By TIOL News Service

CHENNAI, NOV 15, 2018: THE issue is - Whether provisions of Black Money Act, 2015 get attracted only in case of undisclosed foreign income & assets and not asset purchased outside the country from a source within the country. YES is the verdict.

Facts of the case

During the relevant year, the RBI introduced the Liberalized Remittance Scheme vide A.P. Circular No.64, r/w GOI Notification G.S.R. No.207(E), as a liberalization measure to facilitate resident individuals to remit funds abroad for permitted current or capital account transactions or combination of both. During June 03, 2014 till May 26, 2015, under the Liberalised Remittance Scheme, Designated bankers/Authorised Dealers were permitted to allow remittances by resident individuals up to USD 1,25,000/- per F.Y. The Scheme was available to all resident individuals including minors. The assessee under present petition i.e., Mrs Nalini Chidambaram, decided to purchase a property at Cambridge. Accordingly, she wrote to the Manager, Canara Bank, requesting for foreign remittance of GBP 83,500 from their account. The purpose of investment was stated as investment in real estate abroad. Another application cum declaration was submitted under the Liberalized Remittance Scheme for the same amount. She filled up form A2 under FEMA 1999. The name of the Beneficiary was stated as Hewitsons LLP Client account in Lloyds Bank, Cambridge, UK. She therefore remitted Rs.77,60,470 equal to GBP 83,500/- to the Beneficiaries account in UK from her bank account in Canara Bank, Kilpauk Branch. After some time, the assesee remitted another amount of GBP 83,500/- to UK and on May 28, 2015, she acquired the property in Cambridge, UK, jointly with her son and daughter in law. She therefore filed her return along with the audited report showing remittance of Rs.77,60,470 as advance for Cambridge Property. Schedule 3 deals with the Immoveable Property, refers to the 1/3rd share of property, in Cambridge valued at Rs.1,55,21,181/-. It was her further case that her husband, Mr.P.Chidambaram, as a Member of Parliament from Rajya Sabha had filed the statement of assets and liabilities of himself and his spouse in the Parliament. The assets of the Spouse, i.e. Mrs.Nalini Chidambaram, including the foreign asset located in Cambridge, UK, was included in the list of assets owned by Mrs.Nalini Chidambaram.

It was submitted by Mrs Nalini Chidambaram that due to a human error committed in the office of her Chartered Accountant, Part-B of Schedule FA, dealing with immovable properly held abroad, was not filled up. It was further submitted that since the online format of Schedule- AL, prescribed by the Income Tax Department did not have separate columns for assets & liabilities in India and abroad, she could not have filled up the same in any column, distinguishing the assets owned by her in India & abroad. For AY 2016-17, 1st Revised return was filed for rectifying certain minor errors relating to TDS calculations. Later on, Mrs Nalini Chidambaram received a notice u/s 10(1) of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, for the A.Y 2015-16 & 2016-17 from the Dy DIT (Inv). directing documents in respect of investments made in foreign property as well as details of immediate sources of funds for the investment. Later on, the assessee filed a second revised return u/s 139(5) showing the Cambridge property valued at Rs.1,55,21,181/- in part C of Schedule Foreign Assets. It was further case of assessee that even before the ITO passed the assessment order under Income Tax Act and u/s 10(3) of Black Money Act, two show cause notices were issued to her, by the Principal Chief CIT u/s 55(1) of Black Money Act for prosecution of the assessee u/s 50 of Black Money Act for the AY 2015-16 and AY 2016-17. In the show cause notice, for the AY 2015-16, it was stated that as per the information received by the AO, it had been noticed that she had made investment in Cambridge property remitting Rs.77,60,470/- directly to Lloyds Bank, Cambridge to the Beneficiary Hewitsons LLP Client account. In the original return and the 2nd revised returns, remittance of Rs.77,60,470/- was not mentioned in Schedule FA and therefore it was evident that she has wilfully failed to disclose the particulars of information regarding assets held outside India, in her return of income for AY 2015-16.

