ACIT 25 (2), MUMBAI vs. SMT. ANJANA LAXMIDAS VORA, MUMBAI

source of income of the settlor oftrust [3] any documentary evidence substantiating trust received its funds.

(i) trust is not needed to file any returns. (ii) With respect to the sources of the funds of the trust the Assessee produced various documents such as the balance sheet of the trust as well as the income statement of the trust for the impugned year. Assessee submitted that that receipt of remittance by the Assessee in the role of beneficiary being corpus remittance and termination proceeds was not taxable in her hands. In support of her contention, she submitted a letter dated 20 August 2018 and 10 September 2018. She also furnished the balance sheet and income statements of the trust stating that since the amount received by the Assessee is termination proceeds from the trust it is not taxable. She also submitted a letter dated 22 December 2018 for assessment year 2011 – 12 to 2014 – 15, which were reopened, and for this year stating that the amount received by her is not taxable. (iii) source of the funds of the trust was from the wealth of Mr. Hariyani over the years 1963 – 1993. The facts also brought on record that Assessee was not a beneficiary of trust since its inception, since her name did not feature in the list of beneficiaries in the trust deed dated 10/9/1982, but she was added to the list of beneficiaries by the deed of addition and exclusion dated 18/10/1990 which stated that Assessee will be added as a beneficiary to the trust with effect from 25 August 1990. (iv) Evidence submitted includes trust deed, supplementary trust deed, initial remittance certificate, other remittance certificates, change in the trustees, remittance certificates from the trust to the Assessee, balance sheet and income statement of the trust, 6 | P a g e performance statement of the trust, bank account of the trust, tax registration number of the trustee corporation. (v) Assessee also said that that the trust has been terminated on 18/8/2015, confirmation was also submitted. (vi) With respect to the trust Assessee submitted that it did not generate any income since past many years and only source of fund in the trust is the corpus deposited by the settler in the period 1982- 1993. It is only holding the corpus and distributing/remitting the said corpus in piecemeal to the intended beneficiaries. (vii) With respect to the settler, it was stated that he was a non- resident working in Nigeria from 1963 – 1993. He came to India from Sindh (Pakistan) after partition of India with his parents and before leaving India in 1963 for seeking employment, he was a typist at reserve bank of India. His foreign earnings were deposited in the trust. (viii) It was stated that as the trust is a resident of Jersey no income tax returns were filed, as it was not required. The tax residency certificate was also not required as per the applicable laws of Jersey.

