Individual Can’t be Held as a Beneficial Owner of Investments made by Foreign Co.: ITAT

Case Details: Shri Krishna Das Agarwal vs. DDIT/ADIT(Inv.) - [2023] 150 taxmann.com 290 (Jaipur-Trib.)

Judiciary and Counsel Details

• • Sandeep Gosain, Judicial Member & Rathod Kamlesh Jayantbhai, Accountant Member
  • Ashwani Taneja, Sankalp Malik, Advs. & Gaurav Nahata, CA for the Appellant.
  • James Kurian, CIT for the Respondent.

Facts of the Case

Assessee-an individual, along with other groups of persons, formed a company in UAE. Due to certain circumstances, the business became unprofitable and started investing its funds in some investment products.

A search operation was conducted on the premises of the assessee, whereby certain documents concerning the transactions of a non-resident foreign company were found. Based on such documents, additions to the assessee’s income were made, contending that the assessee had undisclosed foreign assets and a signatory authority of a foreign bank.

Aggrieved assessee filed an appeal to the CIT(A). The CIT(A) upheld the additions, and the matter reached the Jaipur Tribunal.

ITAT Held

The Tribunal held assessee had made due disclosure of all his financial interest in a fiduciary capacity and as a signatory authority of a foreign bank account for and on behalf of the company while filing returns of income for the assessment years wherein in schedule FA, due disclosure has been made by the assessee in his return.

Further, it was not disputed that the investment or the assets found during the course of the search belonged to the foreign company and not to the assessee. The foreign entity has undeniably a separate legal entity, having an independent identity, capable of holding assets in its own name for the furtherance of its own objectives and purposes.

Further, the term “beneficial owner” is not defined in the Black Money Act but is defined in Explanation 4 to Section 139(1) of the Income-tax Act, 1961. On perusal of the definition of the term “Beneficial owner”, it is evident that a beneficial owner in respect of an asset would be a person who provides consideration for the asset for the immediate or future benefit of himself or any other person.

In the instant case, foreign investments were the foreign company’s assets and consideration for the same assets flew from the bank account of the Foreign Company itself. Thus, the assessee does not fall in the ambit of the term “beneficial owner” as he was not the provider of the consideration of the asset.

Accordingly, the order of the CIT(AO) confirming that the assessee was the “beneficial owner” of the assets of the Foreign Company was misconceived, against the law and deserved to be annulled.