Summary:
In this article, the author encapsulated provisions of the black-money law in the beginner context. Statue engrossed prima facie to trigger/charge this substantive law on nexus with undisclosed foreign income and assets, the procedure for dealing with such Income and assets. This statute triage to detect such undisclosed foreign income and assets & levy for the imposition of tax at a flat rate of 30% on any undisclosed foreign income and assets on such valuation as prescribed and for matter connected therewith or incidental thereto.
Rationale enshrined by the legislature:
Legislative envisaged to steer the chain of events into which the assessment shall recourse in, before leading-up to finer nuances on this subject matter, it’s important to brush up key definitions: –
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Section(sub-section) |
Legal text |
| 2(2) | “Assessee” means a person,
(a) being a resident in India within the meaning of section 6 of Income Tax Act, 1961 in the previous year; or (b) being a non-resident or not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, 1961 in the previous year, who was resident in India either in the previous year to which the income referred to in section relates; or in the previous year in which the undisclosed asset located outside India was acquired Provided that the previous year, in case of acquisition of undisclosed outside India, shall be determined without giving effect to clause (c) of section 72. |
| 2(9) | “Previous year” means
(a) the period beginning with the date of setting up of a business and ending with the date of the closure of the business or the 31st day of March following the date of setting up of such business whichever is earlier; (b) the period beginning with the date on which a new source of income comes into existence and ending with the date of closure of the business or the 31st day of March following the date of which new source comes into existence whichever is earlier; (c) the period beginning with the 1st day of the financial year and ending with the date of discontinuance of the business other than business referred to in clause (b) or dissolution of an unincorporated body or liquidation of a company, as the case may be; or (d) the period of twelve months commencing on the 1st day of April of the relevant year in any other case, and which immediately precedes the assessment year. |
| 2(11) | “Undisclosed asset located outside India” means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of Assessing Officer unsatisfactory |
| 2(12) | “Undisclosed foreign Income and asset” means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India referred to in section 4, and computed in the manner laid down in section 5 |
The substratum of the Indian Constitution premised categorically the legal standing as under aforesaid articles, hereby abridging in shorter context to throw some light:
Article 246 categorically stipulated the constitutional standing of Union and State Governments for levying a tax; and
Further, Article 265 prohibits arbitrary collection of tax as it states that “no tax shall be levied or collected except by authority of law” in other words inter alia, the authority of law means that the tax proposed to be levied must be within the legislative competence of the legislature imposing the tax.
Thus, analysis of the above proposition of judicial spectrum this statute stipulated charging section as under
Charge of tax
3 (1). There shall be charged on every assessee for every assessment year commencing on or after the 1st day of April, 2016, subject to this provision of this Act, a tax in respect of his total undisclosed foreign income and asset of the previous year at the rate of thirty per cent of such undisclosed income and asset;
Provided that an undisclosed asset located outside India shall be charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer.
(2). For the purposes of this section “value of an undisclosed asset” means the fair market value of an asset (including financial interest in and entity) determined in such manner as may be prescribed.
Scope of total undisclosed foreign income and asset
4 (1). Subject to the provision of this Act, the total undisclosed foreign income and asset of any previous year of an assessee shall be,
(a) the income from a source located outside India, which has not been disclosed in the return of income furnished within the time specified in Explanation 2 to sub-section (1)[1] or under sub-section (4)[2] or sub-section (5)[3] of section 139 of the Income-tax Act;
(b) the income, from a source located outside India, in respect of which a return is required to be furnished under section 139 of the Income tax Act but no return of income has been furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the said Act; and
(c) the value of undisclosed asset located outside India.
(2) Notwithstanding anything contained in sub-section (1), any variations made in the income from a source outside India in the assessment or reassessment of the total income of any previous year of the assessee under the Income-tax Act in accordance with the provisions of section 29 to section 43C or section 57 to section 59 or section 92C of the said Act shall not be included in the total undisclosed foreign income.
(3) The income included in the total undisclosed foreign income and asset under this Act shall not form part of the total income under the Income- Tax Act.
Analysis:
Thus, by virtue of these provisions aforesaid, appertaining to the jurisdiction of the statute it levies/charges the incidence of tax inter-alia on the assessee who is resident and ordinary resident during the previous year or non-resident/not ordinary resident in the previous year but was held to be resident in that previous year in nexus with which undisclosed foreign Income and asset were acquired and source must be located outside India.
Sub-section (1) appended to section 3 levied such undisclosed foreign Income and asset, tax @ 30% at flat rate and proviso appended to sub-section (1) stipulated no such time framework for an undisclosed asset located outside India it can be brought in the jurisdiction of this statue when such asset comes to the notice of Assessing officer irrespective of the time limit specified in Section 147/148 of Income tax act for re-opening of incomes escaped assessment.
Sub-section (2) appended to section 3 of this Act specified a valuation mechanism for determining the fair market value of an asset for the “value of an undisclosed asset” under Rule 3 of Black Money (Undisclosed Foreign Income and Assets and Imposition of Tax Rules, 2015).
Further, this statute horizon its ambit as stipulated under sub-section (1) appended to section 4 for such total undisclosed foreign income and asset of any previous year of an assessee shall be income from a source located outside India for which such income has not been disclosed in the return of Income or in respect of which return is required[4] to be furnished under section 139 of the Income-tax Act within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of said Act and value of undisclosed asset located outside India.
Furthermore, sub-section (2) of section 4 of this statute provides for the non-obstante clause states that any escaped income within the preview of section 29 to section 43C or section 57 to section 59 or section 92C assessed or reassessed in Income-tax Act situs of which is outside India will not be fall under the jurisdiction of Black Money Law.