Conglomerate asking Mr. PK Hariyani to give them technical consultancy. The appellants AR also submitted his Nigerian driving license, in donation immigration papers, original passport for verification, folder of visiting cards and photographs, newspaper clippings, eulogies for biscuit factory set up by him namely standard biscuit factory (Nigers) Ltd as early as in 1977 and other miscellaneous evidence. It is also noteworthy that the basis on which the addition has been made in the base year (assessment year 2015 – 16) viz. the father daughter relationship, or adoption, has been accepted by the Department in the case of the Assessee by the AO in the reassessment orders for the assessment year 2011 – 12 to 2014 – 15 and for assessment year 2016 – 17 after examining the issue by issuing a specific show cause and on receipt of further evidence in the shape of a registered will, death certificate, newspaper clippings, photographs, videos, bank succession certificate et cetera and Supreme Court decisions apart from the evidence which was already on record and filed before the AO in the impugned year. The fact of adoption has been accepted by the department itself. The fact that no adverse observation has been made in the impugned assessment order is passed on this count after issue of a specific show cause and the fact of adoption has been stated as a fact in the subsequent orders fortifies this point. In my order dated 30/8/2019, while dealing with the said facts in the appeal for assessment year 2015 – 16, I had held as under “After going through the entire facts, it is seen that there is a difference of opinion in the subsequent years in the stand taken by the Department as regard to the relationship between Assessee and the settler of the trust. In the subsequent orders, this issue becomes clear and accordingly it is treated as the Assessee is the adoptive daughter of the settler of the trust” It is also observed that there has been no fresh inflow of funds in the Nankasai trust in the impugned year or past years for which the financials, Castro statements, balance sheets and capital accounts of Nankasai trust have been filed. The identity of the remit and the creditworthiness and genuineness has been accepted and is established by the evidence placed on record. The appellants AR also submitted various details which are also submitted at the time of assessment like the tax registration number of UBS Trustees – the trustee of Nankasai trust and its compliance details of Jersey financial Corporation were filed 9 | P a g e along with the website address, physical address, phone numbers, fax numbers, email addresses, tax information exchange agreement of India with Jersey Island. The queries put to the trustees by the AR were duly replied by the trustees via emails and those emails form part of the record. Thus, the identity of the remit is proved beyond doubt. The AO also accept the identity of the remit as well as the settler in her assessment order. The identity of the remit is also reflected in the assessee‟s bank statements along with certificates issued by the remit as well as Indian bank for each in remittance. As far as the creditworthiness and genuineness of the transactions are concerned, the transaction in the impugned year as the receipt of corpus remittance on termination proceeds from the Nankasai Trust. Various documentary evidence being certificate issued by the trustees and emails exchanged between the settler (later Mr. PK Hariyani) and the trustees (when the settler was alive) and between the Assessee and counsel and the trustees are on record which established that the remittance is not a one-off transaction but have been continuing since past many years. The same have been accepted in the case of the Assessee herself and in 9 other cases of the assessee‟s relatives on the same set of facts by the revenue Department in 143 (3) proceedings. Even in the assessment year 2015 – 16, I have examined the issue and held that no addition can be made u/s 68 or 56 (2) (vii). The termination of the trust was also on the instances of the trustees. Various emails and the final indemnity issued by the Assessee are on record. This evidence clearly satisfies two established the genuineness and creditworthiness and that the amount received by the Assessee on termination of the trust is a capital receipt not chargeable to tax. The AO also did not make any independent inquiries from the trustee email or other means available to her. She also did not specify in the show cause notice dated 20/12/2018 as to which Section of the income tax act 1961 she proposes to invoke and neither on receipt of reply dated 22/12/2018, see specified which limb of Section 68 is not satisfy and why. The AO has simply brushed aside plethora of evidence filed and made an addition without any valid factual or legal findings. The burden on the Assessee to prima facie prove the nature and source of the amount received has been sufficiently discharge. There was no case and to doubt the same. Moreover, to insist on bank accounts of the settler or of the trust for 1982/1993 is not germane to the issue since the position in the impugned year and immediately past years is clear by the evidence already on record.

