‘Ambani overseas income case’: I-T department seeks clarifications

We once again strongly deny any suggestion that any member of Mukesh Ambani family had or has any undisclosed foreign income or asset and that they failed to disclose the same: RIL spokesperson.

BCCL
The notices were issued in March this year under the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax or BM (UFI&A) & IT Act.
MUMBAI: The income tax (IT) department has sought clarifications from overseas following show-cause notices to the family members of Reliance Industries chairman Mukesh Ambani regarding alleged evasion on account of foreign income, according to people with knowledge of the matter. The Ambanis have said the notices are illegal, challenged an HSBC note that sparked the case and argued that the law can’t be applied with retrospective effect, they added.

“While letters to four countries have already been sent last month, certain queries in connection with those being sent to the other three countries were sought and the same have been addressed,” said one of them. “These notices will be dispatched soon.”

The notices were issued in March this year under the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax or BM (UFI&A) & IT Act. The Foreign Tax and Tax Research (FTTR) unit is seeking information from the US, the UK, Belgium, Switzerland, Mauritius, Armenia and Luxembourg. It has also written to St Lucia seeking information under the mutual legal assistance treaty (MLAT), people in the know told ET.


The I-T department sent the letters after the assessees — Nita Ambani and her three children Isha, Anant and Akash — contested the I-T notices, calling them “illegal” and holding them violative of the BM (UFI&A) & IT. The I-T department had held a hearing into the matter on April 12.

A spokesperson at RIL said that queries from ET on the matter were “malicious.”

“We once again strongly deny any suggestion that any member of Mukesh Ambani family had or has any undisclosed foreign income or asset and that they failed to disclose the same,” the RIL spokesperson said in an email. “The query sent to us is baseless and has been sent only with malicious intent. We reserve our rights to take action as legally advised, in case the publication goes ahead with this false and baseless story.”
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Some details of the queries by the I-T department to the seven countries were reported by the Business Standard in its edition dated December 27, 2019. The Indian Express had reported the issuance of notices to RIL promoter family members on September 14, 2019.

The I-T notices stemmed from an internal noting by a former head of private banking at HSBC India, which said Ambani family members were the alleged beneficiaries of certain accounts, said the people cited above. This had been received in June 2015 in an FTTR reference made to the British Virgin Islands (BVI), a tax haven. The December 19, 2003, note said: “I confirm that I have been shown confidential documentation which confirms that Motech Software is the ultimate legal and beneficial owner of Bartow Holdings NV... and that the ultimate beneficial owner of Motech Software are represented by Mukesh Ambani, his wife and issue and Anil Ambani, his wife and issue in their personal capacities.”

Another document regarded as crucial by the tax department is information from BVI related to a September 2005 statement of the assets of Infrastructure Company (ICL), maintained with HSBC’s private banking department. This shows that ICL, incorporated in the Cayman Islands, held GDRs worth $400 million of two RIL group companies — Reliance Port & Terminal (RPTL) and Reliance Utility & Power (RUPL), as on February 9, 2004.

HSBC declined to comment.
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The Ambanis have contested the status of the HSBC internal note, saying that it’s not a “legal document,” said one of the persons with knowledge of the matter. “They have argued that the internal noting which I-T has relied upon doesn’t have sanctity under the law.”

Sources added that the Ambanis have also argued that the law cannot be applied retrospectively.
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“Their contention is that the information on which I-T is acting upon was before the Act came into effect and therefore the department cannot act retrospectively,” said one of them.

THE I-T CASE
According to the I-T documents, Bartow Holdings was the beneficiary of an entity called Capital Investment Trust (CIT). “The taxpayers were the beneficial owner of the Capital Investment Trust” through various foreign and domestic entities and are liable to tax in respect of their undisclosed foreign income and assets under the provisions of BM (UFI&A) & IT, according to the notices. Capital Investment Trust (CIT) was incorporated in November 2003 in the Cayman Islands by one CJ Damani, as per documents collated by I-T.

Over the years, a number of offshore entities controlled by Damani were established, the holding company of which was National Industries. The I-T department alleges that CIT was used to transfer foreign funds, comprising GDRs worth $400 million, to two Indian entities owned by the Ambani family.

CIT owned Thames Global, parent of Infrastructure Company (ICL), which would hold GDRs for investment in family-controlled companies.

Thereafter, $400 million was brought into ICL through Tocan Asset Trading, a BVI company owned by Damani. The I-T department has an HSBC note that documents this $400-million transfer. The I-T department also has documents showing that ICL invested $400 million on February 9, 2004, for the purchase of GDRs of Reliance Port & Terminal (RPTL) and Reliance Utility & Power (RUPL). Other papers show ICICI Bank as the local custodian of the GDRs. As per the ICICI statement, GDRs were received by these two companies in FY03. Bank of New York Mellon, which was acting as global custodian of the GDRs, is shown as the account holder.

In 2007, the shares were transferred to Shangrila Investment and Trading Co and Vicraze Investments and Trading Co by ITF Mauritius. They were then transferred to RUPL, currently known as EWPL Holdings, in 2010. Its investment division was demerged from Reliance Industries Holding (RIHPL). The ownership of RIHPL vests with Harinarayan Enterprises, a private trust of which members of the RIL promoter family are allegedly beneficiaries.

THE MARCH NOTICE
The assessees “have failed to disclose details of the trust Capital Investment Trust, whose underlying company is Infrastructure Company based at Cayman Island,” the I-T department had said in its March 28 notice. “That you being an ultimate beneficiary of the Capital Investment Trust, through various foreign and domestic entities, are liable to tax/ disclose in respect of your undisclosed foreign income and assets or any other sum of money” under the BM (UFI&A) & IT Act.

The notice said the assessees had failed to disclose details of ICL and its assets, of which they were the ultimate beneficiaries, through various foreign and domestic entities.

“As per Section 3 of the BM (UFI&A) & IT Act, any undisclosed assets located outside India shall be charged of tax on its value in the previous year in which such asset comes to the notice of assessing officer,” according to the notice.

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