Priyanka Vadra, Congress President Rahul Gandhi, UPA chairperson Sonia Gandhi and Robert Vadra
File image of Priyanka Vadra, Congress President Rahul Gandhi, UPA chairperson Sonia Gandhi and Robert Vadra | PTI photo/Atul Yadav
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Within three weeks, I-T department reverses circular after BJP MP Subramanian Swamy, among others, raises objections.

New Delhi: The Income Tax department is struggling to dissociate itself from a circular that allegedly strengthens the stand of Congress president Rahul Gandhi and his mother, Sonia Gandhi, in the National Herald case and has now taken a complete U-turn from its earlier stance on the matter.

The first circular, issued on 31 December 2018, stated that fresh issuance of shares by a company will not attract provisions of Section 56 (2) (viia) of the Income Tax Act that deals with taxation of firms in which the “public is not substantially interested”.

The circular stressed that Section 56 (2) (viia) was a mere anti-abuse provision in the Finance Act, 2010, that was meant to prevent the transfer of shares in a company for no or an inadequate consideration. It went on to clarify that it was “never the intention to apply these provisions to fresh issuance of shares” by the specified company by way of issue of bonus shares, rights shares and preference shares or transactions of similar nature.

The I-T department, however, withdrew the circular on 4 January after questions were raised on whether it would aid the Gandhis in their legal battles in the National Herald case.

The Gandhis are under fire in the case over Young India Pvt Ltd, in which the two are directors, acquiring Associated Journals Ltd (AJL), the publisher of National Herald newspaper, by conversion of existing debt into equity.

The Congress had, in fact, referred to the circular and its subsequent withdrawal, to back its claims, during a hearing on the National Herald case in the Supreme Court on 8 January, prompting the court to direct the tax department to file a reply.

The Gandhis have been accused by BJP MP Subramanian Swamy of cheating, conspiracy and criminal breach of trust in their acquisition of AJL as Young Indian Pvt Ltd allegedly paid only Rs 50 lakh to obtain the right to recover Rs 90.25 crore that AJL owed the Congress. Young Indian Pvt Ltd was incorporated in November 2010 with a capital of Rs 50 lakh.

Also read: In evicting National Herald owner, Delhi HC has indirectly indicted Sonia & Rahul Gandhi

I-T dept issues a fresh circular

Unable to shake off the controversy, despite having withdrawn the circular, the I-T department issued a fresh clarification on 21 January stating that its stance on fresh issuance of shares, in the December circular, would “not be a correct approach, as it could be subject to abuse and would be contrary to the express provisions and the legislative intent of Sec. 56(2) (viia) or similar provisions contained in Sec. 56(2) of the act”.

It went on to add that any view expressed by the Central Board of Direct Taxes (CBDT) in the 31 December circular shall be considered to have “never been expressed”.

By then, however, the department had come under severe fire. Swamy had alleged that officials in the Finance Ministry were colluding to help the Congress leaders escape prosecution.

He also sought a probe by the Prime Minister’s Office to determine who was behind the issuance of the circular.

Taxation experts too say the circular could lead to increased litigation. Amit Maheshwari, a managing partner at Ashok Maheshwary and Associates LLP, said the December 2018 circular had also caused confusion in terms of its applicability on other subsections/clauses of 56(2).

“The withdrawal and the subsequent clarification shows the uncertainty which the erstwhile circular has caused. With this circular, one can be rest assured that 56(2) will continue to be litigated in years to come,” he said.

Also read: IRS officer handling National Herald, NDTV income tax probes likely to be next ED chief

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  1. Surprised. ?? Gandhi’s, billionaires many times over already, reluctant to share them with the poor,has sufficient clout in the beurocracy to get things bent in their favor. This is how they themselves and their assorted relatives and hangers have gotten stinking rich.

  2. Mr..Subramanian Swamy is very correct. The failed fellow s are happy in telling back door entry etc. Out of jealousy & madness. Congress leaders (top) are not Indians. They don’t deserve to rule the country.

  3. Mr.Swami has done, what he is suppose to, but some one is really helping,congressi frauds duo i.e mother and son, with in a ruling party from DOF, and definitely Mr.Jaitley knows that

  4. It is no hidden secret that the Itlian lady and the erstwhile home and finance minister of the previous gvt ,enoy a very soft corner in the heart of the existing FM!

  5. Subramanium Swamy is a Failed-Failed-Back-door-Politician who has not won Lok Sabha MP Election for last 40 years, nor can he win Lok Sabha MP Election in 2019 as he has no “Contact-with – Masses”. By licking As.. of Modi & Shah, he became Politician by Back-door entry to Rajya Sabha. Subramanium Swamy is also a Failed-Lawyer who cannot win cases. Subramanium Swamy Family Members have become Anti-Hindu and converted to Islam. Now Subramanium Swamy should also take Pakistan Citizenship.

    • What are you smoking? Subramaniam Swamy won 3 Lok Sabha elections on his own party seat (Janata Party). Shove your stupid conspiracy theories up your a**!

    • MSI Rao, u seems to be totally a bootlicking sycophant of fake Gandhis. What do u know about subramaniam swamy. Fighting elections, did mouni Singh another poodle of the fake Gandhis, did he contest elections any time. This half Muslim half Christian family has looted India to the bone. Do you know it. What is ur knowledge about AJL controversy. Nothing I think. So pl don’t come on social media with ur half knowledge.

  6. To face a crisis caused by litigants , department should not meddle with legal situation the circulars. When some circular was given somewhere in Dec 2018 ,what made the department to reverse it. Is income tax department working under pressure or there is no legal brains in the department.

    • All are trying to find loophole , and as you say no body knows LAW !! EVEN LOW MAKERS CAN NOT HAVE IDEAS FOR SUCH TYPE OF CASES CAN IMMERG ON SURFACE.


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