PROJECT

BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND

IMPOSITION OF TAX ACT, 2015.

INTRODUCTION

 Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 Abstract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 Key Aspects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 Key Sections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 Key Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

 Applicability & Scope of The Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

1
 Chargeability under BMAct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

 Penal Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19

 General Strategies for tackling Black Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20

 Concluding Remarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22

 Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23

BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND

IMPOSITION OF TAX ACT, 2015. – ABSTRACT

Introduction: -

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of
Tax Act ("the Black Money Act") introduced in 2015 with an objective to curb the menace of
black money has recently caught the attention of taxpayers, where prosecution proceedings
were initiated against an individual in one of the Calcutta High Court ruling. The Black
Money Act is applicable to Residents and Ordinarily residents and it provides several
stringent provisions for non-compliance including imposing penalty of three times the
amount of tax, penalty of Rs. 10 lakhs in certain circumstances and in some cases prosecution
up to 10 years. Similar penal/prosecution provisions exist under the Income tax law as well,
however the magnitude of the implications under the Black Money Act is significant, since
these are non-compoundable in nature. Compoundable offences are those that can be settled
between parties, whereas, non - compoundable offences are more serious offences in which
the parties do not have the right of settlement. For example, if a prosecution is initiated, the
same cannot be settled by payment of penalty.

2
Research Methodology: -

The research is being conducted and project is done in doctrinal method. In this
type of study, the researcher need not do any field work. It can be done by referring various
books, journals and articles. It is also called theoretical way of study. The research is based
on secondary sources. Literature review has been done extensively in order to make a
comprehensive presentation. Books from the University’s library have been used. Articles
and reports from different websites have been used in order to get comprehensive data on the
subject.

Literature Review: -

 On Black Money-K. Sundaram and V. Pandit Indian Economic Review New Series,
Vol. 11, No. 2 (OCTOBER 1976), pp. 121-132.
 Has Black Income as a Proportion of GDP in India Declined in the Post-Reform
Period? - T.P. SINHA-Indian Economic Review New Series, Vol. 50, No. 2 (July -
December 2015), pp. 273-316

Significance of the study: -

Through this project, we got to know regarding what is black money and why is
it illegal and what’s the imposition of tax thereto.

Scope of the study: -

The scope of this study is being restricted to the aspects relating to Black Money in India.

Objective of the study: -

The objective of this study is to know more deeply regarding the legal
consequences pertaining to possession of Black Money and Tax regarding thereto.

Conclusion: -

Black Money is a societal ill and Demonetization is but one step war against the
black money.

More recently, to tackle the black money crisis, the finance ministry amended the Prevention
of Money Laundering Act, 2002, where any person shall be guilty of money laundering if
they “have directly or indirectly attempted to indulge or knowingly assisted or knowingly

3
[were] a party or [were] actually involved” in the concealment, possession or use of
laundered money. Additionally, the amendment also allows for a suspect’s property and other
assets to be searched and seized without a First Information Report (FIR) or chargesheet filed
against them.

INTRODUCTION

Background:

Black Money in normal parlance means income illegally obtained or not declared for tax
purposes. The definition ascribed by the Indian Government in White Paper on Black Money
includes money generated through illegal activities (terrorism, drug trade, corruption, etc.) or
generated through unaccounted or undisclosed permissible economic activities under the garb
of Black Money.

Extracts from the same are reproduced hereunder: There is no uniform definition of black
money in the literature or economic theory. In fact, several terms with similar connotations
have been in vogue, including ‘unaccounted income’, ‘black income’, ‘dirty money’, ‘black
wealth’, ‘underground wealth’, ‘black economy’, ‘parallel economy’, ‘shadow economy’, and
‘underground’ or ‘unofficial’ economy. All these terms usually refer to any income on which
the taxes imposed by government or public authorities have not been paid. Such wealth may
consist of income generated from legitimate activities or activities which are illegitimate per

4
se, like smuggling, illicit trade in banned substances, counterfeit currency, arms trafficking,
terrorism, and corruption. For the purpose of this document, ‘black money’ can be defined as
assets or resources that have neither been reported to the public authorities at the time of their
generation nor disclosed at any point of time during their possession.

The subject or the peril of Black Money both inside the Indian territory and abroad has been
in the spotlight in the past years that has caught public sentiment and political attention.
Several estimates on the quantum of black money circulating and parked overseas are doing
the rounds including speculation on how it could impact the GDP growth rate!

