Dr. Abani Kanta Nayak
Commissioner, Income Tax
Income Tax Appellate Tribunal, Kolkata
Dr. Abani Kanta Nayak is a Commissioner of Income Tax of 1996 batch presently posted as CIT(DR) in ITAT Kolkata. He has worked in various capacities in the Income Tax Department for over last two decades.
The invoking by Assessing Officers of the recently promulgated Black Money Act has its first brushes with the Courts of Law with the Hon’ble Delhi High Court and later on The Apex Court rendering almost diametrically opposite judgements. The author attempts a critical analysis of the issue and the various facets of the judgements.
The Hon’ble Apex Court recently quashed and set aside (vide its judgement in 110 Taxmann.com 272 (SC)) the restraint order of Hon’ble Delhi High Court [105 Taxmann.com 276 (Delhi)] in a case involving “The Black Money (Undisclosed Foreign Income And Assets) & Imposition of Tax Act, 2015” (hereafter referred as BMA in this article) which received wide coverage in the press(Union of India Vs. Gautam Khaitan). This article attempts a nuanced analysis of the various aspects of the controversy that has been dealt with by the judgements cited supra which is yet to run its full course.
BMA promulgated on 26/05/2015 contains 88 secs in toto arranged in 7 chapters of which Chapter I is christened as “Preliminary” & Sec. 1 therein deals with Short title, Extent & Commencement of the Act. Sub-Sec. 3 of Sec. 1 describes, of course, with a savings clause, that The Act will come into force on 01/04/2016 (prior to amendment). Sec 59 of the Act provides for declaration to be made by any person in respect of hither to undisclosed asset located outside India and acquired from income chargeable to tax under the Income-tax Act for any assessment year prior to the assessment year beginning on 1st day of April, 2016 with in a period from the commencement of the Act and a date to be notified by the Central Govt. for this purpose. Sec 10 provides for the assessment or reassessment of undisclosed foreign income and assets by the AO (Income tax Authority under Sec 116 of IT Act). Secs 85 & 86 confer rule-making powers on CBDT and Central Govt. for carrying out the provisions of the Act and for removing difficulties.
Meanwhile, Central Government exercised powers under the provisions of Sections 85 and 86 of the said Act to promulgate Notification No. S.O. 1790(E) dated 01.07.2015 declaring that in sub-section (3) of section 1 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (22 of 2015), for the words, figures and letters “the 1st day of April, 2016”, the words, figures and letters “the 1st day of July, 2015” shall be substituted thereby effectively bringing the date of commencement on 01/07/2015 in place of 01/04/2016, pursuant to which the proceedings were initiated against the Assessee petitioner before the Delhi High Court. As the subordinate legislation was made under secs 85/86 prior to the said Act itself coming into force the petitioner went in writ before Hon’ble Delhi High Court (DHC) seeking an appropriate writ of mandamus/prohibition to restrain the Deptt. from continuing further proceedings under sec 10 besides amongst others testing the vires of the various provisions of the Act and notifications issued thereunder. The Hon’ble DHC on finding prima-facie merit in the petitioner’s argument that the subordinate legislation ante-dating commencement of the Act was based on provisions of the very same Act which was not in effect at the time of such legislation and consequently being without the sanction of law, ordered restraint from further proceeding on the Deptt. pending final judgment on merits.
The operative portion of the judgement comprises of paragraphs 10,11,13 & 14 which is reproduced as below.
“10. Parliament in its wisdom enacted the said Act and expressly provided therein that save as otherwise provided in the said Act, it shall come into force on the 1st day of April, 2016. There is, therefore, no gainsaying the legal position that, the power to make Rules or remove difficulties under the provisions of Sections 85 and 86 of the said Act, could only be exercised by the Central Government, once the said Act came into force on the 1st April, 2016, the date expressly stipulated by Parliament in this behalf, and not prior thereto.
11. A fortiori the Central Government further could not have, prior to the said Act coming into force, altered the date on which the enactment came into force i.e. 1st April, 2016 by exercising the powers available to it under Sections 85 and 86 of the said Act by advancing it to 1st July, 2015……
13. In the case at hand, consequently at this stage we are prima facie of the considered view that, the official respondents could not have exercised powers granted to it under the provisions of Sections 85 and 86 of the said Act, prior to the enactment itself coming into force, in terms of the provisions of sub-Section (3) of Section 1 of the said Act.
14. In this view of the matter, we are of the opinion that, the petitioner has made out a good prima facie case for grant of interim relief; and that grave prejudice will be caused to him if the official respondents are not restrained at this stage from proceeding further and taking action against the petitioner, under the provisions of the said Act.”