It was further alleged that the revised return was not a voluntary act, but only after receipt of Section 10(1) notice. Thus, Mrs.Nalini Chidambaram was asked to show cause why prosecution proceedings u/s 50 of Act 22 of 2015 should not be initiated for the AY 2015-16 and AY 2016-17. However, the assessee pleaded that since the foreign asset was disclosed in the revised return which has obliterated/effaced the original return, hence section 50 of the Black Money Act was not attracted to the facts of the case. According to Mrs.Nalini Chidambaram, arrest of her son based on a statement of an accused in judicial custody for murder of her daughter, registering an FIR without conducting a preliminary enquiry about incidents which happened 10 years ago, reopening income tax assessments, without having reason to believe that she and the family members had failed to disclose fully & truly all the material particulars, relevant to the assessment and subjecting the family members to hostile discrimination. It was submitted that the remittance of Rs.81,58,355 to UK was not shown in Schedule FA since the said sum was not meant to acquire any tangible asset but for maintenance of Cambridge Property. Part B of Schedule-FA was not filled in, because it was titled "Details of Financial Interest in any Entity held at any time during the previous year". The assesse was advised that since she did not have any financial interest in any entity, it was not necessary to fill Part-B. The assessee's counsel also submitted that for issuing notice u/s 10(1) of the Black Money Act to any person, the jurisdictional fact was that the noticee should have undisclosed foreign assets within the meaning of Section 2(11) of the Black Money Act. She thus submitted that the said jurisdictional fact was completely absent in her case since the investment made by her in the foreign property had been disclosed in her return and as a result, the assets did not qualify as an "undisclosed asset" as envisaged in the Black Money Act. The assessee further stated that the Dy DIT (Inv.), issued summons to the assessee u/s 8 of the Black Money Act, calling upon her to produce her statement of net wealth from 2014 to 2017, an explanation on the basis on which part of the foreign remittance had been classified as 'Advance for financial interest' and necessary proof to substantiate her claim for the loan received from her mother-in-law.

It was further submitted that the amounts transferred to the caretaker of the property were only towards general repairs and maintenance of the property and were as such only current account expenses and not capital account expenses. Therefore, there was no requirement for the assessee to have actually disclosed the amounts transferred to the caretaker of the property for repairs and maintenance. A perusal of the bank forms and delivery reports provided by Indian Overseas Bank, Nungambakkam Branch would make it abundantly clear that the funds were transferred and received only in the bank account of the caretaker of the property. The assessees submitted that they had purchased a foreign asset in Cambridge UK from the known sources of income earned in India and had voluntarily disclosed the foreign asset in multiple documents. Mrs.Nalini Chidambaram and her family members therefore submitted that the language of the show cause notice itself proved that the opportunity to show cause, as to why prosecution should not be launched u/s 50, was only an empty formality, and the DGIT had predetermined to sanction prosecution, even though, it had been proved to the hilt before the Dy DIT (Inv.), that, they had no undisclosed foreign asset, within the meaning of Section 2(11) of the Black Money Act. They had raised valid grounds to withdraw the show cause notice. However, it was pleaded that they had been subjected to harassment for the last three years by the Central Agencies. Multiple searches were conducted by CBI and Enforcement Directorate, both under FEMA and PMLA, issued with several summons, even in the absence of a predicate offence, registration of an FIR under the Prevention of Corruption Act, without naming any public servant.

On Writ, the HC held that,

++ the Black Money Act, 2015, was enacted to deal with the problem of Black Money, that is undisclosed foreign income and asset. If an asset is purchased outside the country, from a source, within the country, which is disclosed, then Black Money Act, cannot be attracted. It is not the case of Department that there is any income from the source outside India which has not been disclosed in the returns submitted by the assessees. It is the case of Revenue that the assesses did not disclose the details of foreign asset in the return submitted u/s 139(1) and only after the issuance of notice u/s 10 of the Act, a further return u/s 139(5) has been submitted and thus the offence u/s 50 of the Act is attracted. Bare reading of Section 10 of the Black Money Act makes it clear that when proceedings are taken u/s 10 of the Black Money Act, it is for the assessment or reassessment of the undisclosed foreign income and assets. Thus, the Department have proceeded on the premise that the assessees have not disclosed the foreign assets/financial interest in their return filed, under the Income Tax Act. As per Section 49 of Black Money Act, 2015, punishment for failure to furnish in return, any information about an asset located outside India can be inflicted if any person, being a resident other than not ordinarily resident in India within the meaning of section 6(6) of Income-tax Act, who has furnished the return for any previous year u/s 139(5), fails to furnish any information or furnishes inaccurate particulars in such return relating to any asset located outside India, held by him as a beneficial owner or otherwise, or in respect of which he was a beneficiary, or relating to any income from a source located outside India, at any time during such previous year, the AO may direct that such person shall pay, by way of penalty, a sum of ten lakh rupees: Provided that this section shall not apply in respect of an asset, being one or more bank accounts having an aggregate balance which does not exceed a value equivalent to five hundred thousand rupees at any time during the previous year. In all the cases, the assessees have submitted their returns u/s 139(1) and on receipt of notice u/s 10 of Black Money Act, 2015 submitted their returns u/s 139(5) of Income Tax Act, 1962. Section 50 of the Act contemplates that there should be failure to furnish return of income of any information about an asset (including financial interest in any entity) located outside India and that such failure should be wilful;

