Answers to 44 questions by N.M. Ranka Sr. Advocate, Dr. K. Shivaram Sr. Advocate, S.R. Wadhwa Advocate, CA. Harish N. Motiwalla, CA. Pradip N. Kapasi and CA. Chetan A. Karia

Advantages and disadvantages of the IDS

Q.1. Any plus points to the assessees who are declaring under the above scheme and also any minus points for the same.?

Ans. The Advantages of this scheme have been set out by para 9 of the CBDT Circular No. 16/2016 dated 20-5-2016. In addition to the same the total liability is restricted to 45% of the undisclosed Income. There is also no liability for interest u/s. 234A, 234B & 234C of Income-tax Act. In addition to the tangible benefits, the assessees shall also be able to buy peace. The Revenue’s ability to detect undisclosed income has been greatly enhanced by rapid advancements in Technology, this scheme will enable the assessees to wipe their slate clean. The CBDT Circular No. 25 of 2016 dated 30th June 2016 clarifies at Question No. 4 about the cases where TDS credit shall be made available to the declarant. Hence, TDS credit shall be given if the credit of tax has not already been claimed in the return of Income filed for any assessment year. As per the press release dated 14th July 2016, the assessees can pay the taxes and penalties in installments. i.e. (i) a minimum amount of 25% of the tax surcharge and penalty to be paid by 30-11-2016; (ii) a further amount of 25 % of the tax surcharge and penalty to be paid by 31-3.2017 (iii) the balance amount to be paid on or before 30-9-2017. From time-to-time the CBDT has issued number of clarifications on the IDS (Circular Nos 16, 17, 24, 25, & 27) (www.itatonline.org). [KS]

S. 182 : Declarant- Legal heirs

Q.2. The word declarant is not defined in the Scheme.

Issue: Whether legal heirs of a person can make a declaration and how it shall bind the other legal heirs? And

Can a declaration be made on behalf of a dissolved Firm and how it shall bind the other erstwhile partners?

Ans. With regard to the three issues raised by you under the Income Declaration Scheme, 2016, my views are as under:

(i) The Income Declaration Scheme, 2016 is contained in Chapter-IX of the Finance Act, 2016 (Ss. 181 to 199). The word ‘declarant’ is defined in section 182A of the Finance Act, 2016 to mean a person making the declaration under sub-section (1) of section 183. You are right that the word person is not defined in the Scheme. However, section 182(c) of the Finance Act, 2016 states that all other words and expressions used in the Scheme, that are not defined, will have the same meaning as defined in the Income-tax Act, 1961. In the Income-tax Act, the ‘person’ has been defined in an inclusive way to include an individual, HUF, a company, a firm etc. Thus, the word ‘declarant’ has, in my opinion, to be read with the definition of the word ‘person’ given in section 2(31) of the Income-tax Act, 1961.

(ii) In regard to the second issue, in my opinion, the legal heir of a person can make a declaration because of the use of the word ‘person’ in section 183(1) of the Finance Act, 2016 to be read with the definition of the word ‘person’ given in the Income-tax Act, 1961 and made applicable by section 182(c). Besides, there is the Chapter XV (S. 159 to 180A) of the Income-tax Act, 1961, which imposes liability in special cases and section 159 thereof imposes liability on legal representative of the deceased. The right of a legal representative to recover tax paid is governed by section 162 of the Income-tax Act. This section entitles him to recover the tax paid by him from the other legal representatives of the deceased assessee.

(iii) The declaration made on behalf of dissolved firms shall bind the erstwhile partners because of their liability u/ss. 187 to 189, more particularly sub-section (3) of section 189 of the Income-tax Act. Sub-section (3) of section 189 specifically provides that “every person who was at the time of such discontinuance or dissolution a partner of the firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum”. In this connection, your attention in also invited to section 195 of the Finance Act, 2016 which makes the provision of Chapter XV under the Income-tax Act relating to the liability in special cases applicable to the Income Declaration Scheme, 2016. [SRW]

S. 183 : Declaration of undisclosed income-tax deduction at source

Q.3. If TDS takes care of the entire tax liability on the income but return is not filed, should one opt for the scheme.

