Pranshu Goel, FCA, LL.B

Since coming into power, Mr. Narender Modi led government has taken numerous steps to pin the black money. The government in series of steps have made efforts in not only curbing the menace of black money stashed overseas but to also put a halt on the domestic parallel cash economy.

In order to curb the ‘tax manoeuvring’ arrangements and black money generating activities, India has supported all global efforts of international cooperation. In this regard, emphasis are laid on the White Paper on Black Money issued by Ministry of Finance dated May 16, 2012, the Central Board of Direct Taxes (‘CBDT’), the apex direct tax administrative body in India, which brought to light the menace of black money and that it could be curbed by undertaking several unilateral & bi-lateral measures.

In this pursuit, the Union Budget, 2015 was perceived to have chalked out the roadmap of achieving the elusive great Indian story and the “Ghar Wapsi of Ache Din and Black Money”, the then Finance Minster Late Mr. Arun Jaitley in his budget speech asserted that the first and foremost pillar of his tax proposals is to effectively deal with the problem of black money which eats into the vitals of the economy and society. To quote ‘tracking down and bringing back the wealth which legitimately belongs to the country is his government’s abiding commitment to the country’ and that the problems of poverty and inequity cannot be eliminated unless generation of black money and its concealment is dealt effectively and forcefully.

The Finance Minister while acknowledging the menace of funds illegitimately stashed abroad, promised the introduction of a new comprehensive law to curb the same. Going forward, The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘Anti Black Money Act’) and has been made effective from July 1, 2015.

The primary objective of the Anti Black Money Act is to tax the undisclosed foreign income and foreign assets acquired from such undisclosed foreign income and initiate punitive actions against those indulging in this illegitimate means of causing loss to the exchequer.

The law is draconian and unique in a sense, as it provides for taxability of aforeign asset or foreign income, which has been illegally stashed overseas (and not declared in the one time declaration scheme), in the year in which it comes to the knowledge of the tax authorities, irrespective of the period to which it pertains. In simpler words, the Anti-Black Money Act would also be applied to such illegal foreign income and foreign asset which also pertains to period prior to coming into force of such Anti Black Money Act.[1]

The highlights of the Anti Black Money Act are the draconian penalty and prosecution provisions whereby a penalty of 300% is levied for non-disclosures of foreign income or foreign asset. Furthermore, slab rates of penalty have been specified for non-disclosures or non-furnishing of return or information, or furnishing of inaccurate particulars etc. Also, stringent provisions for imprisonment have been provided for wilful evasion of taxes, penalty or interest etc., wherein the period of sentence has been provided for a minimum period of three years with a maximum of ten years. The penalty and prosecution provisions enshrined under the Anti Black Money Act are higher vis a vis to the penalty and prosecution provisions that are provided under the Income Tax Act, 1961.

Thus, for an example, an assessee who has illegally stashed his income overseas in the year 2002, would have been exigible to tax, penalty and prosecution provisions as per the Income Tax Act, 1961 applicable to the year 2002, however, since that assessee escaped the rigours of Income Tax Act and now the tax department comes to know about such illegal foreign income and asset, the Anti Black Money Act may now be made applicable to such transaction pertaining to the year 2002, and he would be exigible to draconian penal and prosecution provisions provided under the new Anti Black Monty Act.

Apart from the above, the order passed under the Anti Black Money Act is made a scheduled offence under Prevention of Money Laundering Act, 2002 (PMLA). Thus, if any order is passed under the Black Money Act making assessment of any undisclosed foreign income or asset, the same would also be a scheduled offence under PMLA and rigorous provisions of PMLA would also become applicable, which may lead to attachment, confiscation of the property (proceeds of crime) and imprisonment of the assessee under the PMLA separately.

Also, amendments were brought to the provisions of Foreign Exchange Management Act, 1999 (FEMA), for penalising and prosecuting the act of illegally stashing assets overseas. The amended provisions provide for attachment and confiscation of the equivalent amount of property in India in lieu of the assets illegally stashed abroad and also provides for imprisonment.

It is worth noting that the penal and criminal punishments are significantly enhanced through amendments in the way of Anti Black Money Act, PMLA and FEMA ex post facto vis a vis the quantum of penalties and criminal punishment that were in force and applicable at the time of commission of the act of illegally stashing income and assets overseas.

A table summarising the penal and criminal provisions applicable at the time of commission of an offence (say for example in the year 2002) and the penal and criminal provisions that are now made retrospectively applicable to such offences committed prior to such amendments but detected/investigated now.