++ the question to be considered in these cases is, "whether the assesses have filed such returns, as required u/s 50 of the Black Money Act". If the assessee is able to explain the source of asset, then the value of the asset is reduced from the undisclosed foreign income. They take in their ambit undisclosed asset, outside India, without there being any source of income in India, provided the assessee has not been able to explain the source. If the assessee has a foreign income and a foreign asset which is undisclosed in the return, then no explanation need be called for. The moment of a person has foreign income and a foreign asset which may or may not have been purchased form the foreign income, the explanation of the assessee need not be called for and the value of the asset will come within the scope of Section 4. However, the value of the asset can be deducted from the total income for the purpose of Black Money Act, if the assessee is able to explain the source of income. Section 139(5) permits an assessee to file a revised return at any time before the expiry of one year from the end of relevant assessment year or before the completion of assessment, whichever is earlier, if he discovers any omission or wrong statement in the return filed by him. If an assessee, having furnished a return of his own accord or in response to a special notice served on him, discovers any omission or wrong statement therein, he may furnish a revised return at any time before the assessment is made. It is construed that the assessee should have discovered it and not the AO. Even if there is a discovery by the AO under the scheme of Income Tax Act, it cannot be said that the assessee has no right to file revised return which is also a statutory return. Under the scheme of Income Tax Act, a revised return is permitted to be filed if there is any bona fide mistake and the AO upon proof of the bona fide reasons can accept the revised return and pass necessary orders in accordance with law. Once the income-tax authorities have accepted the revised returns filed u/s 139(5), it became explicit that the return filed earlier was a bona fide mistake and did not indicate any element of mens rea. The Department was however of the view that submission of revised return u/s 139(5) was not voluntary and only on the discovery that the assessees have failed to furnish the details of the foreign asset and hence there is culpable state of mind;

++ in the case of J.K.A.Subramania Chettiar, the Division Bench of this Court has held that if the defect in the original return was merely an inadvertent omission or unintended wrong statement, certainly the assessee had a right to have the same corrected and to file a revised return u/s 22(3) of the 1922 Act or u/s 139(5) of the Act and whether the assessee so files a revised return voluntarily or after the ITO has noticed the omission or wrong statement will be totally immaterial. Thus, as per the judgment of J.K.A.Subramania Chettiar's case, revised return u/s 139(5) is permissible, even after the notice given u/s 10(1) of Black Money Act. In the present case, there is no false statement and the averment of the Department is to the discovery of "an omission or failure to furnish information about the details of the assets." Though the Revenue's counsel submitted that the facts stated in the complaint have to be gone into only in trial, and in these writ petitions, it is the submission of assessee's counsel that there is a jurisdictional error committed by the authorities in not considering the fact that the assessees have furnished the details of the assets in the revised return and therefore, writ court can go into the issue. It can be deduced from various writ decisions that existence of jurisdictional fact is a sine qua non for exercise of power. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction on a Court or tribunal or authority, as the case may be. If the jurisdictional fact does not exist, the Court, authority or officer cannot act. If a court or authority has wrongly assumes the existence of such fact, the order can be quashed by a writ of certiorari. In the case on hand, as rightly submitted by assessee's counsel, that in the light of sections 2(11) and 50 of the Black Money Act, 2015, jurisdictional fact to enquire does not exist and that the Principal Director of Income Tax has assumed jurisdiction that he can enquire into the matter u/s 55 of the Act, by issuing a show cause notice;

