Mr. Ruchesh Sinha (Advocate) along with Mr. R.K. Aggarwal and Mr. Pawan Aggarwal (Chartered Accountants) in their article explain that the term black money refers to undisclosed funds and monies on which taxes have not been paid in the light of a writ petition filed by Late. Ram Jethmalani in July 2011 which, according to them, was the trigger for introducing the law.

Considering the history, language and characteristics of the Black Money Act, and the practical scenario, they highlight certain issues that require consideration including definition of the expression ‘in which it comes to the notice of the Assessing Officer’, non-prescription of time limit to find out information about existence of assets etc. They also state that absence of the provisions for compounding and the amendment made in the PMLA Act for certain offences under the Black Money Act appears to be stringent and draconian in nature.

They conclude stating that punishment under the Black Money Act should be proportionate with the crime and also that there should be appropriate filters placed at the selection stage, to pick a case for investigation purpose, let alone the assessment, penalty and prosecution.

The Black Money Act – A Genesis

I. Introduction:

Practically speaking, after around six years of notifying of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (hereinafter referred as the ‘Black Money Act’), now the practical aspects of the said regulation can been witnessed and there is a continuous surge of various matters which are coming under this regime, right from the notices issued from the investigation wing/assessing officers to the matters travelling to the first and second appellate authorities. Before going into the technicalities in this regard it is relevant to understand the meaning of the term ‘Black Money’. In this regard, it may be stated that the ‘black money’ or ‘unaccounted income’ or ‘dirty money’ or ‘black wealth’ is accumulated through ‘parallel economy’ or ‘shadow economy’ or ‘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 se, like smuggling, illicit trade in banned substances, counterfeit currency, arms trafficking, terrorism, and corruption. In ordinary prudence, ‘black money’ essentially refers to undisclosed funds and monies, on which income and other taxes have not been paid.

II. The triggering point of the notification of the Black Money Act:

It is worthwhile to mention about triggering point which sparked the notification of the Black Money Act. In this regard, it is stated that it was the case of Ram Jethmalani Vs. UOI in Writ Petition (Civil) no. 176 of 2009 and I.A. No. 1 of 2009 dated 4^th July, 2011, which can be safely said as the triggering point or the sparking point in respect of the Black Money aspect. For the completeness of the subject, it can be briefly stated that the main contention in the said writ petition by the petition before the Hon’ble Supreme Court was that there have been a slew of reports, in the media, and also in scholarly publications that various individuals, mostly citizens, but may also include non-citizens, and other entities with presence in India, have generated, and secreted away large sums of monies, through their activities in India or relating to India, in various foreign banks, especially in tax havens, and jurisdictions that have strong secrecy laws with respect to the contents of bank accounts and the identities of individuals holding such accounts. It was there case that most of such monies are unaccounted, and in all probability have been generated through unlawful activities, whether in India or outside India, but relating to India. It was also the case that a large part of such monies may have been generated within India, and have been taken away from India, breaking various laws, including but not limited to evasion of taxes. Hence the petition was filed before the Hon’ble Supreme Court. The Hon’ble Supreme Court disposed-off the petition observing as under:

“78. The major problem, in the matters before us, has been the inaction of the State. This is so, both with regard to the specific instances of Hassan Ali Khan and the Tapurias, and also with respect to the issues regarding parallel economy, generation of black money etc. The failure is not of the Constitutional values or of the powers available to the State; the failure has been of human agency. The response cannot be the promotion of vigilantism, and thereby violate other constitutional values. The response has to necessarily be a more emphatic assertion of those values, both in terms of protection of an individual's right to privacy and also the protection of individual's right to petition this Court, under clause (1) of Article 32, to protect fundamental rights from evisceration of content because of failures of the State. The balancing leads only to one conclusion: strengthening of the machinery of investigations, and vigil by broader citizenry in ensuring that the agents of State do not weaken such machinery.