Ans. Yes, he can opt for the scheme if the income is not included in the return where filed. If not filed, he can opt for the scheme provided the time for filing the return is over. The CBDT Circular No. 25 of 2016 dated 30th June 2016 clarifies at Question No. 4 about the cases where TDS credit shall be made available to the declarant.

Hence, TDS credit shall be given if the credit of tax has not already been claimed in the Return of Income filed for any assessment year. If there is a time to file a return u/s. 139(5), then the assessee can opt to file return of income under that section. Once TDS has been deducted on full income, then, there is no question of undisclosed income. In DCIT v. Harishkumar J. Gupta (2013) 215 Taxman 41 (Guj.)(HC) dealing with section 158BB the Court has held that when tax was deducted the said income cannot be treated as undisclosed income. [KS]

S. 183 : Declaration of undisclosed income – Income of minor

Q.4. Assessee’s minor child had taxable income that was not clubbed in the hands of parents. There was no return of income filed on behalf of the minor. Now that the minor is of legal age can he (the child) disclose the income in his own hand and pay the tax?

Ans. From assessment year 1993-94 onwards, a minor’s income is includable in the hands of parents. Though after attaining as the income by legal fiction is to be deemed to be the Income of the parent, it is advisable to have it declared in the hands on the parents in order to avoid litigation and to get immunity. One can refer the Circular No. 754 of 1997 dt. 10-6-1997 (1997) 226 ITR 8 (ST) Pg 9. Q. No 3 which reads as under “Minor can declare his undisclosed income of 1992-93 or earlier assessment years. From Assessment year 1993-94, his income is includable in the parents’ income and he is not obliged to file a return himself. Only parents can declare the minor’s income for assessment year 1993-94 or later.” In case the parents are not disclosing the major son may avail the advantages of the IDS . [KS]

S. 183 : Declaration of undisclosed income – Minor, lady members

Q.5. Assessee who is minor / lady, has jewellery which has been received as gift, which is not disclosed, can they take benefit of the IDS-2016.?

Ans. There is no bar on minors or lady members making declaration under IDS. However, one should refer to judgment of Supreme Court in Jamnaprasad Kanhaiyalal v. CIT (1981) 130 ITR 244 (SC) before planning further utilisation of such income. Further, under section 64(1A), income of minors is assessable in hands of either parent except in 2 circumstances mentioned in proviso thereto. Therefore, despite the declaration by minor, the same amount may again be assessed in hands of parent except where parent is able to prove that income declared by minor is of the nature described in proviso to section 64(1A). [CAK]

S. 183 : Declaration of undisclosed income – Long term capital gains

Q.6. A earned LTCG on sale of an immovable property in 2012-13.

Not declared in it. Now he wants to declare the same under IDS. Sale consideration is less than circle rate.Whether tax is payable on actual sale value or on circle rate?

Ans. From the query it is not clear whether immovable property purchased was earlier declared. [HNM]

S. 183 : Declaration of undisclosed income – Foreign Currency

Q.7. Undisclosed income is in the form of foreign currency over and above limit fixed by RBI. It is not disclosed to RBI. Will assessee get relief from FEMA if it is disclosed in IDS ?

Ans. S.192 of the Finance Act, 2016, provides that the declaration made under the scheme shall not be admissible in evidence for the purpose of prosecution under the Income-tax Act or the Wealth-tax Act. S. 190 provides relief for certain cases in which the provisions of the Benami Transactions (Prohibition) Act shall not apply to declarations. The Finance Act, 2016 by itself does not explicitly offer a shield against application of provisions of FEMA laws to an assessee making a declaration under the said scheme. If the foreign currency was acquired from the undisclosed income earned in India, it may be advisable to opt of IDS. However, if the foreign currency was acquired from the foreign assets which was not disclosed in the return of income, the Undisclosed Foreign Income & Assets and Imposition of Tax Act, 2015 may be applicable to the said Income, then according to S.196(d), this scheme itself shall not apply. [KS]

S. 183 : Declaration of undisclosed income – Non-resident

Q.8. Whether a non-resident can file the
declaration under the Income declaration scheme?

