Case BriefsSupreme Court

Supreme Court: Setting aside the Delhi High Court order any staying any action against Gautam Khaitan in a case relating to the  Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, the 3-judge bench of Arun Mishra, MR Shah and BR Gavai, JJ said that the interim order passed by the High Court is not sustainable in law.

The Court said,

“The penal provisions under Sections 50 and 51 of the Black Money Act would come into play only when an assessee has failed to take benefit of Section 59 and neither disclosed assets covered by the Black Money Act nor paid the tax and penalty thereon. As such, we find that the High Court was not right in holding that, by the notification/order impugned before it, the penal provisions were made retrospectively applicable.”

the scheme of the Black Money Act is to provide stringent measures for curbing the menace of black money. Various offences have been defined and stringent punishments have also been provided. However, the scheme of the Black Money Act also provided one-time opportunity to make a declaration in respect of any undisclosed asset located outside India and acquired from income chargeable to tax under the Income Tax Act. Section 59 of the Black Money Act provided that such a declaration was to be made on or after the date of commencement of the Black Money Act, but on or before a date notified by the Central Government in the Official Gazette.

After going through various provisions of the Black Money Act, the Court said that a conjoint reading of the various provisions would reveal, that the Assessing Officer can charge the taxes only from the   assessment year commencing on or after 01.04.2016. However, the value of the said asset has to be as per its valuation in the previous year. As such, even if there was no change of date in sub­section (3) of Section 1 of the Black Money Act, the value of the asset was to be determined as per its valuation in the previous year. The date has been changed only for the purpose of enabling the assessee(s) to take benefit of Section 59 of the Black Money Act. The power has been exercised only in order to remove difficulties.

The Court, hence, noticed that the penal provisions under Sections 50 and 51 of the Black Money Act would come into play only when an assessee has failed to take benefit of Section 59 and neither disclosed assets covered by the Black Money Act nor paid the tax and penalty thereon.

The Court, however, concluded by saying that

“in any case, in the factual scenario of the present case, it would reveal, that the assessment year in consideration was 2019­2020 and the previous year relevant to the assessment year was the year ending on 31.03.2019.”

The Court, hence, asked the High Court to consider the matter afresh.

Gautam Khaitan is one of the accused in Rs. 3600 crore AgustaWestland VVIP chopper scam. He had challenged the legality of various provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 before the Delhi High Court.

[Union of India v. Gautam Khaitan, 2019 SCC OnLine SC 1342, decided on 15.10.2019]

Legislation UpdatesRules & Regulations

Central Board of Direct Taxes (CBDT) has issued the revised guidelines for compounding of offences under the Direct Tax Laws, 2019. The said guidelines came into effect from 17-06-2019.

The applications received before 17-06-2019 shall continue to be dealt with in accordance with the Guidelines dated 23-12-2014.

Compounding is not a matter of right

Revised guidelines make it clear that compounding of offences is “not a matter of right” and the department can extend such relief only in certain cases keeping in view factors like “conduct of the person, the nature and magnitude of the offence on the context of the facts and circumstances of each case.”

Applicability of these Guidelines to prosecutions under IPC

Offences may be compounded by the Competent Authority on the satisfaction of the eligibility conditions prescribed in these Guidelines keeping in view factors such as to conduct of the person, the nature and magnitude of the offence in the context of the facts and circumstances of each case.

Compounding Offences

Compounding Provision Section 279(2) of the Act provides that any offence under Chapter XXII of the Act may, either, before or after the institution of proceedings, be compounded by the Pr. CCIT/CCIT/Pr. DGIT/DGIT. As per Section 2(15A) and 2(21) of the Act, Chief Commissioner of Income Tax includes Principal Chief Commissioner of Income Tax, and Director General of Income Tax includes Principal Director General of Income Tax. These Guidelines are issued in exercise of power under Section 119 of the Act read with an explanation below sub-section (3) of Section 279 of the Act.

Classification of Offences
The offences under Chapter-XXII of the Act are classified into two parts (Category ‘A’ and Category ‘B’) for the limited purpose of Compounding of Offences.