The Government of India, in its endeavor to reinforce its commitment towards tackling the
peril of the parallel economy and the attempt to bring money of that nature back into India,
brought out a legislation in the form of the Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act, 20151 (BMA or Black Money Act).

Key Aspects: -

 Aims to create an entire administrative and penal machinery to address this practice of
creation of Black Money (reason behind the name 'Black Money Act' or "BMA").
 Applicable only on Residents (other than not ordinarily resident) and assessee in default
with respect to foreign undisclosed income and assets.
 Any undisclosed foreign income or asset shall be charged. The value of an undisclosed
asset would be taken to be its Fair Market Value (FMV). Any taxed income (used to
purchase the foreign undisclosed asset) to be reduced from the undisclosed asset value
proportionately.
 Undisclosed foreign income or assets (present market value) shall be taxed at the flat
rate of 30%. Stringent and serious repercussions: Penalties, 3 times the amount of tax
payable. Rigorous imprisonment from 3 to 10 years.
 One-time Disclosure opportunity (Compliance Window) for a limited period (Not
amnesty scheme) File declaration before the specified tax authority within a specified
period. Payment of tax at the rate of 30% and an equal amount by way of penalty (60%
of Amount cash outflow).
 Courts shall presume “Culpable Mental State”: Onus shifted to taxpayers.

1
http://www. egazette. nic. in

5
Further Analysis:

• Chargeability of the BMA is limited only on Residents (and “ordinarily” resident) and
assessee in default with respect to foreign undisclosed income and assets.

• The date of entering into force of the BMA is July 1, 2015 and shall be applicable from and
including the financial year ending March 31, 2016.

• Covers both, undisclosed foreign income and undisclosed foreign assets. Both to be taxed at
a flat rate of 30%.

• Assets to be valued at the present market value (methodology prescribed in the Rules).

• Stringent conditions for non-compliance stipulated: Penalties leviable upto 3 times the
amount of tax. Rigorous imprisonment from 3 to 10 years also stipulated.

• One-time compliance opportunity of any undisclosed asset located outside India for a
limited period by filing a declaration in the prescribed form before the specified tax authority
within a specified period.

• Tax applicable on such disclosed income and assets to be paid by December 31, 2015 at the
rate of 30% and an equal amount by way of penalty The BMA is outlined in the form of 7
chapters comprising of 88 sections, with a separate chapter outlining the facility of one-time
disclosure under the One-time compliance/ disclosure window.

Chapters Particulars Sections

Chapter I Preliminary Section 1 – 2

Chapter II Basis of Charge Section 3 – 5

Chapter III Tax Management Section 6 - 40

Chapter IV Penalties Section 41 – 47

Chapter V Offences and Prosecution Section 48 – 58

6
 Chapter VI One-time disclosure window Section 59 – 72

Chapter VII General Provisions Section 73 - 88

Key Sections:
 Section 2 (11) & 2 (12) define “undisclosed foreign asset” and “undisclosed
foreign income and asset”.
 Section 3 is the charging section and also provides rate of tax.
 Section 4 lays down the scope of Tax Base.
 Section 5 provides for computation of Tax Base.
 Section 10 provides for assessment procedure.
 Section 41 provides for penalty.
 Section 42 – Penalty for Incorrect Return.
 Chapter V – Sections 48 to 58 provide for prosecution.
 Chapter VI – Sections 59 to 72 provide for Voluntary Compliance Scheme,
charge of tax & penalty under VCS.

As far as jurisdiction for tax, penalty and prosecution are concerned, Black Money
Law (BML) and Income-tax Act (ITA) both operate simultaneously. Black Income or
Asset may be taxable under one or the other; or both laws. However, once an income/
asset is taxed under any one law; it cannot again be taxed under the other law. Double
taxation within India is not envisaged. BML is targeted only against “Foreign” black
money. ITA covers foreign as well as domestic black money.

Residence:
This law (Section 3) applies only to: Residents and Ordinary Residents (ROR)
of India. In other words, if a non-resident has black money abroad, this law does not
apply to him. Apparently, the objective of the law is to bring back into India, the black
money held abroad by Indian residents.
This legal position arises out of the definition of an assessee. BML makes a new
definition of “assessee” which is different from the definition of assessee under the
Income-tax Act. Only when a person is liable to pay tax under this law, he is an

7
assessee. Since a non-resident or a NOR is not an assessee under this law, the BML
does not apply to him.
However, this law is unique. The applicability may be divided into two parts: (i)
Regular charging and Enforcement provisions and (ii) Voluntary Compliance
provisions.