It is also not the case of the AO that the amount received is the assessee‟s own unaccounted money, which has gone abroad from her own coffers. The passports of the Assessee and the settlers are on record and the continuing ailing health condition and educational background of the Assessee makes it difficult to even insinuate such a thing on her. The late settler, power his own admittance had not travelled abroad after 1996 and his heart operation in 1993, had retired from active work life and devoted his entire remaining life to charitable activities for which also, various evidencehas been filed and are on record. The AO has also relied on the case of Somdatt V ACIT 27 Kolkata (Calcutta), ITA T Calcutta 2015. The appellant AR in his reply has distinguished the facts of this case with his own case very clearly. In the case of Mr.Somdatt, he could not prove the genuineness of the trust, the trustees, and the fact that the money was received out of income of earlier years. Also, Dr that was himself the settler, the trustee as well as one of the beneficiaries and was an active earning person in the impugned E-Assessment year 2004 – 05 in both India and abroad. He did not submit documents/accounts pertaining to the trust despite been asked. Wherein in the instant case, the appellant has diligently submitted every document asked for. It has been in fact held by the Honourable ITAT (vide para 29 – 34) that the Assessee is able to prove with cogent evidence that the money has in fact come from an accumulated corpus of an overseas private discretionary trust of earlier years, nothing is taxable in the hands of the resident beneficiary in the year of receipt. The case of the Assessee is that it was the money earned by her father in the past years abroad while he was a non-resident (1963 – 1993) which he had there in a trust that has come to her by way of corpus distribution/capital distribution and thus is a capital receipt not chargeable to tax at all. The AO‟s legal argument is altogether different and in no manner helping her to build her argument. In the apex court decision of the Honourable Supreme Court in CIT versus managing trustees Nagore Durga 57 ITR 321 (SC) and CIT versus Kamalini Khatau 209 ITR 101 (SC), the ratio was held that what can be taxed as income and that too income earned during the relevant previous year. The nature of receipt in the hands of beneficiary takes the same colour as that of the trust. Thus, in a case where what is distributed by the trust is the income earned by the trust during the year, it is income in the hands of the beneficiary. But on the other hand, if the trust is distributing its capital/corpus, then what is the beneficiary is 11 | P a g e getting cannot be held to be his/her income – it has to take the same colour as in the hence of the trust. The appellant has clearly demonstrated with the help of evidence on record that what that Assessee has received this year is not income of the trust, much less income earned during the relevant previous year. It is corpus remittance and hence is not taxable. At the time of deposit of the fund in the corpus of the trust to 1993 by the settler, this amount was not taxable in the hands of the beneficiaries as per provisions of income tax act 1961, and thus, one settled in the corpus, the nature of the amount will not change upon subsequent remittance to India in later years . Thus, the remittance of US dollars 17,80,260 as received by the Assessee in the financial year 2015 – 16 (assessment year 2016 – 17) in the capital city of beneficiary from Nankasai Trustis in the nature of capital receipt. It cannot be said to have been received by the Assessee without consideration and thus outside the purview of Section 56 (2) (vii) in view of direct decision of the honorable jurisdictional ITAT in case of Ashok C Pratap (with regard to termination proceeds) and HonourableBengaluru (Bangalore) ITA T in the case of Sharon Nayak.The remittance is not taxable even u/s 68 since the nature and source of the amount received has been established to be of capital nature in view of the cash), bank account, balance sheet, profit and loss and performance statement of Nanksai trust which are on record and no fresh inflow of funds is observed. This remittance is not taxable in view of decision of jurisdictional ITAT in case of Dwarka Prasad Agarwal, Shanta ben Patel and other case laws cited."

Accordingly, he deleted the addition. Therefore, the learned assessing officer is aggrieved and has preferred this appeal as per various grounds of appeal stated above. The Assessee has also filed cross objection, but it merely supports the order of the learned CIT appeal.

11. The learned CIT DR submitted as Under: - a) Only documents submitted to prove the capacity of the trust is the income tax clearance certificate issued by the revenue deal division/Nigeria to the settlers Shri Prabhudas Hariyani that only shows that he was earning salary. According to that salary, the settler could have owned only US$ 10,043.53, Whereas the Assessee has received total US$ 2,000,260.34 from 2010 –

2015. Further, as per own submission of Assessee that the settler has donated majority of his income toward charitable purposes, the amount of money received by the Assessee does not satisfy the capacity and creditworthiness of the trust. b) With respect to the claim of the Assessee that the money has been received through banking channel, it was stated that there is no presumption that money received through banking channel always satisfies the test of genuineness. c) With respect to determination of the trust, it was stated that it was not genuine as it was terminated abruptly. The trustees have conducted a review of the business and to align with the bank review project, expressed the need to exit the structure, as there is no longer an offering for the structure with Indian resident beneficiaries. It is to be noted that in the past, the change of trustee from Midland Bank Limited Jersey to UBS bank Ltd also took place on 19/9/1994. Nothing prevented the trustees of the settler to appoint new trustees. The trust was terminated after entering of an agreement of for exchange of information with respect to taxes with Jersey. d) Further the trustees have advised distribution of assets of the trust to beneficiaries prorated for their share of annual gift amount, as detailed letter of wish dated 20 June 2014, however, assets of the trust were distributed to the trust beneficiaries as per letter dated 16/6/2015 and there is nothing on record to show that the assets of the trust were distributed to the trust beneficiaries in accordance with clause 5 of the trust deed. e) With respect to the affidavit submitted by the brothers of the settler, submitted that it has no relevance, it is their own admission that adoption of Assessee took place before they were born and there are many inconsistencies as regards the claim of the Assessee being adopted by the settler. It is an admitted fact that adoption papers of Assessee are not available. f) Reliance placed by the Assessee on the assessment orders for the earlier years are misplaced as the revenue involved in these assessments was much below the monetary limit prescribed by the board. Thus, it was submitted that the order of the learned assessing officer be upheld.