++ the schedule to the balance sheet does indicate that Mrs.Nalini Chidambaram had disclosed that she owns 1/3rd share in Cambridge property. On receipt of the notices u/s 10, a revised return u/s 139(5) was filed, wherein, in schedule FA, the entire property in cambridge, has been disclosed. Caption of Schedule FA deals with the details of the foreign assets and income from any source, outside India. Perusal of the Schedule FA, would prima facie indicate that this schedule would apply only for cases, which comes u/s 2(12) of the BM Act, meaning thereby, this schedule, would have to be filled, only when the assessee has a foreign asset and also foreign income. In case, the assessee does not have foreign income, schedule FA need not be filled up. Even though, Table 'C' in Schedule FA, warrants that the assessee must give details of Immovable Property held at any time during the previous year, the title of FA indicates that the Schedule FA should be filled up by an assessee, who has both foreign assets and source of income, outside the country. Even if it is held that Table 'C' in Schedule FA would take into its ambit, assets held in foreign country, even without a source of income, outside the country, yet in the present case, the existence of said property has been revealed in the annexure to the balance sheet. As discussed earlier, the information as sought for u/s 10, has been furnished in the return filed u/s 139(5). The notice u/s 10 of Black Money Act has been issued, even before the time period, for filing a revised return u/s 139(5), can at best, be construed only as a notice u/s 142 of Income Tax Act for further information. In the notices issued u/s 10(1) of Black Money Act, the Dy DIT has alleged that the assessees have not disclosed foreign asset/financial interest in schedule-FA and for the purpose of assessment, under the Black Money Act, the assessees have been directed to produce information and documents. An analysis of Sections 49 & 50 of Black Money Act, would show that when an assessee has got a source of income outside the country and an foreign asset, then when the details of such asset is not furnished in his return u/s 139(1), an offence u/s 49 of the BM Act is attracted. Section 50, on the other hand, gets attracted only when information relating to an asset located outside India, has not been furnished in the return for any previous year u/s 139(5) of Income Tax Act;

++ the present is not a case, where there is complete failure to disclose of the existence of asset, outside the country. As stated earlier, all the parties, including Nalini Chidambaram, had disclosed the existence of foreign asset. Srinidi Chidambaram and Karthi P Chidambaram had disclosed the existence of asset in their original return u/s 139(1) itself. Reading of Section 139(5), as it stood then, would show that the assessee was permitted to file revised return u/s 139(5), even in pursuance to the notice u/s 142(1). If the assessee discovers omission or any wrong statement, in pursuance to the notice u/s 142, he still had an option to file a revised return at any time, before expiry of one year, from the end of the relevant assessment year, in which case, the notice u/s 10, can at best be construed only as a notice u/s 142 of Income Tax Act. It is trite law that a Section which has a penal consequence has to be read strictly and therefore, the words, "or sub-Section (4) or sub- Section (5) of Section 139" has to be given some meaning and an offence u/s 50 of the BM Act, would be attracted, only after the period to file the revised return u/s 139(5) is over and if there is a wilful failure to furnish the information of a foreign asset/financial interest in the return. As per the definition 2(11) of the Black Money Act, 2015 (1) there should be an asset including financial interest in any entity; (2) it must be outside India; (3) He has no explanation to offer about the source of investment in such asset; or the explanation offered by the assessee, is in the opinion of the assessing officer's unsatisfactory. In the case on hand, the assessees held asset outside India. They have offered an explanation that the said property has been purchased from a source of income in India. It is not the case of Department that the assessees have not offered any explanation about the source of income. Section 2(11) is attracted, when the assessee has no explanation to offer about the source of income and if any explanation is offered, such explanation in the opinion of the AO, should be unsatisfactory. When the assessee has offered explanation, about the source of investment and paid tax, then it is the duty of the AO to come to the conclusion that in his opinion, the explanation offered is not satisfactory;