Difference between S.3 & S.60:

Under Section 3 the charge of tax is on an assessee. Hence the two conditions of being
ROR and having black money have to be satisfied. Under  Section 60, “any person”
who makes the declaration becomes liable to tax. Hence under Sections 59 and 60, it
is not necessary that the person should be an assessee. Hence it is further not
necessary that he should be ROR. In other words, even a non-resident can file
declaration under Section 59.

What the Black Money Law does NOT cover: Brief List:
 All assets and incomes within India.
 All Non-Residents and Not Ordinary Residents.
 Incomes arising from Indian Sources.
 Gold Monetisation Scheme is not VDS.
 There is NO Voluntary Disclosure Scheme (VDS).
 S.115 BBD is not a VDS.
 BML does not give good and adequate immunity.

Key Terms:
Income:
As far as incomes are concerned, BML applies only to foreign sourced incomes which
are liable to Indian tax but which have not been disclosed in the Indian tax returns.
Sec 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 the Assessing Officer
unsatisfactory;

8
 Sec2(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;

Section 5 (1) (ii) (b) provides that income assessed to tax under BML shall not be
again considered as undisclosed income.
Specifically, this law covers only assets located outside India. Indian undisclosed
assets are not covered.
The undisclosed foreign income is further specifically restricted to income  earned
from a foreign source. There is no reason why the income is restricted to foreign
income. Is there an intention – not to cover undisclosed Indian sourced income? We
don’t know. But the clear language of the law states that.
However, Indian Sourced Income – if it is held outside India; it is covered by S.2 (11)
as undisclosed foreign asset.

Assets:
As far as the asset is concerned; to be covered under BML, only conditions to be
satisfied are:
 The asset should be undisclosed;
 The asset should be located outside India;
 And the assessee should be unable to offer satisfactory explanation for the
source of the asset.
The asset may be created out of Indian sourced income or foreign sourced income.
The Country of Source of Income is irrelevant.
If the assessee has a satisfactory explanation for the undisclosed foreign asset; such
asset gets out of the Tax Base. By the term “satisfactory” we understand:
 If the source of the asset was taxable in India, full tax was paid. If it was not
taxable, proper explanation & evidence for the source should be provided by
the assessee.
 Undisclosed foreign assets form part of the tax base and are treated at par with
undisclosed income. Even Indian sourced income if held abroad, becomes
undisclosed foreign asset. Hence it becomes a tax base 2 .

2
www.latestlaws.com

9
Tax :  Section 3, the charging section also provides for rate of tax at 30% of the tax
base. Section 60 is an independent charging section for assets disclosed under VCS.
This Act has two separate changing sections.

Assessment:   Section 10 of BML provides for the assessment procedure. Sections 142
to 148 of the ITA have been compressed into one section – 10.

Tax Base: Scope: Section 4:

Section 4 provides for the Scope of the tax base – “undisclosed foreign income &
undisclosed foreign assets” - on which tax can be levied.  We call it Tax Base.
This is a Unique law. Normally we have Income-tax Act to charge tax on income; and
Wealth-tax Act to charge tax on wealth. Under the Income-tax Act, undisclosed assets
are taxed u/s. 69 – “Unexplained Investments”. Hence the unexplained investment is
“deemed to be income” and then taxed. Under BML, no such deeming provision is
made. Asset remains asset. A tax is charged u/s. 3. What is this tax? Section 3 just
calls it a “Tax”.
Applicability and Scope of the Act: -

 Applicability to Foreign Undisclosed Income and Assets:

Like the name of the Act suggests, the BMA applies only to Undisclosed Foreign Income and
Assets (i. e, outside the territory of India) and thus is a separate mechanism to regulate the
issue of foreign income and assets which have escaped the Indian tax net. In other words, the
BMA does not intend to directly deal with the Black Money accumulated in Indian assets as
these would continue to be dealt with by the Income tax Act, 1961 (‘ITA ’ or ‘Act’) and
some other allied legislations.

