“The author is an Advocate, practicing since the last 25 years and has major look outs in the courts for matters pertaining to Income Tax as well as Black Money Prosecution. Mr. H.S. Bhullar has been an expert in the cases pertaining to Money Laundering Matters and has also established himself thoroughly in the field of Economic offences and white collar crimes.”
Introduction:
Black money is a complex phenomenon; it has never been precisely defined.[1] 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.[2] Generation of black money and its stashing abroad in tax havens and offshore financial centres have dominated discussions and debate in public fora during the last two years. It is well known that all money stashed away would not be black. In fact some of the outside bank account holders are genuinely law abiding citizens. Tax-system is an arbitrary system created without thorough scientific studies or statistical estimations. India has one of the most complex tax systems in the world. The tax slabs and rules are all arbitrary and do not reflect realities of economy. They are a complex mix of quick fixes, poll promises, buttering certain lobbies. It is so complex and arbitrary that even the experts fail to understand nuances of income tax, service tax, VAT, etc. Paying tax is not a proven symbol of sainthood in the modern world. The world today is driven by innovation and speed.
At the outset, the trending news that has created a hassle to the lives of various citizens at present is the disclosure of Foreign Bank Accounts under the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015 and those who have alleged to not have disclosed these foreign accounts/income, assets and other information. Surprisingly, the information is based on sources such as the Panama Papers[3], HSBC offshore leaks[4] or other information that has been procured by the Government of India under the Exchange of Information (EOI) and the various Double Taxation Avoidance Agreements (DTAA’s) between the countries.
The abovementioned news pertaining to Panama Papers have leaked more than 2, 14,000 offshore foreign accounts and many innocent Indian citizens have been victims to the massive leak of documents. Many influential figures such as Amitabh Bachchan, Aishwarya Rai Bachchan, DLF owner K P Singh and nine members of his family, Sameer Gehlaut, the promoters of Apollo Tyres and Indiabulls, Gautam Adani’s elder brother Vinod Adani, two politicians – Shishir Bajoria from West Bengal and Anurag Kejriwal, the former chief of the Delhi unit of Loksatta Part[5] have been victim to these malicious prosecutions, as the Income Tax Department wishes to aggressively access all the information pertaining to foreign accounts in the BVI. This news has not only created a bizarre in the world of Income Tax Act but has caused major implications on the Prevention of Money Laundering Act, 2002 and various Scheduled Offences that have been listed therein. When you come to think of it, the foreign black money cannot be very large, given the low foreign trade content in our GDP all these years. The truth is that it is indeed impossible, in the very nature of things, to even make a guesstimate of the Indian money secreted in foreign bank accounts.
To note, an Agreement between the Government of the Republic of India and Government of the British Virgin Islandsfor the exchange of information relating to taxes, in the Caribbean is considered to be among the haven of all the tax reforms and the tax department has already launched more than 33 prosecutions linked to the names revealed in the Panama papers. The leak pertaining to the Panama Papers is not only targeting the original defaulters but has created a wave of threat in the minds of thousands of citizens of India as they are being subjected to unnecessary harassment.[6]Various statistics, which put Indians at the top in terms of deposits in Swiss banks, have often been quoted to global institutions and sometimes even to the Swiss National Bank, the central bank of the country. Seeking to demolish the “myth” over these figures being “circulated as gospel truth”, a top official at the Swiss Bankers’ Association told PTI from Basel that there was no truth at all in such statistics.[7]
The Income Tax Department has created a splurge of cases against many innocent citizens by filing complaints u/s 276, 277 Income Tax Act, 1961, 181/191 Indian Penal Code & 50/51 of the Black Money Act, 2015. Unnecessary prosecutions under section 276, 277 of the Income Tax Act, 1961, Section 50 & 51 of the Black Money Acts and 181 of the Indian Penal Code, 1860 are being launched by the Department maliciously against these alleged defaulters. The documents purportedly procured by the department from the foreign authorities, such as Singapore & the British Virgin Islands are being used for launching criminal prosecutions, whereas it is an established fact that these documents cannot be used for any purpose other than for tax purposes, i.e., imposing penalty on the alleged tax payers or for quantifying the amount of tax that has been allegedly evaded by the Indian citizens.
The documents that are being purportedly received from abroad have also been imposing unnecessary threat to the alleged defaulters as the said documents are meant to be for only tax purposes, whereas the tax department only intends to launch criminal prosecution against the tax payers without giving any opportunity to explain the alleged default on the part of the Tax Payer. The Hon’ble Delhi High Court in Poonam Jain v. Union of India & Ors. W.P. (C) 3732/2017[8] had also observed that the person against whom a prosecution is being initiated cannot be denied a copy of the relied upon material/documents to prosecute him/her. This forms the basic crux of the principles of natural justice and the same would be applicable even if there is no express provision in the governing statute.
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 prosecution.[9]
It is also important to note that many provisions qua DTAA and OECD are being violated by the Income Tax Department since these documents that are being purportedly received from abroad are supposed to be used exclusively for tax purposes and any significance of these documents in the penalty/prosecution proceedings are to be brought to the notice of the foreign authorities supplying these documents and prior permission is ought to be taken from them before launching prosecution proceedings against the defaulters. These criminal complaints are currently being filed before the Ld. ACMM, Tis Hazari Courts, Delhi on the basis of unwarranted and baseless information. The Income Tax Department, in many cases pertaining to Black Money and Income Tax cases have successfully mislead the courts into taking cognizance of these matters by supplying information that is prima facie bad in law.
The cases that are being construed against the citizens of India are not only based on false and baseless information but also form the crux of violation of the various provisions laid down in the Organisation for Economic Cooperation and Development (OECD) Model Convention, Double Tax Avoidance Agreements (DTAA), Tax Information Exchange Agreements (TIEA’s), Multilateral Conventions, etc between the countries. India has DTAA treaties signed with 88 odd countries and that the IT department is issuing prosecution notices to the defaulters whilst violating the aforesaid treaties.
Conclusion:
Based on this, it has now become imperative for the defence to raise serious objections regarding the authenticity of documents received from abroad and genuineness of the department to launch prosecution. This clearly establishes the fact that the department is taking actions based on assumptions and presumptions having no basis in reality. The DTAA treaties agreed between India and various countries such as Singapore, BVI etc have been grossly violated by the department which is a crucial subject matter that needs to be brought into the notice of the courts since the fundamental rights of the citizens of India are being affected and that the department shows no concern to harmlessly proceed against the alleged defaulters. If India has to transform, neither ‘Make in India’ will help nor ‘Black Money collection’, what may help is the ability to create wealth – more intellectual property, new products and services that sell in world, establishing business, and new innovations.