FM bowls a googly: Living on the edge with widening black money net

A threat of getting prosecuted under both Income Tax Act and Black Money Act

The Union Budget has expanded the scope of the Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015 (BMA), to include non-residents who acquired a foreign asset or had income which was not disclosed. The changes will come into effect retrospectively from July 1, 2015. 

“The proposed retrospective amendment may create legal issues for people who have subsequently become non-resident and gone outside the legal jurisdiction of India before the BMA came into operation in July 2015,” says Sanjay Sanghvi, partner, Khaitan & Co. 

Tax experts believe the amendment showcases the current government’s intention to put in place additional measures to further curb black money generation. Indeed, taxpayers are now getting jittery about the possibility of being prosecuted under both Income Tax Act, 1961, and BMA. 

The objective of the BMA is the assessment of total undisclosed foreign asset and income, as well as, full disclosure of such foreign asset or income voluntarily by a resident (and non-resident) taxpayer in the return of income filed under the I-T Act. “Clients are seeking further guidance on this and considering a thorough review of their estate and personal financial plan,” says Rishabh Shroff, partner, Cyril Amarchand Mangaldas. 

According to Shroff, a person may end up paying taxes and/or penalty under both statutes, and the actual prosecution and related action under each may depend on the discretion of the authorities. “There is no known clear guideline(s) on what elements the authorities will take into account while deciding further action, and the discretion to prosecute even seemingly innocent or minor cases is extremely broad,” he adds.  

The Budget has stated that the amendment proposes to clarify the legislative intent behind enacting the BMA, which was to tax foreign income and assets not charged to tax under the I-T Act. 

Under the I-T Act, addition to taxable income could be made under Sections 68, 69, 69A and 69B for unexplained cash credits, investments and money, among other things. Under the BMA, the charge of tax under Section 60 could trigger tax at 30 per cent on the value of undisclosed foreign asset or income, in addition to interest and penalties under Section 41, 42, 43 and 61 of the BMA.

Section 273B of the I-T Act could provide some immunity from the imposition of a penalty if it could be substantiated by the offender that there is a “reasonable cause” for the said failure or non-compliance. However, no such exception finds mention under the BMA.

“Section 48 under Chapter V of the BMA provides that the provisions of that chapter shall be in addition to, and not in derogation of the provisions of any other law, providing for prosecution for offences thereunder,” says Sandeep Jhunjhunwala, director, Nangia Advisors.

Jhunjhunwala adds that prosecution of the offender under both these statutes at the same time, however, remains a grey area, keeping in mind the constitutional provisions related to double jeopardy under Article 20(2) and the jurisprudence arising from the Calcutta High Court in the case of Shrivardhan Mohta.

Double jeopardy implies the same person must not be punished twice for the same offence. In February, the Calcutta High Court, in the case of Shrivardhan Mohta, held there is no bar on the trial or conviction of an offence under two different enactments and the bar is only on the punishment to the offender twice for the same offence. 

“We believe that the issue merits further examination inasmuch as Section 277 of the I-T Act provides for imprisonment of a taxpayer for false statement in verification, similar to Section 52 of the BMA,” says Jhunjhunwala. Experts point out that since both statutes provide for the same punishment for an identical offence (false verification of returns), as was in the case of Shrivardhan Mohta, the issue of double jeopardy could not be considered settled. “One may need to wait until the apex court takes up this matter,” adds Jhunjhunwala.