The Calcutta High Court has upheld the sanction of initiation of prosecution for non-disclosure of information about foreign bank accounts by a taxpayer in his tax returns filed in a period post the enactment of the Black Money Act. The HC took a view that the provision of the Black Money Act shall apply in respect to any tax return filed after the date of enactment of the said Act even if tax return is for the year prior to enactment of the Black Money Act, according to an EY Tax Alert.
The issue before the Calcutta HC was whether the provisions of the Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015 (Black Money Act) apply to tax returns for the year prior to the enactment of Black Money Act, but filed post enactment of the said Act.
In this case, the taxpayer held four foreign bank accounts inherited on the demise of his mother which the taxpayer had failed to disclose in the tax returns filed in response to the search proceedings, conducted on 17 March 2015, as also before the Settlement Commission, before which the Taxpayer had filed an application for settlement of taxes on undisclosed income.
The HC noted that despite several opportunities available to the taxpayer, he failed to make a true and proper disclosure about the foreign bank accounts under the Indian Income Tax Act (ITA) on any of these occasions. The failure of the taxpayer to furnish information about an asset located outside India in his return of income will attract prosecution proceedings under the Black Money Act.
This is what the taxpayer said — The Black Money Act was enacted in 2015 which is applicable from 1 April 2016. The said Act is prospective in nature and cannot be made applicable to the years prior to its enactment. The taxpayer is not guilty of violation of any provision of the Black Money Act and, hence, he cannot be proceeded against for prosecution under the Black Money Act.
The EY Tax Alert says that the one-time voluntary disclosure scheme for taxpayers to come clean and avoid the rigor of the Black Money Act was operative for a limited period from 1 July 2015 to 30 September 2015. The eligible declarant had to declare his undisclosed foreign assets/income and pay tax at a special rate. Once the declaration stands accepted by Tax Authority, the declarant is immune from any other penalty or prosecution under the ITA/Black Money Act.
However, the said disclosure Scheme disqualified certain taxpayers from availing the benefit of the scheme. One such disqualification was a case where search action was taken on taxpayer and his assessments were pending as on the date of declaration.
The ITA and the Black Money Act both operate in different fields. Under the ITA, the taxpayer is penalized financially, while under the Black Money Act, the taxpayer is punished with prosecution.
The taxpayer had two opportunities to make the disclosure of the undisclosed bank accounts, first before the Settlement Commission and second, while filing the return of income under the search proceedings. The taxpayer failed to make disclosure on both the occasions.
The issue is whether the Black Money Act enacted in 2015 is applicable from the tax year 2015-16 or, it can apply also to the tax returns of any earlier years if the same is filed during the period post its enactment.
EY Viewpoint: “From the ruling it is not very clear as to whether the prosecution is initiated only for failure to report information about the possession of foreign bank accounts in tax return or there was also evasion of tax on non-disclosure of foreign income out of the inherited wealth. The issue is whether the Black Money Act enacted in 2015 is applicable from the tax year 2015-16 or, it can apply also to the tax returns of any earlier years if the same is filed during the period post its enactment.”
The HC noted that the taxpayer himself admitted the possession of foreign bank accounts. Having regard to such an admitted position, he ought to have disclosed information concerning the same in his tax returns. The mere fact that the taxpayer has inherited the bank accounts on demise of his mother cannot prevent him from disclosure. According to the HC, there are sufficient material on record for proceedings against the taxpayer under Black Money Act.
According to the HC, in the present case the taxpayer’s failure to make disclosure of foreign bank accounts under ITA as aforesaid was during the period when the Black Money Act was in operation; it cannot be said to be a case of giving retrospective effect to the Black Money Act.