Appellate Tribunal For Forfeited Property : The background of the facts giving rise to the forfeiture of the appellant’s (namely, Vishwanath Sharma’s) one-half share in immovable property known as “Hari Kunj”, Peddar Road, Bombay, under s. 7 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976

Appellate Tribunal For Forfeited Property

Vishwanath Sharma vs. Competent Authority

D. R. Khanna, J., S. P. Pande & M. A. Twigg
FPA No. 17/Bom/1987
11th November, 1987

Counsel Appeared

V. H. Patel, for the Petitioner : S. C. Yadav, for the Respondent

D. R. KHANNA, J.:

The background of the facts giving rise to the forfeiture of the appellant’s (namely, Vishwanath Sharma’s) one-half share in immovable property known as “Hari Kunj”, Peddar Road, Bombay, under s. 7 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (hereinafter referred to as the “Act”), by an order dt. 29th June, 1987, of the Competent Authority, Bombay, may be stated as under :

The Customs Department of the Directorate of Revenue Intelligence recovered foreign wrist watches, integrated circuits, etc., of the value of Rs. 31,52,883 from the said property in a raid organised on 6/7th Feb., 1981. The persons present there could not give any satisfactory explanation to the raiding party. The Government of Maharashtra, therefore, issued a detention order against the appellant under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (hereinafter referred to as “COFEPOSA Act”). He, however, could not be detained, as he absconded. Till this date it is stated he has neither surrendered nor has he been apprehended. The order of detention as well as the proclamation have not been revoked or withdrawn by the Government of Maharashtra. Writ Petition No. 297 of 1982 was, however, filed on the appellant’s behalf in the Bombay High Court, but the same was subsequently withdrawn on 5th April, 1983. Earlier in February, 1975, the Government of West Bengal had issued a detention order under the COFEPOSA Act against the appellant’s brother, Girdhar Gopal Sharma. He too could not be apprehended and was declared as absconder. The detention order and proclamation are still operative. Two separate detention orders under the COFEPOSA Act were further said to have been issued by the Government of Maharashtra against the appellant’s father and mother, namely, Gopal Hari Parsad and Roopwati Gopal Sharma. Because of these detention orders, the Competent Authority, Bombay, treated the appellant as a person under s. 2(2) of the Act against whom proceedings for forfeiture of property under the Act could be taken. Reasons were recorded and a notice under s. 6 of the Act was issued to the appellant with regard to his one-half share in “Hari Kunj”, Peddar Road, Bombay, property which had been acquired by the appellant for Rs. 4,50,000 on 30th Aug., 1973. Earlier, the agreement to sell was executed in his favour by the vendors, namely, M/s Kanoria Bros., Nagpur, on 22nd Dec., 1972. The appellant had represented himself then as a promoter-cum-trustee for a private limited company yet to be formed. Similar purchase of one-half share of “Hari Kunj” property was effected by the appellant’s brother, Girdhar Gopal Sharma, on 30th Dec., 1971, for Rs. 4,50,000. Against this also the Competent Authority, Calcutta, commenced forfeiture proceedings under the Act and finally forfeited that share. The present appellant is unable to say what happened to the appeal, if any, filed by his brother against that forfeiture.

The appellant contested the forfeiture proceedings before the Competent Authority, Bombay, through his chartered accountants. The case set up was that the appellant was born in Nepal and brought up there. He is also a national of that country holding a Nepalese passport. It is also stated that he was assessed to income-tax in that country. From September, 1976, he has acquired citizenship of Hong Kong. It is besides averred that he has no business or other activity in India nor is he assessed to income-tax or wealth-tax and further that his visits to this country have been casual only. His main business is of export and import in Nepal, where he had a partnership firm with his brother, known as Everest International. The same was converted into a company in 1971 with two shareholders, being the two brothers. Each held 1,250 shares of Rs. 1,000 each totalling Rs. 12,50,000. A copy of the balance-sheet of the period ending 15th July, 1974, as certified by the registered auditors has been filed. The firm was assessed to income-tax in Nepal from 1967-68 onwards and the incomes were fairly large, amounting to Rs. 4 lakhs or so yearly. Copies of three assessment orders have been placed on record for the asst. yrs. 1967-68 to 1969-70 (2024/2025 to 2026/2027 Nepalese years). They show that in each year the income returned was Rs. 4 lakhs and was assessed accordingly. It is, however, mentioned that the bills of sales and purchases had not been produced and in case at any time it was found that the profit was more than what was assessed, the income was liable to be revised accordingly. The tax payable on each year’s assessment was over Rs. 2 lakhs. It is stated that in Nepal, there is no separate assessment of a partner when the firm is taxed.