a. it was submitted that at the time of formation of the trust itself there was a contribution of US$ 125,000 by the settler. b. Assessee submitted the complete working history of the settler and his income earning capacity. c. in 1993 before returning to India, settler sold all the shares held by him in his companies and the money received contributed to the above trust. Therefore, the identity, genuineness, and creditworthiness including source of the settler is proved beyond doubt. (ii) With respect to the annual accounts of the trust, the capacity of the trust was proved. With respect to the argument that merely because the payment is made by Cheques is genuine, it was submitted that it is never the argument of the Assessee, the payments have been received through cheque but it is equally recorded in the books of the trust as well as in the books of the beneficiaries along with support of various documents and therefore genuineness is proved. (iii) With respect to the argument that as soon as the exchange of information agreement between India and Jersey was entered, trust closed/terminated. It was the case of the Assessee that trust was terminated after agreement of exchange of information between India and Jersey, the said agreement was entered into the year 2012 and was already in existence at the time of assessment for years assessment year 2011 – 12 to 2015 – 16. (iv) In fact, during the assessment proceedings, Assessee herself and requested the learned assessing officer to call for any information as per the said agreement. However, the learned that AO did not take the onus to do any independent enquiry invoking the provisions of that agreement. Therefore, now the allegation of assessing officer that because of the entering of exchange of information after that, trust was terminated is false.

(v) With respect to the affidavits of the brothers of the settler, it was stated that they have stated the facts that Assessee is an adoptive daughter of the settler. Further it cannot be negated based on mere surmises. (vi) With respect to the acceptance of the claim of the Assessee in the earlier years, it was stated that for assessment year 2011 – 12 to 2014 – 15, the CIT (A) has passed the detailed order after producing all the facts on record and decided the case in favour of the Assessee. Further, in the earlier years in some of the cases there is no addition. Thus, the revenue has accepted the remittance received in those years. (vii) Further, the remittances received by the other relatives/beneficiaries are also accepted by the revenue in the assessment proceedings. It was submitted that though the other beneficiaries are not at all examined with respect to the relationship with the settler and the Assessee is the nearest relative being adoptive daughter of the settler, the addition has been made. (viii) In the earlier years, the relationship of the Assessee with the settler is accepted by the revenue. Therefore, this issue cannot be agitated once again in this assessment year when revenue has already accepted the same in the earlier years. (ix) Receipt is from the trust of the father of the assessee, there fore there is no doubt about genuineness, chargeability to tax as such being receipt from relative.