On Deptt.’s further appeal, The Ld. Apex Court observed that prima-facie, the subordinate legislation was made for effectuating the beneficial consequences of sec 59 of the Act and interpreting the legislation that it is tantamount to retrospective application of penal provisions(secs 50/51), as has been done by DHC, will NOT be in order. Further, it was held that as the sec 10 proceedings against the assessee was for AY 2019-20 and the previous year concerned was FY18-19 which is well beyond 01/04/2016, there is no merit in granting interim restraint against Revenue. The Hon’ble Supreme Court further observed that provisions of Section 3 read with Section 2(9)(d) of the Black Money Act unambiguously show, that the legislative intent insofar as the charging tax on undisclosed asset located outside India is concerned, is to charge the tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer (Emphasis Supplied). However, The Apex Court made it clear that the Hon’ble DHC will decide appeal before it on merits independently uninfluenced by observations made by it which was solely in respect of interim order of restraint. The operative portion of the judgement as contained in paragraphs 19 and 20 thereof is reproduced
“19. It could therefore be seen, that the scheme of the Black Money Act is to provide stringent measures for curbing the menace of black money. Various offences have been defined and stringent punishments have also been provided. However, the scheme of the Black Money Act also provided one-time opportunity to make a declaration in respect of any undisclosed asset located outside India and acquired from income chargeable to tax under the Income-tax Act. Section 59 of the Black Money Act provided that such a declaration was to be made on or after the date of commencement of the Black Money Act, but on or before a date notified by the Central Government in the Official Gazette. The date so notified for making a declaration is 30.09.2015 whereas, the date for payment of tax and penalty was notified to be 31.12.2015. As such, an anomalous situation was arising if the date under sub-section (3) of Section 1 of the Black Money Act was to be retained as 01.04.2016, then the period for making a declaration would have been lapsed by 30.09.2015 and the date for payment of tax and penalty would have also been lapsed by 31.12.2015. However, in view of the date originally prescribed by sub- section (3) of Section 1 of the Black Money Act, such a declaration could have been made only after 01.04.2016. Therefore, in order to give the benefit to the assessee(s) and to remove the anomalies the date 01.07.2015 has been substituted in sub-section (3) of Section 1 of the Black Money Act, in place of 01.04.2016. This is done, so as to enable the assessee desiring to take benefit of Section 59 of the Black Money Act. By doing so, the assessees, who desired to take the benefit of one time opportunity, could have made declaration prior to 30th September, 2015 and paid the tax and penalty prior to 31st December, 2015.
20. It would further be relevant to note that sub-section (3) of Section 1 of the Black Money Act, itself provides that save as otherwise provided in this Act, it shall come into force on 1st day of July, 2015. A conjoint reading of the various provisions would reveal, that the Assessing Officer can charge the taxes only from the assessment year commencing on or after 01.04.2016. However, the value of the said asset has to be as per its valuation in the previous year. As such, even if there was no change of date in sub-section (3) of Section 1 of the Black Money Act, the value of the asset was to be determined as per its valuation in the previous year. The date has been changed only for the purpose of enabling the assessee(s) to take benefit of Section 59 of the Black Money Act. The power has been exercised only in order to remove difficulties. The penal provisions under Sections 50 and 51 of the Black Money Act would come into play only when an assessee has failed to take benefit of Section 59 and neither disclosed assets covered by the Black Money Act nor paid the tax and penalty thereon. As such, we find that the High Court was not right in holding that, by the notification/order impugned before it, the penal provisions were made retrospectively applicable”.
In view of the Hon’ble Apex Court’s order, now the AOs and other Authorities will be able to continue the proceedings under the Act pending before them. However, this pronouncement being in respect of the prima-facie interim order of restraint and now the adjudication will resume before DHC on merits, we have to wait for the pronouncement on merits of the vires of various provisions and the notifications.
In the current subject matter, we have two dimensions of the controversy-
a. Whether a statute law which comes into force on a particular date as per the statute itself can be applied to events prior to that i.e. retro-actively effectuated? and
b. Whether such retrospectivity can be given to a law by subordinate legislation even if authority for the same is derived from the same statute?
An ex-post-facto law is a law which imposes penalties retroactively, that is, upon acts already done, or which increases the penalty for the past acts. An ex post facto or retrospective law is one that retrospectively changes the legal consequences of acts committed or the legal status of facts or relationships that existed prior to the enactment of the law. Article 20(1) of the Indian Constitution provides necessary protection against ex post facto law. Art. 20(1) has two parts. Under the first part, no person is to be convicted of an offence except for violating ‘a law in force’ at the time of the commission of the of the impugned act charged as an offence. A person is to be convicted for violating a law in force when the act charged is committed. A law enacted later, making an act done earlier (not an offence when done) as an offence, will not make the person liable for being convicted under it. The second part of Art. 20(1) protects a person from a penalty greater than what she might have incurred at the time of her committing the offence. Thus, a person cannot be made to suffer more by an ex-post-facto law than what she would have been subjected to at the time she committed the offence.
However, imposing or increasing a penalty with retrospective effect for violation of a taxing statute does not infringe Art. 20(1). The ratio for such proposition has been lucidly explained by the Apex Court in Shiv Dutt Rai Fateh Chand Etc. Etc. v. Union of India & Anr. Etc. (1984 AIR 1195). Art. 20(1) contemplates proceedings in the nature of criminal proceedings and it does not apply to proceedings under a tax law which have a civil sanction and are of a revenue nature. The word ‘penalty’ in Art. 20(1) does not include a ‘penalty’ under a tax law levied by Revenue for violation of statutory provisions. A penalty imposed thus is only a civil liability, though penal in character. However, Art. 20(1) applies when a punishment is imposed for offences through criminal prosecution (even under tax laws). Therefore, Dimension(A) may be interpreted in favour of Revenue on merits too excepting the prosecution provisions even if the Act is held to be made retrospective by the subordinate legislation.
