FEMA - Offence u/s 8(1) - Outcome of Income Tax case setting aside inclusion of foreign currency in income has no bearing on offence u/s 8(1) - High Court upholds confiscation and order of Tribunal
By TIOL News Service
CHENNAI, SEPT 30, 2015: ONE of the two appellants belonged to Indian the Administrative Service and he was for some time the Chairman and Managing Director of Tamil Nadu Minerals Limited. The other appellant was his auditor, a practising Chartered Accountant. During a raid conducted, foreign currencies to the extent of USD 5061, SD 527 and 210 Malaysian ringgits were recovered from them.
By an adjudication order, the appellants were imposed with penalties of Rs.2 lakhs each for contravention of Section 8(1) of the FERA, 1973. The foreign currencies recovered from both the appellants were also directed to be confiscated to the credit of the Central Government account in terms of Section 63. The appellate Tribunal also confirmed the order except to the extent of quantum of penalties. The appellants are before the High Court against the order of Tribunal. It is the main contention of the first appellant that the Income Tax Tribunal had deleted the value of the currencies from his income which has also been upheld by the High Court, as the same was claimed to be of one Mrs.Seethalakshmi Nagaraj. Thus, the order is not sustainable. They also contended that since the prosecution in the same case had been quashed, the Adjudication order also does not sustain.
After hearing both sides, the High Court held:
++ Any conclusion reached by an authority under the Income Tax Act, 1961, need not necessarily lead to a finding that a person cannot be prosecuted under the FERA, 1973 or the FEMA, 1999. The Income Tax Act, 1961 is a peculiar piece of legislation where there Department of Income Tax is not concerned about the method, by which, one earns money. Even if a person is engaged in a business prohibited by law, the Department of Income Tax would not hesitate to collect tax. No income is a tainted income in so far as the Income Tax Law is concerned. The moment it is proved that a person has earned income whether by rightful methods or wrongful means, the liability to pay income tax arises. Therefore, the fact that a person disowned money and succeeded upto the High Court in a tax case appeal, need not be a pointer to the effect that he cannot be held guilty of violation of Section 8(1).
++ Section 8(1) uses several expressions. These expressions are: (i) purchase (ii) otherwise acquire (iii) borrow from (iv) sell (v) otherwise transfer (vi) lend to and (vii) exchange with. The liability to pay income tax need not arise, when any of these seven expressions are satisfied with regard to an income. There are a variety of reasons for enabling a person to make a claim for some money or disclaim an amount. It is only in three or four contingencies that are indicated in Section 8(1) that a person may become obliged to pay tax. Therefore, the decision rendered in Income Tax case need not necessarily be a pointer to the effect that there was no violation of Section 8(1) of the FERA.
++ The proposition laid down in Gopaldas Udhavdas Ahuja case is not to the effect that the adjudication proceedings would automatically meet with the same fate as that of the criminal proceedings. The Supreme Court clarified in Gopaldas Udhavdas Ahuja that the observations made in paragraphs 19 and 20 should not be taken to mean that there is no difference between the departmental proceedings and the prosecution.
Accordingly, the High Court dismissed the appeals.
(See 2015-TIOL-2256-HC-MAD-FEMA)