Ans. As per section 183(1), any person can make a declaration of undisclosed income subject to certain exceptions. The word ‘person’ shall have the meaning assigned to it under section 2(31) of the Income-tax Act, 1961. The scheme can be availed by all non-residents, such as Non-Resident Indians, Foreign Citizens, Foreign Companies, overseas Trusts, etc. Even the agent of a non-resident assessee u/s. 163 of the Act, can take advantage of the IDIS. [KS]

S. 183 : Declaration of undisclosed income – Valuation

Q.9. Where a valid declaration is made after making valuation as per provision of the Scheme read with IDS Rules and tax, surcharge & penalty as specified in the scheme have been paid, whether the department will make any inquiry in respect of sources of income?.

Ans. No. [HNM]

S. 183 : Declaration of undisclosed income – Appeal pending before ITAT

Q.10. I have a case pending before ITAT. Can I avail the benefit of this scheme simply by paying 45% tax amount and buy peace ?

Ans. No. The CBDT vide Circular No. 17 of 2016, dated 20-5-2016 has answered this query as under:

Q.10. Can a declaration be made of undisclosed income which has been assessed to tax and the case is pending before an Appellate Authority?

Ans. As per section 189 of the Finance Act, 2016, the declarant is not entitled to reopen any assessment or reassessment made under the Income–tax Act. Therefore, he is not entitled to avail the tax compliance in respect of such income. However, he can declare other undisclosed income for the said assessment year which has not been assessed under the Income –tax Act. [HNM]

S. 183 : Declaration of undisclosed income – Valuation of land

Q.11. I have a land whose DLC rates as per Government is 6000/- per sq. mtr. whereas the market rate of which is 3000/- per sq. mtr. on which amount the declarant has to pay the tax?

Ans. The value of property for the purpose of declaration would be as on June 1, 2016 and same has to be determined as per Rule 3 of the IDS Rules. One may refer question No. 1 and Question No. 4 of Circular No. 17/2016 dt. 20-5-2016. [HNM]

S. 183 : Declaration on undisclosed income – Loans – Share application

Q.12. In cases of loans, share application disclosure is made by lender or shared applicant under this scheme the borrower or company will be entitle to get immunity from again disclosing the same as was available under various VDS Schemes?

Ans. It is noticed that in the case of the querist, the declaration is made by the share applicant or the lender under the Scheme and therefore he alone is the person who is entitled to the immunities under the Scheme in respect of such a declaration. S. 197(a), for removal of doubts, declares that nothing contained in the Scheme shall confer any benefit, concession or immunity on any person other than the declarant. As such the company or the borrower, does not enjoy any immunity under the Scheme on account of the declaration made by the applicant or lender. The company or the borrower would therefore be subjected to compliance of S. 68 and also the burden put there under. [PNK]

S. 183 : Declaration of undisclosed income – Purchase sales and stock register

Q.13. In Form No.1 how one will disclose suspected purchases, sales in case stock register is maintained. It is settled by various pronouncements that on Gross Profit is to be disclose but rate of GP will with nature and type of trade hence it is necessary to know from the department the rate of GP acceptable to them to avoid further question regarding GP rate adopted by Assessing officer in the above matter during various proceedings including reassessment subsequent to closure of Declaration Scheme. Further as the Form No.1 as well as Form No.4 (Certificate to be issued by the CIT) does not contain disclosures/ particular of transactions how in these type one will satisfy the various Income Tax Authorities in various income tax proceedings including reassessments, revision, search & survey. Whether assessee will be able to capitalise the same if yes what will be nature of assets to be disclosed is it Cash.Whether the assessee will disclose suspected loans taken before six years and interest thereon since beginning even if pertains to year before 2010 i.e. more than six years.

