In February the Calcutta High Court upheld the initiation of a prosecution for not disclosing information about foreign bank accounts held by an individual taxpayer in his tax returns filed. The case is a good example of how the mistake of ignoring the responsibility to disclose your earnings made abroad could lead to complications and even prosecution with a jail term as high as 10 years.
The point of focus, in this case, is that though the earnings or tax returns were pertaining to a period before the provisions of the Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015, (also known as the Black Money Act), the returns were filed post its enactment.
Premise of the case
The taxpayer had four foreign bank accounts that he had inherited on the demise of his mother and the taxpayer had failed to disclose these in his tax returns according to the search proceedings conducted on 17 March 2015.
The tax authorities conducted their assessment by taxing the income earned from these accounts and initiated the proceedings under the Income Tax Act and prosecution under the Black Money Act for not disclosing foreign income and willfully attempting to evade tax.
The Black Money Act had provided for a one-time voluntary disclosure scheme between 1 July 2015 and 30 September 2015, however, it disqualified certain taxpayers from availing this benefit. The taxpayer, in this case, was one of those disqualified because of a specific provision where a search assessment was pending on him as on the date of declaration.
Now the violations under the Income Tax Act and the Black Money Act have two different consequences. While in the former a taxpayer if financially penalise (with fine), the latter calls for punishment through prosecution.
Where did the taxpayer go wrong?
The taxpayer here had two chances of making the disclosure. One was before the Settlement Commission and the second was during the filing of income tax returns under the search proceedings. He failed to do it twice.
The taxpayer's arguement
The aggrieved taxpayer told the High Court that since the Black Money Act was enacted in 2015 and will be applicable from 1 April 2016, it was prospective in nature and cannot be applicable in the retrospectively ITR. This means that the tax returns in question pertain to a time before the enactment of the Act, making him not guilty of a violation of the Act and hence should not be prosecuted.
High Court's verdict
- The taxpayer failed to disclose foreign bank accounts despite two additional opportunities to do so.
- When the offense is under two laws, the taxpayer can be proceeded against violation of either or both. There is no bar for trial or conviction of an offense under the two different enactments.
- The violation of the Act was due to non-disclosure of the information post the enactment of the Act and therefore cannot be considered in retrospective.
What should you know about the Black Money Act?
- The Black Money Act is applicable to all Residents (as per Income Tax norms) and Ordinarily Resident individuals.
- The penalty on non-compliance of the Act could be three times the amount of tax evasion, sometimes Rs 10 lakh and prosecution in some other cases.
- While there are penalties on tax evasion under the Income Tax Act, the implications under the Black Money Act are significant as these are non-compoundable in nature. Non-compoundable offense means these cannot be settled with the parties concerned. Also, if a prosecution is initiated, these cannot be settled just by paying the penalty.
If you travel abroad on assignments for your employer or own business, make sure to disclose any foreign asset or income made in your income tax returns for the concerned financial year to avoid complications.