Circular No. 611-Income Tax dated 30-9-1991

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REMITTANCES IN FOREIGN EXCHANGE (IMMUNITIES) SCHEME, 1991/INDIA DEVELOPMENT BONDS SCHEME, 1991 – CIRCULAR NO. 611, DATED 30-9-1991

1. Provisions explained

71 REMITTANCES IN FOREIGN EXCHANGE (IMMUNITIES) SCHEME, 1991/INDIA DEVELOPMENT BONDS SCHEME,1991

Explanatory Notes

Remittances in Foreign Exchange (Immunities) Scheme, 1991 and India Development Bonds Scheme, 1991 framed under the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991

1. In the speech while presenting the Union Budget for 1991-92 the Finance Minister had, inter alia, announced introduction of two schemes to attract larger inflow of foreign exchange. For this purpose, the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Bill, 1991 was introduced in the Parliament during the 1991 just concluded Budget session. The Bill, as passed by both Houses of Parliament received the assent of the President on 18th September, 1991 and has since been enacted as Act No. 41 of 1991. The two schemes, viz., the Remittances in Foreign Exchange (Immunities) Scheme, 1991 and the India Development Bonds Scheme, 1991 have also been notified by the Reserve Bank of India and published in the Gazette of India, Extraordinary, Part II, Section 3, sub-section (i), dated 20th September, 1991 and 21st September, 1991 respectively.

2. Apprehension has been expressed in some quarters that the Income-tax Department would prejudicially view the remittances received under the Remittances in Foreign Exchange (Immunities) Scheme, 1991 and the gifts of India Development Bonds from an overseas subscriber/holder. Fears have been expressed of hardship to recipient of remittances and donees of the India Development Bonds at the hands of the Assessing Officers during the course of assessment for the assessment year 1992-93 and subsequent years.

3. Sub-section (1) of section 3 of the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991 [the Act] provides that notwithstanding anything contained in any law for the time being in force,—

( i) no recipient of remittance of foreign exchange from a person resident outside India and claiming immunity under that Act will be required to disclose, for any purpose whatsoever, the nature and source of the remittance;

( ii) no inquiry or investigation will be commenced against the recipient under any law on the ground that he has received such remittance; and

( iii) the fact that the recipient has received a remittance will not be taken into account and will be inadmissible as evidence in any proceedings relating to any offence or the imposition of any penalty under any such law.

4. Section 4 of the said Act further provides that any remittance of the nature referred to above will not be taken into account for the purpose of any proceeding under the Income-tax Act, 1961.

5. Similar immunities and exemptions are provided under sections 6 and 7 of the Act in relation to non-resident Indians or overseas corporate bodies owning the foreign exchange bonds and persons resident in India to whom said bonds have been gifted by non-resident Indians or overseas corporate bodies.

6. The immunities and exemptions, referred to above, are however not available with regard to any foreign exchange which is required to be brought into India under any provisions of the Foreign Exchange Regulation Act, 1973 or the Income-tax Act,1961 read with that Act and the period (including extended period, if any) within which such foreign exchange to be brought into India has not expired as on 18th September, 1991. These immunities are also not available to in relation to any prosecution under the Indian Penal Code for offences relating to public servants and offences against property (theft, robbery, etc.); offences under the Narcotic Drugs and Psychotropic Substances Act, the Terrorist and Disruptive Activities (Prevention) Act, Prevention of Corruption Act and for enforcement of any civil liability.

7. The relevant provisions of the Act, as briefly explained above, make it very clear that the Assessing Officers, in any proceedings under the direct tax laws, will not make any enquiry with regard to remittances in foreign exchange received under the Remittance in Foreign Exchange (Immunities) Scheme, 1991 or gift of any India Development Bonds from a non-resident Indian/overseas corporate body. There should, therefore, be no apprehension of any prejudice against the persons in receipt of remittances under the scheme or donees of India Development Bonds. There should also be no fear of any harassment by the tax authorities.

8. Certain questions have also been raised with regard to immunities and exemption under the various direct tax laws as provided under the Act and the two schemes framed thereunder. These are clarified below :

Question 1 : Section 3(1)( a) of the Act provides that the nature and source of the remittances need not be disclosed by the recipient. However, can the tax authorities at any stage contend that the remittance is in the nature of gift as defined in section 2 of the Gift-tax Act, 1958 liable to tax under the Act?

Answer : Section 3(1)(b ) of the Act provides that no inquiry or investigation will be commenced under any law against the person in receipt of any remittances in foreign exchange in accordance with the scheme notified for this purpose, viz., the remittances in Foreign Exchange (Immunities) Scheme, 1991. Accordingly, it is not possible for any tax authority to contend, at any time, that the remittance was a gift and initiate proceeding under the Gift-tax Act, 1958.

Question 2 : Whether the non-resident donor of any India Development Bonds will be exempt from gift-tax?

Answer : Yes, the non-resident donor will be exempt from gift-tax. Section 6(1)(a) of the Act provides that the non-resident Indian or the overseas corporate body owning the bonds as well as the person resident in India to whom a gift of such Bond is made, will not be required to disclose the source of the investment in such Bonds. For this reason, and in view of the specific provision in section 6(1)(b) of the Act barring any inquiry or investigation under the direct tax laws merely on the ground of owning such bonds, the tax authorities cannot initiate any proceedings for levy of gift-tax on the non-resident owner of such Bonds.

Question 3 : If a cumulative India Development Bond is transferred and the price paid is exactly the nominal value of bond and interest accrued thereon till the date of transfer, would there be any liability to capital gains tax in India?

Answer : Taxable capital gains are computed by deducting from the full value of consideration for the transfer of an asset, its cost of acquisition to the transferor and expenditure incurred in connection with such transfer. Where a Cumulative India Development Bond is transferred, the asset transferred consists of (a) right to receive the nominal value of bond on maturity, and (b) the right to the interest accrued thereon till the date of transfer. The cost of acquisition of these two rights is the aggregate of (i ) the amount paid by way of subscription to the Bond, and (ii) the amount of interest accrued but not collected. Hence, where the price received at the time of transfer of a Cumulative India Development Bond is exactly equal to the nominal value of the bond and the interest accrued thereon, there will be no capital gain chargeable to income-tax in India.

Press Note, dated 1-10-1991.

Certain questions have been raised regarding the interpretation of the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991 (the Act), and the two schemes framed thereunder, viz., the Remittances in Foreign Exchange (Immunities) Scheme, 1991, and the India Development Bonds Scheme, 1991. These are clarified in the following paragraphs.

Question 1 : The term “recipient” has been defined in section 2(1)(a) of the Act to mean a “person” as defined under “the Income-tax Act”. However, section 2(1)(b) defines the word “remittance” to mean remittance made in foreign exchange by “any person resident outside India” to a “person resident in India”. Section 2(1)(c) of the Act further states that all words and expressions used in Chapter II but not defined therein, and defined in the Foreign Exchange Regulation Act, 1973, shall have the meanings respectively assigned to them in that Act.

In this context, there is an apprehension in some quarters that since the remittance in foreign exchange is to be made by a person resident outside India to a person resident in India the remittance would have to be made and received by individuals or natural persons only.

Similarly, section 6(1)(a) of the Act refers to a person resident in India.

Question 2 : Are immunities and exemptions under the Act available only to individuals and not to companies and other categories of persons like Hindu undivided families, firms, etc.?

Answer : The word “person” has not been defined in the Foreign Exchange Regulation Act, 1973. Therefore, while interpreting the expression “person resident outside India”, the word “person” will have the meaning assigned to it in clause (42) of section 3 of the General Clauses Act, 1897, which defines a “person” to include any company or association or body of individuals, whether incorporated or not. However, as regards the person resident in India to whom the remittance is made, he being a “recipient” within the meaning of section 2(a) of the Act, may be any person as defined in section 2(31) of the Income-tax Act, 1961. Section 2(31) of that Act defines a “person” to include an individual, a Hindu undivided family, a company, a firm, an association of persons or body of individuals, whether incorporated or not, a local authority, and any other artificial juridical person.

In view of the above, it is clarified that the immunities and exemptions under the Act will be available not only to individuals but also to other categories of persons referred to above.

Question 3 : Section 5(1)( c) of the Act defines an “overseas corporate body” to mean any institution, association or body, whether incorporated or not, established under the laws of a country outside India wherein any non-resident Indian has any interest.

Answer : The terms of offer issued by the State Bank of India state that such overseas corporate body should be controlled by non-resident Indians or persons of Indian origin.

Question 4 : What is the extent of non-resident control required by the overseas corporate body in order to avail itself of the immunities under the Act and the Scheme?

Answer : This has been done as the laws of some countries require that for OCBs to invest in FEBs, NRIs/persons of Indian origin should have control over either the ownership or the management of the OCBs.

The control of the OCB can either be through management or holding of the equity. Any interest of the NRIs/persons of Indian origin of the above type would make the OCB eligible to invest in the Bonds.

Question 5 : It is provided that the Foreign Exchange Bonds (India Development Bonds) may be held by banks acting in a fiduciary capacity on behalf of non-resident Indian/overseas corporate bodies, but when such bonds are gifted to a person resident in India, is it necessary that the identity of such non-resident Indian/overseas corporate body is disclosed before any authority?

Answer : No, the identity of the NRI/OCB would not be required to be disclosed at all, and, in fact, must not be disclosed.

Question 6 : Would a draft denominated in Indian Rupees but purchased in convertible foreign exchange be treated as a remittance in foreign exchange?

Answer : Yes. However, a draft expressed in non-convertible rupees will not be treated as a remittance in foreign exchange.

Source : Issued by the Government of India, Ministry of Finance, Department of Economic Affairs, New Delhi, dated 1-10-1991.

Notification under para 3(1)

In exercise of the powers conferred by clause (a) of sub-section (1) of section 3 of the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991 (41 of 1991), the Reserve Bank of India hereby makes the following amendment in the Remittances in Foreign Exchange (Immunities) Scheme, 1991, namely :—

In the Remittances in Foreign Exchange (Immunities) Scheme, 1991, in sub-paragraph (a) of paragraph 3, for the words “15 days from the date of receipt of such remittances”, the words “29th February, 1992” shall be substituted.

Notification : No. GSR 69(E), dated 30-1-1992.

Notification under section 2(b), Explanation

In exercise of the powers conferred by the Explanation to clause (b) of section 2 of the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991 (41 of 1991), the Central Government hereby specifies for the purposes of the aforesaid clause (b), the 1st day of February, 1992, as the specified date.

Notification No. S.O. 800(E), dated 27-11-1991.

Notification under section 5(a), Explanation

In exercise of the powers conferred by the Explanation to clause (a) of section 5 of the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991 (41 of 1991), the Central Government hereby specifies for the purposes of the aforesaid clause (a), the 1st day of February, 1992, as the specified date.

Notification No. S.O. 801(E), dated 27-11-1991.

2. Gold Bonds Scheme, 1993

72 GSR 76(E),18-2-1993

In exercise of powers conferred by sub-section (1) of section 3 of the Gold Bonds (Immunities and Exemptions) Ordinance, 1993 (No. 22 of 1993), the Central Government hereby makes the following Scheme, namely :—

Short title and commencement.

1. (1) This Scheme may be called the Gold Bonds Scheme, 1993.

(2) It shall come into force on the 15th day of March, 1993.

Definitions.

2. In this Scheme, unless the context otherwise requires,—

(a) “Form” means a form appended to this Scheme;

(b) “Ordinance” means the Gold Bonds (Immunities and Exemptions) Ordinance, 1993 (No. 22 of 1993);

(c) “receiving office” means the offices or branches of the Reserve Bank of India or of the State Bank of India specified in Annexure I to this Scheme;

(d) all other words and expressions used in this Scheme but not defined and defined in the Ordinance, shall have the meanings respectively assigned to them in the Ordinance.

Eligibility for subscribing to Gold Bonds.

3. Subscription to Gold Bonds may be made by a resident in India, being :—

(i) an individual, in his capacity as such individual or on behalf of a minor child or jointly with any such other individual;

(ii) a Hindu undivided family;

(iii) trustees of a trust;

(iv) a firm; or

(v) a company.

Form of subscription.

4. (1) Subscription will be only in the form of gold. In case of ornaments, the same should be melted after removing the stones, if any, and then the gold should be tendered :

Provided that where the gold tendered is found, after assaying to contain deleterious elements, such as selenium and tellurium beyond limits acceptable to Government Mint, it will not be accepted for the issue of Gold Bonds and will be returned to the tenderer.

(2) The minimum limit for subscription will be five hundred grammes of gold. There shall be no maximum limit for subscription.

(3) The gold tendered will be assayed by Government Mint and expressed in terms of 0.995 fineness. The Gold Bonds to be issued shall specify the weight of gold of 0.95 fineness as determined after assay of the gold tendered and after deducting refining losses as provided in Annexure II to this Scheme.

(4) The weight of the gold at 0.995 fineness as determined by the Government Mint and indicated by the Reserve Bank of India in the Gold Bonds shall be binding on the subscriber.

(5) The Gold Bond will be issued for the quantity equal to the nearest lower whole gramme of gold and the value of the fraction over and above the quantity accepted for issue of the Gold Bond will be paid to the subscriber at the time of delivery of the Gold Bond at the rate of rupees four hundred per gramme.

(6) The Bonds will be issued for a minimum denomination of five hundred grammes of gold, except in cases where the gold tendered after assaying is of a weight of less than five hundred grammes.

(7) The date of issue of Gold Bonds shall be the date on which the gold is tendered at the receiving office.

Procedure for making application for subscription to Gold Bonds.

5. (1) Every subscriber who is desirous of making subscription to the Gold Bond shall apply to any receiving office in Form ‘A’ or as near thereto as possible and tender at least five hundred grammes of gold along with the application.

(2) On receipt of an application under sub-paragraph (1), the receiving office shall issue a provisional receipt for the weight of the gold tendered by the subscriber.

(3) After the gold has been assayed by the Government Mint, the Gold Bond will be issued by the Public Debt Office of the Reserve Bank of India indicating weight of the gold of 0.995 fineness as determined by the Government Mint rounded to the nearest lower whole gramme along with the final receipt.

Form of issue of Gold Bonds.

6. (1) The Gold Bonds will be issued in the form of either Government Promissory Note or Stock Certificate, depending upon the option exercised by the subscriber:

Provided that where no option is exercised by the subscriber, the Gold Bond shall be issued in the form of Stock Certificate.

(2) The Gold Bond issued in one form cannot be converted into the other form.

Period of subscription.

7. The subscription for the Gold Bonds under this Scheme shall open on and from the 15th day of March, 1993 and will close on the 14th day of June, 1993.

Repayment and interest.

8. (1) The Gold Bonds will be repaid in the form of gold of 0.995 fineness five years after the date of issue.

(2) The Bonds will bear a lump sum interest for the period of five years payable on maturity in rupees at the rate of rupees forty for each gramme of gold of 0.995 fineness.

(3) The tender of the gold on maturity of the Gold Bonds along with the interest due thereon will be made from the receiving office as specified by the subscriber in the application form.

Transfer of Gold Bonds.

9. (1) The Gold Bond in the form of Stock Certificate is transferable by execution of an Instrument of transfer annexed to it.

(2) On transfer of the Gold Bond issued in the form of Stock Certificate, the transferee shall get the Instrument of transfer registered in Public Debt Office of the Reserve Bank of India at Bombay.

(3) In the case of transfer the stock certificate should be surrendered at the Public Debt Office, Bombay where it stands registered. Where the stock is transferred in full or in part the purchaser will receive a certificate for the quantity of gold transferred and the transferor a new certificate for the balance, if any.

(4) The Gold Bonds in the form of Promissory Note are transferable by endorsement and delivery.

Loans and advances.

10. The Gold Bonds can be held by any banking company, State bank of India, a subsidiary bank, a corresponding new bank or a co-operative bank as defined in the Banking Regulation Act, 1949, Regional Rural Banks established under section 3 of the Regional Rural Banks Act, 1976, if the Gold Bonds are transferred to them under paragraph 9 for the limited purpose of obtaining an advance against the security of such Bonds.

Nomination by the subscriber.

11. (1) The provisions contained in this paragraph shall apply to the Gold Bonds issued in the form of a Stock Certificate.

(2) The sole holder or sole surviving holder of a Gold Bond being an individual, may nominate in Form B or as near thereto as may be, one or more persons who shall be entitled to the Bond and the payment thereof, in the event of the death of the subscriber :

Provided that no nomination shall be made under sub-paragraph (2) where the individual has subscribed to the Gold Bond on behalf of a minor.

(3) If the nominee is a minor, the subscriber may appoint any person to receive the gold due under this Scheme in the event of the death of the subscriber during the minority of the nominee.

(4) A nomination made by a subscriber may be cancelled or varied by a fresh nomination in Form B or as near thereto as possible, or may be cancelled by giving notice in writing to the Public Debt Office of the Reserve Bank of India in Form C.

(5) Every nomination and every cancellation or variation thereof shall be registered at the Public Debt Office of the Reserve Bank of India and shall be effective from the date of such registration.

(6) Where the nomination is in favour of more than one person, the nominee first named shall alone have the right to receive the gold on maturity along with interest which is due to the deceased subscriber.

(7) Where the nominee first named has precedeased the subscriber and the subscriber has not cancelled the nomination or substituted the nomination, the nominee second named shall be entitled to receive the gold on maturity along with the interest which is due to the deceased subscriber and so on in respect of other successive nominee :

Provided that if any nominee is dead, the surviving nominee or nominees shall in addition to the proof of the death of the subscriber also furnish proof of death of the deceased nominee or nominees, as the case may be.

FORM A

[See paragraph 5(1)]

Application No…………

Application form for Gold Bonds, 1998

[Please read carefully the provisions of the Gold Bonds Scheme, 1993]

		Scheme Opens On 15-3-1993
		Scheme Closes On 14-6-1993

Provisional Receipt No.

(To be indicated by Receiving Office)

The Manager	The Branch Manager
Reserve Bank of India	State Bank of India

Dear Sir,

In terms of the provisions of the Gold Bonds Scheme, 1993………..I/We (Name/s and addresses as given below) hereby tender………..grammes (in words………………grammes) of gold as per particulars appended and request that Gold Bonds, 1998 equivalent to the weight of the gold tendered as determined after assay expressed in grammes of gold of 0.995 fineness rounded to the nearest lower whole gramme be issued to me/us.

Name of applicant ………………………………………

Date of birth in case of minor ………………………………………

date month year

Full name of Parent/guardian (in

case of minor) ………………………………………

Address of the applicant/guardian ………………………………………

(in case of minor) ………………………………………

Pin………………………………………

Second Applicant’s name ………………………………………

Address of the 2nd applicant ………………………………………

Pin………………………………………

Third Applicant’s name ………………………………………

Address of the 3rd applicant ………………………………………

Pin………………………………………

Please (tick) whichever is applicable :

The application is being made—

(i) in individual capacity ( iv) on behalf of minor as father

(ii) in individual capacity on any one mother/legal guardian/

or survivor basis authorised representative

(iii) in individual capacity on joint basis (v) as karta of HUF

( vi) as trustees of trust

( vii) or behalf of firm/company

2. Occupation of first Applicant or Guardian [Please ü (tick) as applicable].

(i ) Business ( ii) Service ( iii) Profession

(iv) Agriculture ( v) Housewife ( vi) Others

3. I/We have read and agree to comply with the terms of the abovementioned Scheme. I/We undertake to abide by the weight of gold at 0.995 fineness, after deduction of refining losses, as determined by the Government Mint and indicated by the Reserve Bank of India in the Gold Bond and agree that the value of fraction over and above the weight for which the Bond is issued will be paid at the rate of Rs. 400 per gramme.

4. I/We request that the Bond(s) may be issued to me/us in the form of Promissory Note(s)/Stock Certificate(s) as indicated below :

Promissory Note Stock Certificate

No. Denomination* No Denomination

If no preference is indicated, one Bond will be issued in the form of Stock Certificate.

