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I-T dept looks at new clause to tax
May, 15th 2009

After its attempt to tax industrialist Nusli Wadia on his land deals ran into trouble, the income tax department is exploring another avenue.

Two years ago, the I-T department demanded Rs 31 crore as tax for the money Wadia made by selling around 110 acres of land at Mindspace along the Goregaon-Malad Link road. Wadia's appeal against this is pending. Now, the I-T department is interpreting the deal in a different way and demanding tax under a different head.

It has served a notice directing Wadia to file returns for the income earned from the Mindspace deal under the Association of Persons (AOP) clause. Since Wadia and four companies in which he has a majority stake had purchased the rights to income received from the said property, the department has contended that this arrangement is tantamount to AOP. When persons come together to earn profit, or enter into any type of syndication or joint venture, it can result in the coming into existence of a separate taxable entity known as an AOP.

Wadia has now filed a writ in the Bombay HC challenging the department's move to assess "imaginary income''. Wadia has said the action of the I-T will "cause him severe prejudice, grave hardship and unnecessary harassment and seriously interfere with the conduct of his activities''.While the I-T always maintained that Wadia was liable to pay the tax being the de facto owner of the land, the textile magnate claimed he was merely the land's administrator, not the owner.

The land under Wadia's control once belonged to a Parsi, E F Dinshaw, who was based in New York. A month before he died in March 1970, he wrote a will bequeathing all income from his property to his sister Bachoobai Woronzow. However, the will said that after Bachoobai's death, the property would go to two New York-based charities. Jehangir Dubash, a lawyer, was appointed to administer the property.

Subsequently, Dubash moved the HC, asking it to appoint Wadia as the administrator of the property. In December 1972, the HC passed an order by which Wadia became the administrator. In 1995, Wadia struck a deal with the Rahejas to develop the land. In 2000, Wadia moved the HC challenging the validity of Dinshaw's will. The HC held it null and void . Wadia and his four companies bought Woronzow's rights to the income to be received from the property for Rs 20 lakh. Woronzow died in August 2003.

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