Copies of assessment orders for the asst. yrs. 1975-76 and 1983-84 of M/s Everest International at Hong Kong have also been filed which show that this concern is being taxed at that place also. The income is shown to range from 16,695 Hong Kong dollars to 65,000 Hong Kong dollars. It is, however, noteworthy that the returns for these years were filed after the issue of notice under s. 6 of the Act by the Competent Authority. They, however, do not have much bearing on the acquisition of this property as the same was acquired earlier to those years.

The source of investment in the purchase of the property “Hari Kunj”, it is stated, was the remittances through bank from time to time from Nepal. At present, two suits are said to be pending in the Bombay High Court, one against the appellant and the other against his brother. Both have been brought by the vendors of the said property as they claim that part of the sale consideration has not been paid to them. Substantial payments, however, have been admitted by the vendors. In the suit against the appellant, the amount claimed is Rs. 73,000 odd, out of which Rs. 41,074 was said to be towards principal and the rest interest. Apart from Rs. 4,50,000 which was the sale consideration, the cost of adhesive stamp affixed on the sale deed was Rs. 63,520, one-half of which was payable by the appellant. Thus, the total amount payable to the vendors by the appellant was stated to be Rs. 4,81,750. Out of the same, the following amounts were admitted by the vendors to have been received from the appellant as per disclosure in the said suit: Rs. . 35,000.00.

Paid by the 1st defendant to the plaintiff on 22-12-1972. 1,50,000.00 Paid by the 1st defendant to the plaintiff on 30-12-1972, 50,000-00 Paid by the 1st defendant to the plaintiff on 24-3-1973. 50,000.00 Paid by the 1st defendant to the plaintiff on 1-9-1973.

50,000.00 Paid by the 1st defendant to the plaintiff on 19-1-1974. 1,15,000.00 Paid by the 1st defendant to the plaintiff on 17-6-1974. 8,130.96 Rent receipts from time to time up to August, 1975. Last payment received on 15-11-1975. 4,58,130.96 . 17,244.00 Less :Interest appropriated from time to time up to 15-11-1975. 211.00 Less : Bank charges. 4,40,675.96 .

It is in this manner that the balance of Rs. 41,074 plus interest totalling Rs. 73,263 is being claimed in the suit from the appellant.

The learned Competent Authority has accepted the payment of the three amounts of Rs.

50,000 each as lawfully explained from the aforesaid account and treated the rest as unexplained.

Rs. Rs. P.

P.

27- 63,5

11- 00.0 cash

1972 0

17- 35,0

12- 76.6 (TT charges 76.60)

1972 0

26- 50,1

12- 06.7 (TT charges 106,70)

1972 0 26-3- 41,0

1973 96.1 (TT charges 96.17)

7

8-5- 10,0 1973 28.0 (TT charges 28.05)

5 1-7- 5,01 (TT charges 19.14)

A copy of the statement of account of the appellant as appearing in the books of the said company in which he is a shareholder has been filed. It is certified by the registered auditors though the certification is undated. It is to the following effect : Date Amount in Indian Rupees

.