the above facts the assessee has produced the balance sheet and income statement as well as the bank account and fund flowchart of the trust since 2010 onwards. It is not in dispute that assessee has disclosed in her return of income that she is a beneficiary in the overseas trust. Before learned AO, assessee referred to the return of income as well as the letter of trustees and certificates from the trusted trust is along with the addendum deed showing that assessee is a beneficiary in the about trust. For receipt of money, assessee shown the capital account of the assessee, being certificate of the banks and letters by the trustee to show the extent of money received. It also submitted the bank account of trust wherein UBS trustee (Jersey) Ltd is holding the current account for trustees of the about trust with UBS bank wide account number 206 – 453 038.62M. Therefore, the assessee has submitted the complete bank account of the about trust up to July 2015. On 19/05/2015 there was a payment of US$ 16,403.61 paid to the assessee from the about trust. Further sum on 10/8/2015 is paid to assessee amounting to US$ 17055,260 along with several other beneficiaries and on 11/8/2015, the closing balance of the trust is Rs Nil. It is also evident that there is no credit in the bank account for last several years and only the amounts are debited for disbursing sum to the beneficiaries. It was also shown that the remittance received by the assessee is form the corpus of the about trust by producing the balance sheet and capital account the trust for various financial years, cash flow statement of the trust for past 6 years, certificates of the trustee, affidavit of the settler and passport of the settler to show that he has not travelled abroad but is in India after 28/6/1996. The trust deed dated 10/9/1982 along with all its addendum were produced along with the changes in trustees as well as the beneficiaries. For receipt of the funds the foreign inward remittance certificates were also shown to show sum received by the assessee and it shows. For identity of the trust identity of the trust are shown by way of an email of the trustees in Jersey Island and a regulator. Assessee has also shown the sources of sum received that the above sum was received by the about trust from the settler in 1982 – 1993. For this assessee submitted certificate of the trust, as well as the history of the settler. The fact also shows that for assessment year 2011 – 12 to assessment year 2014 – 15 the assessee received substantial sum from the about trust which were shown by the assessee in her return of income supported by the capital account and balance-sheet of the trust, bank account of the assessee, bank account of the trust and certificate of UBS bank as a trustee. The learned CIT – A in all these above years has deleted the identical addition and revenue has not challenged the same before the higher forum. Learned AO made the addition in the hands of the assessee Under the provisions of Section 68 of the income tax act because the genuineness and creditworthiness of the transaction stating that how and from which source of the funds were deposited in the foreign trust Incorporated in Jersey are not established by the assessee. The AO was of the view that the bank account of the trust and other relevant documents for the earlier years especially during those of the inflow of the funds is necessary. For this simple reason the addition was made in the hence of the assessee are sum of ₹ 113,891,570/– u/s 68 of the income tax act. The learned CIT – A deleted the above addition. We find that the reasons given by the learned CIT – A are sustainable for the following reasons: - (i) assessee has disclosed in her return of income that sees a beneficiary in the trust. (ii) Sum is received in the earlier years in the case of other beneficiaries have been accepted by the revenue. (iii) Sum is received by the assessee in the earlier years from the same trust has also been accepted by the revenue by not filing an appeal against the order of the learned CIT – A. (iv) Assessee has discharged initial onus by producing, a. trust deed b. brief history of the settler of the trust c. brief background of earning of the income of the settler of the trust d. the evidence that assessee is an adoptive daughter of the settler 20 | P a g e e. evidence by addendum of the trust that assessee is incorporated as beneficiary of the about trust f. annual accounts of the trust for last several years g. bank account of the about trust for last several years h. evidence that there is no deposit in the bank account of the about trust for last several years and the amount was a net accumulated sum deposited by the settler in earlier years. (v) The original sum deposited by the settler to show that he was having a source of income by the tax filing certificate for Nigerian taxes since 1984 – 1986. It was also shown that settler of the trust was rendering services to several other companies, one of them being an Indonesian conglomerate where settler was earning income. It was also shown that settler was also having a biscuit factory by the name of standard biscuit factory (Niger‟s) Ltd in 1977. This was shown by producing Nigerian driving license, Indonesia immigration papers, passports of the settler, visiting cards and photographs, newspaper clippings and details of the biscuit factory. (vi) Evidence that settler who would have introduced a money in the bank account of the about trust has not travelled out of India since 1996. This is supported by producing the passport of the settler. (vii) The relationship between the settler of the trust and assessee accepted by the revenue in earlier years without any question, for this year it was doubted without any evidence collected. Against this, the evidence produced by the assessee in the form of affidavits of the uncles of the assessee is disregarded. We failed