Aditya Ajgaonkar, Advocate
Introduction – A live nexus.
I often asked to discuss the interplay between the various legislations that have been specifically enacted in the last decade to give teeth to the fight against economic offences and economic offenders. Most of the questions tend to be on The Prevention of Money Laundering Act, 2002 (PMLA). Some tend to be on The Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015 (BMA). Quite a few recently are being asked about the interplay between these two statutes. While the PMLA has been around for a while on the statute books, the BMA is quite new and in my humble opinion, niche. The interplay between these two acts shall develop in due course of time as the courts interpret the various Sections and provisions of these acts threadbare as and when called upon to do so. There is, however, a live nexus between the BMA and the PMLA. This is because unlike offences in say The Income-tax Act, 1961 (Income-tax Act) (which according to me the BMA is a natural extension of), the BMA can be used to initiate proceedings under the PMLA. This is because the offence of money- laundering as defined in Section 3 of the PMLA relies upon the existence of “proceeds of crime”. Proceeds of crime, in turn, as defined under Section 2 (1)(u) of the PMLA finds that the existence of a “scheduled offence” is necessary. A scheduled offence is defined as per Section 2 (1)(y) read with Section 2 (1)(x) of the PMLA. This scheduled, in turn, includes Part ‘C’ which lists out as (4) – “The offence of wilful attempt to evade any tax, penalty or interest referred to in Section 51 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (22 of 2015)”. This addition to the schedule of offences was inserted in the year 2015 and is with effect from 01-04-2016.
It is therefore clear that the BMA and the PMLA to have a live nexus. If the definitions as per the Sections referred to herein above are together, it is clear that proceedings in the PMLA can be initiated in case the prosecution is initiated under Section 51 of the BMA.
The Relevance of Section 51 being included in Part C of the Schedule to the PMLA
The existence of a scheduled offence is the sine qua non for proceedings under the PMLA as settled by the Supreme Court in the case of Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. 2022 SCC OnLine SC 929 which held as follows – the expression “money- laundering”, ordinarily, means the process or activity of placement, layering and finally integrating the tainted property in the formal economy of the country. The Court however observed that Section 3 of the Prevention of Money Laundering Act has a wider reach. The offence, as defined, captures every process and activity in dealing with the proceeds of crime, directly or indirectly, and not limited to the happening of the final act of integration of tainted property in the formal economy to constitute an act of money-laundering. From the bare language of Section 3 of the Act, it is amply clear that the offence of money-laundering is an independent offence regarding the process or activity connected with the proceeds of crime which had been derived or obtained as a result of criminal activity relating to or in relation to a scheduled offence. The process or activity can be in any form — be it one of concealment, possession, acquisition, use of proceeds of crime as much as projecting it as untainted property or claiming it to be so. The involvement in any one of such process or activity connected with the proceeds of crime would constitute offence of money-laundering. This offence otherwise has nothing to do with the criminal activity relating to a scheduled offence — except the proceeds of crime derived or obtained as a result of that crime. The Supreme Court observed that it is only such property which is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence can be regarded as proceeds of crime. The authorities under the Act cannot resort to action against any person for money-laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed, unless the same is registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum. The expression “derived or obtained” is indicative of criminal activity relating to a scheduled offence already accomplished.
The judgement of the Supreme Court therefore acts as a safety net. Unless a scheduled offence is made out, there are no proceedings under the PMLA. This is why PMLA cannot be invoked for offences that arise out of tax statutes like the Income-tax act and the Goods and services act. These acts are not scheduled under the PMLA and therefore, as per the judgement of the Supreme Court, PMLA cannot be invoked. A poignant backdoor that could have perhaps being used to circumvent this judgement in the form of Section 120B of the Indian Penal Code which deals with criminal conspiracy has also thankfully now been plugged by another judgement of the Apex court in the case of Pavana Dibbur v. DE 2023 SCC OnLine SC 1586 which held that “The offence punishable under Section 120-B of the IPC will become a scheduled offence only if the conspiracy alleged is of committing an offence which is specifically included in the Schedule”. However, though the BMA can be considered a natural extension of the Income- tax Act which cannot trigger PMLA, Section 51, being scheduled can trigger offences under the PMLA.