 Applicability to Persons Resident in India:

The BMA’s applicability has been confined to taxpayers who are persons resident and
ordinarily resident in India. This specific applicability emanates from the definition of
assessee contained in the BMA which means a person, being a resident other than not
ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax
Act, by whom tax in respect of undisclosed foreign income and assets, or any other sum of
money, is payable under this Act and includes every person who is deemed to be an assessee

10
in default under this Act. The BMA further defines the term resident to mean person who is
resident within the meaning of Section 6 of the ITA.

The extant residential status criteria for a “company” year on year is either that the company
is incorporated in India or its “place of effective management (POEM)” in that year, is in
India. Thus, foreign companies whose POEM is determined to be in India may also come
under the ambit of BMA. The residential status of Individuals contained in the Section 6(1) of
the ITA which deems person to be ordinarily resident in India if his stay in India is 182 days
(or more) or has been in India for period of 365 days(or more) within the last 4 previous years
and in India for 60 days (or more) in the previous year.

 UNDISCLOSED INCOME AND ASSETS

The BMA’s applicability is only with respect to Undisclosed Foreign Income and Assets.

The BMA defines the term “undisclosed foreign income and asset” to mean aggregate value
of the undisclosed income of the assessee from source located outside India and the value of
an undisclosed asset located outside India. Thus, for BMA to apply, the situs of the asset and
the source of income has to be outside India.

1. Assets:

The BMA further elucidates the meaning of the term “undisclosed foreign asset” to mean:

• an asset located outside India (including Financial Interest in an entity)

• directly held in his own name or of which he is a beneficial owner, and

 has no explanation about the source of investment for the asset or

 the explanation provided is unsatisfactory in the opinion of the tax authority.

The BMA also doesn’t provide any meaning to the term “Beneficial Owner”. However,
clarification in this regard was included in the FAQs issued which drew attention to the
meaning assigned to the term vide Explanation 4 to Section 139(1) of the ITA “beneficial
owner” in respect of an asset means an individual who has provided, directly or indirectly,
consideration for the asset for the immediate or future benefit, direct or indirect, of himself or
any other person. The explanation was inserted by Finance Act, 2015 to define the terms
Beneficial Owner and Beneficiary.

2. Income:

11
Undisclosed foreign income under the BMA means income from a source located outside
India which has not been disclosed in the return of income filed under the ITA or income,
from a source located outside India, in respect of which no Income Tax return has been filed.

 As per the BMA, the Undisclosed Foreign Asset means an asset which is unaccounted/
the source of investment in such asset is not fully explainable. Since an asset reported in
Schedule FA does not form part of COI in the ITR and consequently does not get taxed,
mere reporting of a foreign asset in Schedule FA of the return does not mean that the
source of investment in the asset has been explained.
 If source of investment is explainable, assets are not undisclosed assets even if not
reported in the ITR.
 However, non-disclosure of Foreign Asset in tax return for AY 2016-17 onwards would
attract penalty of Rs 10 Lacs u/s 43 of BM Act.

Foreign Assets Disclosure Requirement:

The requirement for disclosure of assets or financial interest located outside India has been
stipulated and subsumed in the tax returns since financial year 2013.

Chargeability under Black Money Act: -

The BMA bestows the charge of execution of the BMA with the Income Tax Authorities that
have been granted to exercise powers and authorities under the BMA enabling them to bring
to tax the undisclosed foreign income and asset.

Section 3 of the BMA provides for a tax charge @30% effective financial year ended March
2016:

 on the total value of undisclosed income and asset

 charge on the “value” of an undisclosed asset located outside India shall be charged on
its value in the previous year in which comes to notice of the Assessing Officer (‘AO’).

The BMA thus provides for a completely different mechanism for charging to tax the value
of Undisclosed Assets located outside India, which shall be in any year when such asset
comes to the notice of the AO. This coupled with the fact that the BMA is devoid of period of
limitation for issuance of notice or charge, shall have far-reaching effect as the AO can
invoke the BMA at any point in time upon the asset coming to his notice.

12
Even the ITA provides for a period of limitation of 16 years for issuance of notice with
respect income sourced from foreign assets which has escaped assessment. (w. e. f 1 July
2012).

The Black Money Act ring-fences the assessee from double jeopardy by means of clarifying
that the Undisclosed Foreign Income and Asset taxed under the BMA shall not be included in
the income for the purposes of the ITA.