How to disclose the suspected squared loan transactions. Whether assessee will be entitled to capitalise the said loan and interest paid there on in cash?

Ans. IDS provides an opportunity to persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totaling in all to 45% of such undisclosed income declared. Thus, this is an opportunity to person to declare undisclosed income which had remained to declare.

It is debated whether any proceedings can be taken beyond six years. According to me provisions of section 197(c), cannot override the provisions of the Income-tax Act. [HNM]

Editorial: Refer answer of Shri N. M. Ranka Q. No. 23 wherein he has opined that the provision of section 194(c) may not be constitutionally valid.

S. 183 : Declaration of undisclosed income – Below taxable income

Q.14. We are senior citizens and a couple having PAN cards but did not file IT returns as our annual income is below taxable limit.

Please advise what we should do?

Ans. It is not undisclosed income and therefore it is not necessary to file declaration under this Scheme. If any time you receive any notice from the Department, you have to show that the income was from the disclosed source but not liable to tax as it was below the taxable limit. [HNM]

S. 183 :Declaration of undisclosed income – Manner of disclosure

Q.15. What is the manner to disclose gross receipt by any contractor or a trader who has unaccounted sales / contract receipt etc. till 31-3-2015 and he has already filed return along with tax audit report for transactions recorded in books.

Say one of traders / contractor has cash receipt of ₹ 10 crore in the period 2011-2015 and corresponding expenses to earn that gross receipt.

Whether the said person can file net income @ 5-10% (Say. 8%) of total gross receipt. Does he require to give the name of contractee also?

Is there any implication of VAT/Work Contract Tax or service tax for this declaration?

Ans. The IDS provides an opportunity to persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totalling in all to 45% of such undisclosed income declared. Thus, this is an opportunity to persons to declare undisclosed income which had remained to declare. The Scheme provides an opportunity to persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totalling in all to 45% of such undisclosed income declared. Thus, this is an opportunity to persons to declare undisclosed income which had remained to declare.

As per answers to question nos. 1 & 2 of Circular No. 25 of 2016 dated June 30, 2016, no information would be shared either within Income-tax Department for any investigation in respect of valid declaration or any other law enforcing agency. [HNM]

Editorial : Refer Circular No. 27 of 2016 dt. 14th July, 2016 Answer to Question No. 5. Board once again clarified that no information will be shared and notification was issued to all public servants.

S. 183 : Declaration of undisclosed income – Capital gains – Indexation

Q.16. Whether a person declaring capital gains under the Scheme is entitled to get benefit of deduction of indexed cost?

Ans. Thus you have to disclose, undisclosed income which may be from any source. [HNM]

S. 183 : Declaration of undisclosed income – Stock – VAT – Excise

Q.17. If undeclared income is disclosed in shape of stocks in hand, whether there may be repercussion from other related department like Excise & VAT?

Ans. Vide answer to question Nos.1 & 2 of Circular No. 25 of 2016 dated June 30, 2016 the Board has clarified that the information under IDS shall not be shared within the Income tax Department for any investigation in respect of a valid declaration. Further the information contained in the declaration shall not be shared with any other tax or law enforcement agency. [HNM]

Editorial : Refer Circular No. 27 of 2016 dt. 14th July, 2016 Answer to Question No. 5. Board once again clarified that no information will be shared and notification was issued to all public servants.

S. 183 : Declaration of undisclosed income – Purchase of land was not shown

Q.18. I have filed first time the balance sheet details in F.Y. 2014-15. Before it was a salaried return only & paid taxes accordingly.At the time of disclosing b/s items I have not shown land which was purchased in 2011 just an accounting error as at that time I have paid taxes on my salary income. My return for F.Y. 2014-15 is assessed u/s. 143(1). Can I file a revise return just to disclose the land or can I adjust it through capital a/c. My land is sold in the current F.Y. 2016-17?