5. I/We also agree that the Bond will be redeemed in gold of 0.995 fineness but not in the original form/shape in which it is tendered.

6. I request that the repayment of gold and payment of interest on the Bond/s may be made to me/us at RBI…………./SBI…………..**

* Delete what is not applicable.

** Please indicate one of the offices specified in Annexure I.

7. Particulars of gold tendered :

Sl. Description No. Weight in For office use

No. of the tender grammes weight in grammes

Total weight

The Bond will be issued for a minimum denomination of 500 grammes except in cases where the gold tendered after assaying is for a weight of less than 500 grammes.

8. I wish/do not wish (*) to make a nomination in respect of the Bond(s) applied for. The prescribed nomination form is enclosed.

(*) Delete what is not applicable.

Signature of 1…………………. 2……………….. 3………………

Tenderer/s (or (1st applicant name) (2nd applicant name) (3rd applicant name)

authorised

representative) Name Name Name

Office

Stamp of tenderer, if

any

Date………………….Place……………………

Tel. No………………………

WITNESS FORM

To be filled in case of thumb impression by the applicant

1. Name of witness………………….. 2. Name of witness………………….

Signature………………………………. Signature………………………………

Address………………………………….. Address………………………………….

3. The contents of the tender described in the application have been satisfactorily sealed in my presence.

Signature/Thumb impression of the

Applicant/Guardian/Authorised

Representative.

Date : ………………….

Place : ………………….

Witness in case of Thumb impression Signature(s) of the receiving

official(s)

Designation………………….

Stamp of receiving office………………….

Name of witness :

Signature :

Address :

FORM B

[See paragraph 11(2) and (4)]

Gold Bonds, 1998

Form of Nomination

1. I,……………………………..(name and address) nominate the following person(s) who shall on my death have the right to the Gold Bond/receive payments of the amount for the time being due on the Bond to be issued against provisional receipt No…………………….. ^U (specified below).

GOLD BONDS, 1998 NOMINEE

Date of Distinguishing Weight in Name Address Date of Relationship

issue number of Bond grammes birth to the holder

2. *As……………………………………………………………the sole nominee above is a minor on this date, I,…………………………………….. Shri/Smt./Kumari………………………………………….(name & address) to receive the Bond/amount for the time being due on the above Bond/s in the event of my death during the minority of the said nominee………………………………………

3. $This nomination is in substitution of the nomination dated………………………………………………made by me and registered in your books on the……………………………………….which shall stand cancelled on registration of this nomination.

Place : ……………………… …………………….

Date : ………………………. Signature/Thumb impression

name and address of the holder

Signature, name and address of witness……………………………

1. …………………………….. 2…………………………….

*Not to be filled in, unless nominee is a minor.

UTo be filled if nomination form is completed along with the application.

$This paragraph may be struck out when the nomination is not in substitution of one already made.

FORM C

[See paragraph 11(4)]

Gold Bonds, 1998

Notice of cancellation of nomination

I,………………………………………………….. (Name and address) do hereby cancel the nomination dated………………………………….made by me in respect of the following Bond and registered by the Public Debt Office,………………………………………on the………………. …………………………. (date).

PARTICULARS OF THE GOLD BONDS, 1998

Date of issue

Provisional receipt number and date/distinguishing No. of Bond

Weight in grammes

Place : ………….. ………………………………

Date : ……………. Signature/Thumb impression

of the holder

Name, Signature and address of witnesses :

1……………………………………… 2…………………………………….

( ) ( )

*To be filled if nomination is to be cancelled before issue of the Bonds.

ANNEXURE I

[See paragraph 2(c)]

Gold Bonds, 1998

Offices/branches of Reserve Bank of India and main branches of State Bank of India specified for receiving applications for the Gold Bonds

1. Offices of Reserve Bank of India at the following places, namely :—

Ahmedabad Jaipur

Bangalore Kanpur

Bhubaneswar Madras

Bombay (Fort) Nagpur

Calcutta New Delhi

Guwahati Patna

Hyderabad Thiruvananthapuram

2. Main branches of State Bank of India at—

Agra Guntur Panaji

Ahmedabad Guwahati Patna

Ajmer Gwalior Pune

Akola Hubli Raipur

Aligarh Hyderabad Rajkot

Allahabad Indore Ranchi

Alleppey Jabalpur Ratlam

Ambala City Jaipur Salem

Aurangabad Jalandhar Shillong

Bangalore Jalgaon Shimla

Baroda Jodhpur Solapur

Belgaum Kanpur Sriganganagar

Bhopal Khandwa Surat

Bhubaneswar Kolhapur Thiruvananthapuram

Bikaner City Lucknow Tiruchirapalli

Bombay Ludhiana Tirupati

Burdwan Madras Trichur

Calcutta Madurai Udaipur

Calicut Mangalore Ujjain

Chandigarh Mathura Varanasi

Coimbatore Meerut Vajayawada

Cuttack Muzaffarpur

Ernakulam Nagpur

Nasik

New Delhi

ANNEXURE II

[See paragraph 4(3)]

Gold Bonds, 1998

Refining losses of Gold

fineness Range Deduction towards losses

(per mille) (in terms of %age)

Over 995.0 0.05

950 to 994.9 0.10

900.1 to 9499 0.15

800.1 to 900.0 0.20

650.1 to 800.0 0.25

500.1 to 650.0 0.30

400.1 to 500.0 0.35

300.1 to 400.0 0.40

100.1 to 300.0 0.50

Below 100 1.00

Gold Bonds Scheme, 1993 : Restriction on gold bond renewal

The Gold Bonds Scheme, 1993, issued in terms of the Government of India, Ministry of Finance (Department of Economic Affairs), Notification No. G.S.R. 76(E), dated 18th February, 1993*, are repayable in gold from the 15th March, 1998. As 15th March, 1998, happens to be Sunday, the repayment of gold bonds will be made on the previous working day, i.e., 14th March, 1998. For this purpose, it is necessary to determine, in advance, the precise quantities of gold of various denominations required for repayment at each centre and arrange for their manufacture by the Government Mint and also timely despatch to the repayment centres spread all over the country. To facilitate these arrangements, connected with repayment of these bonds, the bond holders are informed that a shut period would be imposed from 1st December, 1997, and as from this date Public Debt Offices/Agency banks will not allow requests for renewal, consolidation, sub-division and/or change of effacement of the said bonds.

Source : Issued by the Department of Economic Affairs, Ministry of Finance, New Delhi, dated 27-11-1997.

3. SECURITIES LENDING SCHEME, 1997

Preliminary.

1. This scheme shall be called the Securities Lending Scheme, 1997.

Applicability.

2. It shall come into force on 6th February, 1997.

Definitions.

3. (1) In this scheme, unless the context otherwise requires,—

(a) “approved intermediary” means a person duly registered by the Board under the guidelines/scheme through whom the lender will deposit the securities for lending and the borrower will borrow the securities;

(b) “Board” means the Securities and Exchange Board of India (SEBI) established under section 3 of the Securities and Exchange Board of India Act, 1992;

(d) “corporate benefits” shall include dividends (gross), rights, bonus, redemption benefits, interest, or any other right or benefit accruing on the securities lent;

(e) “lender” means a person who deposits the securities registered in his name or in the name of any other person duly authorised on his behalf with an approved intermediary for the purpose of lending under the scheme;

(f) “securities” has the meaning assigned to it in section 2 of the Securities Contacts (Regulation) Act, 1956;

(g) “scheme” means the Securities Lending Scheme, 1997, for lending of securities through an approved intermediary to a borrower under an agreement for a specified period with the condition that the borrower will return equivalent securities of the same type or class at the end of the specified period along with the corporate benefits accruing on the securities borrowed.

(2) Words and expressions used and not defined for the purpose of this scheme but defined in the Securities Contracts (Regulation) Act, 1956, or the SEBI Act shall have the meanings respectively assigned to them in that Act of rules and regulations made thereunder.

Scheme.

4. (1) The lender shall enter into an agreement with the approved intermediary for depositing the securities for the purpose of lending through an approved intermediary as per the scheme and the borrower shall enter into an agreement with the approved intermediary for the purpose of borrowing of securities and as such there shall be no direct agreement between the lender and the borrower for the lending or borrowing of securities.

(2) The agreement between the lender and the approved intermediary shall provide that when the lender has deposited the securities with the approved intermediary under the scheme, the beneficial interest shall continue to remain with the lender and all the corporate benefits shall accrue to the lender.

(3) The lender shall be entitled to deposit only those securities registered in his name or in the name of any other person duly authorised on his behalf with the “approved intermediary” for the purpose of lending.

(4) The lending of securities under the scheme through an approved intermediary and the return of the equivalent securities of the same type and class by the borrower shall not be treated as disposal of the securities.

(5) The approved intermediary shall issue a receipt to the lender acknowledging the deposit of the securities by the lender.

(6) The approved intermediary shall, unless otherwise provided in the agreement with the lender, guarantee the return of the equivalent securities of the same type and class to the lender along with the corporate benefits accrued on them during the tenure of the borrowing. Even in case of failure of the borrower to return the securities or corporate benefits the approved intermediary shall be liable for making good the loss caused to the lender.

(7) The approved intermediary may retain the securities deposited by the lender in its custody as a trustee on behalf of the lender.

(8) The approved intermediary shall in accordance with the terms of the agreement entered into with the lender, be entitled to lend the securities deposited by the lender to the borrower from time to time.

(9) Under the scheme, the title of the securities lent to the borrower shall vest with the borrower and the borrower shall be entitled to deal with or dispose of the securities borrowed in any manner whatsoever.

(10) The agreement between the borrower and the approved intermediary shall, inter alia, provide that the borrower shall have an obligation to return, the equivalent number of securities of the same type and class forward, to the approved intermediary within the time specified in the agreement along with all the corporate benefits which have accrued thereon during the period of borrowing.

(11) The agreement between the lender and the approved intermediary and the borrower and the approved intermediary shall also provide for the following terms and conditions :—

(a) the period of depositing/lending of securities,

(b) charges or fees for depositing/lending and borrowing,

(d) provisions for the return including premature return of the securities deposited or lent; and

(e) mechanism for resolution of the disputes through arbitration.

(12) The borrower shall not be entitled to discharge his liabilities of returning the equivalent securities through payment in cash or kind.

(13) The approved intermediary shall be entitled to receive from the borrower collateral security and fees for lending the securities.

(14) The borrower shall deposit the collateral securities with the approved intermediary in the form of cash, bank guarantee, Government securities or certificate of deposits or other securities as may be agreed upon with the approved intermediary for the purpose of ensuring the return of the securities.

(15) When the approved intermediary returns the securities to the lender, the approved intermediary shall issue a receipt to the lender.

(16) The approved intermediary shall maintain a complete record of the securities deposited by the lender, securities lent to the borrower, the securities received from the borrower and the securities returned to the lender by the approved intermediary.

(17) In the event of the failure of the borrower to return the securities in terms of the agreement, the borrower shall become a defaulter and the approved intermediary shall have the right to liquidate the collateral deposited with it, in order to purchase from the market the equivalent securities of the same class and type for the purpose of returning the equivalent securities to the lender. The approved intermediary shall be entitled to take any action as deemed appropriate against the defaulting borrower to make good its loss, if any.

(18) The approved intermediary shall notify defaults by any borrower to the Board, the concerned stock exchange and the concerned authorities for initiation of appropriate action against the defaulter.

Eligibility criteria for approved intermediary.

5. No person shall act as an approved intermediary unless a certificate of registration has been obtained from the Board.

For the grant of a certificate of registration the Board shall take into account the following :

(a) whether the applicant is a person with minimum net worth of Rs. 50 crores;

(b) if the applicant is a clearing house or a clearing corporation and it has the net worth specified by the Board after consulting the stock exchange;

(c) whether the applicant has adequate infrastructure facilities like office space, equipment and manpower experience in dealing in securities to effectively discharge its activities.

Obligations and responsibilities of approved intermediary.

6. An approved intermediary shall comply with the following obligations and responsibilities :—

(1) The approved intermediary shall abide by the scheme and the guidelines issued by the Board from time to time with respect to its activity of securities lending.

(2) The approved intermediary shall comply with the requirement of eligibility criteria for the lender and the borrower with the eligibility criteria, if, specified by the Board.

(3) The approved intermediary shall specify in the respective agreement the fees payable to the lender and the fee to be charged from the borrower.

(4) The approved intermediary shall specify the amount and type of collateral acceptable for the purpose of securities lending as well as the norms for the valuation of securities. It may also specify the mechanism of sharing the income on collateral with the borrower.

(5) The approved intermediary at the request of the lender shall issue a receipt acknowledging the deposit of the securities by the lender. The receipt shall include the complete details of securities deposited such as name of security, quantity, face value, certificate number and folio number of the lender along with the date from the lender has become the registered holder of the security. Similarly, when securities are returned to the lender by the approved intermediary, it shall issue a receipt containing the above details to enable the lender to use the same as a proof of continuity of his holdings.

(6) The approved intermediary shall maintain a complete record of the securities deposited by the lender, securities lent to the borrower, the securities received from the borrower and the securities returned to the lender by the approved intermediary. The records of the approved intermediary shall be open for inspection by the Board or any other person duly authorised by the Board for this purpose.

(7) The approved intermediary shall maintain and make available to the Board such information, documents, returns and reports as may be specified from time to time.

(8) The approved intermediary shall abide by the code of conduct as may be specified by the Board.

(9) Nothing in this scheme shall exempt the approved intermediary from discharging any obligations placed on it by any law, regulations and guidelines.

Guidelines for approved intermediaries.

7. Terms of registration :

(a) The registration shall be for an initial period of three years.

(b) The approved intermediary as a condition of registration shall be required to pay fees as specified by the Board.

(c) The Board shall have the right to suspend/cancel the registration of the approved intermediary in case of violation of the terms of the scheme.

(d) Notwithstanding anything contained above, no action shall be initiated by the Board without following the principles of natural justice.

CIRCULAR NO. 751, DATED 10-2-1997

1. In order to improve the liquidity in the stock market, facilitate the timely settlement of transactions in securities and help in correcting the temporary imbalances in supply and demand in the stock market, a securities lending scheme has been framed by the Securities and Exchange Board of India (SEBI). The scheme has come into force with effect from the 6th February, 1997.

2. The scheme would permit the lending of securities by an approved intermediary to a borrower under an agreement for a specified period with the condition that the borrower would return equivalent securities of the same type or class at the end of the specified period along with the corporate benefits accruing on the securities borrowed. The lender would enter into an agreement with the approved intermediary for depositing the securities and the borrower would enter into an agreement with the approved intermediary for the purpose of borrowing of securities and as such there would be no direct agreement between the lender and the borrower. The approved intermediary shall be entitled to lend the securities deposited by the lender to the borrower from time to time. The title (ownership) of the securities shall rest with the borrower who will be entitled to deal with or dispose of the securities so borrowed. The lender shall be entitled to receive, in consideration for the lending of the securities an agreed amount of fees for depositing the securities for the specified period. The agreements between the approved intermediary and the lender or borrower as the case may be shall provide for the following terms and conditions :—

(a) the period of depositing/lending of securities,

(b) charges or fees for depositing/lending,

(d) provision for the return including premature return of the securities deposited or lent; and

(e) mechanism for resolution of the disputes through arbitration.

3. The following taxation issue may issue in respect of transactions under the scheme of securities lending :

‘Whether the lending of shares under the securities lending scheme will amount to “transfer” under section 2(47) of the Income-tax Act in the hands of the lender?’

4. As far as the stock market is concerned, shares are fungible assets. “Fungible” has been defined in the Shorter Oxford English dictionary on Historical Principles as “said of thing which is the subject of an obligation when another thing of the same or another class may be delivered in lieu of it”. One share of a company is good replacement of another share of the same company. The market does not lay any emphasis on the distinctive numbers. It is only for the purpose of reckoning the holding period of any particulars share or to distinguish between an original share and a bonus share, that the Income-tax Department relies on the distinctive numbers. The Board are advised that when the lender gets back equivalent number of shares of the company with different distinctive numbers, it is not a case of exchange of assets. This is so because once the asset is fungible, when the lender receives back the same number of shares of the same company of the same face value and carrying the same rights, it is immaterial whether they have different distinctive numbers. He will be in a ready position to either sell the shares and realise their value or send them to the company for transfer to his name. The transaction of lending shares of some distinctive numbers and receiving back shares of some other numbers is not “exchange” of assets within the meaning of “transfer” as defined in section 2(47) of the Income-tax Act. The meaning of the word “exchange” necessarily involves exchange of two different assets. The asset received back in the aforesaid type of transaction is no different from what was lent so long as it represents the same fraction of the ownership of the company. At no stage, the lender or borrower intended to “exchange” different assets. Hence, the transaction of lending of shares or any other security under the securities lending scheme would not result in “transfer” for the purpose of invoking the provisions relating to capital gains under the Income-tax Act.

4. Voluntary Disclosure Of Income Scheme, 1997

NOTIFIED EFFECTIVE DATE OF VOLUNTARY DISCLOSURE OF
INCOME SCHEME, 1997

In exercise of the powers conferred by sub-section (2) of section 62 of the Finance Act, 1997 (26 of 1997), the Central Government appoints the 1st day of July, 1997, as the date on which the Voluntary Disclosure of Income Scheme, 1997, shall come into force.

Notification No. SO 435(E), Dated 9-6-1997

EXPLANATORY NOTES ON PROVISIONS RELATING TO
THE VOLUNTARY DISCLOSURE OF INCOME SCHEME, 1997

Introduction

The Finance Act, 1997 as passed by the Parliament received the assent of the President on the 14th May, 1997 and has been enacted as Act No. 26 of 1997. Sections 62 to 78 of the Finance Act, 1997 relate to the Voluntary Disclosure of Income Scheme, 1997. This circular explains the substance of the provisions of the Disclosure Scheme.

2. The Voluntary Disclosure of Income Scheme, 1997 shall come into force from the 1st day of July, 1997. Notification to this effect has been issued on 9th June, 1997. Any person can, therefore, make a disclosure of income on or after this date. The last date for making the disclosure of income is the 31st day of December, 1997.

3. In accordance with the provisions of section 64 of the Finance Act, 1997, a person may make a disclosure in respect of any income chargeable to tax under the Income-tax Act, for any assessment year—

(a) for which he has failed to furnish a return under section 139 of the IT Act, 1961;

(b) which he has failed to disclose in a return of income furnished by him before the date of commencement of the Scheme, i.e., 1st July, 1997;

A person may, therefore, make a disclosure of income for any assessment year including assessment year 1997-98, provided he has either not furnished his return of income or has failed to disclose the income for which the declaration is being made. No disclosure of wealth is allowable under the Voluntary Disclosure of Income Scheme, 1997.

Rate of tax

4. The tax payable on the disclosed income in respect of any assessment year shall be at the rate of 35% in the case of companies and firms and 30% in the case of others.

The tax payable under the Scheme is required to be paid before the filing of the declaration. The declaration should be accompanied by the proof of payment of tax. In case a person is not in a position to pay the tax before the filing of the declaration, he may do so within 3 months of the date of filing of the declaration. In such a case simple interest @ 2% shall be charged for every month or part of a month comprised in the period beginning from the date of filing of the declaration to the date of payment of the tax. However, in cases where the declart fails to pay the tax within the said period of 3 months from the date of filing of the declaration, the declaration filed shall be deemed to be void. Any part payment of tax made in the above situation shall not be refundable. Any tax paid in pursuance of the declaration shall also not be refundable under any circumstances.

5. No person can make a voluntary disclosure of income for any assessment year in relation to which a notice under section 142 or 148 has been served upon him and the return has not been furnished before the 1st day of July, 1997. Further, a person is also debarred from making a disclosure of income in respect of the previous year in which a search is initiated under section 132 or requisition is made under section 132A or a survey under section 133A of the Income-tax Act is carried out. In the case where a search is initiated or a requisition is made under section 132 or 132A respectively, a person is also debarred from making a voluntary disclosure of income in respect of any earlier year prior to the previous year in which the search is initiated or requisition is made (section 64 of the Finance Act, 1997). Declaration can, however, be made in such cases for a previous year subsequent to the year of search, etc. In the case of survey under section 133A, a person will be barred from making a declaration only in respect of the assessment year in which the survey was carried out.

