The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the beneficiaries of an Indian Trust cannot be taxed for the fund invested by the Trust in the Swiss Bank.
In the instant case, the department sought to tax funds lying in a Swiss bank account as ‘unaccounted income’ in the hands of two residents of Mumbai. The peak balance or maximum account balance, lying in the Swiss bank account during the financial years 2005-06 and 2006-07, was equally divided and a sum of Rs 3.06 crore and Rs 2.74 lakh each was added to the income of these two individuals by the Assessing Officer. The officer added the income to the total income of the assessees and imposed tax and interest on the same.
The Tribunal held that since the Swiss bank account was owned and operated by an offshore discretionary trust in which these two individuals were named as beneficiaries, the income could not be taxed in their hands unless and until the funds were distributed by the trust.
“In the present case, undisputedly Mr. Dipendu Bapalal Shah is the owner of HSBC Bank account, Geneva and the appellants are discretionary beneficiaries which leads to the positive inference that the appellants are not the owners of the said bank account and hence the additions under Section 69A cannot be sustained. In the present case before us, admittedly both the appellants namely Deepak B. Shah and Kunal N. Shah are discretionary beneficiaries of the “Balsun trust” created by Mr. Dipendu Bapalal Shah and the two appellants have not made any contribution nor done any transaction with said trust at all. In our opinion in the case of the discretionary trust, the income of the trust could not only be added in the hand of beneficiary but the trustees are the representative assessees who are liable to be taxed for the income of the trust,” the Tribunal said.
It was therefore, held that “If the discretionary trust has made some distribution of income during the year in favor of the discretionary beneficiaries only then the distributed income is taxable in the hands of the beneficiaries but nothing of the sort has happened nor two appellants have received any money as distribution of income by the discretionary trust. So long as the money is not distributed by the discretionary trust, the same cannot be taxed be in the hands of the beneficiaries. Similarly, the present case for us, the deposits held in HSBC, Geneva account cannot be taxed in the hand of beneficiaries/ appellants at all.”Subscribe Taxscan AdFree to view the Judgment