Offences normally not to be compounded

  • Category ‘A’ offence on more than three occasions.
  • Category ‘B’ offence other than the first offence(s) as defined in Para 8.2 for the purpose of these Guidelines.
  • Offences committed by a person for which he was convicted by a court of law under Direct Taxes Laws.
  • Any offence in respect of which, the compounding application has already been rejected, except in the cases where benefit of rectification is available in these Guidelines.
  • The cases of a person as main accused where it is proved that he has enabled others in tax evasion such as, through entities used to launder money or generate bogus invoices of sale/purchase without actual business, or by providing accommodation entries in any other manner as prescribed in Section 277 A of the Act.
  •  Offences committed by a person who, as a result of an investigation conducted by any Central or State Agency and as per information available with the Pr. CCIT/CCIT/Pr. DGIT/DGIT concerned, has been found involved, in any manner, in anti-national/terrorist activity.
  • Offences committed by a person who was convicted by a court of law for an offence under any law, other than the Direct Taxes Laws, for which the prescribed punishment was imprisonment for two years or more, with or without fine and which has a bearing on the offence sought to be compounded.
  • Offences committed by a person which, as per information available with the Pr. CCIT/CCIT/Pr. DGIT/DGIT concerned, have a bearing on a case under investigation (at any stage including enquiry, filing of FIR/complaint) by Enforcement Directorate, CBI, Lokpal, Lokayukta or any other Central or State Agency.
  • Offences committed by a person whose application for ‘plea-bargaining’ under Chapter XXI-A of ‘Code of Criminal
    Procedure’ in respect of any offence is pending in a Court or where a Court has recorded that a ‘mutually satisfactory disposition of such an application is not worked out’ and such offence has bearing on offence sought to be compounded.
  •  Any offence which has bearing on an offence relating to undisclosed foreign bank account/assets in any manner.
  • Any offence which has bearing on any offence under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
  • Any offence which has bearing on any offence under the Benami Transactions (Prohibition) Act, 1988.
  • Any other offence, which the Pr. CCIT/CCITIPr. DGIT/DGIT concerned considers not fit for compounding in view of factors such as to conduct of the person, nature and magnitude of the offence.

The other pointers to be noted under the notification are:

  • Authority Competent to Compound an Offence
  • Compounding Procedure
  • Compounding Charges
  • Fees for compounding

* Link to the Notification: NOTIFICATION

[Notification dt. 14-06-2019]

Ministry of Finance

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Ranjan Gogoi, CJ and Deepak Gupta and Sanjiv Khanna, JJ has directed all the political parties who have received donations through Electoral Bonds to submit,

  • detailed particulars of the donors as against each Bond;
  • the amount of each such bond and the full particulars of the credit received against each bond, namely, the particulars of the bank account to which the amount has been credited and the date of each such credit.

to the Election Commission of India in sealed cover by May 30, 2019.

The aforesaid direction was given in order to ensure that any interim arrangement that may be made would not tilt the balance in favour of either of the parties but that the same ensures adequate safeguards against the competing claims of the parties which are yet to be adjudicated.

In the matter that deals with a larger question involving transparency in political funding, the bench said

“the rival contentions give rise to weighty issues which have a tremendous bearing on the sanctity of the electoral process in the country. Such weighty issues would require an indepth hearing which cannot be concluded and the issues answered within the limited time that is available before the process of funding through the Electoral Bonds comes to a closure, as per the schedule noted earlier.”

The Ministry of Finance, Department of Economic Affairs by Notification dated 2.1.2018 in exercise of powers under Section 31(3) of the Reserve Bank of India Act had promulgated a scheme called ‘The Electoral Bond Scheme, 2018’ whereunder an ‘electoral bond’ has been defined as “a bond   issued in the nature of promissory note which shall be a bearer banking instrument and shall not   carry the name of the buyer or payee.” The other provisions of the Scheme deal with the banks authorized to issue and encash the Electoral Bonds; persons entitled to purchase such bonds and the procedure for making an application for purchase of bonds and encashment of the said bonds.

It was contended before the Court that the said scheme has affected transparency in political funding inasmuch as in the annual contribution reports of political parties to the Election Commission there need not be any mention of the identity of the donors who have contributed to the coffers of the political parties through Electoral Bonds.   This, in turn, is contended   to   affect   the   citizens’   right   to   know   about   the contributions made to various political parties and the source of such contribution.

Attorney General KK Venugopal, appearing for ECI, had contended that the said scheme has been introduced to deal with the menace of unaccounted money coming into the country’s economy through political funding. It is to do away with the aforesaid menace that the amendments to the different statutes had been brought by the Finance Act, 2016 and 2017 and the Electoral Bond Scheme has been introduced. He said,

“the implementation of the measures will be tested by the results obtained in the course of the on­going general elections and the success thereof will be known only after the elections are over. The government must be allowed a free hand to implement measures in execution of policies framed and therefore it is premature for the Court to render any opinion on the issues raised or to pass any order/orders in the matter for the present.”

[Association for Democratic Reforms v. Union of India, WRIT PETITION (CIVIL) NO. 333 OF 2015, decided on 12.04.2019]

Hot Off The PressNews

Supreme Court: The Court has eserved its order on a PIL challenging the government’s electoral bond scheme for political funding. The bench headed by Chief Justice Ranjan Gogoi said it would pronounce its order tomorrow on the plea filed by NGO, Association of Democratic Reforms (ADR).

The NGO, which has challenged the validity of the scheme, has sought interim relief including that either the issuance of electoral bonds be stayed or the names of the donors be made public to ensure transparency in the poll process.