Form of declaration

6. The declaration shall be made to the Commissioner of Income-tax and shall be in the prescribed Form. The declaration can be signed in the case of an individual, by the individual himself. Where the individual is away from the country, the declaration may be signed by a person duly authorised by the individual. In a case where the individual is mentally incapacitated, the declaration may be signed by his guardian or any other person competent to act on his behalf. In the case of a Hindu Undivided Family, company, firm, association, etc., the declaration can be signed and verified by persons specified in section 65 of the Finance Act, 1997 which are the same as those mentioned in section 140 of the IT Act, 1961. A person can make a declaration in different capacities, namely, in respect of his individual income, in his capacity as karta of his Hindu undivided family, etc.

Where the voluntary disclosed income is represented by jewellery, the value of the jewellery or bullion so declared shall be substantiated by a registered valuer’s certificate. In case the jewellery declared is in respect of an assessment year prior to assessment year, 1987-88, the value for purposes of declaration shall be taken to be the value as on 1-4-1987. The expression ‘jewellery’ shall have the same meaning as assigned to it in Explanation (a ) to clause (ea) to section 2 of the Wealth-tax Act, 1957/Explanation 1 to clause (viii) of section 5 of the Wealth-tax Act, 1957.

7. The declaration shall be filed before the Commissioner of Income-tax. Where a taxpayer resides at a place other than the headquarters of the Commissioner, the declaration along with the challan for payment should be sent to the Office of the Commissioner of Income-tax, who in turn, would send the certificate of disclosure and payment of tax by post. The certificate will be issued by the Commissioner of Income-tax only on full payment of tax in respect of the disclosure made by a person.

8. The disclosure made in respect of any assessment year shall not affect the finality of any completed assessment. A declaration cannot, therefore, have the right to get any assessment or reassessment reopened on the ground that he has now made a disclosure of income in respect of that assessment year. No set-off or relief in any appeal, reference or other proceeding can also be claimed by a declarant in respect of the voluntarily disclosed income.

9. The voluntarily disclosed income shall not be included in the total income of the declarant for any assessment year if the declarant credits such amount in the books of account, if any, maintained by him or in any other record and intimates the credit so made to the Assessing Officer. If no books of account are maintained, it is expected that the declarant will make the credit in some other record. The second condition for the voluntarily disclosed income not to be included in the total income for any assessment year is that tax in respect of the disclosed amount is paid within the time specified in section 66 or section 67 of the Finance Act, 1997.

10. The particulars furnished by a declarant shall be kept a secret and shall be treated as confidential. No court or any other authority shall be entitled to require any officer of the Income-tax Department or the declarant himself to produce before it any such declaration or to give evidence before it in this regard. Further, nothing contained in any declaration shall be admissible as evidence against the declarant for the purpose of any proceeding relating to imposition of penalty or launching of prosecution under the Income-tax Act, Wealth-tax Act, Foreign Exchange Regulation Act, 1973 or the Companies Act, 1956.

11. In cases where the voluntarily disclosed income is represented by cash, bullion, shares or any other assets and where, (i) the declarant has failed to furnish a return under section 14 of the Wealth-tax Act for any assessment year, (ii) such assets have not been shown in the return of wealth, (iii) the disclosure relates to understated investment and where the same was understated in a return of wealth, then no wealth-tax shall be payable in respect of the assessment year for which the disclosure is made. Wealth-tax shall, however, become payable for the assessment years subsequent to the assessment years for which the declaration was made.

12. The provisions of Chapter XV of the Income-tax Act relating to liability in special cases shall apply in relation to proceedings under this Scheme as they apply in relation to proceedings under the Income-tax Act.

13. The secretary and immunity provisions of the voluntarily disclosure of income scheme shall not apply to—

(a) to any person in respect of whom an order or detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 in certain circumstances.

(b) in relation to prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Terrorists and Disruptive Activities (Prevention) Act, 1987, the Prevention of Corruption Act, 1988 or for the purpose of enforcement of any civil liability;

(c) to any person notified under section 3 of the Special Court (Trial of Offences Relating to Transaction in Securities) Act, 1992.

Circular : No.753, dated 10-6-1997

CLARIFICATIONS ON VDIS 1997

CLARIFICATION 1

The Finance Act, 1997 has introduced a Voluntary Disclosure of Income Scheme, 1997. In regard to the Scheme a number of queries have been received from the public about the scope of the scheme and the procedure to be followed. The Board has considered the same and decided to clarify the points raised by issue of Circular in the form of questions and answers as per Annexure.

Clarifications on Voluntary Disclosure of Income Scheme, 1997

Question No. 1: Whether the undisclosed income represented by Jewellery acquired prior to 1-4-1987 is required to be disclosed at the market value as on 1-4-1987 ? (Please see section 64 and section 73 of the Finance Act, 1997)

Answer : Yes.

Question No. 2: Whether the undisclosed income represented by flat/land and machinery, shares, etc., acquired prior to 1-4-1987 is required to be disclosed at the market value as on 1-4-1987? (Please see sections 64 & 73)

Answer : No. The value should be as on the date of acquisition of the asset.

Question No. 3: Whether the undisclosed income can be declared by the minor after the assessment year 1992-93 or it is to be declared by his parents in whose hands it is taxable ?

Answer : Minor can declare his undisclosed income of 1992-93 or earlier assessment years. From Assessment year 1993-94, his income is includible in the parents’ income and he is not obliged to file a return himself. Only parents can declare the minor’s income for assessment year 1993-94 or later.

Question No. 4: Can undisclosed income be declared by the minor for the assessment year prior to 1992-93 in his own hands ? (Please see sections 63 & 64)

Answer : Yes, for reasons given in Question No. 3.

Question No. 5: If the firm had concealed income, can the partners file declaration in respect of such concealed income ?

Answer : The declaration will be by the firm verified by the managing partner. If there is no managing partner, then by one of the partners. The partners need not make declaration regarding their respective share of income.

Question No. 6: Where search and seizure action has taken place in Financial Year 1995-96, the block period is 1985-86 to 1995-96, can disclosure under the present scheme be made by the persons searched for an Assessment Year prior to 1985-86 ?

Answer : No. In respect of a case where search has taken place in any financial year, the person cannot make a declaration in respect of any previous year prior to the previous year in which search has taken place.

Question No. 7: Where a Private Limited Company has not filed return of income for Assessment Year 1990-91 in respect of its income as per books of account, can it file a declaration under the scheme and pay tax at 35% ?

Answer : Yes.

Question No. 8: Will there be a time limit under the VDIS, 1997 Scheme for the declarant to credit the declared income in the books of account and inform the Assessing Officer ?

Answer : There is no time limit under VDIS, 1997 Scheme for crediting the same declared vide section 64.

Question No. 9: Whether under the VDIS, 1997, it is mandatory to credit the amount declared in the books of accounts, if so, in which year’s books of account it has to be credited – Whether the Assessment Year in respect of which it is declared or the Assessment Year relevant to Financial Year 1997-98 ?

Answer : It is expected that the declarant will credit the amount declared in his books of account or if there are no books of account in some other record. The year of credit is left to the declarant’s option.

Question No. 10 : Will there be a time-limit under the Scheme for the CIT to issue the certificate ?

Answer : Apparently, there is no time limit for issue of a certificate. If the declared income relates to a pending assessment, then, the CIT will be obliged to issue the certificate before the date on which the said assessment gets barred by limitation of time.

[Commissioners have now been advised to issue the certificates within two days if taxes are paid in full.]

Question No. 11 : Will the declaration under the Scheme be final in itself or it will be final only on its being accepted by the Commissioner of Income-tax ?

Answer : In respect of a valid declaration, it will be final only when the certificate is issued by the CIT.

Question No. 12 : The immunity granted under the scheme should be along the lines of section 245H of the Income-tax Act, i.e., should be extended to immunity from penalty and prosecution under IPC and also any other Central Act. The Central Government should recommend to the State Governments that no proceeding be initiated under the State Acts like Sales Tax, Excise, i.e., in respect of entries credited in the books as a result of declarations made under the VDIS, 1997.

Answer : The question of recommending to the State Governments that no proceeding should be initiated under the Sales Tax Act does not arise because the disclosed income is just a lump sum not falling under any head of income like business and profession, capital gains or other sources. Hence, there is no presumption that disclosed income relates to suppressed turnover or suppressed manufacture.

Question No. 13 : Immunity should also be granted to Directors of a company, partners of the firm and members of the AOP which makes a declaration under the scheme.

Answer : As far as firms and AOPs are concerned, it is enough if firm and AOPs declare. There is no need for partners and members to declare separately in respect of the income declared by the firm or AOP. In respect of disclosure by the company, no director of the company shall be prosecuted.

Question No. 14 : In the case of ladies and minors making declaration and amounts are later credited the books of account of the firm, etc., it needs to be clarified as to what will be the view of the Department, particularly whether the Assessing Officer can investigate into the source of the amounts so credited ? (Refer Supreme Court decision in Rattan Lal’s case).

Answer : The declarant lady or minor should first credit the amount declared in their own books of account or any other record. Thereafter, the advance can be made to other persons. Where the amounts credited in the books of the other persons are equal to or less than the amount declared by the lady or the minor then the Assessing Officer should accept the credit entries in the books of the firm. If the amount credited is more than the amount declared the Assessing Officer will be free to enquire into such excess.

Question No. 15 : Under section 68 of the Scheme the amount of the voluntary disclosed income is not to be included in the total income of any assessment year if (a) such amount is credited in the books of account or any other record and the credit so made is intimated to the Assessing Officer and (b) income-tax is paid on such amount.

In such a case, three questions arise (i) what is the meaning of “any other record” particularly when declarant maintains no record ? (ii ) who will be the Assessing Officer – whether the regular AO or the designated officer in the office of the Commissioner ? and (iii ) what is meaning of “credited in the books of account” ?

Answer : ( i) Where books of account are not maintained by the declarant, any other record means an entry which will evidence the availability of amount declared.

( ii) The regular Assessing Officer of the territory and not the designated officer in the office of the Commissioner of Income-tax.

( iii) The meaning of credit in the books of account will vary from case to case depending upon the nature of the disclosure whether it is under-statement of stock or under-statement of turnover or under-statement of sale consideration of a property, etc.

Question No. 16 : Will the value of assets declared be accepted by the Department as it is or will it be necessary to file a valuer’s certificate along with the declaration ? Can the matter be referred by the Department to Valuation Cell ? Is any evidence required to be filed regarding the year or purchase of the jewellery or other assets ? Whether the value of jewellery as on 1-4-1987 will be adopted only for purposes of VDIS or will it also be adopted for Wealth Tax in subsequent years ?

Answer : In respect of immovable property, the Department will not insist upon any valuation certificate along with the declaration. It is the responsibility of the declarant to declare the correct value. In respect of the jewellery if it has been acquired prior to 1-4-1987, the value will be taken as on 1-4-1987 as certified by valuer. Further, the value adopted as on 1-4-1987 is for the limited purpose of the scheme.

Question No. 17 : In the case of sale of immovable property,—

(a ) if the purchaser declares the “black” portion under the scheme, what will be the position of the seller ? Will the department proceed against him (seller) ?

(b ) if the property is sold subsequently, what will be the cost of acquisition ?

(c ) if, as a result of the declaration of the actual value of the property, it exceeds the limit laid down in Chapter XX-C, whether any proceedings will be initiated by Appropriate Authority ?

Answer : ( a) No.

(b) Cost of the acquisition as declared before the income-tax authorities and increased by the amount disclosed under the scheme in respect of the asset.

(c) Once the Appropriate Authority issues NOC u/s 269UL(1), his jurisdiction that transaction ceases. The Appropriate Authority cannot initiate any further proceedings.

Question No. 18 : As per section 65(3), only one declaration is permitted under the Scheme. Multiple declarations should be allowed to take care of certain situations, e.g., where piecemeal recoveries of undisclosed amounts are made from debtors ?

Answer : Only one declaration is permitted. Where piece-meal recovery of undisclosed amounts are made from debtors, the declarant may perhaps wait till the final recovery before the closure of the Scheme and then declare.

Question No. 19 : Whether wealth-tax will be chargeable on the assets declared only for Assessment year 1997-98 or also for earlier years ? Whether wealth-tax exemption will be available for subsequent years after the year of declaration ? In the case of a declaration for Assessment year 1997-98 whether wealth-tax exemption is available for Assessment year 1988-89 to Assessment year 1997-98 or not ? Whether the charge of wealth-tax @ 1% will be one-time or recurring ? (This provision has been deleted)

Answer : Under section 73(1)(c) of VDIS, 97 where an asset has been undervalued, and subsequently such under-valuation is disclosed, then to that extent wealth-tax is payable for the year of disclosure as well as earlier assessment year during which the asset was in existence. In respect of assets not at all disclosed, for subsequent assessment years, wealth-tax is payable.

For subsequent years, the value may change,

Question No. 20 : In the case of subsequent sale of assets declared under VDIS, whether the benefit of indexation will be available ? If yes, whether the cost of acquisition will be actual cost or the deemed cost as on 1-4-1987 ?

Answer : Yes. In case of jewellery, the cost of acquisition will be the actual cost and not deemed cost as 1-4-1987.

Question No. 21 : Section 64(2)( i) of the Scheme disentitles a person from making a declaration in respect of an assessment year, if for that assessment year a notice u/s 142 or 148 has been served upon him. What will be the position if a notice u/s 143(2) has been served ? Will it debar the assessee from making a declaration for that assessment year ?

Answer : Issue of section 143(2) notice is not a bar.

Question No. 22 : If an assessment is set aside in appeal, declaration for that assessment year should be permitted. If in the assessment proceedings, say any expenditure has been disallowed, whether this can be offered under VDIS after withdrawal of appeal?

Answer : This cannot be done.

[As regards assessments set aside in appeal, please refer to answer to Question No. 52. The Scheme does not provide for a declaration to be filed after withdrawing an appeal.]

Question No. 23 : The scope of the Scheme should be expanded so as to include cases where —

(a ) action u/ss 132, 133A has been taken.

(b ) appeal is withdrawn, as this will reduce litigation.

Answer : This is not possible. In respect of survey u/s 133A, the declarants are debarred for that previous year only.

[In respect of survey u/s 133A, the declarants are debarred for that previous year only. In respect of searches, please see reply to Question No. 6. NO disclosure can be made for any year by withdrawing an appeal – refer answer to Question No. 22 also.]

Question No. 24 : Say Rs. 100 is held abroad and declared under VDIS. Rs. 30 is paid as tax after remitting into India or out of Indian sources. Whether the balance Rs. 70 or the full Rs. 100, as the case may be, can be retained abroad or whether it must be brought into India before 31-12-1977 ?

Answer : The immunity from prosecution is against the commission of offence under FERA. It is not a permission for continuance of the offence.

Question No. 25 : Immunity has been granted under the Scheme only from penalty and prosecution, but interest has not been mentioned. It may be clarified that interest will not be charged in respect of declarations made under the Scheme for any assessment year ?

Answer : In respect of declared income a flat rate of 30% or 35%, as the case may be, is payable. No interest is payable except interest for late payment of tax on declared income.

Circular No. : 754, dated 10-6-1997

CLARIFICATION 2

Question NO. 26 : If disclosure of income is made in respect of assessment year 1988-89 and this is represented by an asset which has not been disclosed for wealth-tax purposes or which has been under-stated in the return of wealth, whether wealth-tax will be payable and, if so, for which assessment years ?

Answer : Some ambiguity has arisen as a result of the answer given to Question No. 19. It is hereby clarified that if a declaration is made during the period of operation of the Scheme relating to any assessment year, no wealth-tax will be payable by virtue of section 73(1) for any assessment year up to assessment year 1997-98. Wealth-tax will, however, be payable in accordance with the provisions of the Wealth-tax Act on the asset, if any, relatable to the income disclosed in terms of clause (a), ( b) or (c) of section 73(1) for assessment year 1998-99 and subsequent years.

Question No. 27 : Whether survey under section 133A(5) of the Income-tax Act, will also bar a person from making a disclosure ?

Answer : Yes, for the previous year in which the survey was carried out.

Question No. 28 : Whether any evidence regarding purchase of jewellery is to be furnished ?

Answer : It will be in the interest of the declarant to disclose the true year of purchase/acquisition. In case the jewellery declaration in respect of an assessment year prior to assessment year 1987-88, the value for purposes of declaration shall be as on 1-4-1987. Some evidence to show the year of acquisition has to be filed in all cases of declaration of jewellery.

Question No. 29 : A search under section 132 of the Income-tax Act bars a person from making a disclosure in respect of the previous year in which the search took place and also for any earlier previous year. In case, a search warrant is issued in the name of one person, can others who also reside at the same premises and whose statements may have been recorded during the course of the search, make a disclosure of their income ?

Answer : Yes, but not in respect of income, assets, etc., seized during the course of the search or discovered as a result of the search.

Question No. 30 : Will the tax payable in respect of the disclosed income be adjusted by the tax deducted at source earlier in respect of that income ?

Answer : No.

Question No. 31 : Will the tax payable in respect of the disclosed income be adjusted by the tax deducted at source earlier in respect of that income ?

Answer : Yes. There are, however, exceptions under section 64(1A) of the Income-tax Act, and in the following cases, the minor’s income shall not be included in the income of the parents :-

(i) Where the minor child suffers from any disability of the nature specified in section 80U;

(ii) Where income accrues or arises to the minor child on account of any – (a) manual work done by him/her; or (b) activity involving application of his/her specialised knowledge and experience.

Question No. 32 : Whether immunity from levy of penalty in respect of a disclosure is restricted only to penalty under section 271(1)(c) of the Income-tax Act ?

Answer : No. Penalties under other sections would also not be levied for the assessment year(s) to which the disclosure of income relates to.

Question No. 33 : If undisclosed long-term capital gains is offered for taxation under the VDIS, what is the rate at which tax has to be paid?

Answer : The rate of tax specified in section 64 of the Finance Act, 1997, i.e., in the case of a company or a firm, at the rate of 35% of the voluntarily disclosed income and in the case of others, at the rate of 30%.

Question No. 34 : Mr. Y and filed returns for assessment years 1984-85 to 1987-88 under the then Amnesty Scheme. tax was also paid under that scheme. Can he take the advantage of the VDIS and declare further income for the above years ?

Answer : Yes.

Question No. 35 : Action under section 132 of the Income-tax Act was taken in the case of Mr. A on 30-3-1992 and the same was concluded on 5-4-1992. Can he take advantage of VDIS for assessment year 1993-94 and subsequent years ?

Answer : Section 64(2)(ii) of the Finance Act, 1997 lays down that no disclosure of income can be made in respect of the previous year in which a search is initiated or in respect of any earlier previous year. In the case cited above, search was initiated in assessment year 1992-93. Therefore, disclosure can be made (except for the income/assets discovered seized during the search referred to), in respect of assessment year 1993-94 and subsequent years.

Question No. 36 : Survey operations were carried out u/s 133A of the Income-tax Act in case of Mr. ‘D’ on 30-9-1993. Can the make a declaration under VDIS in respect of assessment year 1993-94 and earlier years ?

Answer : If the survey operations were carried on 30-9-1993, i.e., “previous year 1993-94,” no disclosure can be made for “assessment year 1994-95”. The declaration of income can be made for assessment year 1993-94 and earlier assessment year. The declaration can also be made for assessment year 1995-96 and subsequent assessment years.

Question No. 37 : Whether multiple declarations can be made by a person at different time during which the VDIS is in operation and in respect of different assessment years ?

Answer : No.

Question No. 38 : If a person defaults in filing return for the assessment year 1997-98, can he file a declaration for the same year ?

