By Elton Gomes
The Supreme Court, on Tuesday, allowed the Income-Tax Department to continue with tax reassessment of Congress leaders Sonia Gandhi and Rahul Gandhi for the year 2011-12 after their names cropped up in the National Herald case.
However, the apex court directed that the final assessment order should not take effect till it hears their appeal challenging the Delhi High Court’s decision denying them relief.
The Congress leaders’ appeals came up on Tuesday before a bench of Justices A.K. Sikri, Ashok Bhushan, and S. Abdul Nazeer shortly before the court was to break for lunch. The bench said it would not be sitting in the afternoon due to “health issues” of one of the judges.
Senior advocates Kapil Sibal and P. Chidambaram, appearing for the Gandhis, then said there was a limitation period for completing the assessment and sought a stay on it till the next date of hearing.
However, Solicitor General Tushar Mehta, appearing for the IT Department, opposed a stay and requested the court to hear the matter. But the bench refused and said that the next hearing will be held on January 8, explaining that “for certain reasons it is not possible to take up the case now”.
The top court was hearing an appeal by the Gandhis after the Delhi High Court dismissed their plea to stop tax reassessment for the financial year 2010-11. The IT department has accused Congress leaders, including Oscar Fernandes and Motilal Vora, of devising a scheme involving “pre-ordinate artificial and fraudulent steps to take over AJL (Associated Journals Ltd)”.
The Congress has denied any wrongdoing in the case, and has accused Prime Minister Narendra Modi of “directing” the tax department to reopen tax returns within the Congress after eight years.
On September 10, a bench of Justices S. Ravindra Bhat and A.K. Chawla of the Delhi high court dismissed the Gandhis’ plea to review their tax assessments in connection with the National Herald newspaper case, saying that material facts had been concealed.
Delhi HC dismisses Sonia, Rahul Gandhi’s pleas
On September 10, 2018, the Delhi High Court dismissed the pleas of Congress president Rahul Gandhi and Sonia Gandhi challenging the reopening of their 2011-12 tax assessments.
A bench comprising Justices S. Ravindra Bhat and A.K. Chawla said, “The writ petitions have failed,” as per an India Today report. The bench also refused to hear Congress leader Oscar Fernandes’ petition challenging his tax assessment for 2011-12.
The High Court bench said that a loan amounting to about Rs 90 crore was due from Associated Journal Limited (AJL) to the All India Congress Committee. The bench also noted that as the loan amount had become irrecoverable, it was assigned to Young Indian Pvt Ltd (YI) for Rs 50 lakh. Young Indian is the company where Sonia and Rahul Gandhi were majority shareholders.
The entire premise of the IT reassessment notice was that the non-disclosure of the taxing event—the allotment of Young Indian shares and the absence of any declaration as to value—deprived the Assessing Officer (AO) the opportunity to look into the records.
“Had he (Mr. Gandhi) disclosed in his returns or any related documents about the event (share acquisition), the primary fact would have been on the record,” the bench noted, as per a report in the Hindu.
The bench added, “The tax evasion petition filed by BJP leader Subramanian Swamy and investigation reports … constituted tangible material which … justified reassessment.”
IT department to reopen tax proceedings
The Delhi High Court also stated that the IT department had powers to reopen tax proceedings and that the petitioners can approach the department with their grievances.
The main ground on which Rahul Gandhi had sought to cancel the reassessment notice was that no income had escaped assessment. However, appearing for the IT department, Additional Solicitor General Tushar Mehta said that the income that escaped assessment is not based upon the allotment of shares by AJL to YI.
Mehta said that a reassessment was sought because it was prima facie found that “income from other sources”, stipulated under Section 56, escaped assessment in terms of the fair market value of shares allotted to the assessees by YI in January 2011, the Hindu reported.
What is the National Herald case?
The National Herald newspaper was started by former prime minister Jawahar Lal Nehru in 1938 during India’s freedom movement. The newspaper originally served as a mouthpiece of the Congress.
Over the decades, circulation and finances dropped, and the National Herald finally closed in 2008 with a debt of Rs 90 crore. After that, Associated Journal Limited (AJL), the company that owned National Herald, became a real estate firm with properties in Delhi, Lucknow, and Mumbai. In 2010, AJL was taken over by a newly-floated company called Young India Limited (YIL).
In 2012, BJP leader Subramanian Swamy filed a complaint before the trial court, alleging that Congress leaders were involved in cheating and breach of trust when YIL acquired AJL, as assets worth crores of rupees had been transferred to YIL.
Swamy accused the Sonia and Rahul Gandhi and others of conspiring to cheat and misappropriate funds by first loaning the money to AJL, and then assigning the debt to YIL for Rs 50 lakh. This meant that the Congress had allegedly written off the remaining amount of Rs 89.5 crore.
However, the Congress has maintained that YIL was created “with the aim of charity” and was not meant for profit-making. The party also claimed that it was not a financial transaction but a ‘commercial’ one, and termed Swamy’s complaint ‘politically motivated.’
Elton Gomes is a staff writer at Qrius