Beware of The Black Money Act! 31st March deadline can make people ‘dead’

May be I am already late, with just less than a fortnight for the Financial Year to end.  For, soon after that, the killing provisions of the Black Money Act – a real ‘black’ legislation passed by this Govt. in 2015 – may help the bloodhounds of the Department to begin their devil dancing against many unsuspecting, innocent and otherwise law-abiding citizens for some innocuous mistakes they might have unknowingly committed.  I am cautioning those Resident assessees – those who might have spent some time abroad and acquired some assets abroad (like property, ESOPs, stocks, bank balances etc.) and since migrated to the home land (which has devised a new method to reward Ghar Wapsis!) but who might not have ‘disclosed’ in their income tax returns – purely unwittingly – for the Assessment Years 2016-17 & 2017-18, the deadline for filing the revised returns of which would expire on 31^st March, 2018.  Excuse me for the short notice – but please get your act together as an unintended non-disclosure of even lawfully acquired assets abroad may result in huge penalties under this draconian legislation.  I shall explain as we go along.

First, a point of disagreement.

The term ‘tax terrorism’ was first used by our Hon’ble Prime Minister Modi, during the run-up to the Lok Sabha elections in 2014, to describe the adversarial approach adopted by tax authorities under the UPA. “The tax terrorism prevailing in the country is dangerous. One can’t run the government by thinking that everyone is a thief,” he said, addressing members of FICCI in January, 2014.  However, many tax practising friends, clients and common people with whom I interact are of the firm view that this present Government has excelled all of the previous ones in its extraordinary amount of tax terrorism and cite several instances of atrocious orders both at the assessment and the first appellate levels, threatening language in notices, heavy spurt in surveys where arm-twisting techniques practised to make people ‘accept’ incomes which they have not earned etc. I disagree with them, though. In my view, it is indeed unfair to compare taxmen with terrorists. Unfair to terrorists. Yes, with terrorists, you can negotiate and reason out sometimes! Taxmen are made of sterner stuff! (Forgive me, Bard!)

The Black Money Act passed in 2015 is a sterling example.  This piece of legislation, originally intended to be a tool in the Government’s war against the menace of black money, showed the mala fide and nefarious designs of the bureaucracy from the word ‘Go’.  Let us see how.

The Act (22 of 2015), as passed by the Parliament and received Presidential assent on 26th May, 2015 originally had provided in Sec 1(3) that it shall come in to force only from 1st April, 2016. However, by an order of the Department of Revenue, Ministry of Finance, Government of India, which was dated 1st July, 2015 (Notification No. 56/2015), the ‘date of commencement of the Act’ was changed to 1st July, 2015 and for this purpose, the powers conferred by Sec. 86(1) of the very same Act has been invoked. This clause, euphemistically called as Henry VIII Clause is normally found in all legislations to give power to the bureaucracy to remove the difficulties in the implementation of the Act.  (There is a famous Madras High Court case in this – CD. Sekkizhar v. Secretary, Bar Council of Madras)

Sec. 86 (1) reads as: If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by order, not inconsistent with the provisions of this Act, remove the difficulty.  So, this section can be operational only after the Act comes in to force (in giving effect to the provisions of the Act) but NOT for making the Act to come to force earlier than decided by Parliament! 

It is completely unfathomable as to how a Ministry’s Department can amend a Section of the Act, which was passed by Parliament, assented by the President of India and also notified in the Gazette of India on 27th July, 2015 by means of a mere notification (order), deriving the powers (100% unlawfully) from a section of that very Act, when the Act itself had not yet come in to force. This is akin to attempting to cure a pregnant mother’s disease with the help of the stem cell taken from the umbilical cord of the yet-to-be born baby!  Actually, calling this as ultra vires will be too simplistic as this actually is ultra contempt of Parliament!

The reason I am citing this monumental anomaly is that several assessees began receiving notices under for non-disclosure even for Assessment Year 2015-16 when the Act was not even in force. I actually took this as an ‘offensive’ defence in respect of an assessee, who received the notice for AY 2015-16.

However, for AY 2016-17 and onwards, the Act mandates disclosure of such foreign assets in the IT returns under FA (Foreign Assets – not Fixed Assets!) Schedule.

Here, it would be pertinent to note what the Hon’ble Finance Minister said while introducing the Black Money (Undisclosed Foreign Income and assets) and Imposition of Tax Bill, 2015.

“That the bill to make provisions for undisclosed foreign income and assets, the process for dealing with such income and assets and to provide imposition of tax on any undisclosed foreign income and asset held outside India and for matters connected with or related to it, Be taken in consideration “.

While introducing the Bill, the Hon’ble Finance Minister specifically stated as follows-

“The Government had decided and as was announced in the course of the budget itself that we want to seek certain harsh measures against illegal money which is stashed by people abroad. The Government had announced that in order to bring it to the country and to take action against those persons who have property illegally in foreign banks or foreign countries abroad, the government will do the appropriate action on this. This law has been made under it. This law is defined in the Constitution, there is a money bill under section 110, because what is the law? If I explain in simple language, then it is such a law that for the first time in the history of this country it has come that whoever has not declared any property or any of the asset illegally kept outside the country without making any announcement, then after the passage of this law it will be taxed. Tax rate will be 30 percent and along with 30 percent of the penalty will be done.

He further said, “the person who has given the property by declaration with the permission of the RBI, there is no reason to fear. But for those who have unplugged the undisclosed property, the tax will be charged for the first time under this law.” 

So, the sword must fall on those who have “undisclosed asset”. Section 2(11) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 defines “undisclosed asset located outside India” as an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of the Assessing Officer unsatisfactory.”

But, it is not to be. The sword wielding attitude deliberately targets others too who will become the collateral victims.  Look at what Sec. 43 says:

“If any person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, who has furnished the return of income for any previous year under sub-section (1) or sub-section (4) or sub-section (5) of section 139 of the said Act, fails to furnish any information or furnishes inaccurate particulars in such return relating to any asset (including financial interest in any entity) located outside India, held by him as a beneficial owner or otherwise, or in respect of which he was a beneficiary, or relating to any income from a source located outside India, at any time during such previous year, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten lakh rupees.

Provided that this section shall not apply in respect of an asset, being one or more bank accounts having an aggregate balance which does not exceed a value equivalent to five hundred thousand rupees at any time during the previous year.” 

Here, the law targets ‘any asset’ and not an ‘undisclosed asset’ and goes on to prescribe a hefty penalty of Rs. 10 lakhs for a mere non furnishing of information in the ITR. In the ITR, again this is asked as an ‘Yes or No’ query and only if “Yes” is selected, a further drop down will ask for details.  it is entirely possible that this portion in the ITR can be slipped by those who fill up the ITR electronically.  But, the Assessing Officer has powers not to condone such a ‘failure’, even if proved to be unintentional.

Now, coming to the purpose of this article. Thankfully, Sec. 43 talks about returns furnishable under sub-sections (4) or (5) of Sec. 139. So, for such of those who might have slipped to fill up such info for AY 2016-17 & 2017-18, fortunately, a revised return is possible till 31.3.2018.  So, go ahead – save yourselves and your clients, while the clock strapped to the bomb is still ticking.

(Note: There is a CBDT circular 13 of 2015 dated 6^th July, 2015 containing FAQs, which you may find useful).  

P.S.PRABHAKAR

CHARTERED ACCOUNTANT