Ans. If at the time of sale you can prove purchase of land from your bank account or disclosed sources, then, it is not necessary to revise the return of Financial Year 2011-12. Further, you cannot file revise return for that financial year as time for filing revise return is over under section 139(5). Whatever amount you receive on sale of land you can credit the amount in the profit and loss account and also pay the capital gain tax on the sale of said land. [HNM]

S. 183. Declaration of undisclosed income – Heads of income

Q.19. Tax is paid under different heads like 100, 200, 300 and 400 under the Income-tax Act. under which head is the IDS Tax to be paid?

Ans. Under the head self-assessment tax (300) and details of payment be mentioned in “others”. [HNM]

S. 183(4) : Declaration-Deduction of expenditure.

Q.20. S. 183(4) of Finance Act, 2016 provides that no deduction of any expenditure or allowance in respect of undisclosed income, declared under the scheme, shall be allowed.

Issue: It is difficult to accept that any expenditure shall not be allowed. The amount to be declared is income and not receipt. Income is always understood as gross receipt as reduced by expenditure incurred to earn the receipt. Therefore, the outgoings need to be allowed from gross receipts.

Ans. The Income Disclosure Scheme, 2016 is for “… declaration in respect of any income chargeable to tax under the Income Tax Act for any assessment year …” as per section 183(1). What is to be declared is income chargeable to tax and not gross receipts.

The Scheme provides no procedure for assessment or verification of income offered to tax and except for verification as to whether notices have been issued, no other verification shall be carried out by the department of income declared.

If sum due is paid within time and all conditions are satisfied, no proceedings shall be initiated merely because of and on the basis of valid declaration made under Income Disclosure Scheme.

Therefore, a declaration shall be accepted as made in respect of quantification of income and no verification will be carried out.

The issue of quantification of undisclosed income would arise only when the declarant makes claim for immunity in accordance with section 188 of the Act. Under section 188 the declarant is entitled to claim exemption from taxation of income declared in any assessment proceedings initiated after filing of the declaration. It is only in a valid assessment proceedings initiated after filing of declaration, the department can compute undisclosed income as per the provisions of the Act. In such assessment, assessee would be entitled to claim exemption to the extent of income declared.

In view of above discussion, the declarant may evaluate the option that it only makes declaration of net income without furnishing any working of gross receipts and expenses against such gross receipts. It may, if so advised, keep a copy of such working in its internal record to use it, if and when, occasion arises to claim immunity u/s. 188. [CAK]

S. 184 : Charge of tax and surcharge –Payment of tax

Q.21. In Question No. 5 of the FAQ dated 30-6-2016 vide Circular No. 25 of 2016 that the source of Income or tax paid shall not be made by the Department. In that case, if the amount of disclosure is made for ₹ 100 crore and a tax of ₹ 45 crore is made from sources unknown, whether the tax paid will not be considered for Income purpose and the entire ₹ 100 crore will be converted into legitimate money? Would be happy to have a clear clarification on this to avoid any hurdles later on after the disclosure is made or taxes are paid.

Ans. The querist appears to be a very wealthy person as is evident from the question involving billions of rupees. S. 188 provides that the income, declared under the Scheme, shall not be included in the total income of the declarant. S. 189 provides that a declarant shall not be entitled to claim any relief, in any proceeding, in respect of the declared income or any amount of tax and surcharge paid thereon. Further S. 192 provides that nothing contained in the declaration made shall be admissible in the evidence for the purpose of imposition of penalty or prosecution under the Income Tax Act. The Scheme apparently does not require a declarant to disclose the source or nature of the income declared. The annexure to Form 1 however, requires the disclosure of the nature of undisclosed income.