1973 91 4 55,1

12-8- 1973 12.65 (TT charges 121,65)

13-8-1973 1,40,000,00 (cash) 28-8-1975 20,048.85 (TT charges 48,85) 14-1-1974 65,142.45 (TT charges 142,45) 16-4-1974 2,50,530,87 (TT charges 530.87) . 7,35,670.48

.The amounts of telegraphic transfers so effected by the said company from Kathmandu were credited in the First National City Bank account of the appellant at Bombay, bearing No. 16 52 1. However, the amounts of the first two transfers were credited in the appellant’s brother’s account in the same bank at Bombay, bearing No. 15843. It would be relevant to mention here the position of payments and remittances by transfer and credits in the said bank account of the appellant’s brother, Girdhar Gopal Sharma, so that there may be no confusion nor credit was taken by each of the two brothers twice of the same remittance.

The amount claimed by the vendors in the suit brought against the appellant’s brother is Rs. 4,35,950,98 which includes the principal amount due at Rs. 2,56,439.64, the rest being interest and legal costs. The payments admitted by the vendors to have been received from time to time from that brother are as under : Rs. . 25,000 Paid by the 1st defendant to the plaintiff on 29-12-1971 25,000 Paid by the 1st defendant to the plaintiff on 30-12-1971 45,000 Paid by the 1st defendant to the plaintiff on 31-8-1972 50,000 Paid by the 1st defendant to the plaintiff on 31-8-1972 30,000 Paid by the 1st defendant to the plaintiff on 17-9-1972 40,000 Paid by the 1st defendant to the plaintiff on 4-10-1972 50,000 Paid by the 1st defendant to the plaintiff on 29-7-1974 2,65,000 . There was further some rental adjustment which need not be gone into here as the same is not relevant in these proceedings.

The statement of account of that brother, G. G. Sharma, as existing in the books of the company in Nepal and as certified by the registered auditors shows the following withdrawals and remittances: Date Amount in Indian Rupees Details of payment .. Rs. P. Rs. P. . 11-10-1971 55,000.00 Cash taken to Bombay by self. 27-12-1971 50,114,82 (TT charges114.82) TT to First National City Bank, Bombay, Account No. 15843 30-12-1971 45,104.46 (TT charges104’46) —do— 7-8-1972 1,10,000.00 Cash taken to Bombay by self.

1-10-1972 40,090.43 (TT charges90.4 3) TT to First National City Bank, Bombay, Account No. 15843

27-11-1972 15,000.00 Cash taken to Bombay by self.

26-12-1972 1,50,320.13 (TT charges 320,13) 18-4-1974 85,287.63 (TT charges

TT to First National City Bank, Bombay, Account No. 15843

TT to First National City Bank, 187,63) Bombay, Account No. 16521. 5,50,817.47 .

Copies of the statement of accounts of the appellant with First National City Bank at Bombay have been filed but they are from 4th July, 1973. It has been stated from the appellant’s side that prior to that, they are not available. Some copies of deposits of various amounts in the said bank account have been produced which show that deposits of Rs. 50,000, Rs. 10,000 and Rs. 85,000 were made by cheques or transfers on 4th Jan., 1973, 10th May, 1973, and 29th April, 1974, respectively. Copies of the statement of accounts of Girdhar G. Sharma in the First National City Bank, Bombay, bearing No. 15843, have been filed from August, 1973, onwards. There are also three deposits of Rs. 50,000, Rs. 45,000 and Rs. 35,000 in his said bank account at Bombay on 29th Dec., 1971, 1st Jan., 1972, and 19th Dec., 1972, respectively, by remittances by Nepal Bank. From the side of the Competent Authority, it has been urged that the appellant failed to produce the account books of the firm or the company which they have at Kathmandu and, as such, copies of the accounts from there as certified by the registered auditor should not be treated as authentic or verified. It is next pointed out that the certificates issued by the registered auditors are undated and in case they were issued quite recently, it would imply that the account books are available. The appellant, however, has contended that account books were not available being of a period over 15 years back. The certification done by the registered auditor, it has been pleaded, should not be lightly ignored and should ordinarily be accepted, more so when it is corroborated by the credits in the First National City Bank, Bombay, to the extent the statements of that bank account are available.

