Demonetisation – Good or Bad is not a topic of discussion here, but subsequent to demonetisation and in order to prevent taxpayers to deposit unaccounted cash by paying 30% tax an amendment was introduced to s.115BBE on 15-12-2016 with retrospective date of 1-4-2016 making tax rate at 75%.
1.1 Section 115BBE was introduced originally w.e.f. 1.4.2013 to include any income referred to in s. 68, 69, 69A, 69B , 69C and 69D which is either declared in the return of Income or assessed by AO in assessment proceedings. A tax rate at maximum marginal rate (30%) + applicable cess was prescribed. The provision was aimed, not to allow the benefit of basic exemption limit to such Income as specified in s.115BBE.
1.2 Hon’ble Prime Minister Shri Narendra Modi had assured the taxpayers and investor community at large that tax laws will not be subject to any retrospective amendment like Vodafone controversy.
1.3 Taxation Laws Second Amendment Act, 2016 (48 of 2016), which got Presidential assent on 15-12-2016 amends the provisions of s. 115BBE effective w.e.f 1-4-2016. This retrospective amendment is causing genuine hardships to bonafide taxpayers who have acted upon the law in force before the date of amendment and also after 31-12-2016.
1.4 The amendment to s.115BBE by Taxation Laws Second Amendment Act, 2016 (48 of 2016) was made along side scheme of Pardhan Mantri Garib Kalyan Yojna (PMGKY). introduced for deposit of demonetised currency. Tax rate under PMGKY scheme was 50% Tax and 25% interest free deposit under the scheme. 115BBE was amended w.e.f. 1-4-2016 whereby tax rate was increased to 75% (60% + 15% surcharge) + Education Cess. There is a big co-relation with amendment to 115BBE amendment and PMGKY scheme as Government intend to encourage PMGKY as such tax rates under section 115BBE were made this high.
HARDSHIPS – TOWARDS TAXPAYER ON THEIR ACTIONS IN BETWEEN 1-4-2016 TO 8-11-2016.
1.5 That in between 1-4-2016 to 8-11-2016 a number of Income Tax surveys has taken place wherein additional income was declared which may be covered u/s 115BBE. Similarly some bonafide taxpayers not aware about this retrospective amendment had deposited cash in bank in between 1-4-2016 to 8-11-2016 i.e. prior to demonetization or subject to Income / Assessment under specified section which has nothing to do with demonetisation. There is no justification to penalize such bonafide taxpayers.
1.6 The is well settled that the Income Tax Act as it stands amended on the 1st day of April of any FY must apply to the assessments of that year. Any amendments in the Act which come into force after the 1st day of April of FY would not apply to the assessment to that year, even if the assessment is actually made after the amendments came into force.
Kasimtharuvi Tea Estate Ltd. Vs. State of Kerala (1966) 60 ITR 262 (S.C)
C.I.T. Vs. Scindia Steam Navigation Co. Ltd S.C. (1961) 42 ITR 589
In view of these judgments, the amendment to Section 115BBE made on 15-12-2016 w.e.f 1-4-2016 is not correct.
HARDSHIPS – TOWARDS TAXPAYERS ON THEIR ACTIONS AFTER 31-12-2016.
1.7 Demonetisation phase is over. PMGKY is also not applicable after 31-12-2016. Tax Rate of 75% to any income of the nature of s.68, 69, 69A, 69B , 69C and 69D is not justified. It will invite larger litigation as Income Tax officials will try to cover regular income earned as Income covered under these sections. This will be dent the ease of doing business and increase litigation.
1.8 I am not seeking any benefit for cash deposit in between 8/11/2016 to 31/12/2016 and this amendment should be confined to cash deposit in demonetized currency in bank in between 8/11/2016 to 31/12/2016. The rate of tax should be be “maximum marginal rate” excluding this specified demonetized period.
A clarity to the above provisions / suitable amendment will be highly appreciated.