The CBDT in Circular No. 25 dated 30th June, 2016 while answering question No. 5 has given a one word reply “No” to a question, the relevant part of, which reads as “Whether the Department will make an enquiry in respect of sources of income, payment of tax, surcharge and penalty.” It appears that it is this reply that has tempted the querist and many others, including newspapers like Economic Times to canvass the possibility of paying tax out of the undisclosed sources without declaring the same under the Scheme and without paying any tax thereon, either under the Scheme and also under the Act. This view in my considered opinion is fraught with danger and does not appear to be supported by the provisions of the Act. First of all, the immunity under the Scheme is made available to an income declared under the Scheme and in respect of which the payment of tax, surcharge and penalty is made by the specified date. Obviously, on this account no immunity from inclusion in the total income for the amount of tax, etc. paid out of undisclosed sources, is available to declarant. Secondly, no relief is possible in any proceeding in respect of the declared income or the tax paid thereon, other than the relief of non-inclusion in the total income of the amount declared. Thirdly, the contents of declaration, by itself will not be admissible against the declarant for imposition of penalty or prosecution under the Income Tax Act and Wealth-tax Act. It is possible, therefore; that the declaration, by itself, cannot be used in evidence for imposition of penalty on the undisclosed and undeclared facts, etc. but the facts of the declarations does save the declarant from payment of tax and interest on amount of taxes paid out of undisclosed sources under the Act. However nothing will save the declarant, even for penalty, in cases where the Income-tax Department is able to establish the evasion of tax, independent of the declaration. Fourthly, the declaration is expected to be true and correct in respect of the entire undisclosed income of the Declarant. In view of the above, it appears that the querist or the media is not in any manner supported by the provisions of law in their stand on not paying tax on the tax, etc. under the Scheme.

Answer to Q.5 perhaps confirms that no inquiry would be made relating to the source of income as also taxes, etc., PROVIDED the taxes thereon have been paid under the Scheme. The querist, if not satisfied, should seek an express clarification from the CBDT before an undesired adventure. [PNK]

Editorial: CBDT clarified the issue vide Circular No. 27 of 2016 dt. 14th July, 2016 Q. No. 6.

S. 186 : Manner of declaration.

Q.22. In Form No.1 how one will disclose suspected purchases, sales in case stock register is maintained. It is settled by various pronouncement that on gross profit is to be disclosed but rate of GP will with nature and type of trade hence it is necessary to know from the department the rate of GP acceptable to them to avoid further question regarding GP rate adopted by Assessing Officer in the above matter during various proceedings including reassessment subsequent to closure of Declaration Scheme. Further as the Form No. 1 as well as Form No. 4 (Certificate to be issued by the CIT) does not contain disclosures/ particular of transactions how in these type one will satisfy the various Income-tax Authorities in income tax proceedings including reassessments, revision, search & survey. Whether assessee will be able to capitalise the same if yes, what will be nature of assets to be disclosed is in cash.

Whether the assessee will to disclose suspected loans taken before six years and interest thereon since beginning even if pertains to year before 2010 i.e. more than six years.

How to disclose the suspected squared loan transactions. Whether assessee will be entitled to capitalise the said loan and interest paid thereon in cash?

Ans. The Income Disclosure Scheme is for “… declaration in respect of any income chargeable to tax under the Income-tax Act for any assessment year …” as per section 183(1). However, the scheme provides no procedure for assessment or verification of income offered to tax and except for verification as to whether notices have been issued, no other verification shall be carried out by the department of income declared. Therefore, a declaration shall be accepted as made in respect of quantification of income and no verification will be carried out at the stage of declaration under IDS.

The issue of quantification of undisclosed income would arise only in assessment proceedings for verification of issues of bogus purchases and/or loans. Under section 188 the declarant is entitled to claim exemption from taxation of income declared in any assessment proceedings initiated after filing of the declaration. In such assessment, assessee would be entitled to claim exemption to the extent of income declared.