We have heard the parties and given our utmost consideration to the entire circumstances. The first question to be determined is whether the incomes enjoyed and the property, including money, held and possessed by the appellant abroad is open to challenge in these proceedings under the Act. The appellant, as noted above, is a Nepalese national holding a passport of that country. He has received citizenship of Hong Kong as well. He is not shown to be an Indian national. According to him, he is not carrying on any business in India and is, therefore, not assessed to income-tax here. His parents are, of course, stated to be Indian nationals and residing in India. In our considered opinion, so far as the earnings of a foreign national enjoyed outside India are concerned (unless its nexus is shown with any particular smuggling or illegal activity of bringing in to, or taking out any goods or money from, India which is prohibited by Indian law), their propriety or legality are not open to purview in India. It is for those countries where those incomes have accrued to look into their nature and legality and also tax them in accordance with their own laws. The conduct of a foreign national abroad or acts committed or incomes enjoyed there are not cognizable or challengeable before us in India. All that we have to look into is whether the amounts claimed by such person to have been received from abroad were actually received and he or the person sending them was possessed of those amounts there. Once these are shown, the nature of the amounts so received have to be treated as legitimate. The source thereof cannot be treated as unexplained.

The balance-sheet of the appellant’s company in Nepal of the year ending 17th May, 1974, shows that though the paid-up capital was Rs. 25 lakhs, Rs. 49,774,41 constituted the loss incurred in that year and the previous year. Two loans totalling Rs. 17,86,017.70 were advanced to the two directors, of which the amount given to the appellant was Rs. 10,22,581.42. The copy of this balance-sheet shows that the original was signed by the registered auditors as per their report. In the certificate which the said auditors have given of’ the remittances to the First National City Bank, Bombay, it has been stated that the loans advanced to the directors were in conformity with the object of the company in terms of cl. 3(Jha) of the memorandum of the company.

The copy of the statement of account of the appellant in the said company is certified by the registered auditors and brings out the details of the payments made to the appellant by the company. If the same is accepted as correct, that would explain the payments made at various stages to the vendors of the property by the appellant, excepting the amount of Rs. 1,50,000 on 30th Dec., 1972. About this latter amount, the account of the appellant’s brother in the said company shows that similar amount plus T. T. charges had been paid to that brother and credited in his Bombay bank account No. 15843. From there, it was said to have been withdrawn and handed over to the appellant to enable him to pay the same to the vendors four days later. Normally, such certification by the registered auditors should not be questioned and should be accepted but for the circumstance that the certifications are undated. The appellant did not produce the account books of that company on the ground that they were not available after so long a time. In case the certifications had been done quite recently by the registered auditors, then the plea of the non-availability of account books may not appear sound. Matters would have been simplified and ample corroboration available in case the bank accounts of the appellant and his brother in the First National City Bank, Bombay, were fully available. The appellant has filed those accounts from 4th July, 1973, so far as his account No. 16521 is concerned. As regards his brother, the same is filed from September, 1973. Prior to them, they are stated as not available. The practice of the bank, it is stated, was not to issue any pass book. The said statement of accounts were sent from time to time and they have not been preserved after such a long lapse of time. The bank records of that period are also said to be not available.

We have tried to reconcile the remittances of various amounts from Nepal and payments made to the vendors to the extent the Bombay bank account is available. In this regard, it has already been noted above that three payments of Rs. 50,000 each have already been accepted by the learned Competent Authority. There has been further a remittance by T. T. of Rs. 2,50,530.87 from Nepal from the account of the appellant in the said company and this amount is found credited in his Bombay bank account on 18th April, 1974. It was withdrawn two days later. The payment made to the vendors thereafter was Rs. 1,15,000 on 17th June, 1974, by the appellant. There has thus been a time lapse of about 2 months. The appellant’s explanation has been that there was some dispute with the vendors and as such payment was withheld for some time. From the side of the Competent Authority, however, it has been contended that the withdrawal of Rs. 2,50,000 two months earlier would not appear natural if the payment was to be made of Rs. 1, 15,000 only. It is urged that the amount must have been required for some other purpose and utilised there. The keeping of such a large amount at home for about two months, it is pleaded, would also not have been natural. It is, however, not shown that the amount was actually utilised on, or meant for, any particular errand. The appellant’s explanation, apart from what has been stated above, viz., some dispute with the vendors, is that his parents were residing in Bombay and their maintenance required money and so also the up-keep and renovation of the flat and buying of furniture, etc., for the same.

