SC To Hear Plea By Sonia And Rahul Against Delhi HC Order Allowing Income Tax Re-assessment on December 4

The Supreme Court bench of Justices A. K. Sikri and Abdul Nazeer on Tuesday agreed to hear in detail on December 4 the petitions filed by Congress President Rahul Gandhi and his mother Sonia Gandhi challenging the Delhi High Court order of September 8 refusing to give them relief in a case of re-opening of their tax assessments for 2011-12.

However, the bench declined to grant a stay on the order or issue formal notice on the petitions.

“A company called AJL (Associated Journal Ltd.) decides to issue shares to Young India (YI). The petitioner acquired a particular number of shares of YI. How does acquisition of shares at par from a company which on that day had acquired a debt mean income in the hands of the shareholder?”, began Senior Counsel and Congress leader P. Chidambaram.

“We are not concerned with that. The issue before us is whether the notice for reassessment under section 148 (of the Income Tax Act of 1961) is valid or not. these grounds can be raised before the Assessing Officer”, observed Justice Sikri at the initial stage.

“The company is a section 25 company (A non-profit organisation for the purpose of section 25 of the Companies Act, 1956). On the day the shares are allotted to me, YI acquires a debt of Rs. 90 crores which may or may not be recoverable. But if the company acquires an asset, how does the shareholder get an income?”, pressed Mr. Chidambaram.

“The matter requires consideration”, reflected Justice Sikri.

“No. We are asking the wrong question and hence, arriving at the wrong answer”, interjected Solicitor General Tushar Mehta.

“There are two options. We may issue notice and we will say that the assessing officer may proceed but nothing will be given effect to and brought to the court. Or we could fix the matter for two-three weeks later. Because it (the hearing) will take time and the High Court judgment is also lengthy”, ventured Justice Sikri.

“The High Court has recorded everything in deciding. Please have it next week if Your Lordships think it requires consideration”, advanced the SG, adding that on a perusal of the tangible material, an application of the mind, analysis of the taxing event and the need for scrutiny under section 147 of the Income Tax Act, there may be no need to deviate from the existing law under section 148.

While Mr. Chidambaram and Senior Advocate and Congress leader Kapil Sibal insisted that notice be issued, it was the SG’s case that a formal notice may not be necessary as he has entertained appearance on behalf of the Income Tax Department.

Background 

The income tax probe has arisen from the investigation into the private criminal complaint filed by BJP leader Subramanian Swamy before a trial court in connection with the National Herald case, in which the trio are out on bail.

Sonia and Rahul were granted bail in the case by the trial court on December 19, 2015.

A tax evasion petition (TEP) was also addressed to the finance minister by Swamy.

In the complaint before the trial court, Sonia, Rahul and others have been accused of conspiring to cheat and misappropriate funds by paying just Rs 50 lakh, through which Young Indian (YI), the not-for-profit organisation, had obtained the right to recover Rs 90.25 crore that the Associated Journals Ltd (AJL) owed to the Congress party.

It was alleged that YI, which was incorporated in November 2010 with a capital of Rs 50 lakh, had acquired almost all shareholdings of the AJL, which was running the National Herald newspaper.

In this process, YI had also acquired AJL's debt of Rs 90 crore.

The tax department had said the shares Rahul has in YI would lead him to have an income of Rs 154 crore and not about Rs 68 lakh, as was assessed earlier.

It has already issued a demand notice for Rs 249.15 crore to YI for the assessment year 2011-12.

The department's move followed its probe on a complaint alleging that the Gandhis had misappropriated AJL's assets while transferring their shares to the newly formed YI.

The high court had noted in its order that the premise of the reassessment notices was that the non-disclosure of the taxing event-- allotment of shares of YI-- deprived the assessing officer of the opportunity to look into the records.

It had said that in Rahul's case, the non-disclosure of share acquisition constituted tangible material justifying reassessment.

In case of Sonia and Oscar, the bench said returns filed by them were processed under Section 143(1) of the Income Tax Act, which pertains to 'Notice or intimation', and are not treated as "assessments".