This Tax Alert summarizes a recent ruling of the Mumbai Income Tax Appellate Tribunal (Tribunal) in the case of Mohan Manoj Dhupelia (Taxpayer) and relatives. This ruling is the first in relation to the list of Indians with secret bank accounts in Liechtenstein obtained by India from Germany. The Tribunal, ruling in favor of the Tax Authority, held that the undisclosed bank account of the discretionary trust in Liechtenstein constituted undisclosed income of the Taxpayer who was one of the beneficiaries of the discretionary trust.
This Tribunal ruling is one of the first in relation to a list of Indians who have bank accounts in tax havens. The Tribunal, in its ruling, has held that the deposit made by the discretionary trust constitutes undisclosed income of the beneficiaries, even in the absence of distribution. The decision against the Taxpayer is primarily influenced by the understanding of the banking and legal systems, as also having regard to the opacity of the tax system of the offshore jurisdiction where the trust was registered. The Tribunal’s conclusion may, therefore, need to be confined to the facts of the case – though likely to be applied by the Tax Authority to comparable cases.
It may be interesting to note that, in November 2013, Liechtenstein became a signatory to the OECD Multilateral Convention on Mutual Administrative Assistance on tax matters, pulling down its wall of secrecy which would allow partner nations, including India, to seek information about suspect individuals and entities and obtain banking information about such taxpayers.
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