THE issue before the Bench is - Whether when sum credited is claimed to be from a source situated outside India, onus falls on AO to prove that assessee has earned income outside India. NO is the answer.
Facts of the case
The assessee is an individual. AO had noted that the assessee had credited in his capital account a sum of Rs 4 crores. When questioned, it was explained by the assessee that the assessee had received a sum of one million US Dollars from one Trust named White Label Trust which was registered out of India and the assessee had produced a certificate from the Trustee HSBC Republic Trust Company (BVI) Limited, in which the said company certified as the Trustee of the White Label Trust that they had remitted ten lakh US dollar to Dr. Som Datt to his Bank account with Syndicate Bank, Nehru place Branch, New Delhi and the said money had been sent from the capital account of the Trust and was to be regarded as a capital distribution to Dr. Som Datt. The AO subsequently asked for certain more information from the assessee. The assessee expressed his inability and stated that Trustees of the said Trust were bound by the secrecy laws of their country and, therefore, they were constraint to part with the financial statements of the Trust. Even the Trustees were reluctant to reveal their names due to the secrecy laws. There were no identification criteria for the Trust like PAN as per the laws of Channel Islands. Subsequently the assessee submitted a letter from HSBC Trust Company (BVI) Limited in which it was explained that While Label Trust was established on 20.07.1993 under the laws of the Island of Jersey and was discretionary in nature. Dr. Som Datt had been a discretionary beneficiary since the Trust was established, together with other discretionary beneficiaries. The Trust Fund consists of substantial corpus built up since establishment of the Trust. HSBC Trust Company (BVI) Limited was appointed as Trustee of the White Label Trust on 08.08.2003. With regard to the administration of the Trust Fund, the Trustee had all the same powers as a natural person acting as the beneficial owner of such property and may exercise its discretion accordingly. On 28.11.2003, the Trustee exercised its discretion in favour of Dr. Som Datt, in his capacity as discretionary beneficiary of the Trust, and made a capital distribution to him for a sum of USD 10,00,000 (one million US Dollars). The AO noted that the Trust was a Private Discretionary Trust and in fact a Foreign Trust, not coming under the purview of the Indian Income Tax Act; and any fund distributed to any resident of India, therefore, undoubtedly, is chargeable to income-tax in the hands of the resident assessee. The question of capital or revenue receipt was irrelevant as it was income in the hands of receiving party and there was no provision in the Indian Income Tax Act to exempt such receipt. The only situation where the amount may be left out from chargeability arises when an agreement between the Government of India with a Foreign State exists, which was known as DTAA. It was only applicable when any amount wa s taxed by the Foreign Government and cannot be taxed again under Indian Income Tax Act. As per AO, the situation in the present case was not one where DTAA was applicable.
The AO was of the view that the other situation where remittance from outside India was non-taxable when amount was brought into India through non resident (External) Account. Thus he was of the view that even if it was ascertained that the Trust in Island of Jersey distributed its funds to its beneficiary, who was a resident in India, the amount of the disbursement cannot be left out of tax net under the Indian Income tax Act in absence of any provision to exempt such income or a situation where DTAA was applicable, and, therefore, the said sum is liable to tax under the Indian Income Tax Act. AO asked the assessee to produce the financial statements of the Trust to ascertain the nature of the amount received by the assessee but the assessee did not produce these documents. The AO, therefore, observed that in the absence of financial statements being produced by the Trust, which were specifically asked to be produced, it cannot be ascertained whether the distribution of the amount was made out of the income of earlier years, i.e. out of the corpus fund of the Trust or out of the income of current year. It was not ascertainable as to what was the source of income of the Trust, who was the settler of the Trust, who were the beneficiaries and how can one beneficiary, i.e. the assessee received benefit from the Trust on more than one occasion. The AO felt that nothing had been divulged about the White Label Trust, its sources of income, the resolution adopted to benefit this particular assessee, the capacity of the Trust to benefit anybody and the legal status of the Trust in the country where it was incorporated. It was observed that the assessee during the course of assessment proceeding contended that the amount received was capital distribution but did not produce any document to substantiate this except a letter of confirmation from M/s. White Label Trust. Even otherwise also, AO held that all capital disbursements need not be revenue receipts in the hands of the recipient. Here, a resident assessee was in receipt of a certain sum from an overseas Trust, which was remitted into India through banking channel and claimed as capital receipt. There was no specific provision to exempt a receipt except for cases covered under DTAA or money brought into India through non resident External Account. The overseas discretionary Trust might have disposed the amount out of his past or current income. The Trust had paid no income tax as per Indian Income Tax Act. There was no evidence on record regarding tax payment in the country of its incorporation. The assessee had not paid any tax abroad. The amount received by the assessee in Switzerland during the year and brought into India can only be treated as income in terms of section 5 and accordingly he added the sum in the income of the asseessee. On appeal, CIT(A) sustained the order of AO.
