Khan, who claims to be a scrap dealer with an annual income of Rs 30 lakh and a passion for thoroughbred horses

Khan, who claims to be a scrap dealer with an annual income of Rs 30 lakh and a passion for thoroughbred horses, is under investigation for violations of the Income Tax Act, Prevention of Money Laundering Act, Foreign Exchange Management Act and Passport Act. The income tax department alleges that he has over $8 billion in an overseas bank account, on which he needs to pay income tax of Rs 71,845 crore. The other charges against Khan include having three passports made (one each in Hyderabad, Patna and Mumbai), receiving kickbacks for an aircraft deal, endangering national security and moneylaundering.
The Opposition alleges that Khan enjoys significant political patronage and that is why the investigative agencies are deliberately going slow on the case. Still others feel that the various agencies in the probe — the Central Bureau of Investigation, National Investigation Agency, Enforcement Directorate and income tax department — are working at cross purposes. Whatever the truth, there have been setbacks from day one for the sleuths on his trail.

Khan appeared on the income tax department’s radar screen in January 2007. The department keeps a hawk’s eye on the lifestyles of the rich and famous. Khan was often seen at the races, and drove a Mercedes or a Porsche. His horses won no fewer than four races in 2005 and 2006. Searches were conducted against him and his associates in Pune, Kolkata, Mumbai, Bangalore and Hyderabad.

During the raid at his residence, a laptop was found which belonged to Anand Phillipraj, an associate of Khan. It showed huge amounts of money held abroad. A letter was also found from the Union Bank of Switzerland (UBS) which indicated that Khan held over $8 billion with the bank. Corroborating evidence came from the information in a pen-drive found during the search at the residence of Kashinath Tapuria, another associate of Khan, in Kolkata. Similar documents were also found in the pen-drive of Tapuriah’s wife Chandrika.

On the basis of this information, these respondents were asked why the bank deposits should not be treated as their income. When the department found their reply unsatisfactory, it raised a total tax demand of Rs 71,845 crore in December 2008 — Rs 50,329 crore against Khan, Rs 49 crore against Rheema Hasan Ali Khan, Rs 591 crore against Kashinath Tapuriah, Rs 20,540 crore against Chandrika Tapuriah and Rs 336 crore against R M Investment & Trading Co. To put the amount in perspective, the government hopes to raise Rs 359,990 crore in income tax from the whole country in 2011-12.

Khan, of course, contested the demand. He has also said that he doesn’t have any account with UBS. The recovery from Khan and others, interestingly, includes only Rs 60 lakh in cash which has been adjusted against the demand. Four immovable properties and some small assets have been attached. The total value of the assets seized would not be more than Rs 6-7 crore. Khan recently paid income tax of Rs 10 lakh.

With the information they had, the income tax department approached Swiss authorities for help, under the Double Tax Avoidance Agreement between the two countries. The Swiss, however, said there was no provision of the agreement under which they could provide help. Subsequently the department approached the Swiss Financial Intelligence Unit. This also proved futile, because banks are not probed by FIU.

The department then obtained a letter rogatory from the court of the Chief Metropolitan Magistrate in Mumbai in mid-2010, and sent it to Switzerland through the International Police Co-ordination Cell of the CBI for further action. Late last year the department was informed by the Swiss department of justice that the offences for which the letter rogatory was filed could not be prosecuted under Swiss law. The communication explained that the letter rogatory could be processed only if criminal activity had been involved. The department is now trying to get further information from three other countries.

For its part, after receiving a rap on the knuckles from a Mumbai court, the Enforcement Directorate has approached the Home Ministry to have Khan’s links probed. They say the case could have a bearing on “national security”. In support of this, the directorate has cited Khan’s three passports and his alleged financial links with international arms dealer Adnan Khashoggi. ED sleuths say they have reliable information about Khan’s overseas travels and money transfers. Khan had told the directorate in 2007 that he was a non-resident Indian based in Dubai and hence the Foreign Exchange Management Act did not apply to him. This did throw the directorate off Khan’s trail — until it came up with evidence that his NRI status had ended in 2003.

There are murmurs that Khan was a conduit for powerful people to stash their black money abroad, and that this is why he might still be safe. A Swiss Banking Association Report in 2006 had valued deposits by Indians at $1.4 trillion — the highest by any nationality in the world. The secrecy laws of Swiss Banks, however, make it almost impossible to access such information. The German authorities had handed over to the Government of India a list of 26 Indians with bank accounts in a Liechtenstein bank. The government has not made the list public citing a “confidentiality clause” in the agreement between the two nations.

Khan, who can speak Hindi, English, Urdu, Tamil and Telugu fluently, was never a successful businessman. He started out in Hyderabad as a dealer of antiques. Khan subsequently started a car rental outfit in 1970. This business was shut down in 1988. Later he ventured into scrap dealing in Dubai. This business too was shut down, in 1993. Next he opened a jewellery shop in Kuwait in a partnership in 2006. The partnership fell through. His metal trading company, called Great Ventures, went bankrupt. Notwithstanding these serial failures, Khan’s lifestyle remained lavish. He owns two flats in Tulip Building, a residential complex in the tony Koregaon Park area of Pune, where he lives with his family and around 20 servants.