The BMA also provides that while computing the total value of the Undisclosed Foreign
Income and Asset and resultant taxation on gross basis and thus allows for no deduction for
any expenditure or allowance (irrespective of allowance under the ITA). However, the BMA
provides for reducing the income which has already suffered tax under the ITA or the BMA
upon furnishing of satisfactory evidence demonstrating that the asset was acquired through
tax paid income. Such reduction shall be increased on a proportionate basis, i. e., in ratio of
cost of asset to the FMV of the asset.

The AO on receipt of information from income tax authority under the ITA or any other
authority under any law or on coming of any information to his notice shall serve a notice
requiring assessee to produce such information and document as he may require.

The BMA however, fails to clarify on the aspect of source of such information and the
validity and authenticity of the same for issuance of notice.

As highlighted above the BMA embodies no time limit for the issuance of the initial notice
for requisitioning information or documents. The BMA however, does provide for time limit
for completion of assessment and issuing the final reassessment/ reassessment order, which is
two years from end of financial year of issuance of the first notice.

The BMA also provides for remedial measures, inter-alia, appeal to Commissioner Appeals /
Tribunal / High Court and Supreme Court, rectification of mistakes, revision of orders,
recovery of arrears like that contained in the ITA. However, the presumption of existence of
culpable mental state shall lead to shift of onus onto the taxpayer.

13
In this case of R. K. Garg v. Union of India3, the constitutional validity of Special Bearer
Bonds (Immunities and Exception) Act, 1981 was under challenge. The legislation was
enacted by the Indian Parliament, with the object of putting to productive use, the
unaccounted money held by citizens. In furtherance of this, the Government, proposed to
issue instruments called Special Bearer Bonds and provided incentives for people to invest in
them. The controversial provisions of this legislation were Section.3 and Section.4, which
provided that, any person who subscribes to these bonds will not be required to disclose the
source of money for his investment in such bonds and he will not be interrogated or subjected
to any investigation, or admissible as evidence in any inquiry or proceedings or levied any
penalty on the basis of his investment. The Act was challenged inter alia on the ground
that it made an unreasonable classification between persons who illegally evaded
payment of tax as against those who abided by the law. It was argued that such a provision
in the law was against morality as it afforded tax evaders, immunities and exemptions, and
placed them at an advantageous position in comparison to those who abided by the law.
Unfortunately, by a majority of four against one, the Bench brushed aside this contention, and
held that morality was not an element to be considered while judging the constitutional
validity of a statute. This is an attempt to analyse the strength of ‘morality of the legislation’
as a ground for determining its constitutional validity as gathered from the letter and spirit of
the Constitution of India.

In AugustaWestland case, also referred to as the AugustaWestland VVIP chopper deal4,

the Indian helicopter bribery scandal refers to a multimillion-dollar corruption case in India,
wherein money was paid to middlemen and Indian officials in 2006 and 2007 to purchase
helicopters for high level politicians. As per the CBI, this amounted to ₹2.5
billion (US$35 million), transferred through bank accounts in the UK and UAE.

It came to light in early 2013, when an Indian national parliamentary investigation began into
allegations of bribery and corruption involving several senior officials and a helicopter
manufacturer AgustaWestland surrounding the purchase of a new fleet of helicopters. The
scandal has been referred to as the Chopper scam or Choppergate by the media and popular
press. Several Indian politicians and military officials were accused of accepting bribes from
AgustaWestland in order to win the ₹36 billion (US$500 million) Indian contract for the
supply of 12 AgustaWestland AW101 helicopters; these helicopters are intended to perform

3
1982 133 ITR 239 SC
4
In the year 2013.

14
VVIP duties for the President of India and other important state officials. Ahmed Patel,
political secretary to Congress President Sonia Gandhi, is alleged by Italian prosecutors to
have received kickbacks from the deal.

A note presented in the Italian court, sent by middleman Christian Michel (who was
extradited to India on December 4, 2018), asks Peter Hulett, an Agusta Westland employee,
to target key advisors to Sonia Gandhi and lists their names as Prime Minister Manmohan
Singh, Ahmed Patel, Pranab Mukherjee, M. Veerappa Moily, Oscar Fernandes, M. K.
Narayanan and Vinay Singh. The note also contains the bribes to be paid out, divided as "AF"
€6 million, "BUR" €8.4 million, "Pol" €6 million and "AP" €3 million. On January 8, 2018,
the third Court of Appeals of Milan acquitted the defendants on all charges.