The declarant may therefore evaluate the option that it makes declaration of income in respective years in which it expects the issues to arise. It may, if so advised, prepare a fair computation of income on the issues and keep a copy of such working in its internal record to use it, if and when, occasion arises to claim immunity u/s. 188.The declarant can contend in the declaration that it earned income in a particular year and that the same is now lying in form of an asset is thinks appropriate. [CAK]

S. 186 : Manner of Declaration

Q.23. Where Return of Income for A.Y. 2015-16/A.Y. 2016-17 are not filed, can the assessee declare any income under the head “Other Sources” without disclosing source thereof?

It appears that he will have to pay at the normal applicable rate and provisions of Section 115BBE may not apply in view of voluntary declaration in the Return.

Assuming provisions of Section 115BBE are applicable, such income will suffer tax at 30% only as against 45% under IDS.

Is it correct ?

2. In an answer to Q. No. 4 (CBDT Circular No. 24/2016 dt. 27-6-2016) it is stated that as per the provisions of section 197 (c) of the Finance Act, 2016, such income of A.Y. 2001-02 shall be assessed in the year in which the notice under sections 148 or 153A or 153C, as the case may be, of the Income-tax Act is issued by the Assessing Officer. Further, if such undisclosed income is detected in the form of investment in any asset then value of such asset shall be as if the asset has been acquired or made in the year in which the notice under sections 148/153A/153C is issued and the value shall be determined in accordance with Rule 3 of the Rules.

Is it legally correct when no notice u/s. 148 can be issued after the expiry of six years from the end of the relevant assessment year? (S.149(1)(b)

3. An assessee might not have maintained any books of account and made investment more than 10 years ago from his funds/borrowed funds.

Similarly even if books are maintained one might have debited the amount invested to his capital account, in the year of investment.

Now he may not have any evidence to prove that the investment was made out of declared sources of income.

Query

Can such investment be presumed to have been made out of ‘undisclosed income’ even when department has no material/evidence to tax it as undisclosed income?

Incidentally in cases where income is declared on presumptive basis law does not require maintenance of books of account. Similarly person is not required to preserve accounts after a prescribed period under Income Tax/Company Law?

Ans. S.197 states for the removal of doubts, it is hereby declared that – “where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, and no declaration in respect of such income is made under this Scheme, – (i) such income shall be deemed to have accrued, arisen or received, as the case may be, or (ii) the value of the asset acquired out of such income shall be deemed to have been acquired or made, in the year in which a notice under section 142, sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer, and the provisions of the Income-tax Act shall apply accordingly”.

It means that if an asset has been acquired prior to 1-6-2016, from any income, no declaration is respect of such income by which the impugned asset has been acquired is filed, a notice u/ss. 142 or 143(2) or 148 or 153A or 153C of the Income-tax Act is issued; such undisclosed income shall be deemed to have accrued, arisen or received in the year in which such notice is issued and the value of such acquired asset as computed u/r. 3 of the Income Declaration Scheme Rules, 2016 i.e., 1-6-2016, shall be assessed in the year in which such notice is issued.

Section 69 of the Income-tax Act, 1961 dealing with unexplained investments states that where in the financial year immediately preceding the assessment year the assessee has made investments from unexplained sources, the value of the investments may be deemed to be the income of such financial year. Assuming an asset is proved to have been acquired in the financial year 2000-01, the asset is undeclared, source of investment is not satisfactorily explained, such income so invested in the asset, would be deemed to be income of the said financial year and assessed to tax, interest and penalty in the Assessment Year 2001-02. Section 197 also says the provisions of the Income-tax Act shall apply accordingly. It also does not start with “Notwithstanding any other provision of the Income-tax Act, 1961.”