Answer : Yes. Declaration can be filed for the assessment year 1997-98.

Question No. 39 : If return for assessment year 1996-97 has been filed, can a person make a disclosure in respect of this assessment year?

Answer : Yes.

Question No. 40 : Notices u/s 148 are issued in the case of a firm for assessment years 1992-93 to 1994-95 on 15-5-1997. The returns are due within thirty days. Can the firm make a disclosure for assessment years 1992-93 to 1994-95 ?

Answer : Under section 64(2) of the Finance Act, 1997, a person is barred from making a declaration in respect of any assessment year for which a notice under section 148 has been served upon such person and the return has not been furnished before the commencement of the scheme, i.e., 1-7-1997. If the returns has been filed before 1-7-1997, then a disclosure of income can be made for assessment years 1992-93 to 1994-95.

Question No. 41 : Mr. ‘Y’ is engaged in export business. Export income was not disclosed. Whether the amount undisclosed can be declared now ? Whether the gross amount, i.e., the export proceeds has to be disclosed or the net amount after computing the deduction under section 80HHC ?

Answer : If undisclosed income is solely from export business, there may be no need for a disclosure under the VDIS, 1997. However, if the undisclosed income is partly from exports and partly from domestic sales, then the declarant should disclose the net income after allowing for deduction under section 80HHC. The amount that should be disclosed is only the taxable income. the declarant would be will advised to keep with him the calculation sheet.

Question No. 42 : Whether the assessment in whose case quantum additions have been made u/s 143 (3) of the Income-tax Act, and the matter is in appeal, can make a declaration under the VDIS ?

Answer : A declaration can be made but the declarant shall not be entitled to get any relief in appeal, reference or other proceeding in relation to such assessment. Therefore, in case penalty proceedings have been initiated by the Assessing Officer and the quantum addition is sustained, penalty would be levied.

Question No. 43 : Mr. ‘A’ gifted Rs. 2 lakhs to his minor grandson in 1988. The grandson was 10 years’ only at that time. The amount was invested in Units of UTI. Dividend from UTI was deposited in the Bank account of the grandson every year. This transaction was not disclosed to the tax Department, Mr. ‘A’ wants to know how the VDIS can be utilised to regularise this matter ?

Answer : If the amount gifted to the minor grand son was out of undisclosed income, declaration can be made by the grandfather for the assessment years to which the said income relates to. Thereafter, income would have to be disclosed from the units of UTI in the hands of the grandfather upto assessment year 1992-93. From assessment year 1993-94 onwards, income from units would have to be disclosed in the hands of the parent of the parent up to the year when the grandson becomes a major.

Question No. 44 : Is the certificate to be issued in all cases by the Commissioner where a declaration is filed or only where an application is made ?

Answer : The certificate will be issued only after the total tax is paid in respect of a declaration. the certificate will be issued only on the receipt of an application. The application can be made on plain paper.

Question No. 45 : Whether a person who makes a declaration as karta of an HUF, can be questioned subsequently in respect of income accruing on the disclosed income with regard to the correctness of the status ?

Answer : No.

Question No. 46 : A person declares that his entire undisclosed income is invested in the construction of a building. Whether the Department would sub-sequently get the building valued ? Also, whether it would take action against the person if excess amount of investment is discovered ?

Answer : It is expected that the true investment will be disclosed under the scheme. No valuation would, therefore, be got done by the Department. However, if on the basis of other information, it is found that a higher amount was invested that the amount disclosed, then suitable proceedings under the Act can be taken in respect of the difference between the true value of investment and the amount disclosed.

Question No. 47 : ‘A’ purchases shares for Rs. 25 lakhs in previous year 1992-93 relevant to assessment year 1993-94. The shares were transferred in his name in assessment year 1994-95 when the market value was Rs. 28 lakhs. The current market value of the shares is Rs. 5 lakhs. On what value and for which year, should the disclosure be made ?

Answer : Investment in shares was made in previous year 1992-93 relevant to assessment year 1993-94, out of undisclosed income. The undisclosed income may relate only to assessment year 1993-94; in which case, the disclosure should be of Rs. 25 lakhs.

Question No. 48 : If disclosure is made on 31-12-1997, would the declaration be held to be valid if total tax payment is made by 31-3-1998?

Answer : Yes.

Question No. 49 : There will be cases where the income disclosed in the declaration from is less than the gross income. The cash to be introduced in the books of account will cash to be introduced in the books of account will consequently be a higher amount. This may create complications at a later stage when the Assessing Officer will only accept the amount specified in the declaration from. What should be done in such cases ?

Answer : Immunity is only is respect of income disclosed. The Commissioner of Income-tax will not go into the computation of income disclosed. The declarant would be well advised to keep with him the calculation sheet.

Question No. 50 : If a search is carried out after a declaration is made, what would be the consequences for the declarant ?

Answer : In respect of amount covered by VDIS no tax would be payable. The declarant will get the benefit of no levy of penalty and no prosecution would be initiated in respect of the disclosed income. In respect of any income other than the disclosed income discovered during the search, or computed on the basis of evidence gathered, the assessee will be liable to tax, interest, penalty and prosecution.

Question No. 51 : If the beneficial owner of a property makes a declaration of income in respect of a property held benami, whether he would get immunity under the Benami Transactions (Prohibition) Act, 1988 ?

Answer : Under the VDIS there is no immunity under the Benami Transactions (Prohibition) Act, 1988. However, in such a case income-tax Department will accept the declaration and treat the asset as belonging to the declarant.

Question No. 52 : Whether a declaration can be made in respect of assessment year for which assessment has been set aside ?

Answer : Where an assessment order has been completely set aside, the assessee can make a declaration for that year because on the date of declaration there is no surviving assessment. Where an assessment order has been partially set aside, the declaration can be made only with regard to the items of income which were not subject-matter of assessment and those which have been set aside.

Circular : 755 dated 25-7-1997

CLARIFICATION 3

MINUTES OF ASSOCHAM MEETING WITH CBDT ON
VDIS, 1997 HELD ON 23-7-1997

Question No. 1: Whether the Department will ask any question in relation to the capacity to earn, source of income or nature of earning in the case of income voluntarily disclosed by ladies, minors or HUFs ?

Answer : No such question would be asked by the Department in regard to the nature or source of earning in respect of the income disclosed by any declarant, including ladies, minors and HUFs.

Question No. 2: In the case of a company making a declaration under VDIS, where the income declared is represented by an asset which is held by a director or shareholder having substantial interest, will such holding of the asset by the concerned director or shareholder attract the provisions in relation to deemed dividend under section 2(22) of the Income-tax Act?

Answer : The provisions of section 2(22) will not be attracted in case where income declared by the company is represented by an assets held on behalf of the company by its director/shareholder.

Question No. 3: In view of the provisions of section 64(1) of the Finance Act, 1997, can a person declare [subject to the provisions of section 64(2)] any income for assessment year 1962-63 to assessment year 1997-98, which falls under clause 64(1)(a), (b) or (c) ?

Answer : Yes.

Question No. 4: Can a declaration for assessment year 1997-98 be filed by a person after the due date for filing the income-tax return under section 139(1) of the I.T. Act, but before the last date under the Scheme, i.e. , 31st December, 1997 ?

Answer : Yes.

Question No. 5: If the proceedings are initiated under section 132, 132A or 133A, after the filing of the declaration by the declarant but before the payment of taxes under the Scheme within the stipulated period of three months, whether the declarant would be entitled to immunities under the Scheme in respect of the income already declared ?

Answer : Yes.

Question No. 6: Section 64(2)(ii ) prohibits disclosure of income in respect of the previous year in which a search under section 132 was initiated or in respect of earlier previous years. This implies restriction in the case of a person in whose case search proceedings are initiated under section 132 by issue of search warrant. Keeping this in view, can disclosure be made for the earlier years, in a case which in inter-connected with some search proceedings, but where no direct search is initiated or no search warrant is issued under section 132 ?

Answer : Yes, there would be not bar for disclosure such cases where no direct is initiated under section 132.

Question No. 7: Section 69 states that the voluntarily disclosed income shall not affect finality of completed assessments. However, there seems to be no bar on making disclosure of income for any assessment year for which the assessment proceedings are pending finalisation or are under progress by way of scrutiny assessment (or even under course of investigation) under section 143(2) and availing relevant immunities under the Scheme in regard to such disclosure. Kindly clarify ?

Answer : A declarant avail immunities the Scheme in respect of any income disclosed before the finalisation of the assessment proceedings, even if detection of such undisclosed income is made during the course of scrutiny or investigation. Where an assessment is completed, immunities can be availed only in respect of any income disclosed which is over and above the assessed income. What section 69 prescribes is that the declarant shall not be entitled to claim any set off or relief in respect of the voluntarily disclosed income towards any income already assessed.

Question No. 8: Where during the course of the appeal proceedings, the entire assessment has been set aside and the Assessing Officer is required to frame an altogether fresh assessment order, can the declarant make disclosure of income for the concerned assessment year ?

Answer : If on the date of declaration, there is no surviving assessment, there should not be any difficulty for the declarant to make any disclosure for the concerned assessment year.

Question No. 9: Section 64(1) of the Finance Act, 1997 refers to disclosure of “any income chargeable to tax under the Income-tax Act”. This implies that income exempt under section 10 need not be disclosed. Similarly, the income chargeable to tax needs to be computed in accordance with the provision of the Income-tax Act. Kindly confirm the current position in this regard ?

Answer : The disclosure of the income under the Scheme is required to be made in respect of “income chargeable to tax” as per the provisions of the Income-tax Act and hence the income exempt under section 10 need not be disclosed. Similarly, the computation of income chargeable to tax would be in accordance with the provisions of the Income-tax Act.

Question No. 10 : It needs to be clarified that no wealth-tax will be payable by the declarant for any assessment year upto and including the assessment year 1997-98 in respect of the assets specified in the declaration made as representing his voluntarily disclosed income. This is the only view that can be logically considered in the light of the clear provisions of section 73(1) of the Finance Act, 1997. Confusion has arisen in this regard on account of the erroneous interpretation as contained in the CBDT’s Circular No. 753 (para 11) and Circular No. 754 (answer to question No. 19).

Answer : There will be no wealth-tax liability on the declarant in respect of the assets specified in the declaration made as representing his voluntarily disclosed income right from the year of disclosure up to assessment year 1997-98. The wealth-tax liability in respect of the disclosed assets shall arise only from assessment year 1998-99 onwards. The interpretation in this regard as contained in Circular Nos. 753 and 754 to the above extent should be read as duly modified.

Question No. 11 The sale of an immovable property was originally shown at Rs. 7 lakhs. The declarant now discloses the correct sale value at Rs. 15 lakhs and pays the tax at the rate of 30% on the difference. Would he be held liable to prosecution or fine under section 276AB of the Income-tax Act for contravening the provisions of Chapter XXC of the Income-tax Act ?

Answer : In view of the provisions of section 71 of the Finance Act, 1997, the declaration made under section 64(1) not being admissible as evidence against the declarant for any proceedings relating to imposition of penalty or for the purpose of prosecution under the Income-tax Act, the question of any prosecution or fine under section 276AB would not arise.

Question No. 12 : Can the Assessing Officer initiate penalty proceedings under section 271A for failure to maintain accounts, 271B for failure to get accounts audited, 271C for failure to deduct tax at source, sections 271D and 271E for failure to comply with the provisions of section 269SS and 269T, in regard to connected transactions which give rise to such undisclosed income which is declared under the Scheme ?

Answer : In view of the provisions of section 71 of the Finance Act, 1997 which clearly assure that the declaration shall not be admissible in evidence against the declarant for the purpose of any penalty or per section under the Income-tax Act, no such penalty proceedings can be initiated by the Assessing Officer with reference to any transaction which relates to the income declared under the Scheme.

Question No. 13 : Keeping in view the reply to question No. 18 under the CBDT’s Circular No. 754 dated 10-6-1997, in case the declarant declare his undisclosed income as lying in the form of “receivables”, recoverable from the debtors and credit the same in his books of accounts after 31-121997 ?

Answer : There should be no difficulty for the declarant in doing so.

Minutes: Assocham meeting dated 23-7-1997.

OTHER CLARIFICATIONS

CLARIFICATION REGARDING JEWELLERY

AFFIDAVIT FOR JEWELLERY : PRESS RELEASE DATED NIL

Circular No. 755 issued under the Voluntary Disclosure of Income Scheme, 1997 laid down that all jewellery declarations have to be supported by some evidence to show the year of acquisition. The Central Board of Direct Taxes has clarified that, inter alia, an affidavit by a declarant or other person specifying the year of purchase of jewellery would constitute evidence. In case the jewellery was valued for some purpose, a copy of the valuation report mentioning the date of valuation would also be treated as ‘some evidence’ regarding the year of acquisition.

AFFIDAVIT FOR JEWELLERY : EXTRACT OF MEMBER (INV.)’S D.O. LETTER NO. M(INV)/VDIS/97/3153, DATED AUGUST 8, 1997
ADDRESSED TO ALL CHIEF COMMISSIONERS OF
INCOME-TAX AND ALL DIRECTORS OF INCOME-TAX (INV.)

It is hereby clarified that “Some evidence” as mentioned in answer to question No. 28 in Circular No. 755 will include—

(a) an affidavit or a self-declaration by the declarant mentioning the year of purchase of jewellery;

(b) in case the jewellery was acquired at the time of marriage, a declaration to that effect mentioning the date of marriage;

(c) where the jewellery was valued earlier for some purpose, a copy of the valuation report mentioning the date of valuation will be treated as “some evidence”;

(d) if the jewellery was inherited from someone and was not declared, an affidavit or a self-declaration that states that the property was inherited from Mr. ………. in the year ……..

VALUATION OF JEWELLERY : EXTRACT OF MEMBER (INV.)’S D.O. LETTER NO. M(INV.)/VDIS/97, DATED AUGUST 14, 1997
ADDRESSED TO ALL CHIEF COMMISSIONERS OF INCOME-TAX
AND ALL DIRECTORS GENERAL OF INCOME-TAX (INV.)

A doubt has been raised in some quarters that where jewellery or bullion is acquired during the previous year, relevant to the assessment year 1987-88 or subsequent years whether the valuation as on 1-4-1987 should be taken as the value. The confusion has arisen because of answer to question No. 16 in Circular No. 754, the point has been made clear while answering question No. 28 of Circular No. 755. It is confirmed that where the jewellery or bullion was acquired during the previous year relevant to assessment year 1987-88 or subsequent years, the value at the time of acquisition will be taken to be the value, This point may be clarified to all the officers as well as to the tax payers, Declaration filed without affidavit prior to the issue of the press note shall be treated as valid.

SILVER UTENSILS : DO NO. 3760/M/INV.-VDIS/97, DATED 3-10-1997

Reference has bee received from several Commissioners as to the treatment to be given regarding disclosure of silver utensils and other articles which are not covered by the definition of jewelery like gold/ silver coins, watches. The law as it stands now does not prohibit declaration of silver utensils or other assets which are to covered by the definition of jewellery at the value at which they were acquired. Therefore, in all cases of such declarations, the assessee should be asked to file an affidavit indicating period of acquisition of those articles and also the number/weight of these articles and on receipt of this affidavit, declaration should be accepted and certificate should be issued as per law.

WHERE DECLARED JEWELLERY TO CLAIMED TO HAVE BEEN SOLD : DO NO 3965/M/INV.-VDIS/97, DATED 16-10-1997

Instances have come to notice where declarants have declared jewellery but have also claimed that they has sold these prior to the date of declaration. According to the scheme, the declarant has to declare the asset that he holds at the time of making the declaration. Therefore, such declarations are contrary to the provisions of the Scheme. Such cases of declarations should not be accepted. Necessary instructions may be issued to the Commissioners.

VALUATION OF JEWELERS : CC/CO-ORDN./PRO/VDIS-Q/97-98,
DATED 10-10-1997*

It has been brought to the notice of the Chief Commissioner that under the VDIS some disclosures are being made in terms of “packet of loose diamonds” giving gross weight of these diamonds. This has raised some confusion leading to complication in issue of certificate for such declaration.

2. The matter has since been examined and has been looked into by the CCIT. I am directed to say that under rule 8D of the Wealth-tax Rules, the valuation report in respect of jewellery including precious metals (diamonds) is required to be submitted in Form O-8 of W.T. Rules.

Further, the prescribed from for statement of valuation of jewellery is given in Form No. O-8A of the W.T. Rules. This Form also required mentions of value of each precious or semi-precious stone.

LETTER D.O. NO. 296/31/97-IT (INV. III), DATED 25-11-1997

Instruction were issued by letter dated 3-10-1997 to the effect that in the case of disclosure of silver utensils/gold or silver coins, etc., which are not covered by the definition of “jewellery”, the value as on the date of acquisition will be adopted for the purpose of determining income under VDIS. It was also mentioned that an affidavit indicating the period of acquisition of those articles could be treated as evidence of period of acquisition.

2. It is notice that a large number of unscrupulous tax-payers are misusing the provision and declaring unusual amount of silver articles, utensils, gold coins which as per their claim were acquired long back, say 1963-64, etc. Apparently, this is an attempt to reduce the burden of tax as value of silver in those days was much below the value that prevails now.

3.The matter has been reconsidered by the Government. It is now decided that in all such cases of unusual declaration of silver articles, utensils, gold or silver coins, watches, etc., it should be treated as if they have been acquired in the current year unless the declarant is able to produce credible and satisfactory evidence about the year of acquisition. A simple affidavit would not suffice. Where such evidence is not produced, the value as on 1-4-1997. In cases where certificates have already been issued, the Commissioners concerned should call the declarants and ask them to produce credible and satisfactory evidence of the year of acquisition, failing which the Commissioners should take steps to review the certificates.

PRESS NOTE, DATED 3-12-1997

Queries have been raised in certain quarters as to what is meant by the term ‘jewellery’ under the VDIS, 1997. It had been clarified through Circular No. 753, dated 17th June, 1997, that the expression “jewellery” shall have the same meaning as assigned to it in Explanation (a) to clause (ea) of section 2 of the Wealth-tax Act, 1957/Explanation 1 to clause (viii) of section 5 of the Wealth-tax Act, 1957. As per this definition “jewellery” includes,—

(i) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel;

(ii) precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing appeared.

This definition applies to disclosures and declarations made under VDIS. The date for purposes of valuation will be 1-4-1987 for acquisitions made prior to that date. For acquisitions made subsequent to 1-4-1987, the year of acquisition will be the relevant year for valuation.

CBDT hopes that this Press Release will set at rest unnecessary and erroneous impressions on this issue.

In respect of valuable articles such as silver utensils, gold coins, etc., not falling within the definition of ‘jewellery’, the CBDT communication dated 25-11-1997 (see below) will apply. A quick review of the information furnished by the Commissioners indicates that there were only a small number of cases (out of the several thousand declarations) where the quantity of disclosed silver utensils, gold coins, etc., appears to be of an unusual nature. It is only these small number of cases which will be reviewed by the Commissioners concerned. In all other cases, where the quantity of disclosed silver utensils, gold coins, etc., is normal, the Commissioner’s certificate will stand and will not be reviewed. New declarations of a normal nature will also continue to be accepted and certificates will be issued promptly. The object of the communication dated 25-11-1997 was to curb any obvious misuse of VDIS, and it is hoped that this objective will be appreciated by the general public.

PERMISSION TO HOLD ASSETS ABROAD UNDER VDIS :
PROCEDURE FOR FERA CLEARANCE

RBI’S PRESS RELEASE DATED 4-7-1997

The Government of India has introduced the Voluntary Disclosure of Income Scheme (VDIS), 1997 as indicated in Chapter IV of the Finance Act, 1997. Those wishing to take advantage of the Scheme, are inter alia, required to furnish details of the assets held by them, the name in which the assets are held and the amount. If the assets declared include assets held abroad then such declarants will required to obtain permission under the provisions of the Foreign Exchange Regulation Act (FERA) to hold assets abroad.