The case continues to be investigated in India by the Indian government and the CBI.

In Srinidhi Karti Chidambaram & Ors v PCIT5, there has been a wilful failure to
disclosure any information relating to foreign asset – On facts the asset was disclosed in
Schedule FA and in the case of Karti Chidambaram , in the original return of income filed
and other three cases in the revised return of income filed within due date ; sanctioning
authority has come to an erroneous conclusion that the case deserve prosecution for non-
disclosure of the details of the asset in the return of income filed under S.139(1) . Sanction
order was set aside, offences under S.50 is not made out consequently, complaints filed are
quashed. However, contention of the assesses that the Principal Director of Income -tax is not
an authority , jurisdiction /competence under S.55 of the Black Money Act , to sanction
prosecution or file a prosecution complaint for offences under S.50 of the Black Money Act
is not accepted .[ S. 2(11), 2(12), 4, 49, 50 59, 84 , ITACT, S.139, Art .14 ]

The petitions were filed questioning the competence of the PCIT (Tamil Nadu and
Puducherry) to sanction prosecution for offences under S. 50 of the Black Money
(Undisclosed foreign Income and Assets) and Imposition of Tax Act, 2015 to file the
complaint against the petitioners. Petitions declare that S.48 and S.50 of the Black Money
Act as unconstitutional and violative of Article 14 of the Constitution of India. Allowing the
petitions the Court held that ,  return of income has many schedules are part of  income
referred to S.139 of the Act- Offence under S.50 of the Black money Act is made out only if,
in the return of income under sub S. (1) or sub s.(4) or sub s.(5) of the income -tax Act , there
has been a wilful  failure to disclosure any information relating to foreign asset .On facts the

5
WANo. 1125 to 1128

15
asset was disclosed in Schedule FA and in the case of Karti Chidambaram  , in the original
return of income filed and other three cases in the revised return of income filed within due
date ; sanctioning authority has come to an erroneous conclusion that the case deserve
prosecution for non-disclosure of the details of the asset in the return of income filed under
S.139(1) . Sanction order was set aside, offences under S.50 is not made out consequently,
complaints filed are quashed. However, contention of the assesses that the Principal Director
of Income -tax is not an authority, jurisdiction /competence under S.55 of the Black Money
Act, to sanction prosecution or file a prosecution complaint for offences under Section-50 of
the Black Money Act is not accepted.

Government Contracts and Tenders Termination/Discharge/Repudiation/ Cancellation

/Suspension of Contract — Generally — Proper exercise of power by State: In this case
dealership of petroleum products was terminated as factum of breach of conditions of
dealership agreement was established. Division Bench of High Court issued mandamus in
favour of party who breached standard requirements by overturning Single Judge order. The
Supreme Court held that writ court is not appellate court nor can it substitute its decision in
administrative matters where there is no case of arbitrariness. Consequently, termination of
dealership was upheld in Indian Oil Corporation. Ltd. v. T. Natarajan6.

In Champalal S. Shah, Mumbai Vs Income Tax Officer 7, the mandate of circular/

guidelines/ notification issued by RBI from time to time is that import of gold and its end use
in India is being regulated by RBI and imports were allowed to be done through government
nominated agencies including approved banks. RBI has directed these agencies who are
authorized by RBI to do due diligence/KYC and other checks and verification of ultimate
buyers of gold so that the end use of imported gold can be tracked , controlled and monitored
and gold is handled/ utilized/ consumed by only authorized  arising out of concerns for
specified approved purposes and in no case it was allowed to be diverted for un-authorized
use or/and to unauthorized persons . The master circular dated 01-07-2005 issued by RBI
made these regulatory and controlled monitoring more stringent wherein onerous
responsibilities were placed on the nominated agencies and banks to further tighten their
monitoring both on suppliers as well on the importing concerns and the end users. This is
mainly done by RBI to tackle/curb abuse and menace of money laundering and prohibit
circulation of black money in the economy. In its circular no. 25 dated 01-10-2003, RBI has
6
(2018) 9 SCC 235
7
I. T. A. No. 2415 of 2014.

