the hands of SIAL shown for purpose of income-tax, except some marginal income by way of interest on investments made that too with Bombay Dyeing & Mfg. Co. and its sister concerns. These investments also were traced to the dividend income generated from the shares held in Bombay Dyeing & Mfg. Co. Gradually by July, 1979 the initial shareholding of SIAL from 52,865 shares grew upto 1,26,876 shares. The subsequent increase was on account of two bonus issues declared by Bombay Dyeing & Mfg. Co. once in October, 1976 and secondly in July, 1979. In April, 1983, SIAL purchased 5075 convertible debentures of Bombay Dyeing Mfg. Co. with the funds generated out of dividend income. These debentures were later converted into shares in October, 1983 so that the total share holding increased to 1,31,951 shares as on 31st March, 1984 which is the valuation date of the assessee for the present assessment under dispute.
8. From the abovementioned facts, gathered by the WTO, it was concluded by the Department that the entire activity of SIAL was located in India though its registered office was shown to be located in Kathmandu, Nepal. That its activity in most of the years was only receiving dividend income out of the shares of Bombay Dyeing & Mfg. Co. which were acquired by the assessee out of his own funds. Secondly, it also advanced money to minor sons of the assessee and to concerns in which the relatives, associates of the assessee were substantially interested. Another fact found by the Department was that the principal expenditure of the SIAL was payment of salary of Rs. 7,000 approximately in Nepalese currency in all these years. There was hardly any expenditure incurred for the running of the company in Nepal. No dividend was declared by the assessee in the year, by which it enabled itself to accumulate a large amount of reserve and surplus, and that reserve and surplus was recycled to make investment of the nature described above. Therefore, the Department came to the conclusion that the company called SIAL registered as a separate company in Kathmandu was nothing but a facade created by the assessee to escape proper tax liability to wealth-tax and that being a device adopted by the assessee to reduce his wealth-tax liabilities, the corporate veil should be pierced and the assets of that company must be treated as the assets of the assessee.
9. Another conclusion drawn by the Department from the above facts was that the assessee manipulated to transfer his funds to Nepal through the medium of this company and brought the same back to India to purchase the shares of Bombay Dyeing & Mfg. Co. and in this process he made it appear that the shares acquired by him were in fact acquired by a foreign concern which was not a fact but only a facade. Applying the ratio laid down by the Supreme Court in the case of McDowell & Co. Ltd. vs. CTO , the Department included the value of those shares mentioned above as that of the assessee. The assessee tried to explain and establish that the said SIAL was a genuine company and that the assessee had nothing to do with it other than as a Managing Director or Chairman and that those assets held by that company and belonged to that company could never be brought to tax in his hands as his own. The assessee also pleaded that transaction having been accepted as genuine in the earlier should not be viewed with suspicion in this year there being no other fact or material coming into existence other than the change in opinion again based upon suspicion. Reliance was placed by the assessee upon a series of decisions to show that the ratio of the decision of McDowell & Co. (supra) does not apply but those decisions were all distinguished by the Revenue officers by giving their own reasons which are to be found well discussed in the assessment order passed by the WTO. The argument that these transactions were done with the approval of the Reserve Bank of India, at prevailing market rate did not find favour with the Revenue all for the reason that the grant of approval by the Reserve Bank of India which was required in connection with the different provisions of Foreign Exchange Regulations could not have any decisive bearing in these matters.
10. For these reasons, the value of 1,31,951 shares of Bombay Dyeing & Mfg. Co. held by the SIAL as on 31st March, 1984 valued at the market value of Rs. 93,02,545 was brought to tax in the hands of the assessee as his own wealth. That was how the addition of the first item mentioned above came to be made.
11. Then there was also advances made to the minor sons of the assessee amounting to Rs. 2 lacs, that also was treated as the assessee's wealth so also the loans advanced to M/s. Sunflower Investment & Textile Ltd. amounting to Rs. 5,90,000. In this company, the Revenue noticed that the directors were the wife and the constituted attorney of the assessee. The cash and bank balances held by SIAL and shown as per its balance sheet was also treated as that of the assessee and that was how a further sum of Rs. 69,305, the last item mentioned above came to be added. Thus the total addition of Rs. 1,01,61,850 was made to the disclosed wealth of the assessee which became the bone of controversy before the Tribunal.
12. The resume of the above facts show that the Department did not treat SIAL as genuine company though registered in Nepal and that it existed only for the purpose and for the benefit of the assessee and that, therefore, the entire assets that were shown to belong to SIAL in truth and in fact belonged to the assessee. It was on this premises that the above additions were made.
13. On appeal the CWT, after a very through and exhaustive discussion of the issues involved upheld the assessment made by the WTO holding in particular that the WTO was for the purpose of taxation entitled to lift the corporate veil of SIAL and look into the reality of the matter and having done so, he had rightly come to the conclusion that the assets of the assessee were hidden behind the facade of SIAL and it was, therefore, perfectly legitimate for the Assessing Officer to take the view that he had taken. Against this order, a further appeal was filed before the Tribunal.
14. The learned Judicial Member, who wrote the leading order, after referring to all these facts in extenso and after considering the arguments addressed to the Bench held that the assessee was an individual, his shares held in the Nepal Co. as well as other credit balances were certainly assets held outside India and those assets could not be said to be assets of the assessee in India and that the protection provided by s. 6 of the WT Act, 1957 was available to the assessee and his share holding in the Nepal Co. and also the credit balances were not includible in the hands of the assessee in computing his net wealth. Therefore, it was wrong to bring to tax the assets shown in the name of SIAL in its balances sheet as that of the assessee and directed their exclusion in entirety. In other words, the Judicial Member believed the assessee's version that the Nepalese company was a genuine company and the assessee and the Nepalese Co. were two distinct and different entities and the assets belonging to Nepalese Co. which were exempt from tax by reason of the exclusion provided by s. 6 of the WT Act could not be brought to tax. Whereas the learned Accountant Member felt that to arrive at the conclusion that the learned Judicial Member