By Amarpal S. Chadha
If you are travelling or posted abroad on work assignments, projects, business, etc you should be very careful that you do not fall foul of the Black Money Act. This Act requires you to disclose all foreign bank accounts and assets to the income tax department via your I-T returns. This has become important in the wake of the Calcutta High Court upholding prosecution of a tax payer under the Black Money Act due to non-disclosure of foreign bank accounts.
Foreign income and assets (like bank accounts, shares, etc) held by an individual anytime during the fiscal year should be appropriately reported and included in the return of income if the individual qualifies as Ordinarily resident in India. Adequate disclosures would help in mitigating the exposures under the Black Money Act and Income Tax Act.
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 lakh 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.
The Calcutta High Court in a recent ruling has upheld the initiation of prosecution proceedings under the Black Money Act against a taxpayer for failure to disclose foreign bank accounts. In this case, the taxpayer failed to disclose his four foreign bank accounts, inherited from his mother, in the tax returns for the previous years, which were filed in response to search proceedings. Although Black Money Act had provided for a one-time voluntary disclosure scheme during 1 July 2015 to 30 September 2015, it disqualified certain tax payers from availing the benefit of the declaration. The said taxpayer was disqualified from availing this benefit due to the specific provision, where a search assessment proceeding was pending as on the date of declaration.
The tax authorities concluded the assessment by taxing the income earned from the foreign banks and initiated the penalty proceedings under the Income Tax Act and prosecution under the Black Money Act for non-disclosure of foreign bank accounts and wilful attempt to evade tax.
On a writ petition filed by the aggrieved taxpayer with the High Court, it was contended by the tax payer that the Black Money Act is prospective in nature and cannot be made applicable retrospectively. He further argued that there was no malafide intention of not disclosing the foreign bank accounts and hence prosecution and penalty should not be attracted. Further, he contended that one cannot be prosecuted/penalised for the same violation under two different laws.
The High Court while upholding the contention of tax authorities laid down the following principles for imposition of penalty and prosecution under Black Money Act:
- Failure to disclose the foreign bank accounts in the return of income despite having two additional opportunities is an offence
- Where an act or an omission constitutes offence under two laws, the taxpayer can be proceeded against under either or both the laws. There is no bar for trial or conviction of an offence under two different enactments. The bar is only for the punishment of an offender twice for the same offence.
- If the violation of the Act by non-disclosure has been committed post the enactment of Black Money Act, it cannot be said to be giving a retrospective effect.
- Proving the presence of culpable mind is not required for proceeding under the Black Money Act.
The High Court provided clarity on several aspects of operation of the said law and underlined the requirement of disclosing the foreign assets/income in the return of income.
Companies with employees travelling abroad on assignments, projects, business, etc should take cognizance of this disclosure requirement. Employers should educate their employees about this disclosure requirement and ensure that foreign income and assets (like bank accounts, shares, etc) of the employees held anytime during the fiscal year should be appropriately reported and included in the return of income, if they qualify as Ordinarily resident in India.
(Amarpal S. Chadha, Tax Partner & India Mobility Leader, EY. Shanmuga Prasad, Tax Director, EY also contributed to the article.)