16
expressed unhappiness about misuse of import LC’s by unauthorized agencies for importing
gold and strict instructions are issued for complying with regulations/guidelines. Further
stringing of regulatory norms for import of gold by RBI vide master circular of July 2005
onerous responsibilities have been placed on approved banks and nominated agencies to do
due diligence/KYC/verification of suppliers, importers and user of the gold on a more
tightened basis.

On perusal of the docs which are on record it is crystal clear that the assessee wasn’t having
adequate infrastructure to handle such huge transactions in gold bars and had no experience
to handle turnover in gold bars of such a huge magnitude , rather if the theory of assessee is
accepted as to sale and purchase of gold bars , then by not disclosing names of ultimate
buyers of gold who have allegedly bought gold through assessee, assessee has in fact
facilitated introduction of undisclosed money of his buyers into bank accounts of assessee
and its conversion into gold bars without disclosing their identity which also prevented end
use of gold bars to be monitored. Reference is drawn to recent decision of Hon’ble Supreme
Court to case Binoy Viswam v. UOI8 , wherein Lordships have held in no uncertain terms
that menace of black money which is deep rooted in economy need to be tackled by taking
multiple actions at the same time, by holding as under certain guidelines issued.

Penal Consequences:

The BMA has far reaching penal consequences ranging from monetary exposure in the form
of hefty penalties along with prosecution. The penalty and prosecution provisions are
contained in Sections 41 to Section 58 of the BMA.

• The BMA has stringent provisions on UFIA and provides for imposing penalty equal to
three times of the tax. The BMA has otherwise provided discretion to the AO to impose this
penalty, however, once decided the penalty would be three times the tax.

• The BMA also imposes penalty of Rs. 10 lakhs on person resident in India who has foreign
sourced income or holds asset outside India or beneficiary of asset outside India, for:

 non-filing of the return of Income before the end of the assessment year, or
 fails to furnish particulars or furnishes inaccurate particulars in the return filed.

8
(2017) 82 taxmann.com 211(SC)

17
 However, taxpayers having bank accounts (wherein aggregate balance doesn’t
exceed Rs. 500, 000) have been provided some respite as the aforesaid penalty shall not apply
to them.

 The punishment for willful attempt to evade tax in relation to a foreign income or an asset
located outside India will be rigorous imprisonment from three years to ten years. In
addition, it will also entail a fine.
 Failure to furnish a return in respect of foreign assets and bank accounts or income will be
punishable with rigorous imprisonment for a term of six months to seven years. The same
term of punishment is prescribed for cases where although the assessee has filed a return
of income, but has not disclosed the foreign asset or has furnished inaccurate particulars
of the same.
 The above provisions will also apply to beneficial owners or beneficiaries of such illegal
foreign assets.
 Abetment or inducement of another person to make a false return or a false account or
statement or declaration under the Act will be punishable with rigorous imprisonment
from six months to seven years. This provision will also apply to banks and financial
institutions aiding in concealment of foreign income or assets of resident Indians or
falsification of documents.

Safeguards: The principles of natural justice and due process of law have been embedded in
the Act by laying down the requirement of mandatory issue of notices to the person against
whom proceedings are being initiated, grant of opportunity of being heard, necessity of
taking the evidence produced by him into account, recording of reasons, passing of orders in
writing, limitation of time for various actions of the tax authority, etc. Further, the right of
appeal has been protected by providing for appeals to the Income-tax Appellate Tribunal, and
to the jurisdictional High Court and the Supreme Court on substantial questions of law.

To protect persons holding foreign accounts with minor balances which may not have been
reported out of oversight or ignorance, it has been provided that failure to report bank
accounts with a maximum balance of upto Rs.5 lakh at any time during the year will not
entail penalty or prosecution9.

9
www.taxlatest.com

18
Other safeguards and internal control mechanisms will be prescribed in the Rules.

Amendment of PMLA: The Bill also proposed to amend Prevention of Money Laundering

Act (PMLA), 2002 to include offence of tax evasion under the proposed legislation as a
scheduled offence under PMLA.

GENERAL STRATEGIES FOR TACKLING BLACK MONEY:

The distillation of various approaches can be summarised as under:

1. Establish identity of persons (through PAN Card, Aadhar Card etc.) operating in the
country – citizens and foreigners.

2. Enable low the cost direct bank transfers (Implementation of NEFT/IMPS/RTGS and other
formats) including direct transfers of subsidies to the beneficiaries under the Aadhar scheme.