to understand that when the brother of the settlers is confirming that the assessee is an adopted daughter of their brother, how same can be disbelieved without any evidence, irrespective of the age of the family. The uncles of the assessee have experienced the same and therefore they have given affidavit to show that assessee is an adoptive daughter of the settler. It is to be seen that there is no pecuniary interest of the uncles of the assessee, despite being brothers of‟ the settler, in the about disbursals of sum. Therefore, these affidavits confirm the fact that assessee is an adoptive daughter of the settler. (viii) There is no evidence with the revenue that that the sum received by the assessee is unaccounted income of the assessee. It is also required to be appreciated that there is no credit in the bank account of the trust for last several years from which the funds are transferred to the assessee as beneficiary. This is evident from the bank statements of the trust of the settler. (ix) Assessee has submitted a summary of Year wise distribution of the corpus of the trust to the beneficiaries which included Ramakrishna Mission where the amount disbursed is ₹ 108,650,000, to Padma Keshav Trust‟s ₹ 30,292,558 and two other relatives of the settler namely Mr. Shankar K Hariyani,, Devang D Hariyani,, Manohar K Hariyani, Sidharth S Hariyani , Vidya G Lilani and Ms. Sneha V Hariyani of ₹ 132,326,487/– this distribution is accepted by the revenue in hands of all these beneficiaries as capital receipt. This remains undisputed. (x) It is undisputed that the nature of receipts in the hands of the beneficiary takes the same colour as that of the trust. This is settled by the Honourable Supreme Court in 57 ITR 321 and 209 ITR 101, the learned CIT – A followed those decisions and therefore, the order of the learned CIT – A cannot be disputed. (xi) The fact also shows that Honourable Supreme Court in 209 ITR 101 as well as in 363 ITR 679 has categorically held that proceeds received by the assessee from a foreign discretionary trust in the year of distribution is a capital receipts in the hence of the beneficiaries. To delete the addition u/s 68 of the income tax act, the learned CIT – A followed this decision. Therefore, the decision of the learned CIT – A cannot be found fault with. (xii) The addition here is made u/s 68 of the income tax act. The addition u/s 68 can only be made by the learned assessing officer when the nature and the source of receipts are not explained by the assessee to the satisfaction of the learned assessing officer. If the assessee has discharged its initial onus and the evidence produced by the assessee to discharge such initial onus are not disputed by the AO by making further enquiry, the assessing officer is not entitled to make the addition u/s 68 of the act. In the present case the assessee has shown identity of the trust, settler of the trust, the trustees of the trust. Assessee also asked the learned AO during the year to make further inquiries. No such inquiries were made. With respect to the creditworthiness of the trust assessee has produced the bank account of the trust, where from the amounts have been disbursed to the assessee along with other beneficiaries. It is not the case of the AO that in those bank accounts there were any credits which have not been explained. In fact, there were no credits for last several years. Even otherwise, assessee is not required to establish the source of source of the funds. In the present case, assessee also explained the original amount deposited in the bank account of the trust through its settler and the relationship of the settler with the assessee. Therefore, though not required, assessee has shown source of the source of the funds. With respect to the genuineness of the transaction, assessee has submitted that the settler of the trust from which the amounts are received by the assessee is adoptive father. This is also shown to the AO supported with the affidavit of the other relatives. Other beneficiaries have also received the sum. None of them is questioned. The relationship between the settler of the trust and the assessee is accepted by the AO without any query in the earlier years. Even the will of the settler which is produced by the assessee at page number 533/546 also confirms that assessee is an adoptive daughter and entire remaining wealth of the settler is given to the assessee. And assessee in turn has also created a will which is placed at page number 147 – 160 of the paper books where she is also bequeathing all her wealth to charity. But the issue is conclusively proved that assessee is an adoptive daughter of the settler of the trust. It is the fact that those persons were not born at the time the assessee was adopted by the settler of the trust as a daughter. However, the learned AO should have taken a view that thereafter those persons survived as relative of the settler of the trust, and they have seen the conduct of the settler as well as the assessee of daughter and father. (xiii) Claim of AO that because of the exchange of information agreement this account is closed is also devoid of any fact and co relations of the date. It is merely an allegation which is rebutted by the assessee when the agreements were entered into and when the trust was closed. The above exchange of information agreement was entered into in 2012 whereas the dispersal of the funds was in assessment year 2011 – 12 continued till assessment year 2015 – 16. (xiv) Assessee is not the sole beneficiary of the trust. Assessee along with six individuals, 2 trust is the beneficiary of the trust. (xv) There is no enquiry made by the learned assessing officer on the initial onus discharged by the assessee. Unless there is a swing in a pendulum of the onus once again thrown back to the assessee, addition u/s 68 of the act cannot be made.

Order pronounced in open court on _17/10/2022.