In pursuance of the announced Scheme it has been decided that declarants will be given permission under FERA to hold; (i) immovable properties up to one house or one flat/apartment; (ii) existing investments in shares, securities, bonds, debentures, and life insurance policies provided that in the case of insurance policies, bonds and debentures, the maturity value will not be allowed to be reinvested in any manner and should be repatriated to India on maturity and (iii) fixed deposits, provided that they will be allowed to run till their maturity and the proceeds will be repatriated thereafter. Current/Saving accounts will be allowed to be maintained if these is neat to do so for purposes such as collection of current income on investments, etc., subject to maintenance of minimum necessary balances. Excess over the minimum balance should be repatriated to India.

Those wishing to take advantage of the VDIS and declare assets abroad should approach the Reserve Bank of India for necessary permission in Form FAD-I indicated in Exchange Control Manual Vol. 11 together with a copy of the certificate issued by the Commissioner of Income-tax within 30 days of receiving the certificate.

OTHER CLARIFICATIONS

CALCULATION OF INTEREST : DO NO. 3953/M/INV/VDIS/97, DATED 15-10-1997

Doubts have been raised as to method of calculating interest on delayed payment of tax under VDIS-1997. The matter has been considered in the Board and it is decided that the period of 30 days will constitute a month and to be calculated with reference to date of filing of declaration. However, for period short of 30 days, interest will be charged for the entire month. The following example will clarify the position :—

A files declaration on 25-8-1997 and pays taxes on 3-10-1997.

In this case, the period of delay will be reckoned as under :—

25-8-1997 to 24-9-1997 – One month

25-9-1997 to 3-10-1997 – Part of a month. However, interest will be charged for the whole month. Thus, in the above example, A will have to pay interest for two months.

INSTRUCTIONS ISSUED BY RESERVE BANK OF INDIA TO ALL ITS PUBLIC ACCOUNTS DEPARTMENTS AND CHAIRMAN/MANAGING DIRECTORS OF STATE BANK OF INDIA AND ITS ASSOCIATES AND 14 BANKS (NATIONALISED IN 1969). VIDE GB NO. 2/42.01.001-98-99,
DATED JULY 1, 1997 AND GB NO. 3-42.01.001-99-98 DATED JULY 1, 1997

We advise that the Voluntary Disclosure of Income Scheme has come into force with effect from 1st July, 1997. Under the scheme any individual, HUF, Company, Trust, NRI etc. can declare undisclosed income and pay tax at 30% (35% for corporates and firms). According to the Income-tax Department, the scheme covers declarations of income, cash, jewellery, property and any other asset in India or abroad. The person making a disclosure would have to file a declaration in a prescribed form before the Commissioner of Income-tax.

2. Accordingly, the declarations will be approaching your bank’s branches for payment of the tax under the scheme. It will be necessary for your office to make adequate arrangements for receipt of such taxes. It should be noted that no assessee/declarant should be turned away under any circumstances. As regards the form of declaration and the attendant formalities etc., the assessee declarant may be advised to approach the Commissioner of Income-tax as the required forms are available in the Income-tax Department.

3. Necessary instructions in the matter during the branches to gear up the machinery for receipt of taxes under VDIS, may be issued immediately. It may also be made clear that the currency chest branches should not refuse to accept the remittances/deposits from other bank branches at the centre during the currency of the scheme.

CLARIFICATION REGARDING FERA : PRESS RELEASE DATED 18-6-1997

Section 71 of the Finance Act, 1997 provides that a declaration under the VDIS shall not be admissible in evidence against a declarant for the purpose of any proceeding relating to imposition of penalty or for the purposes of prosecution under four Acts, including FERA. In the first place this section provides a rule of evidence. Secondly, it is obvious that this section will apply only in the case of “undisclosed” income which is disclosed under the VDIS. Where proceedings have been initiated against a person under FERA or a summons has been issued to him or an enquiry is pending against him or a prosecution has been launched against him, it is obvious that he cannot purport to “disclose” any income, which is the subject matter of such proceedings. The rule of evidence contained in section 71 would have no application in such a case. Those proceedings will, therefore, continue in accordance with the law. Hence, no unusual benefit will be conferred under the VDIS upon persons who are facing enquiries or proceedings or prosecutions under FERA.

The Ministry of Finance has also clarified that surveys, searches etc. under the Income-tax Act as provided for under various sections will continue and the VDI Scheme will in no way interfere with the normal action of the Government.

AUTHORISED BANK BRANCHES AND RBI TO ACCEPT VDIS TAXES : RBI’S PRESS RELEASE, 1997-98/5

The Reserve Bank of India has advised all its offices handling Government work (acceptance of direct taxes) and all controlling offices of State Bank of India, its associates and public sector banks to make adequate arrangements to receive taxes under the Voluntary Disclosure of Income Scheme (VDIS). Banks have also been instructed to advise all their branches authorised to collect income tax to gear up their machinery and ensure that all assessees/declarants are in a position to pay the taxes without any difficulty.

It may be noted that under the VDIS announced by the Government which commenced today, special challans have to be collected from the office of the Income-tax Department before depositing taxes in authorised bank branches.

CLARIFICATIONS BY CHIEF COMMISSIONER, BOMBAY

CLARIFICATIONS DATED 12-9-1997

Question No. 1: Whether excessive expenditure claimed against income from other sources in a return filed in July, 1997 for assessment year 1996-97 (after the commencement of VDIS) can be disclosed under the Scheme.

Answer : Yes

Question No. 2: An assessee received NRI Gift of Rs. 1 lakh under the Foreign Exchange (Immunities) Scheme 1991 during the assessment year 1993-94. The said assessee received summons under section 40 of FERA Authorities. Till date he has not received notice under section 148 of the Income-tax Act. Whether the above amount of Rs. 1 lakh can be disclosed under VDIS 1997.

Answer : No. It cannot be disclosed under VDIS.

Question No. 3: In respect of deduction under section 80-O claimed at an higher figure in the return of income filed, whether a negotiated settlement can be made with the Commissioner of Income-tax in respect of dispute relating to deduction under section 80-O and such amount can be disclosed under VDIS.

Answer : Since the VDIS does not provide for any settlement procedure, no prior ruling binding on Assessing Officer can be given by the C.I.T. However, problems in individual cases, if any, can be discussed with the Commissioner.

Question No. 4: Whether VDIS can be made under the following circumstances :

(a ) A.Y. 1992-93 : Notice under section 148 issued before 1-7-1997 and return filed before 1-7-1997.

(b ) A.Y. 1993-94 : Notice under section 148 issued after 1-7-1997 and return to be filed as on 27-8-1997.

(c ) A.Y. 1994-95 : No Notice under section

& 1995-96 148 issued so far.

(d ) A.Y. 1996-97 : Assessment proceedings in progress.

Answer : Yes

Question No. 5: Whether disclosure can be made under VDIS in relation to a deduction claimed from gross total income in the return of income filed for the assessment year 1996-97 as the assessee apprehends that the deduction claimed may not be allowed in the light of a view taken by the Department on the issue which came to the notice of the assessee after filing the return of income. The assessment proceedings for assessment year 1996-97 are already in progress and the Assessing Officer has called for certain details in respect of the deductions claimed.

Answer : Yes

Question No. 6: Whether disclosure under the VDIS will be permissible in relation to deductions claimed from gross total income in the returns of income for years prior to assessment year 1996-97 under each of the following different circumstances,

(i ) The assessment has already been completed, granting the deductions, and a Notice under section 148 was issued before 1-7-1997 and the return was also filed before 1-7-1997.

(ii ) The assessment has been completed granting the deduction and a Notice under section 148 is issued after 1-7-1997 but return of income has not been filed so far.

(iii ) The assessment has been completed granting the deductions and a Notice under section 148 has been issued after 1-7-1997 and the return of income has been filed in pursuance of the said Notice.

(iv ) The assessment has been completed granting the deductions but no Notice under section 148 has yet been issued and there is still time for issuing Notice under section 148 and the assessee apprehends that the deductions already granted may be sought to be disallowed by re-opening the assessment under section 148 in the light of the view taken by the Department on similar issues in other cases.

Answer : Under section 64(2)(i) of the VDIS 1997 the benefit of the disclosure is not available only in respect of the assessment year for which notice under section 148 of the Income-tax Act has been served upon the declarant and the return has not been furnished by the declarant before the commencement of this scheme (1-7-1997). In all other cases the benefit of declaration will be available to the declarant.

Question No. 7: If the Answers to the above questions are positive, whether the Assessing Officer is bound to consider the disclosures while framing the assessment for assessment year 1996-97 and the re-assessments for earlier years and NOT make any addition in respect of the deductions claimed earlier but in respect of which VDIS Declarations have been filed, tax paid and intimation given to Assessing Officer.

Answer : While completing the re-assessment the Assessing Officer will allow the benefit of disclosure under VDIS in respect of the income disclosed over and above the returned/assessed income.

Question No. 8: Whether an intimation by the assessee to the Assessing Officer, enclosing a fresh tax computation in which deductions are NOT claimed would be treated as sufficient compliance with the requirement of ‘credit’ in “any other records”?

Answer : Yes

Question No. 9: ( a) If a notice under section 148 or 142 (1) is issued after the scheme becomes operational (i.e. after 1st July, 1997), can the assessee take the benefit ?

( b) If yes, whether the filing of return in response to notice under section 148 or 142 (1) is a condition precedent ? And if so, whether the declaration is required to be filed before filing of the return or the same can be filed after filing of the return ?

Answer : ( a) Yes.

( b) Filing of the return in response to notice under section 148 or 142(1) is not a condition precedent in the circumstances stated above.

Question No. 10 : The immunity provided under section 71 of the Finance Act being confined to the provisions of the Income-tax Act, Wealth-tax Act, FERA and Company Law, would a person making a declaration in respect of the gold ornaments owned, possessed or held by him (out of undisclosed income) become liable for penal action under the Gold Control Act, which was in force until June, 1991, if his holding together with items covered under the declaration exceed the ceiling laid down under the said Act ?

Answer : Since Gold Control Act, 1968 has been repealed in June 1990 by the Gold (Control) Repeal Act, 1990 the question of penal action or starting of enquiry under the said Act does not arise.

Question No. 11 : Can a dealer in gold ornaments and jewelleries make a declaration in respect of the undisclosed stock in gold ornaments, diamonds and other precious stones by adopting the valuation as on 1st April, 1987 in respect of the purchases of the said items made before the said date ?

Answer : Yes

Question No. 12 : Considering such a dealer was liable to file or make certain declaration in respect of his personal holdings of gold ornaments as well as the stock in trade before the Gold Control Authorities, whether such a declaration under the VDIS, would be starting point for initiating penal action under the said Gold Control Act ?

Answer : Since Gold Control Act, 1968 has been repealed by the Gold (Control) Repeal Act, 1990 the question of penal action or starting of enquiry under the said Act does not arise.

Question No. 13 : Under the provisions of the Gold Control Act, even the partners of a firm dealing in gold ornaments, were under an obligation to make a declaration of their personal holding and even subsequent acquisition so long as the said Act was in force, and even whether a declaration under the VDIS now made covering certain items of Gold Control Act render the person concerned liable for penal action under the said Act ?

Answer : Since Gold Control Act, 1968 has been repealed by the Gold (Control) Repeal Act, 1990 the question of penal action or starting of enquiry under the said Act does not arise.

Question No. 14 : A trader makes a declaration under the VDIS covering all the realisable investments and advance made by him out of his undisclosed earnings, ignoring certain debts, which he considered to be not realisable. Can such a person subsequently on realisation of the said debts or on being assured of its recovery file a second/revised declaration subsequently ?

Answer : No. Please refer Answer to question Nos. 18 and 37 issued by CBDT vide Circular Nos. 754 and 755.

Question No. 15 : In so far as no immunity has been provided by the State Governments under the Sales Tax Laws, can a dealer make a declaration in respect of his unaccounted purchase and sales not of the estimated sales tax liabilities under such sales tax laws and yet claim full immunity under the Income-tax Act in respect of the entire gambit of such transactions ?

Answer : In view of provisions contained in section 43B of Income-tax Act, 1961 a deduction of sales tax is allowed from income on actual payment basis. Declarants are advised to claim such deductions only in the year of actual payment.

Question No. 16 : Will a person in the event of search and seizure be entitled to immunity in respect of the items covered in the declaration, which though handed over to his tax consultants or advocates for submission to tax authorities, has remained to be submitted till the date of such search and seizure action or where such a declaration is in course of transmission by post or otherwise; presuming that the declarant has not made the payment with interest as provided under the Scheme ? Will it make any difference, if the tax has been paid before hand ?

Answer : The declarant will get the benefit of declaration only if he has either filed a declaration or made a payment of VDIS tax before the search.

Question No. 17 : A trader who in good faith makes a declaration of the concealed profits arising out of the cost of goods having been inflated in the past years, and if the trader is not in a position to maintain the adjusted gross profit margin as emerging in the subsequent year, will the tax authorities be justified in drawing adverse inference from the declaration so made under the VDI Scheme ?

Answer : The fact of declaration under the VDIS will remain confidential and therefore would not come into the consideration of the tax authorities while making the assessment in respect of the year other than the year of declaration.

Question No. 18 : In the context of the proceeding which are pending in the cases of a bank involved in the charge of money laundering, can a person holding term deposits with the said bank in fictitious name make a declaration in respect of such investments in term deposits under the VDI Scheme, particularly considering that so far no action has been initiated against the declarant in respect of the said deposits receipts and that he has not lodged any claim before the tax authorities in this behalf ?

Answer : If the fact of the term deposits has been discovered in the course of search and seizure or survey action the deposit holder cannot make the declaration in view of the provisions of section 64(2) and section 78. This is also explained in Q. Nos. 29 and 35 of Circular No. 755.

Question No. 19 : If undisclosed assets are declared and related to voluntary disclosure income, then section 73(1) and the CBDT’s clarification exempts them from the levy of wealth tax up to the assessment year 1997-98. But if undervaluation of assets is disclosed, whether such exemption would be available raises a debatable question. Logic demands that exemption should be available even for such disclosure ?

Answer : Such undervaluation is covered by the Scheme and wealth-tax on enhanced valuation will be payable from assessment year 1998-99 and onwards.

Question No. 20 : Section 64 of the Finance Act, 1997 states declaration under VDIS can be furnished in respect of income for any assessment year for which there has been a failure to disclose income in a return furnished under the Income-tax Act before the date of commencement of this Scheme. To claim VDIS benefits under such circumstances, returns should have been furnished before commencement of the Scheme. So anyone who has not furnished return of income for assessment years 1996-97 and 1997-98 before the commencement of VDIS cannot furnish declaration under the said Scheme for such assessment years. The benefit proposed to be given to non-filers of returns is, prima facie, extra legal ?

Answer : Such declarants are covered by the scheme.

Question No. 21 : A Partnership firm have accumulated over the years certain credits in their suppliers accounts. These credits are not payable as they represent credit notes which has been adjusted by the firms while settling the bills. This being a 44AB case, in case the partnership firm disclose whether the Auditor is protected ?

Answer : Yes.

Question No. 22 : A Partnership firm has to pay 35 per cent Income-tax under the Disclosure Scheme. To save 5 per cent, can the income of the partnership be transferred to partners account and declare under individual disclosures.

Answer : Since the income belongs to the firms and not the partners, the firm has to make the disclosure.

Question No. 23 : What is the method of valuing jewellery, will the Government and tax people accept my valuation date ?

Answer : The jewellery has to be valued by a Government approved valuer and supported by a affidavit or other evidence that it was purchased on the said date of purchase.

Question No. 24 : Does that mean that first valuer’s report and then affidavit must be obtained. How can we know who all are valuer approved by the Government ?

Answer : They can be obtained in whatever sequence, it does not matter as long as both are submitted along with the declaration. The list of approved valuers is available in all Income-tax Offices.

Question No. 25 : A Partnership Firm wish to file declaration under VDIS for the assessment year 1996-97. Can the firm file a combined return consisting of its regular income in the year as well as hitherto undisclosed income for previous years.

Answer : No. It has to file separate declaration for VDIS in respect of all the hitherto undisclosed income.

Question No. 26 : Can a minor child avail of the VDI Scheme ? Can a minor child of an NRI (foreign passport holder) also declare ?

Answer : Yes.

Question No. 27 : If the Answer is yes, who makes the declaration on the minor’s behalf ?

Answer : The guardian can sign the declaration.

Question No. 28 : Whether declarants under the VDIS Scheme be actually immune from future prosecution ? Can laws be changed in the future ?

Answer : The VDIS Scheme has Parliamentary approval. The benefit of disclosure will be available.

Question No. 29 : Whether, when the declarant desires to disclose the investment in cash purchase of stock in a sum of Rs. 5 lakhs in VDIS 1997, he will have to separately, apart from Rs. 5 lakhs, disclose 20 per cent of Rs. 5 lakhs (i.e. 1 lakh) under section 40A(3) of the Income-tax Act, 1961.

Answer : Disclosure of Rs. 5 lakhs will cover entire cash purchase.

Question No. 30 : What are the formalities for bringing back money from outside ?

Answer : In this regard a press release has been issued by Alpana Killawala, Deputy General Manager, Reserve Bank of India on 4th July, 1997. The relevant part of the press release is as below :

“In pursuance of the announced scheme it has been decided that declarants will be given permission under FERA to hold, (i) immovable properties upto one house or one flat/apartment (ii) existing investments in shares, securities bonds, debentures, and life insurance policies, provided that in the case of insurance policies, bonds and debentures, the maturity value will not be allowed to be reinvested in any manner and should be repatriated to India on maturity and (iii) fixed deposits, provided that they will be allowed to run till their maturity and the proceeds will be repatriated thereafter. Current/savings accounts will be allowed to be maintained if there is need to do so for purposes such as collection of current income on investments, etc., balance. Excess over the minimum balance should be repatriated to India.

Those wishing to take advantage of the VDIS and declare assets abroad should approach the Reserve Bank of India for necessary permission in Form FAD-I indicated in Exchange Control Manual Vol. II together with a copy of the certificate issued by the Commissioner of Income-tax within 30 days of receiving the certificate”.

* Subject to maintenance of minimum necessary.

CLARIFICATION DATED 29-8-1997

Question No. 1: Whether the certificate can be issued by speed post ?

Answer : The choice may be left to the declarant; i.e., if he desires the certificates to be issued to his Authorised Representative, it may be delivered to the Authorised Representative. If he desires it to be despatched by speed post it may be so despatched.

Question No. 2: Whether loose diamonds are jewellery ?

Answer : Clause (iii) of section 73(1) of the VDIS-1997 provides that the term jewellery shall have the same meaning as assigned to it in Explanation 1 to clause (viii) of sub-section (1) of section 5 of the Wealth-tax Act. The said explanation defines jewellery as under :

“(a) Ornaments of gold, silver, platinum or any other precious metals or any other alloy containing one or more of such precious metals, where or not containing any previous or semi-precious stone, and where or not worked or sewn into any wearing apparel;

(b) Precious semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel.”

In view of the above, the loose diamonds are covered within the meaning of jewellery. Silver/gold utensils will also be covered within the definition of jewellery.

Question No. 3: Whether declaration can be made in respect of assessment years where time for filing return has not expired and also the returns of income have not been filed ?

Answer : Where the date for filing the Return has not expired and the assessee has not filed the Return, the declaration will be covered by the scheme.

Question No. 4: Whether in respect of gifts received self declaration will constitute evidence ?

Answer : This point is covered by para-2(b) of Member Investigation’s letter No. M/Inv./VDIS/97, dated 8-8-1997 wherein it is stated that in case the jewellery was acquired at the time of marriage a declaration to that effect mentioning the date of marriage will be covered by some evidence.

Source : MC No. 266/Form(M)/VDIS/1997-98.

PRESS RELEASE DATED 27-8-1997

One of the frequently sought clarification in respect of VDIS is whether in cases where taxes in VDIS challan are deposited in the bank in Government account periodically and if search is conducted before making the declaration but after payment or part payment of tax, the declarant would get the benefit or proportionate benefit of the VDIS.

