Clarifications on issues relating to effect of filing higher estimates of income for advance tax purposes on assessments for earlier years/filing of returns of income by new assessees declaring substantial income in the initial assessment year/filing of higher returns of wealth for earlier years
Further clarifications on Circular Nos. 423, 432, 439 to 441 regarding declaration of higher income or wealth – Following clarifications are hereby issued on the questions raised at different places on the press note of the CBDT and the Circular No. 423, dated 26-6-1985 and Circular Nos. 432, 439, 440 and 441, dated 15-11-1985 [Clarifications 1 to 5] issued by CBDT regarding declaration of higher income or wealth.
Question No. 1 – What will be the procedure required to be followed by the assessee who wants to declare income or wealth in respect of the past years ?
(a) in the cases where the assessments pertaining to those years are already completed;
(b) in the cases where the assessments in respect of those years are pending.
Answer – In cases where the assessments are already completed the taxpayer should approach the concerned Commissioner of Income-tax with the full disclosure of the amounts of income and/or wealth concealed in various years and should also file returns for the relevant years. He should also produce evidence of payment of taxes before 31-3-1986. The filing of the returns will be regularised by issue of formal notices under section 148 of the Income-tax Act/section 17 of the Wealth-tax Act. In cases where the assessments are pending, the taxpayer should file revised return before the Income-tax Officer along with evidence of payment of taxes.
Question No. 2 – In respect of completed assessments, the question will arise whether the assessee should merely declare the income relevant to those years and pay the tax according to the rates prevalent in those years on such declared income or whether he is required to file the return of income showing the additional income ?
Answer – As mentioned above, he must file a fresh return of income including the addition income.
Question No. 3 – Reading Circular No. 423 [Clarification 1] together with Circular No. 441 [Clarification 5] it is not clear whether the old assessees who have been regularly filing their returns of income would be eligible for the benefit of the circulars in respect of their income which has escaped assessment for an earlier assessment year and whether the assessment is completed or pending ?
Answer – The circulars apply to old assessees also.
Question No. 4 – The income-tax circulars are not very clear as to whether the immunity from penalty and prosecution is guaranteed to the assessee unlike the circular in respect of wealth-tax which appears to be clear on this point ?
Answer – The immunity from penalty and prosecution applies in all cases whether of income-tax or of wealth-tax where the assessee admits the truth and pays taxes properly.
Question No. 5 – Has any time limit within which the Commissioner would pass the order of waiver of penalty, interest, etc. been fixed ?
Answer – Since the Income-tax Officers have been instructed not to initiate penalty proceedings and be liberal in waiver of interest in such cases, question of waiver by Commissioner does not arise. The Income-tax Officers are, however, being instructed to finalise waiver proceedings by 30-4-1986.
Question No. 6 – Will the immunity apply in cases where cash credits which have been accepted as genuine by the Income-tax Officer, while making the assessment originally are now disclosed as income ?
Answer – Yes.
Question No. 7 – Where the investigations in the case of persons other than the assessee indicate concealment of income by the assessee and the assessee makes a true and full disclosure of his income, would he be entitled to immunity under these circulars ?
Answer – Yes.
Question No. 8 – Where the assessee has assets which have been suppressed or undervalued for purposes of wealth-tax in earlier years and has now disclosed these assets for taking advantage of the circular relating to wealth-tax and pays wealth-tax, will he be liable to pay income-tax also ?
Answer – Yes. If the asset has been acquired within a period of 8 years or 16 years, as the case may be, out of income which has not been subjected to tax earlier. It would be wrong on the part of the taxpayer to presume that he will be able to pay wealth-tax only and introduce the amount in his books without having to pay income-tax on the concealed income. As has been explained repeatedly the Government does not intend putting the repentant taxpayer in a better position than the honest taxpayer.
Question No. 9 – If some new items of wealth are disclosed for the assessment year 1986-87 pursuant to the CBDT’s Circular dated 15-11-1985, whether the Wealth-tax Officer will require the assessee to prove the source from which the item of wealth was acquired ?