79.In light of the above we order that:

In view of the above, a Special Investigation Team was set-up as directed by the Hon’ble Supreme Court and accordingly, the turf for notifying the black money was set.

III. The Union Budget, 2015:

It was the Union Budget, 2015 which turned the tide and the ‘Black Money Act’ was notified. No strings attached, allow us to reproduce the exact speech of the then Finance Minister, which precisely gives a holistic picture of the present Black Money Act and touch upon its vital aspects. The same is reproduced as under:

Quote:

103. With your permission, Madam Speaker, I would like to highlight some of the key features of the proposed new law on black money.

[Emphasis supplied by us]

Unquote:

The contents of the above are self-explanatory and are therefore not repeated here for the sake of brevity. At the cost of repetition, it may be stated that the above observation made by the then Hon’ble Finance Minister entails and caters the exact nature and characteristic of the Black Money Act. It may further be stated that as part of its global efforts, India has also set up Income Tax Overseas Units, signed various Double Tax Avoidance Agreements (DTAA) and Tax Information Exchange Agreements. It is also a signatory to the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) released by the Organization for Economic Co-operation and Development.

IV. Some relevant points for consideration:

a. Having all said and done, keeping in minds the history, language & characteristics  of the Black Money Act and the practical scenario, the following issues needs consideration:

The issuing of notice is depended when such assets comes to the notice of the AO, whereas the undisputed fact is that the event “in which it comes to the notice of the Assessing Officer” remains undefined. As all the other activities are dependent upon triggering of this aspect, the expression “in which it comes to the notice of the Assessing Officer” stands very relevant. This event is not specifically defined under the Black Money Act.

b. Under the provision of the Black Money Act no deduction of any expenditure or allowance or set off of any loss shall be allowed to the assessee, whether or not the same is allowed under the provisions of the Income Tax Act. The said provisions are clearly not only against the commercial principles but also against the principles of natural justice.

c. The asset or interest must be in existence as on 1st July 2015 in order to disclose the same during the legislatively constructed “disclosure window” period envisaged under the Black Money Act. Resultantly, there cannot be any disclosure obligation whatsoever after the asset or interest has been alienated or transferred.

d. The expression "law in force" refers to the law in operation at the time when the offence was committed and did not relate to a law 'deemed to be in force' by retrospective operation of law subsequently made.

e. The absence of the provisions for compounding and the amendment made in the PMLA Act for certain offence under the Black Money Act appears to be stringent and draconian in nature.

d. There is no reasonable time limit prescribed, so as to dig the information of the years gone by. This practically means any asset ‘which comes to the notice of the AO’ irrespective of the years in which it was in existence can be probed. This appears to be incongruous.

V. Conclusion:

There cannot be two opinions on the aspect that the pernicious practice of accumulation of the Black Money is a legal/economic sin, but at the same time, it as to be kept in mind that the punishment should be proportionate with the crime. In other words, a more severe punishable act and the ultimate group should be pari materia. It may be stated here that the aim of the Black Money Act was not to merely plug the gaps and deter persons from evading tax or parking funds abroad, but simultaneously also to enable repatriation of funds already stashed abroad. However, this has not been seen to be achieved. Instead, the authorities have focussed more on prosecuting and punishing offences, more so since wilfully attempting to evade tax is a scheduled offence under the Prevention of Money Laundering Act, 2002. In the view of the authors, considering that the Black Money Act is a fiscal statue, and the limited success of the one-time compliance opportunity, more compliance opportunities should be notified on regular intervals to encourage assessees to make proper disclosures. Further, there should be proper guidelines to distinguish the cases which fall under the Black Money Act, not merely because some person/entity is having a foreign asset abroad, but which contains the some prime facie intentions of being illegitimate coupled with the intentions of mens rea. In view of the authors, appropriate filters should be placed at the threshold stage, to pick a case for investigation purpose, let alone the assessment, penalty and prosecution.