After giving due consideration to these contentions, we are inclined to accept the payment of Rs. 1,15,000 by the appellant on 17th June, 1974, to the vendors as duly explained and coming out of the remittance of Rs. 2,50,000 made from Nepal from his account in the company. The remittance finds corroboration from the Bombay bank account. There is nothing to show that the amount of Rs. 2,50,000 withdrawn by the appellant from his account on 20th April, 1974, was fully exhausted or utilised elsewhere as not to leave Rs. 1,15,000 with him for payment to the vendors. We accept the source of this payment as duly explained. There then remain three amounts of Rs. 35,000, Rs. 1,50,000 and Rs. 8,130.96 as admitted by the vendors to have been received. The last of these amounts was on account of rent receipts from time to time up to August, 1975, and this cannot be doubted when the vendors have themselves admitted having received the rent for adjustment against sale price. Rs. 35,000 were said to have been sent by telegraphic transfer from Nepal and the corroboration of the same is from the copy of the account of the appellant in the company there. Then, there is the amount of Rs. 1,50,000 about which it has already been stated that the appellant’s brother’s account in the company shows that similar amount was remitted from his account 4 days earlier to his Bombay bank account No. 15843. The appellant should have produced a confirmation from his brother of having passed on that amount to him. None such has been produced. Why this money was not remitted from the appellant’s own account in the company to the appellant’s Bombay bank account when there was plenty of money there has remained unexplained. It was urged from his side that this amount of Rs. 1,50,000 was not utilised by the appellant’s brother for payments to the vendors, and considering the close proximity of the appellant paying the same, the nexus should be treated as established.

We are, however, unable to accept this in the absence of any confirmation from the appellant’s brother of passing this amount on to him. When the creditor, from whom the appellant claimed to have obtained the money has not confirmed and there is no explanation whatsoever for the non-availability of such confirmation, we are not inclined to attribute the source of this large amount to that creditor, and, therefore, treat that as explained in the hands of the appellant.

Adverting to the other amount of Rs. 35,000, we find that there is a debit entry in the appellant’s account of this amount in the books of the company at Nepal on 17th Dec., 1972. The same was paid five days later to the vendors on 22nd Dec., 1972. When the other payments made out of the remittances from this account have been accepted and part of them get corroboration from the Bombay bank account, we are inclined to accept the source of this amount as well. It is correct that there is no specific corroboration of this amount from the Bombay bank account, but this has been because of non-availability of the bank statement of that period. However, the authenticity of the appellant’s account in the Nepal company as certified by the registered auditors gets corroboration from other entries and, as such, we are not inclined to disbelieve this. Of course, this amount was credited in the account of the appellant’s brother in the Bombay bank in the first instance. Since however, the source thereof was from the appellant’s account in the Nepal company, it can reasonably be accepted that the amount passed on to him.

The result, therefore, is that the amount of Rs. 1,50,000 of the total consideration of Rs. 4.5 lakhs odd remains unexplained. Since this amount is less than one-half of the total sale consideration, the appellant is entitled to the benefit of s. 9 of the Act and is given the option to pay, in lieu of forfeiture, a fine equal to one and one-fifth times the value of this amount, i.e., Rs. 1,80,000. Let this be paid within forty-five days of the receipt of this order. To this extent, the appeal shall be treated as partly allowed. In default of payment of fine, the forfeiture as ordered by the Competent Authority would subsist.

[Citation : 170 ITR 163]

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