The matter has been considered by the CBDT. It is clarified that if the declarant is holding the relevant challan for VDIS payment, then to that extent, he would enjoy protection of the VDIS. The declarant would not be denied the benefit of the Schedule if he has already made the payment of tax which is done in terms of a special challan even if there is delay in making the declaration and search action takes place before declaration is filed.

PRESS NOTE DATED AUGUST, 1997

1. Central Board of Direct Taxes has further clarified certain aspects of this Scheme.

2. As regards Wealth-tax liability in respect of Income disclosed under VDIS is clarified that no Wealth-tax is payable for any assessment year upto assessment year 1997-98 irrespective of the assessment year for which the income disclosed under the Scheme.

3. As regards disclosure of income represented by jewellery declared in respect of an assessment year prior to assessment year 1997-98 some evidence to show the year of acquisition has to be filed with the declaration, which should also accompany with Valuer’s report in respect of the declared jewellery. Purchase bill in respect of the jewellery may not be necessary. The declarant has the choice of evidence including his own affidavit in this regard.

4. Where the assessment order has been completely set aside and there is no surviving assessment, a declaration can be made in respect of that assessment year. Where the assessment has been set aside partly, declaration can be made with regard to items of income which were not subject matter of assessment and those which have been set aside.

5. In case of survey under section 133A declaration can be made in respect of any assessment year other than the year of survey. This position applies also in respect of survey under section 133A(5) relating to expenses incurred on ceremonial occasions.

6. Chief Commissioner of Income-tax, Mumbai has constituted a local committee on VDIS for Mumbai Region comprising of himself, three Commissioners, three Representatives from Businessmen and two Chartered Accountant and two Advocates with a view to facilitate disclosures in Mumbai Region under the VDIS 1997.

PRESS RELEASE, DATED 13-8-1997

The Central Board of Direct Taxes has further clarified certain aspects of this scheme.

2. The onus of satisfying that the declarant does not come under the prohibited category lies entirely on the person making the declaration. Hence, no enquiry shall be made by the department before issue of certificates.

3. Apart from the Statutory Forms, even locally printed declaration forms that are in conformity with the Statutory Forms can be used for filing declaration and payment of taxes.

4. To prove the year of purchase of jewellery a mere affidavit or a self declaration will be sufficient.

5. The RBI has stated that declarants under VDIS will be given permission under FERA to hold to immovable properties, investments in shares, securities, etc. Fixed deposits under certain conditions as mentioned in the Press Release dated 4-7-1997.

Those wishing to declare assets abroad under VDIS should approach the RBI for necessary permission in Form FAD-I indicated in Exchange Control Manual Vol. II together with the copy of the certificate issued by the Commissioner of Income-tax, within 30 days of receiving the certificate.

CLARIFICATION BY PUNE CHIEF COMMISSIONER’S
LETTER DATED 15-7-1997 TO THE COMMISSIONERS

[EXTRACT FROM THE CC’S LETTER NO. PN/CC/VDIS/97-98
DATED 15-7-1997 TO ALL THE COMMISSIONERS]

Question No. 1: Whether enquiry has to be made with the declarant to the effect that he is eligible to make the declaration under the VDI Scheme 1997 and that he is not hit by any of the disabilities mentioned in section 64(2) or section 78 of the Finance Act, 1997 ?

Answer : No enquiry is to be made when a person files a declaration under the VDI Scheme, 1997.

Question No. 2: Whether the Commission should carry-out verification with the outside agencies before issuing the certificates or else obtain an affidavit from the declarants to the effect that they are not hit by any of the disabilities mentioned in section 64(2) and section 78 of the Finance Act, 1997 ?

Answer : The CIT will not make any enquiry/verification whatsoever while issuing certificate under section 68(2).

Only when the assessee claims before the Assessing Officer that he has made certain disclosure and to the extent he should not be subjected to double tax, the Assessing Officer will examine whether the assessee was eligible for filing the declaration.

Question No. 3: Whether a person who has not filed his return of income for assessment year 1996-97 or 1997-98 upto 30-6-1997 and on whom no assessment has been made for these years can file a declaration under the scheme for these two assessment years ?

Answer : It is clarified by the Board that reference to section 139 under section 64 will be treated as reference to section 139(1) only. Therefore, persons who have not file return for 1996-97 by the due date are eligible to file declaration under the scheme.

Question No. 4: Whether declaration filed under VDI Scheme will be treated invalid on the ground of its not being full and true if income/assets in excess of what has been declared under the scheme are unearthed during search after the filing of the declarations and before issue of certificate by the CIT ?

Answer : The answer to this Query is No. To the extent the declaration has been made will be treated as valid. Anything discovered after search in excess of what is declared will be dealt with as per the provisions of Income-tax Act, 1961.

Question No. 5: Whether in computing block income under chapter XIV B, the amount declared under VDIS will be treated as income declared ?

Answer : Yes. Since the assessee will be declaring income with reference to a particular assessment year and income for that year will be income declared as per return filed or assessed if any and income returned under the scheme.

VALUATION OF LOOSE DIAMONDS : CLARIFICATION BY
CCIT, MUMBAI : NOCC/CO-ORD/PRO/VDIS-Q/97-98/ DATED 29-10-1997

Reference is invited to letter of even No. dated 10-10-1997 about the disclosure in respect of ‘loose diamonds’. In this letter it was stated that the valuation report for jewellery prescribed in Form O-8 and O-8A under the Wealth-tax Act may be kept in view while dealing with such disclosures.

It has since been represented to the Chief Commissioner that there is some confusion in respect of valuation of ‘loose diamonds’. The Chief Commissioner of Income-tax has since looked into it. I am directed to clarify those points as under :—

1. Where the diamonds are studded and are part of the jewellery the valuation of the jewellery including the diamonds is sufficient. Separate valuation of the diamonds studded in the jewellery is not necessary.

2. Where the declarant gives number of pieces of diamonds and the aggregate weight in Cts. and the value thereof and says that the declared diamonds are of the similar size, that would meet the requirements of the valuation.

3. Where the loose diamonds declared are of different sizes in Cts., the declarant may size-wise specify the number of diamond pieces, for example, as under :

(a) 500 Pieces weighing 13.50 Cts. (0.02 Cts. to 0.03 Cts. each)

(b) 1300 Pieces weighing 69.50 Cts. (0.04 Cts. to 0.05 Cts. each)

___________ _________

2800 Pieces 143.00 Cts.

4. Where the declarant makes the disclosures of ‘diamond dust’ and says that therefore the number of dividual diamonds cannot be identified, the declaration of total weight in Cts. would meet the requirements of the declaration.

Clarification regarding Voluntary Disclosure of Income Scheme, 1997 – Declaration of undisclosed salary by the employees – Action against the employers

LETTER NO. 266/FORMS (M)/VDIS/97-98, DATED 12-12-1997, ISSUED BY THE OFFICE OF CHIEF COMMISSIONER OF INCOME-TAX MUMBAI

As directed, extract of letter No. 296/31/97-IT (Inv. III), dated 8-12-1997 of the Member (Inv.), Central Board of Direct Taxes, New Delhi is reproduced below for favour of information and necessary action :

“Section 75 of the Finance Act, 1997, stipulates that nothing contained in the Voluntary Disclosure of Income Scheme, 1997 (hereinafter referred to as the Scheme) shall be constructed as conferring any benefit, concession or immunity on any person other than the person making the declaration, except as expressly provided under Explanation to section 73(1) of the Scheme.

2. A question has been raised as to whether, in a case where an employee declare his undisclosed salary income under the Scheme, the employer will be proceeded against under section 201(1), 201(1A), 221 or 271 or 271C of the Income-tax Act, 1961 for the purpose of levy of interest/penalties.

3. The issue has been considered by the Government. According to section 192 of the Income-tax Act, any person responsible for paying any income chargeable under the head “Salaries’ shall, at the time of payment, deduct tax on the estimated income of the assessee under that head for the relevant financial year and any failure to do so shall at least levy of penalties and interest on the employer.

4. However, according to section 68(1) of the Scheme, ‘the amount of the voluntarily disclosed income shall not be included in the total income of the declarant for any assessment year under the Income-tax Act’, if the conditions relating to the payment of tax and the credit of the disclosed income in the books of account are duly satisfied. In other words, the income disclosed under the Scheme does not form part of the total income of the assessee under the Income-tax Act, much less being income chargeable under the head ‘Salaries’, within the meaning of section 192.

5. Therefore, strictly construed, the question of liability under section 192 or the consequence for any breach thereof would not arise. In any case, as the information’ relating to the disclosure by the employees will be treated as confidential under the express provisions of section 72(1) of the Scheme, there is no way the same can be used as evidence in any proceedings against the employer. In somewhat similar context, it was earlier clarified answer to Question No. 17 in the Circular No. 754, dated 10th June, 1997 that, if the purchaser of an immovable property declares any undisclosed consideration, the seller will not be proceeded against.

6. It is, therefore, clarified that no action either to impose a penalty or to levy interest shall be initiated against the employer based merely on the disclosure under the Scheme of any salary income by the employees.”

OTHER CLARIFICATIONS

RBI CLARIFICATIONS REGARDING VDIS EOEC CO NRFAD VDIS 812/22, 12.00/97-98, DATED 5-11-1997

Issue raised	Comments
1. Whether RBI approval is necessary for repatriation of proceeds to India before disclosing the income under the Scheme?	No. RBI approval is not necessary for bringing the undisclosed income to India through banking channels.
2. Where a resident declares immovable property held abroad, whether RBI would allow remittance for maintenance thereof? If the property is rented out, whether he can pay outgoings (taxes), etc., out of rent and repatriate the balance?	The rental income earned can be used for payment of taxes/ maintenance charges and balance has to be repatriated to India. If rental income is not adequate or property does not fetch income, RBI would permit remittance of reasonable amount for maintenance, etc., of the property. If the declarant is holding more than one property, he would be allowed to keep only one property and remaining houses/ flats/ apartments have to be sold and proceeds repatriated to India.
3. Whether RBI permission is automatic or discretionary?	RBI would grant permission in all the cases where the Commissioner of Income-tax has issued a certificate under VDIS, provided the declarant has already not come to the adverse notice of Enforcement Director/ RBI
4.1 ERA violations involve a series of transactions over a period. Where immunity is granted under VDIS, will it cover all the transactions and all parties?	(a) A person who has disclosed income/ assets under VDIS would get immunity under FERA in respect of series of transactions relating to disclosed income unless any of the transactions has already come to the adverse notice or is being investigated. (b) The immunity is available only to the declarant under VDIS and not to others.
4.2 Person ‘B’, a non-resident Indian citizen sends a remittance to Person ‘A’, a resident in India as gift out of A’s black money abroad. If ‘A’ now wants to declare the transaction whether he would get immunity under FERA and whether ‘B’ would also get immunity under FERA for abetment?	(a) The immunity under FERA would be available to ‘A’ provided he has already not come to adverse notice of RBI/Enforcement Directorate in regard to the assets in question. (b) Normally, immunity is available only to declarant.
4.3 ‘A’ had sent Rs. 180 lakh in 1981 and got $ 10,000 which he invested in a bank deposit. Now he would get Rs. 3.60 lakh (on maturity). Whether immunity under FERA is available on the entire amount? Further, whether he should disclose Rs. 1.80 lakh?	As regards the amount to be disclosed, a clarification may be obtained from I.T. Authorities. Immunity from FERA would be available to the amount certified by I.T. Authorities.
5. ‘A’ had concealed income of Rs. 1 lakh which was kept abroad. Of this, he spent Rs. 40,000. Whether he should disclose Rs. 1 lakh or Rs. 80,000? If he makes a disclosure of Rs. 1 lakh since he can bring in only Rs. 60,000, whether immunity is available for the entire amount of Rs. 1 lakh?	(a) The clarification on which amount to declare should be obtained from Income-tax Authorities. From reply to question 47 (of the VDIS booklet published by the Government of India) it appears that the declarant has to declare the entire amount of Rs. 1 lakh. (b) He would get immunity for the amount declared as certified by I.T. Authorities.
6. Mauritius Overseas Corporate Bodies (OCBs) are floated by Indians by sending black money. Whether immunity is available only to shareholder who declares investment in OCB or to both, i.e., shareholder as well as OCB?	The immunity would be available to the individual for his investment in OCB. These investments would be allowed to continue. Income earned from OCB will have to be repatriated to India. The OCB, being an entity incorporated abroad, would be subject to the laws of Mauritius.
7. BCCI Bank :
Residents who would have placed deposits (unauthorised) with BCCI bank might have received lower amount from liquidator. Which amount (whether amount of deposit or amount received from liquidator) should be disclosed?	The clarification should be obtained from I.T. Authorities. From answer to question 47 of the Government of India’s VDIS booklet, however, it appears that the amount of deposit should be disclosed.
8. Form FAD-1.
8.1 Certain columns are not applicable.	The declarant may indicate against these columns as “not applicable”.
8.2 Details of bank account/assets are required to be indicated.	If the declarant has any other foreign currency assets, these should be declared in Form FAD-1.
9.1 Whether a person against whom any action has been/is being taken under FERA, whether he can made a disclosure under VDIS?	If a person has already come to the adverse notice of Enforcement Director/RBI in regard to assets which he has disclosed under VDIS, immunity from provisions of FERA would not be available.
9.2 CBDT has gone one step further. If assessment proceedings are going on and tax officer has found some undisclosed income but not yet passed final orders, the person can make a declaration under VDIS and get immunity? Similar facility should be extended in the case of FERA violations.	The scheme is for voluntary disclosure of income for getting immunity under the provisions of Income-tax Act and is not a scheme for immunity under FERA. Immunity under FERA is incidental to the income from foreign sources declared under VDIS. It is not the intention that VDIS should be used for closure of cases already under investigation by ED.
10. Resident Indians who are un-authorisedly carrying on business as proprietors or as partners in overseas partnership concern. Whether they should after disclosure repatriate the amount after paying tax or whether they should pay applicable taxes for each year and continue with the proprietorship/partnership? Also whether declarant would get immunity under FERA?	The declarant should repatriate his share to India and disclose under VDIS. A resident Indian will not be allowed to continue proprietorship/ partnership abroad.

CIRCULAR NO. CST NO. 1097-1379, DATED 6-11-1997,

ISSUED BY GOVERNMENT OF GUJARAT

Central Government has launched a Voluntary Disclosure of Income Scheme, 1997 (VDIS) to harness untaxed money for productive purposes. The Scheme has inbuilt provisions under which complete confidentiality has been assured in respect of the particulars contained in the declarations which cannot be produced before any court or any other authority. Central Government has, however, requested State Governments to give some assurance allaying the apprehensions of would be declarants regarding inquiries and proceedings under State Acts.

2. Government of Gujarat has taken the following decisions on sales tax liabilities arising out of disclosure under VDIS :

(i) Government of Gujarat has decided to grant remission, under section 55 of the Gujarat Sales Tax Act, of the amount of interest and penalties that may become leviable on evasion of sales tax which is disclosed and paid to the State Government consequent to the disclosure of income under VDIS.

(ii) In respect of sales tax liability arising out of such disclosure, Sales Tax Department will undertake simple assessment based on revised return of sales tax filed by the declarant.

(iii) Sales Tax Department will ensure that no harassment is caused to a declarant under VDIS who has paid the sales tax to the State Government consequent to the declaration under VDIS.

3. However, no immunity shall be granted in the following cases :

(i) in respect of transactions for which a registered dealer in Gujarat has separately collected from his purchaser any amount of sales tax;

(ii) transactions and tax liabilities disclosed by a registered dealer in his returns or declarations earlier filed by him;

(iii) sales tax liability arising out of assessment, reassessment or suo motu revisions already done by Sales Tax Department prior to disclosure under VDIS.

(iv) Sales tax liability arising out of enforcement activities undertaken by Sales Tax Department prior to the declaration and VDIS by a dealer.

4. Sales Tax Department shall implement this decision and issue a circular in this regard.

LETTER NO. CC/CO-ORD/PRO/VDIS-Q/97-98, DATED 31-10-1997
ISSUED BY CCIT, MUMBAI

It has been represented to the Chief Commissioner, Mumbai that persons who have entered into lease transactions of questionable nature want to make declaration under VDIS, 1997 the amount of depreciation and other expenses like brokerage, etc., which are claimed as deduction in respect of such lease transaction and pay tax @ 30%, or 35%, as the case may be Clarification has also been sought as to whether the declarant can adjust against such depreciation and other expenses the amount of lease rent which is offered as income from the lease transaction.

After consultation with the CBDT, the Chief Commissioner of Income-tax, Mumbai has directed me to clarify that in case of lease transactions which are not bona fide, the amount of depreciation and other expenses like brokerage wrongly claimed as deduction can be declared under the VDIS, 1997. The declarant will be well advised to keep his calculation of the declared income which, if necessary, can be produced before the Assessing Officer for necessary action. The Commissioner in his certificate will certify only the amount of income declared and the taxes paid thereon under the VDIS, 1997.

LETTER NO. CC/CO-ORD/PRO/VDIS/97-98, DATED 13-11-1997
ISSUED BY CCIT, MUMBAI

Kind reference is invited to this office letter of even No. dated 10-10-1997 and 29-10-1997 about the disclosure of jewellery and loose diamonds.

2. In letter dated 15-10-1997 it was stated that the Valuation Report for jewellery prescribed in Form Nos. O-8 & O-8A under the Wealth-tax Rules may be kept in view while dealing with such disclosures.

3. It has been represented to the Chief Commissioner that there is some confusion in respect of Valuation Reports in Form Nos. O-8 & O-8A. It is stated that some Commissioners are insisting for both the reports together.

4. It has also been represented to the Chief Commissioner that the affidavits filed along with the declaration is not being accepted by some of the Commissioners saying that it should given description of the declarant, his religion, his age, sex, etc., and that such affidavits should be signed before the Notary by the declarant who has been identified by someone else to the Notary.

5. The matter was considered at length and I am directed to clarify as under :—

(a) In respect of Valuation Report of jewellery, the Valuation Report in conformity with Form No. O-8 which is to be given by approved valuer will meet the requirement of VDIS, 1997. One the Valuation Report in conformity with the Form No. O-8 is filed, there is no need for filing another statement of valuation of jewellery in Form No. O-8A which is required to be signed by the assessee.

(b) As regards affidavit to be filed, it is clarified that so long as solemn affirmation states that the date or the month and approximate cost of acquisition of jewellery or states that such jewellery was acquired for filing another statement of valuation of jewellery in Form No. O-8A which is required to be signed by the assessee.

(c) As regards affidavit to be filed, it is clarified that so long as solemn affirmation states that the date or the month and approximate cost of acquisition of jewellery or states that such jewellery was acquired prior to a certain date and gives approximate cost of acquisition, and is solemnly affirmed before the Notary, such declaration/affidavit should be accepted as no form of affidavit/declaration has been prescribed by the VDIS or by the CBDT. It is also clarified that it should not be insisted that such declaration is titled as affidavit and should include the declarant’s religion, sex, etc., and that the declarant should be identified to the Notary by a third person, so long as the declaration is made before a Notary and is evidence by an Official Seal.

6. I am also directed to request you that the assessees coming forward for making declarations should be attended to promptly. Any delay in either receiving the declaration or issuing acknowledgement should be avoided.