It is important to note that Chapter V of the BMA that deals with offences and prosecutions has ten other Sections included that cannot by themselves be used to initiate PMLA proceedings unless an offence under Section 51 of the BMA for “wilful attempt to evade tax” is made out against the accused.
Section 51 of the Black Money Act and its interplay with Section 276C of the Income-tax Act, 1961.
Section 51 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (22 of 2015) reads as follows:
51. (1) If a person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of Section 6 of the Income-tax Act, wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, he shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to ten years and with fine.
(2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and shall, in the discretion of the court, also be liable to fine.
(3) For the purposes of this Section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person—
- has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or
- makes or causes to be made any false entry or statement in such books of account or other documents; or
- wilfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or
- causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.
One would have to agree that Section 51 of the BMA bears an uncanny resemblance to Section 276C of the Income-tax Act, which reads as follows:
276C. (1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable, or under reports his income, under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,—
- in a case where the amount sought to be evaded or tax on under-reported income exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;
- in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.
(2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and shall, in the discretion of the court, also be liable to fine.
Explanation.—For the purposes of this Section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person—
i. has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or
ii. makes or causes to be made any false entry or statement in such books of account or other documents; or
iii. wilfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or
iv. causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.
It is therefore apparent that Section 51 of the BMA seems to be borrowing heavily from Section 276C of the Income-tax Act. In fact, Section 51 (3) of the former is a close twin of the Explanation to Section 276C of the latter, while Section 51(2) is an identical twin to Section 276C(2). It is quite clear that the two Sections can be considered pari materia to each other. However, the BMA penalises offenders more heavily than the Income-tax Act while reserving the application of Section 51 for a person “being a resident other than not ordinarily resident in India within the meaning of clause (6) of Section 6 of the Income-tax Act”. The redirect towards the Income-tax Act is telling and so is the similarity in the language used. Both the Sections, at heart, penalise ‘evasion’, either of tax, penalty or interest (chargeable or imposable) under the respective Acts or the payment thereof. Both then perhaps can be considered similar, in words and in spirit.
The Fulcrum called Evasion
It is quite clear that the offence contemplated by Section 51 of the BMA and Section 276C of the income-tax act is evasion. As the jurisprudence with regard to the BMA is still evolving and we may need significant judgements on this issue to test what would constitute evasion under the BMA specifically, we have the advantage already of various judgements that have been pronounced under the Income-tax act. If we proceed on the hypothesis that the word ‘evasion’ is the fulcrum upon which the offence contemplated by Section 51 of the BMA as well as Section 276C of the Income-tax act both turn, we can safely import the meaning from the latter into the former.
The Supreme Court in the case of Tamil Nadu Housing Board v. CCE, 1995 Supp (1) SCC 50 held “When the law requires an intention to evade payment of duty then it is not mere failure to pay duty. It must be something more. That is, the assessee must be aware that the duty was leviable and it must deliberately avoid paying it. The word ‘evade’ in the context means defeating the provision of law of paying duty.” Similarly in Prem Dass v. ITO, (1999) 5 SCC 241 the Apex Court held that “Wilful attempt to evade any tax, penalty or interest chargeable or imposable under the Act under Section 276-C is a positive act on the part of the accused which is required to be proved to bring home the charge against the accused.”