3. Enable electronic register of assets (Underway through electronic land records, digitisation
of revenue records)

4. Reform tax system so that cost of compliance is lower than cost of tax evasion. (through
initiatives such as Saral forms, e-filing, self-declaration etc.) Indirect tax system through
simplification (GST).

5. Widen the net for disclosure by filing Income Tax return. (auto-processing returns for tax
refunds).

6. Regulations that increase costs for black money creating activities. (Prevention of
Corruption Act etc.)

7. Create attribution chain for funds entering and exiting the country (such as through P-
Notes, FDI, Prevention of Money Laundering Act etc.)

8. Create e-trails of both incomes and expenditure.

9. Control on holding of cash and physical money including Indian and foreign money.
(FEMA, recent demonetisation).

It is clear that black money clean-up is underway on many fronts. Many of the pieces of
puzzle have been put in place.

 BML & POEM:

19
1. Consider the illustration of a foreign company (SPV) where almost 100% shares are
owned by Indian resident. If the POEM is situated in India, the company will be
treated as Indian resident. Hence, its global income will be taxable in India. If tax is
not paid in India, BML will apply.
2. Let us further assume that the company is providing certain services. Once it
accepts that the Place of Effective Management is situated in India, then the issue will
be – whether the services are rendered from India or from abroad. The Service Tax
commissioner may examine the place of rendering of services. He may levy service
tax on the services rendered by the foreign company 10 .
3. Once the company admits under Indian Income-tax that it has a place of effective
management in India; then under the Company Law, Section 379 – Chapter XXII may
be applicable. Hence the foreign company may be considered as a company doing
business in India. Hence it may have to file forms with ROC Delhi.
4. The company may be considered to be a resident of India. However, under  FEMA,
it may continue to be a non-resident of India.
5. Once an Indian resident, it has to do tax audit. TP may not apply.

Concluding Remarks:
The introduction of the parallel legislation in the form of the BMA may be viewed to be
Government’s reaction to pressure from the civil society and Apex Court’s mandamus to
tackle the complex issue of black money which has escaped the Indian tax net and resides
abroad.

However, if one were to ask the necessity of the introduction of the BMA, when the ITA was
well equipped to deal with such issues, it would become apparent that the BMA may not be
getting in anything novel. However, the BMA brings about some far-reaching consequences
in the form of penalty of 300% of the tax payable, vis-à-vis, the penalty embodied in the ITA
ranging from 100% to 300% of the tax payable, wherein the higher penalty was rarely
resorted to. Also, the BMA being a more stringent law exposes one to Prevention of Money
Laundering Act, 2002 by means of characterisation as a predicate offense and elongates the
period of imprisonment to 10 years.

10
www.taxguru.com.

20
The incarnation of the BMA with far reaching consequences (ranging from hefty penalty to
prosecution) may be fraught with administrative issues as the tax authorities who have been
bestowed discretionary powers with little checks and balances, may lack the comprehension
and training for the judicious implementation and invocation of the BMA provisions. This is
a concern in the Indian scenario where vexation subsists between the taxpayers and the tax
administration, it may lead to added peril of the taxpayers who may have further
apprehensions about making disclosures and approaching the tax authorities.

Further the very short time frame existing between the introduction of the BMA and closure
of the One-time declaration window has left the taxpayers agitated and frantic about
understanding the nuances of the BMA and implication of disclosure under the short
compliance window. This lack of facility of time to taxpayers may also go to buttress the
point of politically motivated agenda of the Government behind the BMA to showcase
delivery on the promises made by the leaders.

The introduction of the BMA may be with the good intention of tracking down and bringing
back wealth which legitimately belongs to the country, however a more conscious evaluation
of the implementation mechanism, comprehensive drafting in conjunction with facility of
time to make disclosure under a more forbearing compliance regime would have helped
attain the desired intention and greater acceptability.

Bibliography:
Books: -

 Taxman’s Income Tax, 49th edition, 2013.

 Taxation Laws, Kailash Rai, 9th edition, 2017.

 Income Tax, A. Murthy, 4th edition, 2017.

 Bharat’s Student Guide to Income Tax, 26th edition, 2017.

Websites: -

21
 www.incometaxindia.gov.in

 www.taxguru.com

 www.taxlegal.com

 www.taxpandit.co.in

 www.latestlaws.com

22