Answer – It should be obvious that the wealth-tax return for 1986-87 can be filed only after the period of immunity, namely, 31-3-1986 is over. Therefore, there can be no question of not being asked to explain the source of acquisition of the assets in such a case.
Question No. 10 – The wealth-tax returns for 1986-87 will be due only in June/July 1986, but the immunity granted by the circular is only up to 31-3-1986. It may kindly be explained how the immunity can apply for the wealth-tax assessment for the year 1986-87 ?
Answer – The answer is simple. Where the wealth-tax payer discloses the correct wealth in the return for 1986-87 he does not require any immunity. The intention of the circular is that the correct net wealth for assessment year 1985-86 and earlier years should be disclosed and the immunity availed of.
Question No. 11 – Whether ladies and minors can avail of the immunity given by the circulars ?
Answer – Yes, in respect of their own income or wealth certainly. But taxpayers who try to introduce black money and benami investments in the names of ladies or minors will be doing so at their own risk.
Question 12 – Can immunity given by the circulars be availed of by assessees whose premises have been searched by the tax authorities ?
Answer – No.
Question No. 13 – Whether in disclosing assets which have been suppressed earlier or undervalued for the purposes of wealth-tax under this circular, the Board has devised any proforma for making such an application or whether the assessee is required to file a return before the Wealth-tax Officer.
Answer – If the assessment for the relevant year is pending, the assessee should disclose the information before the Wealth-tax Officer. If the assessment for the year is already completed the assessee should disclose the particulars before the concerned Commissioner. Where the assessee files a return also to the Commissioner along with the showing of particulars and pays the tax due thereon, he would have satisfied the conditions prescribed by section 18B.
Question No. 14 – If a return is required to be filed, whether the Wealth-tax Officer would have to initiate proceedings under section 17 of the Wealth-tax Act, 1957?
Answer – This has already been mentioned above.
Question No. 15 – Whether the assessee would have to file a fresh return again after the receipt of the notice, because the return filed earlier is not a return in law ?
Answer – The assessee can write a letter to the Wealth-tax Officer that the return filed by him may be treated as a return filed in response to the notice.
Question No. 16 – Where the notice under section 17 is received before 31-3-1986 and the assessee files the return after this date, will the benefit of circular be available in case the assessee has deposited the tax due before 31-3-1986 ?
Answer – This problem will not arise if the assessee follows the procedure given in answer to Question No. 1.
Question No. 17 – Whether while proceeding to make the assessment on basis of the returns now filed, the Wealth-tax Officer would make enquiries regarding the suppressed or undervalued asset or travel further to find out escapement of wealth on any other account ?
Answer – He will confine himself to the suppressed or undervalued assets.
Question No. 18 – Whether the Income-tax Officer would act as aforesaid in case of jewellery or other assets if the source of acquisition cannot be satisfactorily explained ?
Answer – Of course, the taxpayer should not expect that he can evade income-tax and pay only wealth-tax. The return to honesty must be whole-hearted and not partial.
Question No. 19 – Kindly clarify the expression “before detection by the department” ?
Answer – If the Income-tax Officer has already found material to show that there has been concealment, that would mean the department has detected the concealment. If the ITO only had prima facie belief that would not mean that concealment has been detected.
Question No. 20 – Whether partners could declare in their wealth-tax returns their share in the stock-in-trade ?
Answer – Yes, they can.
Question No. 21 – Whether such a declaration by the partners could be taken as information by the Income-tax Officer for initiating proceedings under section 147(a )/(b) against the firm ?
Answer – Yes, unless they also choose to disclose the income of the firm, as pointed out earlier their desire to turn honest must be full and not partial.
Question No. 22 – If during the previous year relevant to the assessment year 1986-87 and assessee has acquired assets such as jewellery or cash by way of gift or otherwise on the occasion of his marriage (though he cannot prove with documentary evidence the factum of such gift), whether the benefit of the circular would still be available to him, because, there is no provision under the Wealth-tax Act for the assessee to deposit tax before 31-3-1986 ?