Therefore, according to the judgements of the Supreme Court, the Act of ‘Evasion’ requires a ‘positive act’ on behalf of the accused. In Black’s Law Dictionary, ‘tax evasion’, is defined as a wilful attempt to defeat or circumvent the tax law in order to illegally reduce one’s tax liability. Mere failure to pay would therefore not tantamount to ‘evasion’. There are judgements of various High Courts like in Forzza Projects P. Ltd. V. PCIT [2021] 127 taxmann.com 259, S. P. Velayutham v. ACIT Crl. OP No. 17906 of 2017 that also have considered that Explanation to be indicative of the intent of the Section. A similar view can be drawn in Section 51(3) of the BMA. The Bombay High Court in the recent Judgement of Unique Trading Co. v. ITO [2024] 159 taxmann.com 216 (Bombay) held “where the breach or failure leads to civil liability, mens rea is not considered as an essential ingredient and proof of mere failure or breach in itself may be sufficient. In contrast, where the punishment is to be imposed, existence of mens rea is ordinarily considered as an essential ingredient of the offence, save and except the cases where the punishment is imposed on the principle of strict liability. From the text of the provisions contained in Section 276C(1) and the use of the expressions, “wilful attempt” “to evade” it becomes clear that Section 276C professes to punish an act or omission on the part of the assessee designed to evade the liability to pay the tax and not a “mere failure” to pay the tax. There are provisions in the Income-tax Act, 1961 which take care of interest (of the revenue) of recovering the due tax amount along with interest and/or penalty where the tax has not been paid within time. It is the wilful evasion of tax due which is the crux of the offence under Section 276C(2) and not a mere failure to pay tax…” “..In a given case, if it could be demonstrated that though the assessee was in a position to pay tax, interest on penalty, the assessee evaded payment of tax by dishonestly disabling himself from payment of tax, interest or penalty or fraudulently dealt with his assets or property with intent to evade the payment of tax, interest or penalty, different considerations may come into play. However, mere failure cannot be equated with wilful attempt to evade”.
Conclusion:
Only time will tell whether the Courts give the word ‘evasion’ a different meaning in the BMA than its meaning in the Income-tax Act. This is unlikely given that Section 51 of the BMA and Section 276C of the Income-tax Act are almost pari materia to each other. The BMA is ofcourse a special act, however, the Act has accommodated the Income-tax Act well and avoided any obvious conflict. The inclusion of the BMA in the schedule to the PMLA also makes the BMA proceedings a ‘trigger’. The consequences can be quite serious. The BMA levies Tax and Penalties, however as the provisions of BMA are not in derogation to the PMLA, the amount of tax, interest and penalty that (or the payment thereof) is sought to be evaded can possibly be construed as proceeds of crime and attached by the Directorate of Enforcement with possibility of confiscation by the Central Government. However, on the other hand, Section 80 of the BMA which deals with the cognizance of offenses states “No court inferior to that of a metropolitan magistrate or a magistrate of the First Class shall try any offence under this Act”. Thus, neither the police nor the Directorate can take cognizance of the offense under Section 51 of the BMA and such power vests with the authorities specified in Section 80. This should be a good check on the arbitrary exercise of power (if any) by the Income-tax Department that currently administers the BMA.
It is safe to say that the interplay between the BMA and the PMLA arises out of a live link, the presence of Section 51 in the schedule to the PMLA. This perhaps is the only nexus that the Income-tax Act has with the PMLA now that Section 120B of the IPC cannot be used to initiate PMLA proceedings in isolation. The Income-tax Act and the BMA (specially considering that Section 84 of the BMA specifically provides for the application of certain provisions of the Income-tax Act) on the other hand have not necessarily just a live nexus but can be considered two different peas in a pod. They may have different colours, flavours, sizes and ultimately find themselves in two different preparations altogether, but they both share a common ancestry and are more alike than different.
PUBLICATION FOR SALE |
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| Edition | Members | Non-Members | Courier Charges per copy | ||
| 1. | Search Seizure, Survey, Prosecution and Arrest under Tax and Allied laws – Frequently asked questions | Dec., 2022 | 1600.00 | 1750.00 | – |
| 2. | Handbook on Taxation of Partnership Firms & Limited Liability Partnerships: Frequently Asked Questions | Dec., 2021 | 725.00 | 945.00 | – |
| 3. | Reassessment Law, Procedure & Practice (Practical Guide) | Dec., 2020 | Free | Available onwebsite | – |
| 4. | 151 Landmark Judgment of the Honorable Supreme Court | Oct., 2020 | Available onwebsite | Available onwebsite | – |
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