What is prohibited under Art. 20(1) is only conviction or sentence, but not trial, under an ex-post-facto law. The prohibition does not apply to a change of procedure or of court. In view of the same, vacation of restraint, even if the subordinate legislation is held to be retrospective can aptly be appreciated to be in order. Further, an ex-post-facto law which only mollifies the rigors of a criminal law does not come under the prohibition of Art. 20(1). Therefore, an accused should have the benefit of a retrospective law as held in Rattan Lal v. State of Punjab (1965 AIR 444). This is the consideration that influenced the Apex Court’s view as they held that the amendment of commencement date was to enable assesses to take advantage of beneficial provision of sec 59.
However, it is also to be noted that in the interim order, the Hon’ble HC did not treat the penal provisions of Sec 50 & 51 as retrospective but questioned the very basis of assuming jurisdiction of subordinate legislation when the Act itself was not in force, which still remains to be addressed, wherein we step on dimension(B) of the controversy.
That the subordinate legislation was later on sanctioned by legislature under the provisions of Act and that Acts can be retrospectively passed by legislature even when struck down on vires subsequently rectifying defects will be significant considerations before the final pronouncement on merits.
Sec 5 of General Clauses Act,1897 will be an important aspect to be weighed in besides the provisions that mandate criminal prosecution under the Act as presently the Hon’ble Apex Court has left it clearly open ended for further deliberations in commenting “the penal provisions under Sections 50 and 51 of the Black Money Act would come into play only when an assessee has failed to take benefit of Section 59 and neither disclosed assets covered by the Black Money Act nor paid the tax and penalty thereon”.
Under Constitution of India, Art.245, under the extent of power, the Rule making authority under subordinate legislation has to act within limits of power delegated to it. Unlike Sovereign Legislature which has power to enact laws with retrospective operation, authority vested with the power of making subordinate legislation has to act within the limits of its power and cannot transgress the same. The seminal difference between subordinate legislation and the statute laws lies in the fact that a subordinate law making body is bound by the terms of its delegated or derived authority and that courts of law, as a general rule, do not give effect to these rules, thus made, unless satisfied that all the conditions precedent to the validity of the rules have been fulfilled. Further, retrospective effect cannot be given to a subordinate legislation unless it is authorized by the parent statute or a validating statute. In the case of Hukam Chand Etc. Vs. Union of India and Others (AIR 1972 SC 2427), the Apex court held that “the fact that the rules framed under the Act have to be laid before each House of Parliament would not confer validity on a rule if it is made not in conformity with…… the Act”.
In this regard, The Black Money Act clearly places restrictive prohibitions in retrospective rule-making in sec 85(3) as below-
“(3) The power to make rules conferred by this section shall include the power to give retrospective effect to the rules or any of them from a date not earlier than the date of commencement of this Act and no retrospective effect shall be given to any rule so as to prejudicially affect the interest of assesses”.
Similarly, in Sec 86- provisio such retrospective rule making is restricted as below-
“Provided that no such order shall be made after the expiry of a period of two years from the date on which the provisions of this Act come into force”. (Emphasis Supplied)
In view of this, we have to wait anxiously with bated breath for a favourable decision with regard to Dimension (B) of the issue.
It is noteworthy to mention that in a recent ruling, The Calcutta High Court in the case of Shrivardhan Mohta (102 taxmann.com 273), where one of the issues before the Hon’ble HC was whether the provisions of The BMA, 2015 apply to tax returns for the year prior to the enactment of Black Money Act, but filed post-enactment of the said Act, held that the petitioner in that case did not avail any of the two opportunities with respect to disclosure of foreign assets either during the search and seizure proceedings or during the settlement commission proceedings, which were subsequent to the BMA coming into effect, and accordingly there was no retrospective applicability of BMA in the petitioner’s case. The excerpts of the operative part of the judgement is as below-
“Those opportunities were subsequent to the Act of 2015 coming into effect. Therefore, the petitioner failed to furnish in his return of income, an information about an asset located outside India. It attracts the provisions of Section 50 of the Act of 2015. He can be proceeded against under the Act of 2015.
There are sufficient materials on record for proceeding against the petitioner under the Act of 2015. Section 55 of the Act of 2015 provides the persons at whose instance, the prosecution will be made for an offence under Section 49 to Section 53 both inclusive”.
Thus, Revenue has every reason to be optimistic even though the twists and turns of the case before Hon’ble Delhi High Court makes it a compelling case worth watching.
It is also worthy of comment that the 60th Report of Law Commission of India analysed various scenarios of commencement of a law and mentioned about the concept of “appointed date”. It is high time the same may be adopted in drafting of the statutes to get over such scenarios.