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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


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

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