++ in the case on hand, before the AO could form an opinion u/s 2(11) of the Act, the Department issued show cause notices as to why prosecution should not be initiated. It is therefore the duty of the AO to to consider the explanation; to arrive at a decision or form an opinion and record reasons, as to why, the explanation is not satisfactory. If the AO has not formed an opinion that the explanation offered is unsatisfactory, then the very foundation to proceed further, is lost. Section 2(11) of the Black Money Act, contemplates exercise of power coupled with a duty. Power coupled with a duty to act, to promote the object of the Act, cannot be exercised arbitrarily. Before proceeding with any action, it is the duty of the AO to arrive at a conclusion, as to whether, there is an undisclosed income u/s 2(11) and a duty is cast on the AO to form an opinion u/s 2(11). It is clear that when a person holds certain foreign assets, which are fully explained and acquired, out of tax paid income, but the assessee did not report the said assets in Schedule FA of the Income Tax Returns, in the past and as to the specific question of the assessee, as to whether, he should declare such assets under Chapter VI of the Black Money Act, the Central Board of Direct Taxes, in its letter, dated 06.07.2015, has opined that, if the assets are not reported, in Schedule FA of the Income-tax return for assessment year 2016-17 or any subsequent assessment year by a person, being a resident, then he shall be liable for penalty of Rs.10 lakhs u/s 43 of the Act. Penalty, however, is not applicable in respect of an asset, being one or more foreign bank accounts, having an aggregate balance not exceeding an amount equivalent to Rs.5 Lakhs, at any time during the previous year. 202. In the case on hand, the assessees have furnished the details of the assets in Schedule FA of the Income-Tax returns u/s 139(5). Thus, even taking it for granted that the assessees have omitted to furnish the details in the returns u/s 139(1), in the light of the decision of CBDT, prosecution cannot be launched, but at best, there could only be penal proceedings. The Income Tax Department and Government of India have introduced a scheme, called as, "Income Declaration Scheme, 2016", which has come into force, on the first day of June, 2016. As per Section 196(d) of Income Declaration Scheme, 2016, the provision of the scheme shall not apply, in relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money Act. Under the Scheme, even in case of (i) failure to furnish a return u/s 139 of Income Tax Act; (ii) failure to disclose in a return of income furnished by him under the Income-tax Act, before the date of commencement of this Scheme; and (iii) in the case of escaped assessment, by reason of omission or failure to furnish a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise, the assessees can make a declaration to disclose fully or truly, all material facts necessary for assessment or otherwise;

++ in case of R&B Falcon (A) PTY Limited vs. Commissioner of Income Tax, the Supreme Court held that, "If the latter part of sub-Section (3) cannot be given any meaning, it will result in an anomaly or absurdity. It is also now a well settled principle of law that the Court shall avoid such constructions which would render a part of the statutory provision otiose or meaningless. When the language of the scheme, 2016, is referable to the whole of Section 139 of the Income Tax Act, it is not open to the Department to restrict only to the return filed, u/s 139(1) of Income Tax Act. Section 183(1)(C) of the Scheme, enables the assessee not only to disclose fully and truly all material facts, necessary for assessment, or otherwise. The words, "or otherwise" have to be given the meaning that it is not only for assessment, but for any other action to be taken, under the Income Tax Act, 1961 or Black Money Act, 2015, as the case may be. Permission granted to submit a declaration of fully and truly all material facts, should be for all purposes and for any other action to be taken, under the Income Tax Act, 1961 or Black Money Act, 2015. In the light of these discussion, this Court is of the considered view that Section 55 Block Money Act is not attracted. There was no failure to furnish any information relating to any foreign asset or investment. It is an admitted fact that the foreign asset in each case was acquired with money that was disclosed in the books of account of the assessee (and tax paid) and which was remitted through banking channels under schemes approved by the RBI. There is no allegation of Black Money or unaccounted money or money that has escaped tax or money that was remitted through illegal channels. The I-T Authorities were directed to grant the assessees due and proper opportunity to present their side of the case and disregarding the directions of this High Court, the Authority, without applying his mind to the two questions set out in the Order and without giving an opportunity to the noticees/assessees, proceeded to sanction prosecution and filed the complaints against the assessee. Consequently, complaints are quashed.

(See 2018-TIOL-02-HC-MAD-BM)