Karnataka High Court: While considering the instant petitions filed by office bearers of certain business establishments who had been charged for violation of the provisions of the Black Money (Undisclosed Foreign Income and Assets) Imposition of Tax Act, 2015 (Black Money Act), the Bench of M. Nagaprasanna, J.*, held that non-disclosure of an assessment of the tax return for the year 2007-08 or 2009-10 cannot be used to criminally prosecute the petitioners under an Act that came into force in 2015. The Court further pointed out that retrospective application of the Black Money Act on the petitioners violated the mandate of Art. 20 of the Constitution.
Background: Two Companies incorporated as British Virgin Island Companies (BVI) in Singapore in the names and styles of Gleaming Snow Worldwide Limited and Oriental Success Universal Corporation came to be incorporated on 17-03-2008 and 12-05-2009 respectively. Gleaming Snow Ltd., struck off from BVI and what remained was Oriental Success Universal Corporation. About US$56000 was credited into the bank account of the said Corporation in UBS Bank, Singapore. After the said deposit, the account was closed on 27-05-2010. After closure of the account, the Corporation was also struck off from the rolls of BVI, Singapore. Therefore, the incorporation and the striking-off of the Companies took place between 12-06-2009 and 02-11-2010.
The petitioners in the instant case are members of the same family and were Directors of the aforesaid Companies at the time when Companies were incorporated and closed. At that point, the Black Money Act was not in existence. The Black Money Act came into force on 01-07-2015.
In 2018, assessment proceedings under the Black Money Act commenced against the petitioners by issuance of a notice under Section 10(1) for the financial year 2018-19 and assessment year 2019-20. After about six months of commencement of proceedings, two show cause notices were issued by the respondent seeking to show cause as to why prosecution should not be initiated against all the petitioners under Sections 50 and 52 of the Black Money Act. After perusing the petitioners’ reply, the Competent Authority granted sanction to prosecution. The authorised officer then registered a crime against the petitioners under Ss. 50 and 52 of the Black Money Act, which led the petitioners to institute the instant petition.
Court’s Assessment: The Court had to consider whether the criminal proceedings instituted against the petitioners under the Black Money Act were tenable in law or not.
Taking note of the Statement of Objects and Reasons of the Black Money Act and other relevant provisions related to tax evasions, foreign assets etc., and S. 72 which deals with Removal of Doubts, which the Court deemed to be the ‘fulcrum of the lis’.
The Court took note of the complaint against the petitioners which stated that UBS Bank, Singapore divulged that the petitioners in the years 2009-10 had deposited US$16000 and US$40000 in two different transactions and that would become an offence under Sections 50 and 52 of the Black Money Act. Section 50 makes it an offence if the assessee fails to furnish any information of an asset located outside India including financial interest.
The Court noted that as on the date of the Black Money Act coming into force, there was neither any financial interest of the petitioners nor any foreign asset, as everything had been closed in the year 2010 itself.
The Court further noted that the respondents took recourse to S. 72 of the Black Money Act as creates a deeming provision in Section 72(c) which directs that when an asset has been acquired prior to commencement of the Black Money Act and no declaration in respect of such asset has made, then such asset will be deemed to have been acquired or made in the year in which notice under Section 10 is issued by the Assessing Officer and the provisions of the Black Money Act will apply. Section 72 observes that if no declaration is made by an assessee even if the asset was made prior to coming into force of the Black Money Act, it shall be deemed to be an offence under the Act. In effect what Section 72 would mean that the facts/allegations that were never in existence as on the date of commencement of the Act can also be deemed to have been committed under the Act.
Relying on Supreme Court precedents which held that legal fiction or a deeming fiction should not be extended beyond the purpose of the Act for which it is created or beyond the language deployed in the enactment; the Court pointed out that in the instant case what has been given effect to under Section 72(c) is a deeming section which creates criminal liability. It was also pointed out that all the facts that eventually became the offences were alleged to have happened five years prior to the Black Money Act coming into force.
Delving into the constitutional scheme as enshrined under Art. 20 of the Constitution, the Court relied on Rao Shiv Bahadur Singh v. State of Vindhya Pradesh, (1953) 2 SCC 111, wherein the Supreme Court had held that if the deeming section is given credence and criminal law is affirmed, it would defeat the tenor of Article 20 of the Constitution, as every post-facto law could be made retrospective.
Thus, the Court found that the prosecution so initiated against these petitioners did not pass constitutional muster under Article 20 of the Constitution as Black Money Act, 2015 was the not law at the time when the alleged offences under Ss. 50 and 52 were committed by the petitioners. Therefore, the criminal law cannot be set into motion against the petitioners in the aforesaid facts of the instant case.
The Court further held that using Section 72(c) of the Black Money Act to fasten criminal liability upon the petitioners falls foul of Art. 20 of the Constitution. “The Special enactment (Black Money Act) is a statute. Article 20 comes under Chapter III of the Constitution, a fundamental right. Constitution is not a statute. It is the fountain head of all statutes including the special statute. Therefore, the rigour of any provision of the Act should pass muster of Article 20 of the Constitution and it fails to pass such muster in the case at hand and the failure leads to obliteration of the crime against the petitioners”.
[Dhanashree Ravindra Pandit v. Income Tax Department, 2024 SCC OnLine Kar 58, decided on 07-06-2024]
*Order by Justice M. Nagaprasanna
Advocates who appeared in this case:
For petitioners- Advocates SANGRAM S. KULKARNI
For respondents- Advocates Y.V. RAVIRAJ and TULAJAPPA KALABURGI
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