Having heard the matter, the Tribunal held that,
++ whenever there is change in the trusteeship a memorandum has to be endorsed and has to be permanently annexed to the Settlement Deed stating the names of the trustees for the time being and it has to be signed by the persons named as a trustee so that any person dealing with the Trust may rely upon such memorandum. But in this case, we have gone through the Trust Deed, but we do not find the copy of any such memorandum, even the Sr. Advocate could not produce such copy before us. In view of this fact, we are of the view that the assessee has not discharged his onus how M/s. HSBC Republic Trust Company (BVI) Limited had become the trustee of the said Settlement, in our opinion, the onus is on the assessee to prove that HSBC Republic Trust Company (BVI) Limited is the trustee of the Trust Deed as on behalf of the assessee Sr. Advocate entirely relies on the certificate issued by HSBC Republic Trust Company (BVI) Limited that the amount has been received by the assessee from the discretionary trust as beneficiary out of the accumulated income of the earlier year and therefore the said amount is a capital receipt. It is a case where, in our opinion, the assessee could not prove that the trusteeship of M/s. HSBC Republic Trust Company (BVI) Limited. Therefore, the certificate issued by M/s. HSBC Republic Trust Company (BVI) Limited, in our opinion, does not be accepted as an evidence in this regard and we are of the view that this certificate does not have any legal sanctity. This certificate cannot be relied and on the basis of the certificate it cannot be said that the assessee has discharged his onus that the amount received by the assessee is out of the Discretionary Trust and out of the capital fund of the Trust distributed to the assessee during the impugned assessment year;
++ we also noted that the assessee before us has filed the statement of affairs for the year ended 31.03.2004 i.e. for the impugned assessment year, but no accounts relating to the earlier year have been filed so that it could be ascertained whether the assessee has got the income accrued in the earlier years out of which the amount has been distributed by the trustee to the assessee as beneficiary of the discretionary trust . The accounts although has not been audited and has not been approved by the trustees except that certified true copy has been signed as a trustee on behalf of M/s. HSBC Trust Company (BVI) Limited. Even we noted that no date has been mentioned on which date these accounts have been signed or approved by the trustees. In our opinion, when assessee makes a claim that the amount received by him is a capital receipt and has been paid out of the capital fund, the onus is on the assessee to prove that the amount has been paid by the Discretionary Trust out of the capital fund. In a case where the assessee claims that the money has come out of a source out of India, heavy onus lies on the assessee to adduce evidence and prove that the money has come from out side India not as an Income but as a Capital receipt specially when the assessing officer does not have any jurisdiction over the source country. We are of the firm view that the general principal that the revenue should prove that the assessee has receipt the money as income cannot be applied in such situation as all the evidences and material is in the domain of the assessing officer. Even we noted that it is a case where a credit of the amount was found in the books of the assessee, therefore , the assessee is bound to prove the nature and source of the credit. Now the question arise whether under these facts as narrated by us , can it be said that the assessee has discharge his onus to prove the nature and source of the credit;
++ the money has been credited by the assessee in his books of account and, therefore, in our view, once an amount is credited into the books of the assessee, onus is on the assessee to prove the nature and source of the said amount to the satisfaction of the Assessing Officer in view of the clear mandate of the provisions of section 68. SC has also taken the same view even prior to the introduction of section 68 in the case of Kale Khan 50 ITR 1(SC) as has been discussed by us in the preceding paragraph. Similar view has been taken by SC in the case of CIT –vs.- Devi Prasad Vishwanath Prasad reported in 72 ITR 194 (SC), in which the SC held that there is nothing in law which prevents the Income Tax Officer in an appropriate case in taxing both the cash credit, the nature and source of which is not satisfactorily explained, and the business income estimated by him under section 13 of the Indian Income Tax Act, 1922, after rejecting the books of account of the assessee as unreliable. In Kale Khan Mohammad Hanif –vs.- Commissioner of Income Tax [1963] 50 ITR 1 (SC) followed that where there is an unexplained credit, it is open to the income Tax Officer to hold that it is income of the assessee, and no further burden lies on the Income Tax Officer to show that income is from any particular source. It is for the assessee to prove that, even if the cash credit represents income, it is income from a source which has already been taxed. Similar view has been taken by the SC in the case of Roshan Di Hatti –vs.- CIT reported in 107 ITR 938 (SC), in which the Hon’ble Supreme Court held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income. To put it differently, where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that income is from any particular source. Decision of the Delhi High Court in Roshan Di Hatti –vs.- CIT [1972] 85 ITR 370 reversed;
++ we are of the view that the decisions of SC in the case of Kale Khan Mohammad Hanif –vs.- CIT; CIT –vs.- Devi Prasad Vishwanath Prasad and Roshan Di Hatti –vs.- CIT are clearly applicable to the facts of the case of assessee. The onus is on the assessee to prove that the amount credited in his books of account is not the income or was exempt from taxation. In the instant case, in our opinion, the assessee could not discharge his onus and could not prove that the money has come out of the capital fund of a Discretionary Trust situated out of India. Before concluding we may mention that the submission of the Senior Advocate that the onus is on the revenue that the assessee has received the income cannot be applied to a case where the amount credited by the assessee had been claimed by him from a source situated outside india such as Switzerland etc and to which country the assessingofficer does not have any jurisdiction as the Indian Income Tax Act is applicable to Indian Territory, it cannot be said that the onus is on the assessing officer to prove that the assessee has earned the income outside India. This in our opinion will be the mockery of the Indian Income Tax Act and every body just filing the documents which were out side the domain of the assessing officer can claim that the onus is on the assessing officer to prove that the assessee has received revenue receipts. We, accordingly, confirm the order of CIT(Appeals) and reject the claim of the assessee that the said amount is the capital receipt received as a beneficiary of a discretionary trust. In the result, the appeal filed by the assessee is dismissed
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