A recent circular by the CBDT appears to demolish the case filed by the Income Tax Department against Congress President Rahul Gandhi, his mother Sonia Gandhi and senior Congress leader Oscar Farnandes. All three are the shareholders of Young Indian, a charitable, not-for-profit and Section 25 company.
The Congress on Friday said that the clarification by the CBDT had exonerated Young Indian in the National Herald case from any tax liability. Speaking to reporters in Delhi, Congress Rajya Sabha MPs, Vivek Tankha and Ahmed Patel, said that the the clarification issued by the Income Tax department on 31 December 2018 had vindicated the Congress party’s stand.
Tankha said, “We welcome the latest circular of the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance Government of India, Circular No. 10 of 2018, dated 31st December 2018… This vindicates our position that there never was an issue about issuance of such shares as a taxable event as it was being projected by way of harassment. We thank the CBDT for this clarification.”
Terming it a ‘big development,’ Tankha said that the clarification by the CBDT showed that the Congress Party and its leaders had no intention to indulge in tax evasion.
The CBDT in its circular (see below) clarified that the provisions of Section 56(2)(vii)(a) of the Income Tax Act, 1961 was not applicable in cases of receipt of shares by a specified company as a result of fresh issuance of shares by the said company.
CBDT – Circular 10 of 2018 by on Scribd
Reacting to the development, former Union Minister and noted Supreme Court lawyer, Kapil Sibal said that the Centre’s Narendra Modi government stood exposed. He tweeted, “Circular No 10 of 2018 issued by the CBDT on December 31 , 2018 completely exonerates Young Indian of tax liabilities for the shares allotted to it by National Herald . The circular clarifies the legislative intent behind section 56(2)(viia) of the Income Tax Act .
Circular No 10 of 2018 issued by the CBDT on December 31 , 2018 completely exonerates Young Indian of tax liabilities for the shares allotted to it by National Herald . The circular clarifies the legislative intent behind section 56(2)(viia) of the Income Tax Act .
— Kapil Sibal (@KapilSibal) January 4, 2019
In November last year, the Supreme Court had agreed to hear the pleas filed by Rahul Gandhi and his mother Sonia Gandhi against the Delhi High Court order for re-opening of their income tax assessments for 2011-12 relating to Associated Journals Ltd, the publisher of National Herald. Congress leader Oscar Fernandes too had moved the top court against the 10 September order of the High Court directing the case to be re-opened. The next date of hearing in the Supreme Court is on 8 January.
Congress President Rahul Gandhi’s lawyers have maintained that the query put to their client during the scrutiny of his tax assessment was whether he had any interest in any company or sister concern in which he was a director. He had replied in the negative as Young Indian was a Section 25 company, a non-profit entity, and hence no director would have any interest in it.
Young Indian, which was incorporated in November 2010 with a capital of Rs 50 lakh, had acquired almost all the shareholding of Associated Journal Ltd. The IT 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 Young Indian. However, the latest clarification by the CBDT appears to have come as a timely boost to its case pending before the Supreme Court.