In other words, the draconian provisions of Anti Black Money Act, PMLA and FEMA are now made retrospectively applicable to the offence committed at a time when such severe provisions were not in place.

Here, it is important to consider whether such retrospective action on the part of the government is constitutionally valid and can a person be charged to rigorous penalty and punishments for an act/offence committed at a time when such act/offence did not attract such rigorous penalties and punishments.

Though Article 245 of the Constitution of India, provides power to the parliament to enact, make or amend laws prospectively as well as retrospectively. However, Article 20(1) of the Constitution of India, clearly restricts the legislature in enacting, making or amending laws retrospectively to provide for criminal punishments. In nutshell Article 20(1) provides that a new law cannot punish an old act.

Article 20(1) of the Constitution of India is usefully extracted hereunder:

“No Person shall be convicted of any offence except for violation of law in force at the time of the commission of act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence”

Article 20(1) guarantees that no persons shall be convicted of any offence except for the violation of a law in force at the time of commission of the act charged as an offence, not be subjected to a penalty greater than which might have been inflicted under the law in force when it was committed. If an act was not an offence when it was committed, a subsequent law cannot make it criminal. Similarly, the penalty attached to an act when it was committed cannot be enhanced by a subsequent law.[2]

It is also worthwhile to take note of the finding of the Hon’ble Supreme Court in the case of T. Barai v. Henry Ah Hoe, AIR 1983 SC 150, wherein, the Hon’ble Apex Court held that where a later statute again describes an offence created by a statute enacted earlier and the later statute imposes a different punishment, the earlier statute is repealed by implication. The later law would have no application if the offence described herein is not the same as in the earlier law i.e., if the essential ingredients of the two offences are different. If the later law creates a new offence or enhances the punishment for the same offence, no person can be convicted under such ex post facto law nor can the enhanced punishment in the later law be awarded  to a person who had committed the offence before the enactment of the later law[3].

Form the aforesaid analysis, though, the Anti Black Money Act in itself may not be anti-constitutional, as it provides for the similar tax rate as that is provided under the Income tax Act, 1961, however the penal provisions and provisions providing for prosecution may not withstand the scrutiny in terms of Article 20 of the Constitution of India. The retrospectively enhanced penalties and criminal punishment under the Anti Black Money Act, PMLA and FEMA for the offence of hiding of illegal foreign income and foreign assets committed in the past but detected, investigated and prosecuted now appears to be in contravention of Article 20(1) of the Constitution of the India, and may not withstand judicial scrutiny.

Pursuant to the Swiss bank leaks, Panama Paper leaks and enforcement of exchange of information, the government has taken numerous steps to detect, investigate and prosecute the assessee’s for the act of illegal stashing of income and assets overseas, however, nothing significant has been achieved. Furthermore, with the possibility of the assessee’s invoking the option of judicial scrutiny in terms of Article 20(1) of the Constitution, the road seems tough for the government.

Having analysed above, it is also imperative to take note that pursuant to a declaration scheme that was introduced in the year 2015 pertaining to the undisclosed foreign income and assets, there is no such other scheme that was introduced that gave any relief to any assessee still having any such undisclosed foreign income and assets. Many disclosure schemes, like Income Disclosure Scheme, Pradhan Mantri Garib Kalyan Yojna Scheme, Dispute Resolution scheme were introduced post the declaration scheme pertaining to undisclosed foreign income and foreign assets, but all such schemes did not allow the assessee’s to take benefit of such scheme(s) regarding undisclosed foreign income and assets. Recently the Vivad se Vishwas scheme is also introduced, wherein also the assessee’s having any pending litigation pertaining to undisclosed foreign income and assets cannot take the benefit of such scheme.

In this tough time when the whole world is locked down due to the Covid-19 pandemic and the world economies are struggling, the government, keeping aside the political motive behind the issue of undisclosed foreign income and foreign assets, may consider, including the pending litigation pertaining to the undisclosed foreign income and foreign asset under the Vivad se Vishwas Scheme and may also consider introducing a disclosure scheme for the undetected undisclosed foreign income and foreign assets to fuel the tax collection.

-Pranshu Goel, Partner Ashok Pranshu & Co, Chartered Accountants

[1] Section 72(c) of the Anti Black Money Act

[2] West Ramnad Electric Distriution Co. Ltd. v. State of Madras AIR 1962 SC 1753, Ganesh Gogoi v. State of Assam (2009) 7 SCC 404, Rao Shiv Bahadur Singh v. State of Vindhya Pradesh AIR 1953 SC 394

[3] Commentary on Constitution of India, Durga Das Basu, 9^th edition, Page 4511