Furthermore, sub-section (3) of section 4 contains explanatory clarification it states that any undisclosed foreign Income and Assets brought under this Jurisdiction of law will not be assessed under the Income Tax Act.
Valuations and computation during the course of assessment:
This statue enunciates Rule 3[5]of Black Money (Undisclosed Foreign Income and Assets and Imposition of Tax Rules, 2015) which stipulated under explanation 2 appended to this rule that, the valuation date shall be: –
(a) In respect of assets declared under section 59[6] of the Act, the 1st day of July, 2015;
(b) In any other case the 1st day of April of the previous year.
This rule stipulates a valuation mechanism for various classes of assets viz archaeological collections, drawings, paintings, sculptures, shares and securities, and immovable property, the fundamental principle envisaged in this rule as
I. Cost of Acquisition of the amount invested; and
II. The price that would ordinarily fetch if sold in the open market on the valuation date.
The basic condition precedent for income leviable to the tax must complacent four essential constituents in light of the verdict pronounced by the Hon’ble Supreme Court in Govind Saran Ganga Saran Vs. CST, (1985) 155 ITR 144 (SC) (60 STC 1)
- The character of imposition is known by its nature which prescribes the taxable event attracting the levy;
- Clear Indication of the person on whom the levy is imposed and who is obliged to pay the tax;
- The measure or value to which rate will be applied for computing the tax liability; and
- The rate at which tax is imposed.
Thus, in light of the above judgment, a taxable event being undisclosed foreign Income and asset of the previous year which escaped assessment during the relevant previous year, the person obliged to pay the tax is assessee defined u/s 2(2) of this Act, rate prescribed under the statue is 30% flat rate and valuation principle as discussed aforesaid above. Hitherto, thus computation mechanism will be left over for begetting to the conclusion of this jurisprudence.
Computation of total undisclosed foreign income and asset
5. (1) In computing the total undisclosed foreign income and assets of any previous year of an assessee,—
| (i) | no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee, whether or not it is allowable in accordance with the provisions of the Income-tax Act; | |
| (ii) | any income,— |
| (a) | which has been assessed to tax for any assessment year under the Income-tax Act prior to the assessment year to which this Act applies; or | |
| (b) | which is assessable or has been assessed to tax for any assessment year under this Act, shall be reduced from the value of the undisclosed asset located outside India, if, the assessee furnishes evidence to the satisfaction of the Assessing Officer that the asset has been acquired from the income which has been assessed or is assessable, as the case may be, to tax. |
(2) The amount of deduction referred to in clause (ii) of sub-section (1) in case of an immovable property shall be the amount which bears to the value of the asset as on the first day of the financial year in which it comes to the notice of the Assessing Officer, the same proportion as the assessable or assessed foreign income bears to the total cost of the asset.
Illustration: A house property located outside India was acquired by an assessee in the previous year 2009-10 for fifty lakh rupees. Out of the investment of fifty lakh rupees, twenty lakh rupees was assessed to tax in the total income of the previous year 2009-10 and earlier years. Such undisclosed asset comes to the notice of the Assessing Officer in the year 2017-18. If the value of the asset in the year 2017-18 is one crore rupees, the amount chargeable to tax shall be A-B=C
where,
A=Rs.1 crore, B=Rs. (100 x 20/50) lakh= Rs.40 lakh, C=Rs. (100-40) lakh=Rs.60 lakh.
Analysis:
In light of the above provisions enunciated, the computation mechanism stipulates that on the determination of total undisclosed foreign income and assets of any previous year no deduction of expenditure or allowance or set off of loss shall be allowed to the assessee and Income already assessed earlier in preceding assessment year shall be reduced from the value of undisclosed asset located outside India if the corroborative evidence to the satisfaction of assessing officer furnished.
Further, in a class of assets being Immovable property proportionate amount bears to the total cost of an asset already assessed will be reduced to determine the value of the undisclosed asset.
Conclusion:
In light of the above jurisprudence, the law unplugged the revenue leakages by providing a modus operandi to detect such situations and abridge the parallel economy. As cited above the Hon’ble Supreme Court verdict’s four essential constituents shall be prima facie present to levy the income to tax under this act i.e., taxable event, person obliged to pay tax, Value, computation, and tax rate.
[1] Explanation 2.—In this sub-section, “due date” means,—
(a) where the assessee other than an assessee referred to in clause (aa) is—
(i) a company; or
(ii) a person (other than a company) whose accounts are required to be audited under this Act or under any other law for the time being in force; or
(iii) a partner of a firm whose accounts are required to be audited under this Act or under any other law for the time being in force [or the spouse of such partner if the provisions of section 5A applies to such spouse],
[2] (4) Any person who has not furnished a return within the time allowed to him under sub-section (1), may furnish the [return for any previous year at any time before three months prior to] the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.
[3] (5) If any person, having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time [before three months prior to the end] of the relevant assessment year or before the completion of the assessment, whichever is earlier.
[4] Provided also that a person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6, who is not required to furnish a return under this subsection (139(1)) and who at any time during the previous year,—
(a) holds, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside India or has signing authority in any account located outside India; or
(b) is a beneficiary of any asset (including any financial interest in any entity) located outside India,
shall furnish, on or before the due date, a return in respect of his income or loss for the previous year in such form and verified in such manner and setting forth such other particulars as may be prescribed:
[5] https://www.incometaxindia.gov.in/pages/rules/black-money-undisclosed-tax-rules.aspx
[6] Subject to the provisions of this Chapter, any person may make, on or after the date of commencement of this Act but on or before a date to be notified by the Central Government in the Official Gazette, a declaration in respect of any 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—
(a) for which he has failed to furnish a return under section 139 of the Income-tax Act;
(b) which he has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Act;
(c) which has escaped assessment by reason of the omission or failure on the part of such person to make a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise.
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