Attorney General K K Venugopal, appearing for the Centre, supported the scheme saying the purpose behind it is to eliminate the use of black money in elections. Adding that the court can scrutinize the scheme after elections, AG said

“So far as the electoral bond scheme is concerned, it is the matter of policy decision of the government and no government can be faulted for taking policy decision”

(Source: PTI)

Legislation UpdatesNotifications

Securities and Exchange Board of India (SEBI), vide circular dated 06-06-2018, SEBI, has, inter alia:

  1. brought to the notice of SEBI registered market intermediaries the various notifications issued by the Government of India on Prevention of Money Laundering Rules, relating to making Aadhaar number issued by the Unique Identification Authority of India (UIDAI) and Permanent Account Number (PAN) or Form No. 60, as defined in Income Tax Rules, 1962 mandatory for both new and existing accounts with financial market intermediaries including securities market intermediaries.
  1. SEBI has further clarified in the above mentioned circular that in case PAN is not submitted by any client at the time of opening of account based relationship, one certified copy of an “officially valid document” (OVD) shall be submitted. However, for securities market, in terms of SEBI circular dated 27-04-2007, the requirement of PAN would continue to be mandatory for completing the KYC process.

To regulate the transactions between clients and brokers, SEBI has further, vide circulars dated 12-07-2018 and 27-08-2003, inter alia, mandated that:

  1. Brokers and sub-brokers should not accept cash from the client for purchase of securities and / or give cash against sale of securities to the clients.
  1. Further, it has been mandated that all payments shall be received / made by the stock brokers from / to the clients strictly by account payee crossed cheques/ demand drafts or by way of direct credit into the bank account through electronic fund transfer, or any other mode permitted by the Reserve Bank of India.
  1. In the case of securities also, giving / taking delivery of securities in “demat mode” should be directly to / from the “beneficiary accounts” of the clients except delivery of securities to a recognized entity under the approved scheme of the stock exchange and / or SEBI.

SEBI, had previously vide circular dated 27-04-2007, mandated that PAN would be the sole identification number for all participants transacting in the securities market, irrespective of the amount of transaction.

Schedule VII of the SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015, inter alia, states that:

  • For registration of transfer of securities, the transferee(s) as well as transferor(s) shall furnish a copy of their PAN card to the listed entity.
  • For securities market transactions and/or for off-market or private transactions involving transfer of shares in physical form, the transferee(s) as well as transferor(s) shall furnish copy of PAN card to the listed entity.

Moreover, SEBI registered intermediaries are required to follow stringent KYC norms on an ongoing basis and are also required to file Suspicious Transaction Reports (STRs) to the Financial Intelligence Unit (FIU) in case of suspicious activities of their clients.

Appropriate action against evasion of taxes/black money, including against cases involving black money investments, is an on-going process. Such action under direct tax laws includes searches, surveys, enquiries, assessment of income, levy of taxes, penalties, etc. and filing of prosecution complaints in criminal courts, wherever applicable. The Income-tax Department does not maintain sector-wise details of the searches conducted.

Ministry of Finance
Case BriefsTribunals/Commissions/Regulatory Bodies

Central Information Commission: The appellant had approached the CIC praying to recognize the Special Investigation Team (SIT) on black money of the Department of Revenue (Ministry of Finance) as a ‘public authority’ within terms of Section 2(h) of the RTI Act, 2005 along with a direction to the authority to appoint a CPIO.

The appellant submitted that clause (h) of Section 2 is clear enough to state that any body or authority constituted by a notification issued by the appropriate government would be a “Public Authority” for the purpose of implementing the RTI Act while placing before the Commission the fact that the SIT was constituted by a notification of the Government of India vide number F. No. 11/2/2009- Ad. E.D. dated 29.05.2014. It being a multi-member body comprising of a Chairman, a Vice-Chairman and 10 other members, the SIT clearly met both the criteria under Section 2(h)(d) of the RTI Act, 2005 namely that it is a “body” for the purpose of the Section and that it had been constituted by the Central Government vide a notification, the appellant contended.

On hearing the contentions, the Commissioner Mr. Bimal Julka observed that it was very clear that the definition of “Public Authority” under Section 2(h) of the RTI Act, 2005 does not prescribe “performance of Public Duty” as one of the criteria for determining if an Authority is “Public Authority” or not, yet performance of such duty by the authority, cannot be undermined to not be considered as an important Public Duty by the SIT which qualifies as a Public Authority as per the tests laid down in the first part to Section 2(h)(d) of the RTI Act.

The Commission finally held that Special Investigation Team on black money is a ‘public authority’ as per the Right to Information Act observing that when a public authority is largely funded by the government and performs the duty of bringing back unaccounted money kept unlawfully in bank accounts abroad, it is undoubtedly performing a public duty and therefore, every citizen of the country has the right to know about its functioning within the Act’s framework and as per its purpose. Accordingly, the authority concerned was directed to appoint a CPIO for SIT. [Venkatesh Nayak v. CPIO & DCIT (OSD),  (Inv. 1), Ministry of Finance, 2017 SCC OnLine CIC 1508, decided on 10.10.2017]