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IN THE HIGH COURT OF DELHI AT NEW DELHI
S. RAVINDRA BHAT, A.K. CHAWLA, JJ.
Sonia Gandhi - Petitioner
Versus
Assistant Commissioner of Income Tax, Circle 52(1) and Ors. - Respondents
W.P.(C) 8482 of 2018, C.M. APPL. 32580-32582 of 2018, W.P.(C) 8483 of 2018, C.M. APPL. 32583-32585 of 2018, W.P.(C) 8293 of 2018, C.M. APPL. 31812-31814 of 2018
Decided On : 10-09-2018
The High Court of Delhi in the case of Rahul Gandhi v. ACIT, held that the reassessment notices issued to the assessees were valid and the proceedings initiated were in accordance with the law. The Court observed that the assessees had failed to disclose the acquisition of shares in Young Indian (YI), a not-for-profit company, which resulted in income escaping assessment. The Court further held that the assessees' arguments regarding the non-applicability of Section 56(2)(vii)(c)(ii) of the Income Tax Act, 1961, and the exemption granted to YI under Section 12AA were not tenable.
Fact of the Case:
The assessees, Mr. Rahul Gandhi, Ms. Sonia Gandhi, and Mr. Oscar Fernandes, received shares in YI, a not-for-profit company, in 2011. The assessees did not disclose the acquisition of shares in their income tax returns. The Assessing Officer (AO) issued reassessment notices to the assessees under Section 148 of the Income Tax Act, 1961, alleging that the assessees had failed to disclose the acquisition of shares in YI, which resulted in income escaping assessment. The assessees challenged the reassessment notices on various grounds, including that the notices were barred by limitation, that the AO did not have jurisdiction to issue the notices, and that the assessees were not liable to pay tax on the acquisition of shares in YI.
Finding of the Court:
The High Court of Delhi held that the reassessment notices issued to the assessees were valid and the proceedings initiated were in accordance with the law. The Court observed that the assessees had failed to disclose the acquisition of shares in YI, which resulted in income escaping assessment. The Court further held that the assessees' arguments regarding the non-applicability of Section 56(2)(vii)(c)(ii) of the Income Tax Act, 1961, and the exemption granted to YI under Section 12AA were not tenable.
Issues: 1. Whether the reassessment notices issued to the assessees were valid? 2. Whether the assessees had failed to disclose the acquisition of shares in YI? 3. Whether the assessees were liable to pay tax on the acquisition of shares in YI?
Ratio Decidendi: 1. The Court held that the reassessment notices issued to the assessees were valid as they were issued within the limitation period prescribed under Section 149 of the Income Tax Act, 1961, and the AO had jurisdiction to issue the notices. 2. The Court held that the assessees had failed to disclose the acquisition of shares in YI in their income tax returns, which resulted in income escaping assessment. 3. The Court held that the assessees were liable to pay tax on the acquisition of shares in YI as the acquisition of shares resulted in income from other sources under Section 56(2)(vii)(c)(ii) of the Income Tax Act, 1961.
Final Decision: The High Court of Delhi dismissed the assessees' writ petitions and upheld the validity of the reassessment notices issued to them.
S. RAVINDRA BHAT, J.
1. These writ petitions involve common questions which urge closely similar facts and involve decision on identical questions of law. Consequently, they are disposed of by this common judgment.
2. The brief facts necessary to decide these three petitions are that the Indian National Congress (“INC” hereafter, also referred to as “AICC”) had over a period of time advanced Rs. 90 crores to Associated Journals Ltd (hereafter “AJL”), publishers of the newspaper “National Herald”, with the condition that the amounts be utilized by the latter to write off its accumulated debts and re-commence its newspaper. The books of account of AJL showed that for the period 01.04.2010 to 31.03.2011, the total outstanding debt as on 01.04.2010 was Rs. 88,86, 68,976/- and as on 15.12.2010 it was Rs. 90,21,68,980/-. In the meanwhile, an application was made for the incorporation of the charitable non-profit company “Young Indian” (“YI” hereafter) on 13.08.2010, and Form 1A with Registrar was filed for availability of the Young Indian name. On 18.11.2010, a license was issued by the appropriate authority to YI which was then incorporated on 23.11.2010; M/s. Suman Dubey and Sam Pitroda were its founder members and founder directors. On 13.12.2010, the first Managing Committee meeting took place; Mr. Rahul Gandhi was appointed as Director (non-shareholder); Mr. Motilal Vora and Mr. Oscar Fernandes were nominated as Ordinary Members; M/s. Suman Dubey and Sam Pitroda subscribed to 550 shares each. On 18.12.2010 by a Deed of Assignment, the Rs. 90 crore loan standing in INC’s books as payable to it, from AJL from 2002 to 2011 was transferred to YI.
3. On 21.12.2010, a Board meeting of AJL calling an EGM of that company was held. Subsequently, on 24.12.2010, a loan to the tune of Rs. 1 crore was received through a cheque, from M/s Dotex, another company, drawn on ICICI Bank by YI. The formal stamped deed of assignment of Rs. 90 crore in favour of YI was executed by AICC on 28.12.2010. This event was followed, on 21.01.2011, by an EGM (of AJL) approving fresh issue of 9.021 crore shares to YI. On 22.01.2011, the second managing Committee Meeting of YI was held; Ms. Sonia Gandhi, Mr. ML Vora and Mr. Oscar Fernandes were appointed Directors. The transfer of YI Shares from its existing shareholders, was approved as follows :
No. of Shares
From
To
550
Suman Dubey
Sonia Gandhi
550
Sam Pitroda
Oscar Fernandes
A fresh allotment of YI shares was made, in the following manner :
No. of Shares
Allotted to
Remark
Amount paid for (Rs.)
1,900
Rahul Gandhi
Citibank cheque dated 20/1/2011 deposited on 14/7/2011 cleared on 15/7/2011
1,90,000/-
1,350
Sonia Gandhi
UCO cheque dated 20/1/2011 deposited on 14/7/2011 cleared on 16/7/2011
1,35,000/-
600
Motilal Vora
SBI cheque dated 20/1/2011 deposited on 14/7/2011 cleared on 16/7/2011
60,000/-
50
Oscar Fernandes
SBI cheque of 20/1/2011 deposited on 25/7/2011 cleared on 28/7/2011
5,000/-
4. On 14.02.2011, PAN No. (AAACY4625Q) was allotted to YI by letter issued by the Income tax authorities (hereafter “revenue”). A bank account was opened by YI with Citibank the same day, since account opening is possible with a PAN No. The cheque issued by Dotex for Rs. 1 crore was deposited in YI’s bank account. YI issued a cheque for Rs. 50 lakhs subsequently, on 26.02.2011 to AICC (as part consideration for the assignment of the Rs. 90 crore debt to it) on 26.02.2011. On the same day, AJL allotted 9,02,16,898 equity shares to YI pursuant to its EGM dated 21.01.2011 and AJL’s Board meeting (dated 26.02.2011). YI applied for Section 12AA exemption to the revenue on 29.03.2011. The exemption was granted by the Income Tax authorities on 09.05.2011 by a certificate, with effect from FY 2010-11. The income tax retur
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