ACIT Vs State (Delhi High Court)
No Tax on Crime- Scam Proceeds Belong to Victims, Not Revenue- PMLA Takes Precedence-Delhi HC; Income Tax Dept. Cannot Claim Ponzi Scam Proceeds as “Taxable Income”;
Delhi High Court dismissed the Income Tax Department’s plea seeking release of Fixed Deposit Receipts (FDRs) worth ₹34.69 crore seized from M/s Stockguru India & its promoters for adjustment against outstanding tax dues.
The Department argued that the seized funds, discovered during a search under Section 132 of the Income Tax Act, 1961, should be appropriated under Section 226(4) to recover assessed liabilities exceeding ₹345 crore. It claimed that its statutory right of recovery preceded subsequent action under the Prevention of Money Laundering Act, 2002 (PMLA).
The Enforcement Directorate (ED), however, maintained that the funds represented “proceeds of crime” derived from fraudulent Ponzi schemes which duped over 2 lakh investors & therefore fell squarely within PMLA. Since PMLA contained an overriding non-obstante clause under Section 71, the ED argued that its provisions superseded the Income Tax Act.
The Court held that the seized money did not constitute “income” under Section 2(24) of the IT Act, but was fraudulently acquired through deception. Until the PMLA trial concludes, such funds cannot be appropriated towards tax liabilities. The Court stressed that tax can be levied only on legitimate income, not on defrauded investor funds which are liable for confiscation & restitution under PMLA.