JUDICIAL ANALYSIS

VDIS 1997

Note the following case laws :

n Petition challenging validity of VDIS, 1997which suffered from vice of gross delay and laches, could not be entertained – Raghunandan Saran Ashok Saran (HUF) v. Union of India [1998] 232 ITR 33 (Delhi).

n Writ-challenging validity of CBDT letter dated 25-11-1997 regarding production of evidence about year of purchase of jewellery declared under VDIS, 1997 cannot be treated as public interest litigation so as to be admitted – Kanpur Income-tax Bar Association v. Union of India [1998] 99 Taxman 266 (All.).

n It is not possible to take the view that in view of the provisions of the VDIS, 1997, the power conferred on the officers of the Department under section 132 is impliedly suspended till the Scheme comes to an end – United Credit and Investments v. Director of Income-tax (Investigation) [1998] 231 ITR 660 (Kar.).

n Continuance of power of search under section 132 while VDIS, 1997 is in force does not result in discrimination and violation of rights guaranteed under article 14 of the Constitution – United Credit and Investments v. Director of Income-tax (Investigation) [1998] 231 ITR 660 (Kar.).

n Where the Bombay High Court had upheld the constitutional validity of the Voluntary Disclosure Scheme, 1997 and before the Supreme Court the Attorney General had placed a statement indicating the policy the Government was following and would be following in checking tax evasion, the special leave petition against the judgment of the Bombay High Court decision was to be dismissed – All India Federation of Tax Practitioners v. Union of India [1998] 231 ITR 24 (SC).

Meaning of expression ‘in respect of all income chargeable to tax under the 1961 Act for any assessment year’ used in Voluntary Disclosure of Income Scheme, 1997 will have to be confined to assessment year 1962-63 and onwards and income chargeable to tax under the Indian Income-tax Act, 1922, will not fall within scope of this expression – Smt. Vidya Devi v. CIT [1998] 101 Taxman 363 (Punj. & Har.).
Where CBDT by a letter to a bank stated that deposit holders in the bank whose accounts wee restrained under section 132(3) could not avail of VDIS 1997, such letter of CBDT could not be held to be a ‘direction’ or ‘instruction’ under section 119 – Chotubhai v. Union of India [1997] 95 Taxman 629 (Delhi).

5. Kar Vivad Samadhan Scheme, 1998

KAR VIVAD SAMADHAN SCHEME, 1998, COMMISSIONER OF INCOME-TAX NOTIFIED AS DESIGNATED AUTHORITY

I am directed to say that Directors-General of Income-tax may notify an officer not below the rank of Commissioner of Income-tax working under them as the designated authority for the purpose of Kar Vivad Samadhan Scheme, 1998, under section 87(b)( i) of the Finance (No. 2) Act, 1998.

Circular Samadhan : 1/98, dated 26-8-1998.

INSTRUCTIONS UNDER SECTION 96 OF THE FINANCE (NO. 2) ACT, 1998

CLARIFICATION 1

Question 1 : Where only a part of taxes is outstanding, whether the waiver of interest or penalty is in the full?

Ans. : Yes.

Question 2 : If the order of assessment was made on 31-3-1998 but the notice of demand was served after 31-3-1998, can the declaration be made under Samadhan Scheme?

Ans. : Yes. The demand is determined on the day the order of assessment is made.

Question 3 : Where refund for an earlier year is adjusted against the demand of any year, will such an adjustment be regarded as the payment of tax?

Ans. : Yes. The adjustment of refund payable is one of the modes of payment of taxes.

Question 4 : Where the tax arrear comprises tax and interest how will the part payment be first appropriated – towards tax or interest?

Ans. : The part payments are appropriate first towards tax and then towards interest.

Question 5 : In a case where taxes are outstanding on 31-3-1998 and also on the date of declaration but the order of penalty is passed after 31-3-1998, will the declarant be entitled to the waiver of penalty?

Ans. : Section 91 empowers the designated authority to grant immunity from the imposition of penalty in respect of income which is the subject-matter of the declaration. As the taxes outstanding on 31-3-1998 will be covered under the declaration the designated authority can grant waiver of such penalty.

Question 6 : Where in an assessment made under section 143(1)(a), the Assessing Officer makes certain adjustments to the total income and levies additional tax, will such additional tax be regarded as a tax or penalty?

Ans. : The additional tax is only a tax under the Income-tax Act.

Question 7 : The Scheme offers full waiver of interest and penalty where the tax arrear includes such interest or penalty along with tax. What kind of interest and penalty would be open for such waiver?

Ans. : All interest and penalties that are directly related to assessed income or arrears of taxes will be open for full waiver, if the taxes are outstanding on the specified dates, e.g., interest under sections 234A, 234B, 234C, 139(8), 215, 216, 217, 158BFA, 220(2) or penalties under sections 271(1)(c), 221, 158BFA, 273, etc. But where the interest or penalty is not directly related to assessed income/arrears or tax, waiver of only 50% thereof is available, i.e.g, interest under section 201(1A), penalties under sections 271(1)(b), 271A, 271B, 271BB, 271C, 271D, 271E, 271F, 272A, 272AA, 272BB. etc.

Question 8 : Where only certain items of addition are in dispute, can the assessee take advantage of the scheme for the entire demand of the year?

Ans. : Yes. The scheme is applicable to the entire demand of an assessment year.

Question 9 : Whether the Scheme covers cases where taxes are outstanding on 31-3-1998 but the appeal is filed after 31-3-1998?

Ans. : Yes, the pendency of appeal, etc., should be on the date of declaration.

Question 10 : In respect of assessments related to assessment years prior to assessment year 1993-94, the appeal is filed against the order of assessment in the case of the firm and the consequential effect of orders is given in the hands of the partners. Will the appeal filed by the firm be treated as appeal filed by the partners as far as tax arrears in their hands are concerned?

Ans. : Yes.

Question 11 : Where the declarant fails to pay full amount determined as payable under Samadhan Scheme, would he get credit for the partly paid taxes in the subsequent year?

Ans. : If the declarant fails to pay full amount payable by him under the Scheme, he would not be entitled to the benefits of the Scheme. The amount paid cannot be refunded to him either. He may, however, seek credit for the payment so made against the outstanding arrears.

Question 12 : What is the time-limit for the Designated Authority to grant immunity from prosecution and penalty?

Ans. : The designated authority will grant immunity on fulfilment of all the conditions provided for in section 90 including the withdrawal of appeal/writ/reference etc. It shall be granted as quickly as possible.

Question 13 : Where the assessee has received order under section 264 but has moved a petition under section 154 of the Act before the CIT, can he avail the Scheme?

Ans. : There would be no pendency of revision proceedings before the CIT in such cases.

Question 14 : Is the Scheme open to cases where orders of assessment have been set aside before 31-3-1998 but reassessments are still pending?

Ans. : No. There is no tax arrear on 31-3-1998 or on the date of declaration.

Question 15 : Whether the Scheme covers cases of Estate Duty?

Ans. : No.

Question 16 : Whether settlement of outstanding interest alone is possible when the declarant does not want to give up his right of appeal against the quantum of income or tax?

Ans. : No. Samadhan Scheme is a package for settlement of tax arrears of a particular assessment year in entirety. Settlement of any part of arrears is not possible. If, however, arrears relating to only interest and penalty are outstanding, whether relating to any particular assessment year or otherwise, these can be settled at 50% of the arrear.

Question 17 : In pursuance of demand raised, the assessees pay certain parts of demand in consequence of order of the stay/instalments, etc. Will the amount so paid be treated as outstanding on the date of declaration?

Ans. : No. The tax arrears means the taxes outstanding on the date of declaration.

[Vide Instructions [F.No. 149/145/98-TPL], dated 3-9-1998, issued by the Department of Revenue, Ministry of Finance.]

Circular : Samadhan 2/98, dated 3-9-1998.

CLARIFICATION 2

Question 18 : Section 90(1) of the Scheme refers to the sum payable that may be determined by the Designated Authority. How is the sum payable to be worked out?

Ans. : The sum payable is to be determined with reference to disputed income as defined in section 87(e) to mean the whole or so much of the total income as is relatable to the disputed tax. The term, ‘disputed income’ as used in the scheme does not refer to the income in dispute by way of appeal etc. but it refers to the income which is relatable to the disputed tax. The term ‘disputed tax’ has been defined to mean the tax determined and payable but remaining unpaid on the date of declaration. The Designated Authority will work out the disputed income relatable to disputed tax by applying the marginal rate applicable for the relevant assessment year for that assessee and thereafter determine the sum payable in accordance with section 88 of the Scheme.

Question 19 : The block assessments in search cases are not for any particular assessment year. Will the block assessments be covered under the Scheme and if so, how?

Ans. : Block assessments will be regarded as separate assessments without reference to any particular assessment year. The declarant will be required to make declaration for the block as one unit of assessment without being assessment year specific. The demands relating to block assessment is to be indicated under separate column in the declaration form as per the notes to the declaration form.

Question 20 : Definition of tax arrears as given in section 87(m) refers to tax as modified in consequence of giving effect to an appellate order but remaining unpaid on the date of declaration. Does it mean that those cases where first appeals are pending, the assessees are not entitled to come under Samadhan Scheme?

Ans. : No. The cases where first appeals are pending are also eligible to come under the Scheme subject to the satisfaction of other conditions regarding existence of tax arrears, etc.

Question 21 : By filing declaration under Samadhan Scheme for one assessment year, does the taxpayer forego his right of appeal on the same issue in other assessment years?

Ans. : No. The order under the Samadhan Scheme does not decide any judicial issue. It only determines the sum payable under the Scheme with reference to tax arrears.

Question 22 : Whether the Samadhan Scheme is applicable to orders under section 132(5) of the Income-tax Act?

Ans. : The order under section 132(5) was required to be passed, prior to the introduction of block assessment, only for the purpose of retaining the seized assets. The tax determined thereunder does not constitute tax arrear.

Question 23 : In a particular case, tax is determined before 31-3-1998. After the assessment, the assessee gets relief in appeal and the demand is reduced. Subsequently, on departmental appeal, the order of the Assessing Officer is restored and demand is also revived. In such a case, can it be said that there was an arrear of tax determined on or before 31-3-1998?

Ans. : Yes. The tax is determined on or before 31-3-1998 and if the same remains unpaid on the date of declaration, the assessee is entitled to come under the Samadhan Scheme provided the appeal, etc., is pending on the date of declaration. It will not make any difference if the first appellate authority had passed the order before 31-3-1998 and the order of the second appellate authority is received after 31-3-1998.

Question 24 : Could there be multiple declarations under the Scheme?

Ans. : Yes. As long as the conditions relating to the determination of tax arrear on or before 31-3-1998 and the existence of such arrear as also the pendency of appeal, etc., on the date of declaration are satisfied, declaration can be filed.

Question 25 : Section 90(4) refers to the appeal, reference, etc., as deemed to have been withdrawn. From what point of time does this provision become operative?

Ans. As indicated in the provision itself, it is operative from the day on which order under section 90(2) is passed. The order under section 90(2) will be passed after payment of the sum payable by the declarant as determined by the Designated Authority and after receipt of intimation to that effect.

Question 26 : Where the appeal has been filed belatedly with an application for condonation of delay, will it be taken under the Samadhan Scheme that the appeal is pending?

Ans. : Only when such an appeal is admitted by the appellate authority, it can be said that the appeal is pending.

Question 27 : The taxpayer, has on his part, filed reference application before the Tribunal. The ITAT has not yet passed order on such reference application. Can it be said that a reference is pending for the purpose of declaration under the Scheme?

Ans. : Yes. If the taxpayer has filed within the statutory time a legally valid reference application under section 256(1) or 256(2), the condition of pendency of reference could be said to have been satisfied.

Question 28 : The taxpayer has not paid the tax payable under the scheme within 30 days of the order under section 90(1) for any reason including the non-realisation of the cheque presented to the bank. Will the taxpayer be eligible for the relief under the Samadhan Scheme?

Ans. : No. The tax payable under the scheme should be paid to the credit of the Government on or before the due date. The tax payers are advised to pay the tax well in time.

Question 29 : Interest under section 220 is determined only after final payment of tax demanded. This may, therefore, not form part of the tax arrear determined on or before 31-3-1998. Will such interest be open for waiver?

Ans. : Yes. The Designated Authority has been given power to waive interest and penalty where the tax arrear comprises tax, interest and penalty and determine the sum payable in full and final settlement of tax arrears.

Question 30 : What would happen if the appeal is decided in favour of the declarant after filing of the declaration and before the order under section 90(2) is passed?

Ans. : The declarant is advised to file a petition before the appellate authority intimating the fact of his having made the declaration and making a request that the appeal may be kept in abeyance.

Question 31 : What happens to the amount of tax arrear if the same is modified by an order under section 154 passed after 31-3-1998?

Ans. : The order under section 154 would rectify the apparent mistake in the order passed on or before 31-3-1998 and hence it would relate back to that order. The tax arrear would accordingly stand modified and in such cases the modified tax arrear will constitute the tax arrear for the purposes of declaration under the Scheme.

Question 32 : Where certain income has been charged to tax in the hands of two different persons or where it has been charged to tax in the case of same person in two different assessment years, one on substantive basis and the other on the protective basis, will the declarant or the other person get advantage in respect of additions made both substantively and protectively?

Ans. : The assessees are advised to make declarations in cases or for assessment years where the additions are made on substantive basis. The protective demand is not subjected to recovery unless it is finally upheld. Once the declaration in a substantive case or year is accepted, the tax arrear in protective case/year would no longer be valid and will be rectified by suitable orders in the normal course. This position is not peculiar to Samadhan Scheme.

Question 33 : Where prosecution has been launched for any particular year but the assessee has since been discharged by the competent court, can the declaration be made under the Scheme?

Ans. : Yes.

Question 34 : If the sum payable under the Scheme is not paid or is partly paid, what are the consequences?

Ans. : The consequences may be as under :—

(a) if the tax is not paid fully, the tax payer would not be entitled to the benefits of the scheme.

(b) when a number of assessment years are involved in a particular taxpayers case, the conditions of tax payment will be considered for each year separately as a unit.

(c) when the tax is paid only partly, the tax payer losses the benefit of this scheme. However, the tax paid will be adjusted against the normal arrears of tax.

[Vide Instruction [F.No. 149/145/98-TPL], dated 7-10-1998, issued by the Department of Revenue, Ministry of Finance.]

Circular : Samadhan 3/98, dated 7-10-1998.

CLARIFICATION 1

A number of representations/communications have been received from the trade and industry and the various flied formations seeking instructions/clarifications for removal of certain difficulties/doubts arising in the effective implementation of the Kar Vivad Samadhan Scheme. These have been considered by the Government. The common issues/areas of doubt arising out of the various representations/communications received have been compiled in the table as reproduced. The Government’s instructions/clarifications on each of these issues/doubts are also reproduced in the said table.

TABLE

Issue/Doubt Involved	Instruction/Clarification
1. Treatment of cases of pending show-cause notices, where, apart from the assessee, other persons like transporters, employees, directors, and other associates etc. have been charged for contraventions and abetment, etc. in the offence. What would be the effect of settlement of such cases by the assessee from whom duties have been demanded, in so far as penalties etc., proposed against the other persons involved are concerned?	The settlement under KVS Scheme will have to be for each separate person involved in a case, and covered by the Scheme. The assessee would be entitled to avail the benefit of the scheme by depositing the fifty per cent of the duty demanded in the show-cause notice with waiver of liabilities for any fine, interest and penalties besides immunity from prosecution. Other notices against whom no orders have been passed, will not, however, be entitled to avail the scheme in as much as the tax arrear represented by fine, penalty etc. has not been quantified for them. In such cases, the show-cause notices issued to persons other than the assessee shall be kept alive and will be adjudicated by the adjudicating authority on the limited question of liability to penalty, fine etc.
2. Treatment of cases, where apart from the confirmation of demand of duty and imposition of penalty, goods, plant and machinery or the land of the assessee have been confiscated with an option to redeem the same on payment of certain redemption fine and the assessee has failed to redeem the confiscated goods/plant etc.	There could be no absolute confiscation resulting from non-payment of redemption fine within the time period allowed by the adjudicating authority, so long as an appeal or writ petition against the order is admitted and pending on the date of declaration. Fine in lieu of confiscation not paid could be treated to be in arrears and could be settled under the scheme like any other case of tax arrears. Once the settlement amount determined is paid up in stipulated time, liability for confiscation of goods/plant and machinery etc. will stand waived.
3. Treatment of cases where quantification of duty has been done as on 31-3-1998 but no formal demand notice or show-cause notice has been issued or where party has waived the issue of show-cause or demand notice.	Such cases, are out of the purview of the ‘Samadhan’ Scheme as mere quantification does not amount to determination in terms of sub-section (2) of section 11A of the Central Excise Act, 1944 or sub-section (2) of section 28 of the Customs Act, 1962. Also, as per section 95 (ii) (b) of the Finance Act, 1998, issue of a show-cause notice or a notice of demand is a pre-condition for applicability of the scheme.
4. Treatment of cases which have been adjudicated by the original authority or decided in appeal, involving arrears of duty, fine, etc., and, wherein appeal/further appeal has not bee filed even though the period for appeal/further appeal has not expired on the date of making the declaration under the Scheme.	Such cases will not be covered since there is no dispute by the declarant against the tax arrears determined as due/payable on the date of making a declaration under the scheme.
5. Can the KVS Scheme be availed of in a case where a show-cause notice/demand notice has been issued prior to 31-3-1998 and:
(a) adjudication is pending on the date of making a declaration?	(a) Yes, the scheme can be availed of in such cases.
(b) adjudication has been made after 31-3-1998.	(b) Only, where party is in dispute i.e., it has filed an appeal against the order and the appeal is admitted and pending on the date of declaration, the benefit under the scheme can be claimed.
6. Treatment of cases where after making a declaration, the declarant fails to pay the sum determined by the designated authority within the stipulated time limit of thirty days.	In terms of sub-section (2) of section 90 of the scheme, the period for making payment of tax, after such sum is determined by the Designated Authority, is 30 days after passing of M. order by the Designated Authority. In case the declarant fails to make payment within the stipulated period of 30 days, the failure to do so will make him ineligible to avail the benefit of the scheme.
7. Whether adjudication orders passed after 31-3-1998 in show-cause notices issued on or before 31-3-1998, and also appeals decided after 31st March, 1998 can be considered for the purpose of the scheme and determining the settlement amount.	Cases of show-cause notices/ demand notices issued on or before 31^st March, 1998 and subsequently adjudicated during the operation of the scheme and which are the subject-matter of an appeal pending on the day of the declaration would be covered under the Scheme. Similarly, cases where appeals are decided after 31-3-1998, which are a subject-matter of a further appeal before the CGAT or the Supreme Court on the day of making a declaration would be covered under the Scheme. The settlement amount in these cases will be calculated with references to the tax arrears as determined in adjudication or in appeal, decided after 31-3-1998 due or payable as on the date of declaration.
8. Scope of sub-section (ii)(c) of section 95 of the scheme which stipulates a condition of admittance of an appeal or reference or writ petition in order to avail the benefit of the scheme.	The expression ‘admitted and pending’ in section 95(ii)(c) of the Scheme with reference to Central Excise Act, 1944 and Customs Act, 1962 (where no formal procedure for admission of appeal before Commissioner (Appeals) and CEGAT has been provided) will mean the proof of filing an appeal after complying with requirements as provided in Chapter VI of the Central Excise Act, 1944 and Chapter XV of the Customs Act, 1962. Cases involving delayed appeals filed before Commissioner (Appeals) or CEGAT beyond the normal period of 3 months, may be entertained under the Scheme only if the proof of con-donation of delay for late filing by Commissioner (Appeals), or delayed admittance by CEGAT as provided under relevant provisions of the statute itself [e.g., section 35 or 35B(5) of the Central Excise Act and similar provisions undert the Customs Act] is produced. It may be observed that pre-deposit of tax or penalty is not a condition precedent for filing/ admittance of an appeal under either of the aforesaid enactments. Proof of admittance, or where in any court there is no such procedure of admittance, the proof of issue of a notice to the respondents in a Writ, Special Leave Petition or a Civil Appeal by the competent court is to be insisted in cases where such petitions etc. are claimed as admitted and pending in a court at the time of making a declaration under the scheme.
9. Section 95(iii) of the Scheme, provides that the scheme shall not apply to any person in respect of whom prosecution for any offence under the various acts enumerated thereunder has been instituted. In section 95(ii)(a), however, the reference is to institution of prosecution in respect of any case under any indirect tax enactment. Doubts have been raised as to whether this reference means institution of prosecution in respect of the same case for which the declaration is proposed to be filed or whether it will also mean some earlier prosecution in respect of some earlier offences under any of the indirect tax enactments which are not the subject-matter of the proposed declaration.	Section 95(ii)(a) provides that the provisions of this scheme shall not apply to a case where prosecution under any of the provisions of the indirect tax enactment has instituted. Thus, the conditions imposed in sub-clause (ii) are restricted to the case being considered under the scheme. On the other hand sub-clause (iii) of section 95 excludes persons who have been either punished or proceeded against for offences under various enactments specified in that clause.
10. Whether amount paid under the Scheme will subsequently be available as modvat by other parties.	No. The scheme offers a package for settlement of assessee’s liability to arrears of duty, penalty, fine and interest in certain categories of pending cases, on payment of certain amount and as such the settlement amount paid under the scheme cannot be treated to be duty paid on the goods already cleared or under seizure or forming subject-matter of case proceeding, in order to extend the benefit of modvat to the actual users.
11. Whether Service Tax is covered under this Scheme?	Services Tax not being covered under the scope of “Indirect Tax Enactments” as defined under section 87(j) of the Finance (No. 2) Act, 1988, disputes relating thereto will be excluded from this Scheme.
12. Treatment of cases where show cause/demand notices are oral and party involved requests for compounding of offence without issue of the notice.	In the absence of a notice issued prior to 1-4-1998, the declarant would not be entitled to avail the benefits under the scheme.
13. Treatment of cases where application for condonation of delay in filing appeals etc. is pending.	Section 95(ii)(c) requires that an appeal /writ petition should have been admitted and pending on the date of declaration in order to avail the benefit of the Scheme. In case of appeals and other petitions filed beyond the limitation prescribed for filling of such appeals/ petitions, if at the time of filing the declarations there is no proof produced of condonation of delay in filing appeal etc., the declarant is not entitled to avail the benefit of the Scheme.
14. In a case of recurring nature, such as that involving classification or valuation issue, whether the assessee is estopped from pursuing the case on merits for subsequent period, (which are not covered under the Scheme).	No. The settlement under the scheme is on case to case basis. The assessee would be within his rights to contest the other cases. However, he is not entitled to claim the refund in cases, which have been settled under the Scheme in the event he succeeds in other appeals on similar issues at a later date.
15. Treatment of cases where the department appeals against duty determination but the assessee comes forward for settlement of the determined amount under the Scheme.	The assessee would be entitled to opt for the Scheme provided an appeal against the order determining duty, penalty, fine etc. has been filed by the assessee, the same is admitted and pending on the day of making a declaration. In view of proviso to section 92 of the Finance (No. 2) Act, 1998. Department’s appeal, if the issues relate to fine, penalty or interest as determined by lower authority will stand withdrawn. Departmental appeal, if it is against duty liability, will however not be affected by the settlement of disputes of the declarant. The declarant in such case would also be liable to pay the differential duty if in Department’s appeal a higher duty liability, than determined by the lower authority, is decided.
16. Treatment of cases in respect of warehoused goods, which have not been cleared from the warehouse on expiry of the period during which the goods are permitted under section 61 of the Customs Act, 1962 to remain in a warehouse and where demand issued to the party under section 72 of the Customs Act, 1962.	In such cases the duty payable is not under dispute. By allowing warehousing the Department only postpones collection of duty which is attracted on imports. Under section 72., this has to be paid up forthwith on demand at the expiry of warehousing period along with interest etc., if the goods are not cleared earlier. Hence, such cases would not be covered under the Samadhan Scheme.
17. Will cash seized as sale proceeds be covered under the scheme?	If the seized cash represents the sale proceeds of the goods for which duty is demanded in the proceedings, the same will be released provided the declarant pays 50% of the said duty under the scheme. If, however, no such duty is demanded in the proceedings, the seized cash purporting to be the sale proceeds of the goods shall fall outside the scheme.
18. Treatment of cases where, for example, out of four issues adjudicated or decided against an assessee, appeal has been filed by the assessee only against three out of these four issues. Would the scheme apply to the fourth issue as well ?	By the very nature of the scheme, it cannot be extended to tax appears which are not in disputed on the date of making the declaration.

