T N Pandey: Means should be honourable as the end

CHAT ROOM

According to a report in Business Standard, dated November 29, 2004, Finance Minister P Chidambaram is toiling with the idea of floating a voluntary disclosure scheme for garnering black money to finance schemes for the social sector.

Such a fund is expected to be announced in the Budget for 2005-06 and could be modelled on the lines of the Prime Minister's Relief Fund.

Would it be proper to do so? Is the comparison of a fund owing its genesis to black income with the Prime Minister's Relief Fund right?

No. it would not be proper to do so. There is no precise definition of the term "black money". But the Wanchoo Committee, headed by a former Chief Justice of India, in its report to the government in December 1971, has made some observations concerning black money.

"Black money is 'tainted' money, which is not clean or which has a stigma attached to it - black, being a colour, which is generally associated with evil".

The committee further elaborated the concept of black money by saying "it symbolises something, which violates moral, social or legal norms".

If patronage is given to such funds by the government by floating some amnesty scheme, it will tantamount to legitimising such money and perpetuate the evil of earning profits by violating moral, social or legal norms. Such evil is not condoned because the government uses such money for financing schemes for the social sector.

It will encourage tax evasion, whose evil effects will far outweigh the benefit consequent to investment in the social sector schemes. The adverse impact will be highly disproportionate to the gain.

It has to be appreciated that merely the end being laudable is not enough""the means employed should also be honourable.

How taxpayers, generally, view disclosure schemes?

The tax-evaders and dishonest taxpayers welcome these. Rather, they wait for such schemes to launder their black money while by paying some tax and getting immunity from interest, penalty and prosecution provisions.

The honest ones, who have paid their taxes correctly, view such schemes as cheating by the government and are greatly demoralised. Such schemes affect voluntary compliance of tax provisions.

I was running a cinema house in a small town. I have leased it to someone in whole, including building, machinery and furniture. How should the income be accounted for, from this source, in my income-tax assessment?

Where a cinema building is given on lease under a lease deed, which indicates that the lease in respect of theatre as such includes furniture and other articles therein, the lease income therefrom is taxable under the head "Income from other sour-ces" (Commissioner of Income Tax vs DL Kanhare, (1973) 92 ITR 535 (Bom), MK Dar vs Commissioner of Income Tax, (1982) 138 ITR 801 (All), Commissioner of Income Tax vs Khalid Mehdi (1986) 57 CTR (AP) 110).

Section 56(1) is a residuary section for taxing incomes under the Income Tax Act. Please indicate, by examples, the kinds of income that can come in for consideration for tax under this section?

I get agricultural income from Bangladesh. How and under what head this income would come in for consideration under the Income Tax Act, 1961? Will it be exempt under Section 10(1) of the Income Tax Act?

The list of incomes, assessable under the head "Income from other sources", can be very large depending upon the facts. By way of examples, the following incomes could be said to come in for consideration under Section 56(1) of the Income Tax Act:

Income from sub-letting;

interest on bank deposits and loans;

director's fee;

ground rent;

agricultural income received from outside India;

director's commission for standing as a guarantor to bankers;

director's commission for underwriting shares of new company;

rent of plot of land;

interests on foreign government securities ;

salaries payable to MPs;

gratuities paid to director, who is not employee of the company. (Commissioner of Income Tax vs L Armstrong Smith, (1946) 14 ITR 606 (Bom));

compensation received for use of business assets (Sultan Bros (P) Ltd vs Commissioner of Income Tax (1964) 51 ITR 353 (SC)); and

annuity payable to the lender of a trade mark (Commissioner of Income Tax vs Lal Chand Jain (1968) 69 ITR 65 (Del)).

Income received from Ban-gladesh from agriculture will be taxable under Section 56(1) and cannot be claimed as exempt under Section 10(1) of the Income Tax Act, 1961.