Answer – There is no provision for payment of advance tax under the Wealth-tax Act. The return for assessment year 1986-87 would become due only in June or July 1986.
There is nothing to prevent the assessee showing the value of the asset in the return when it is filed.The questioner seems to presume that an assessee should be honest only for the purpose of availing of the benefit given by the circulars and should turn dishonest immediately thereafter. This is not the right way to approach the matter.
Question No. 23 – Whether the Income-tax Officer while making the wealth-tax assessment, can hold that the assessee has concealed income or furnished inaccurate particulars thereof, which, according to him, is reflected in the investments and make additions to his income?
Answer – Certainly, unless the source of acquisition of the assets has already been explained in the income-tax assessments. Where they have not explained the source of acquisition, the assessee could disclose the true income in the year of acquisition of the asset.
Question No. 24 – There cannot be any income without a source. Whether an amount could be declared without having any explanation regarding the source?
Answer – The amount can be declared under the head “Income from other sources”.
Question No. 25 – Where the declarant does not wish to state the source with a view to avoiding criminal liability or social stigma such as where income has arisen from bribery, prostitution, dacoity, dowry, etc., whether the department would keep the declaration of the assessee secret and not make it available to other agencies of the Government?
Answer – The secrecy provisions already existing in the law would apply to these declarations.
Question No. 26 – Where an order has been set aside on appeal or assessment proceedings are pending under section 147(a)( b), whether the assessee can surrender the amount which is the subject-matter of dispute. Whether such a surrender would be taken as a suo motu declaration before the detection by the department?
Answer – Such a surrender cannot be taken as a suo motu declaration but naturally a lenient view will be taken if an assessee decides to turn honest even at this stage.
Question No. 27 – Whether an assessee could take advantage of the circular and file an estimate of advance tax after 15-12-1985?
Answer – Yes.
Question No. 28 – Where an addition is contested in appeal whether an assessee could make a declaration and agree to pay tax thereon?
Answer – Yes, the assessee should withdraw that appeal and make a declaration before the administrative Commissioner. In such a case, a lenient view will be taken, though such a declaration cannot be taken as entirely voluntary.
Question No. 29 – Whether, if a partner now declares income which he had not done earlier, and other partners have not, the cases of those partners of the firm would be reopened?
Answer – Yes, if the income declared is share income.
Question No. 30 – Whether an assessee could make a declaration in respect of assets or income which is not the subject-matter of seizure?
Answer – Yes, if has not been already found out in the course of the search.
Question No. 31 – If an assessee has declared income, would he be required to give evidence of his having earned it and possessing it such by way of entries in the books of account, etc.?
Answer – He would be well advised to do so.
Question No. 32 – If the concealed investments are found by the heirs of the deceased and if the heirs want to declare such investments for the purpose of taxation with reference to the previous year in which the investments are made. Whether the immunity under the circular would be available even if the earlier assessments of income-tax and wealth-tax are completed on the deceased?
Answer – Yes.
Question No. 33 – In such cases, the consequential effect for the estate duty returns, or as the case may be, on the estate duty assessments, is also required to be given?
Answer – There is no question of immunity so far as estate duty is concerned. Obviously, the estate duty returns would have been filed by the legal heirs and not by the deceased himself.
Question No. 34 – The immunity should cover all investments or income of the past year also, if it included in the declaration of income for the current year?
Answer – No.
Question No. 35 – Whether any amount of penalty will be payable or leviable under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, where applicable?
Answer – Where the compulsory deposit is payable under the law, it will have to be paid. Instructions are issued to the Income-tax Officers not to levy penalty under the Compulsory Deposit Scheme (Income-tax Payers) Act.
Question No. 36 – Can an assessee, who has purchased a property, declare the extra consideration paid other than what is mentioned in the sale-deed and get the acquisition expenditure under Chapter XX-A closed against him?
Answer – Yes, if the tax due on extra consideration is paid by 31-3-1986, the proceedings against the purchaser would be dropped.
Circular : No. 451 [F.No. 225/86/85-IT(A-II)], dated 17-2-1986.