2. It is requested that all the Designated Authorities under your Zone may be immediately informed with an advance to process the declarations filed by the declarants in terms of the provisions of the Act read with the clarifications/instructions issued by the Central Government. Further the trade and industry associations and individual concerned assessees may also be appropriately informed about these clarifications/instruction so as to invite maximum number of declarations to fulfil the object and purpose of the scheme.

Source : Samadhan 4/98, dated 28-10-1998

[Vide Instruction [F.No. 275/33/98-CX, 8A(Pt.)], dated 28-10-1998, issued by the Department of Revenue, Ministry of Finance.]

CLARIFICATION 5

DETERMINATION OF DISPUTED INCOME UNDER
KAR VIVAD SAMADHAN SCHEME, 1998

Your attention is invited to the answer given to Question No. 18 in the clarification dated 7-10-1998. It has been pointed out in the above reply that the designated authority will work out the disputed income relatable to disputed tax by applying the marginal rate applicable for the relevant assessment year for that assessee and thereafter determine the sum payable in accordance with section 88 of the Scheme. We have been receiving a number of references from departmental officers to further elucidate the above answer.

2. The above clarification was given in the context that the average method will not work out the disputed income relatable to disputed tax in all cases. Presence of threshold limit of exemption, variable slab rates and surcharge, etc., would require reliance on marginal rate of tax applicable to that particular assessee in the relevant assessment year for determining the disputed income. The methodology of determination of disputed income would necessarily involve finding out the income relatable to tax paid, at the first instance. The difference between the total income and income relatable to paid tax worked out as above will constitute the disputed income. Such determination would take into account surcharge on tax and tax rebate under section 88 availed by the assessee wherever it is necessary. The above will be clear from the following examples :—

EX. 1 : ASSESSMENT YEAR 1997-98 STATUS : INDIVIDUAL

Total Income : Rs.1,20,000

Tax on T.I. : Rs. 21,000

Less : rebate u/s 88 : Rs. 5,000

Tax payable : Rs. 16,000

Tax paid : Rs. 5,000 Tax arrear : Rs. 11,000

Income relatable to tax paid (Rs. 5,000 + rebate of Rs. 5,000) : Rs. 83,333

Disputed income : Rs. 36,667 (Rs. 1,20,000 – Rs. 83,333)

Amount payable : Rs. 11,000

EX. 2 : ASSESSMENT YEAR 1994-95 STATUS : INDIVIDUAL

Total Income : Rs.2,00,000

Tax on T.I. : Rs. 66,080 (Incl. S/C Rs. 7,080)

Less : rebate u/s 88 : Rs. 8,000

Tax payable : Rs. 58,080

Tax paid : Rs. 30,000 Tax arrear : Rs. 28,080

Income relatable to tax paid (Rs. 30,000 + rebate of Rs. 8,000) : Rs. 1,37,320

Disputed income : Rs. 62,680 (Rs. 2,00,000 – Rs. 1,37,320)

Amount payable : Rs. 18,804

Circular : F.No. 149/145/98-TPL, dated 6-11-1998.

CLARIFICATION 2

ENLARGEMENT OF THE SCOPE OF THE
SCHEME TO DEPARTMENTAL APPEALS

The Constitutional validity of the KVSS, 1998 was challenged before the High Court of Delhi in a public interest litigation. In its judgment delivered on 17-11-1998, the Hon’ble High Court has upheld the provision of the KVSS except proviso to clause 92 which provided that the Departmental appeal shall not be withdrawn. The scope of tax arrear has also been modified to cover tax, penalty or interest under dispute in departmental appeals. The effect of the judgment is that the pending departmental appeals will be eligible to be covered under the Samadhan Scheme; provided the original demand has been determined on or before 31-3-1998.

It has been decided by the Central Government to accept this decision of the Hon’ble High Court of Delhi.

Suitable procedural instructions are in the process of being issued to the Designated Authorities to extend the benefits of the Scheme to the disputes raised by the Department before various appellate authorities.

Tax payers are advised to avail of the Samadhan Scheme, in the extended area of departmental appeals/references also.

Press Note : dated 26-11-1998.

CLARIFICATION 3

Partners of registered firms exempted from payment of further tax
on shared income in pre 1993-94 cases

Under the provisions of the Kar Vivad Samadhan Scheme (KVSS), the partners of a registered firm are exempted from further tax on their share of income once the firm settles the dispute paying 35 per cent of the disputed income.

However, prior to the assessment year 1993-94, the firms were paying taxes at concessional rates varying from 4 to 24 per cent and the partners paid taxes on their share of income at the rates applicable. As a result, firms who want to avail of KVSS for the assessment year 1992-93 and earlier were at a disadvantage compared to other assessees. A number of representations have been received pointing out the anomalous position.

To enable such firms to avail of the benefit of KVSS, the Government has clarified that, where a registered firm along with all its partners files declarations in respect of assessment years up to 1992-93, the arrears of the firm and the partners would be considered together and they may pay taxes at the current rate of 35 per cent of the disputed income of the firm. The partners would not be required to any further tax on their share of income from the firm.

It is also clarified that, where the partners are otherwise eligible under the scheme in respect of any other disputed income, they may file declaration for such income also along with that of the firm. They have to pay taxes separately at the current rate of 30 per cent of such other disputed income as provided in the scheme. Those partners who have separately filed declarations already may now file revised declaration along with that of the firm.

PIB Press Release : dated, 17th December, 1998.

CLARIFICATION 4

No proceedings against co-noticees

The Government has clarified that no civil proceedings for imposition of fine or penalty shall be continued against the co-notices in tax arrear cases under the Kar Vivad Samadhan Scheme. Settlement in favour of the declarant shall be deemed to be final in respect of other persons also on whom show-cause have been issued on the same matter.

The Kar Vivad Samadhan Scheme, 1998, announced as part of Central Budget, 1998, provides for settlement of tax arrears in cases pending against individuals and companies wherein, (1) show-cause notices have been issued and tax arrears determined but not paid by March 31, 1998, and (2) show-cause notices have been issued but not been adjudicated. Under the Scheme, once the settlement amount (50 per cent of the demand in show-cause notice) is paid up, the person making declaration get complete waiver from any other liability including penal action in that case.

It was observed that lack of clarification on the position of the co-noticees after the settlement was discouraging the principal notices from coming to a settlement. The Government has received representations from various quarters for issuing appropriate clarifications in this regard.

Accordingly, after considering various aspects, the Government has issued an order removing the above difficulties under the provisions of section 97(1) of the Finance (No. 2) Act, 1998. The Government hopes that this order would encourage amicable settlement of pending customs and central excise cases and bring to an end the unnecessary litigation that could otherwise continue indefinitely.

PIB Press Release : dated 9th December, 1998

CLARIFICATION 5

Kindly refer to your meeting with me and the Joint Secretary (TPL) in connection with certain clarifications which you are seeking in relation to the Kar Vivad Samadhan Scheme.

2. Your understanding that, if an assessee comes under the Kar Vivad Samadhan Scheme for some years this fact will not amount to a decision of the Issue involved and therefore no prejudice will be caused to the declarant in respect of that issue for any other assessment year in any other proceeding which might be pending under the Income-tax Act, is correct. The Board has already clarified this point in a reference which had been received earlier.

Letter : Do [No. 3372 – CH (DT)/98, dated 22-12-1998].

CLARIFICATION 6

It has already been clarified in Question No. 21 and answer thereto issued by the Government with reference to Kar Vivad Samadhan Scheme, 1998 that the order passed by designated authority under the Scheme does not decide any judicial issue. It only determines the sum payable under the Scheme with reference to tax arrears. If the assessee goes for Samadhan Scheme for some years, the decision in other years not covered under Samadhan will not get prejudiced either against the assessee or against the revenue, even though the issues remain the same.

Letter : Dated 22-12-1998.

CLARIFICATION 7

Clarification regarding applicability of provisions of the scheme to registered firms for assessment years prior to 1993-94.

Please find the Press Release (See Annex) issued clarifying the applicability of the Samadhan Schme to the firms for assessment years prior to 1993-94. Subject to all other conditions of the Scheme being satisfied, on payment of tax by the firm at 35% on its disputed income, the partners will not be required to pay futher tax on their share income from the firm. Therefore, this benefit will be available only to the extent of tax arrears relatable to the share income in the case of partners. All the partners have to join the firm in filing declarations under the Samadhan Scheme.

2. The porcedure to be followed in the case of pertners having other income is explained in the Press Release.

ANNEX

PRESS RELEASE

KVSS provides for payment of tax at the current rate of 35% of the disputed income in the case of the firms. Under the existing provisions, the firm is required to pay normal taxes at 35% and the partners are not required to pay any further tax on their share income. However, prior to assessment year 1993-94, the firm was paying taxes at concessional rate varying, 4% to 24% and the partners paid tax on their share income at the rates applicable.

As a result of the above, firms assessed to tax for assessment year 1992-93 and earlier years who want to avail of KVSS, are at a disadvantage vis-à-vis other assessee. A number of representations have been received pointing out the above anomalous position. To enable such firms avail of benefit of KVSS, the Government has decided that,-

(i) where registered firms and all their partners file declarations in respect of assessment years up to assessment year 1992-93, the arrears of the firm and partners would be considered together and they may pay taxes at the current rate of 35% of the disputed income of the firm. The partners would not then be required to pay any further tax on their share income from the firm. However, the partners’ declarations have to be filed along with that of the firm;

(ii) where the partners are otherwise eligible for Kar Vivad Samadhan Scheme in respect of their other ‘disputed income’, they may also file declaration for such income along with that of the firm

(iii) they will have to pay taxes separately at the current rate of 30% of such other disputed income as provided in the Scheme;

(iv) those partners who have separately filed declarations already may now file revised declaration along with the firm.

Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998

In exercise of the powers conferred by sub-section(1) of section 97 of the Finance (No. 2) Act, 1998, the Central Government hereby makes the following order, namely:-

1. (1) This order may be called the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order, 1998.

(2) It shall be deemed to have come into force on the 1st day of September,1998.

2. Where a declaration to the designated authority has been made in respect of tax arrear in relation to indirect tax enactment for the amount of duties(including drawback of duty, credit of duty or any amount representing duty), cesses, interest, fine or penalty which constitutes the subject-matter of a demand notice or a show-cause notice issued on or before the 31st day of March, 1998, but remaining unpaid, and pending determination on the date of making a declaration and, where, in respect of the same matter stated in the said declaration, a show-cause notice has also been issued to any other person and is pending adjudication on the date of making the declaration, then, no civil proceeding for imposition of fine or penalty shall be proceeded with against such other person and in such cases the settlement in favour of the declarant under sub-section(1) of section 90 shall be deemed to be fill and final in respect of such other person also on whom a show-cause notice was issued on the same matter covered under the declaration

Explanatory memorandum to the Kar Vivad Samadhan Scheme

(Removal of Difficulties) Order, 1998, under section 97 of the finance (No.2) Act, 1998

Under the Kar Vivad Samadhan Scheme, 1998, announced as a part of the Union Budget 1998, attention of the Government has been drawn to the difficulties being encountered in settlement of certain categories of cases of pending show-cause notices involving also certain co-notices against whom penal action is proposed in the same case for the alleged involvement for the irregularities committed by the principal notice.

Having due regard to the aims and objects of the Scheme, the Government have decided to issue an order for removal of difficulties in terms of the provisions of section 97(1) of the Finance (No.2) Act,1998.It has been, inter alia, clarified that no civil proceedings for imposition of tine or penalty shall be proceeded with against the co-notices and in such cases the settlement in favour of the declarant under the Scheme shall be deemed to be full and final in respect of other persons also on whom show-cause notices were issued on the same matter.

Notification: No. S.O. 1048(E), dated 8-12-1998

Functions and jurisdiction of Commissioners

I, the Chief Commissioner of Income-tax, Calcutta, in exercise of the powers under section 87(b) of the Finance (No.2) Act, 1998, and in pursuance of Notification No.S.O. 728(E), dated August 27, 1998, issued by the Ministry of Finance (Department of Revenue), Government of India, hereby notify that the Commissioners of Income-tax specified in column 2 of the following schedule shall function as the designated authority under the Kar Vivad Samadhan Scheme, 1998, in respect of such cases or classes of cases as are referred to in column 3 of the Schedule

SCHEDULE

Sl. No.	Designated authority	Jurisdiction
(1).	(2)	(3)
1.	Commissioner of Income-tax, West Bengal-I, Calcutta	(a) All the persons assessed or assessable by the Assessing Officer under the Jurisdiction of: (1) Deputy Commissioner of Income-tax Range-22, Calcutta. (b) All the persons assessed or assessable by the – (1) Deputy Commissioner of Income-tax Special Range-1, Calcutta. (2) Deputy Commissioner of Income-tax, Special Range-7, Calcutta. (3) Deputy Commissioner of Income-tax, Special Range-11, Calcutta (4) Deputy Commissioner of Income-tax, Special Range-22, Calcutta
2.	Commissioner of Income-tax, West Bengal-II, Calcutta	(a) All the persons assessed or assessable by the Assessing Officer under the Jurisdiction of: (1) Deputy Commissioner of Income-tax, Range-7, Calcutta. (2) Deputy Commissioner of Income-tax, Range-10, Calcutta. (b) All the persons assessed or assessable by the – (1) Deputy Commissioner of Income-tax, Special Range-2, Calcutta. (2) Deputy Commissioner of Income-tax, Special Range-10, Calcutta. (3) Deputy Commissioner of Income-tax, Special Range-12, Calcutta. (4) Deputy Commissioner of Income-tax, Special Range-21, Calcutta.
3.	Commissioner of Income-tax, West Bengal-VII, Calcutta	All the persons assessed or assessable by the Assessing Officer under the Jurisdiction of: (1) Deputy Commissioner of Income-tax, Range-6, Calcutta. (2) Deputy Commissioner of Income-tax, Range-11, Calcutta. (3) Deputy Commissioner of Income-tax, Range-20, Calcutta. (4) Deputy Commissioner of Income-tax, Range-21, Calcutta.
4.	Commissioner of Income-tax, West Bengal-VIII, Calcutta	(a) All the persons assessed or assessable by the Assessing Officer under the Jurisdiction of: (1) Deputy Commissioner of Income-tax, Range-13, Calcutta. Deputy Commissioner of Income-tax, Range-15, Calcutta. (b) All the persons assessed or assessable by the Deputy Commissioner of Income-tax, Special Range-8, Calcutta.
5.	Commissioner of Income-tax, Jalpaiguri, Jalpaiguri.	(a) All the persons assessed or assessable by the Assessing Officer under the Jurisdiction of: (1) Deputy Commissioner of Income-tax, Range-Jalpaiguri, Jalpaiguri. (2) Deputy Commissioner of Income-tax, Range-Siliguri, Siliguri. (b) All the persons assessed or assessable by the Deputy Commissioner or Income-tax, Special Range-Jalpaiguri.

This order shall take effect from 1^st September, 1998

Notification : No. S.O.1932, dated 18-9-1998.

JUDICIAL ANALYSIS

As regards constitutional validity of Kar Vivad Samadhan Scheme See All India Federation of Tax Practitioners v. Union of India [1998] 101 Taxman 401 (Delhi)

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Explanatory Notes

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GSR 76(E),18-2-1993

3. SECURITIES LENDING SCHEME, 1997

4. Voluntary Disclosure Of Income Scheme, 1997

5. Kar Vivad Samadhan Scheme, 1998

Clarification regarding applicability of provisions of the scheme to registered firms for assessment years prior to 1993-94.

2. The porcedure to be followed in the case of pertners having other income is explained in the Press Release.

ANNEX

PRESS RELEASE

Explanatory memorandum to the Kar Vivad Samadhan Scheme

(Removal of Difficulties) Order, 1998, under section 97 of the finance (No.2) Act, 1998

Functions and jurisdiction of Commissioners

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