Thus if the income in respect of such asset is assessable u/s. 69 in the Assessment Year 2001-02, in my view it cannot be assessed u/s. 197(c) during the assessment year in which it has surfaced and notice is issued. Assuming the above-said asset is established to have been acquired in Financial Year 2000-01, and there is acceptable evidence therefore, but surfaced on 1-7-2016 and notice is issued for the Assessment Year 2017-18, it cannot be assessed in the Assessment Year 2017-18. Such an action would be contrary to section 69 of the Income-tax Act. Addition would be illegal, against the parent act and unsustainable. Provision contained u/s. 197(c) is not in accord with the Income-tax Act and it has no over-riding clause; but only to remove the doubt. The Finance Act, 2016 cannot legislate contrary to Section 69.

It is sub-servient to the Act and not above the Income-tax Act. Parliament if wanted to legislate differently, it should have amended existing Section 69 read with Section 148 of the 1961 Act. Such provision is unconstitutional, not harmonious, makes Section 69 otiose or nugatory and would be liable to be struck down or read down, if challenged.

In case of escaped/re-assessment a notice u/s. 148 read with sections 147 within the time limit of six years specified u/s. 149(1))(b) is a condition precedent and a jurisdictional factor. Hence notice u/s. 148 cannot be issued for the Assessment Year 2017-18 when asset has been proved to be acquired in the Financial Year 2000-01. Such notice shall be without jurisdiction and void. Such assessment would be liable to be annulled.

If the assessee can satisfactorily prove by documentary evidence that the investment was made before 10 years, even if sources remain not satisfactorily explained, such investment cannot be taxed, as explained hereinabove u/s. 197(c) of the Finance Act, 2016. It would not accrue, arise or received in later year.

The Central Board of Direct Taxes has issued answer to Question No. 4 of Circular No. 24 of 2016 and again reiterated its view in the answer to Question No. 2 of Circular No. 27 of 2016. It says : “the Scheme is a later law in time, the provisions of the Scheme shall prevail over the provisions of earlier laws”. It does not appear to be correct. (NMR)

S. 186 : Manner of Declaration-Undisclosed investment in shares.

Q.24. Can a person give declaration of for undisclosed investment in share capital, already in the name of some paper company having no credential ?

Suppose a company has shareholders seems to be paper transaction, can someone/or a Pvt. Ltd. company give declaration for the BENAMI TRANSACTION held in the form of share capital.

The declaration will be in the name of Pvt. Ltd. company (share capital) or in the name of person filing declaration.

Also immunity to the person filing declaration or to the company?

Ans. It is assumed that the so called paper company is in existence and is registered with the Registrar of Companies. Share capital has been subscribed by the applicant and is suspected by the Revenue. In such circumstances the share applicant or any other person can declare. If declarant is any other person than the earlier share applicant, the earlier share applicant shall be a benamidar for the present declarant and the share certificate shall have to be transferred in the name of the declarant by 30-9-2017.

The declaration shall be by the real shareholder, immunity shall be to the declarant as well as to the Company in view of Circular No. 142/08/2016 – TPL dated 30-6-2016 (Answers to Q.1 & Q.2 & Q.5 & Q.8). [NMR]

S. 186 : Manner of Declaration – Revision of Declaration

Q.25. S.186(3) provides that a declaration once made u/s. 183(1) can neither be revised nor another declaration can be made in respect of that declarant.

Issue: A declarant after making a declaration and before payment of tax, surcharge and penalty and before 30-9-2016, if notices a mistake in the declaration or the declaration is not verified in the proper manner should not be debarred from revising the declaration. Powers vested u/s. 198 should be exercised?

Ans. First of all, there is nothing in S. 186(3) which prohibits the revision of a declaration. It is true that there are no expressed provisions similar to S. 139(5) of IT Act that specifically provides for filing of revised return of income. In our considered opinion, any mistake in the declaration can be rectified or in the alternative the declaration itself can be revised as long as it is not expressly prohibited by the Scheme. The expressed provision of S. 139(5) is mainly for the purpose of providing the limitation of time for which, a person could have revised the return at any point of time till the date of assessment.

Secondly, an incomplete declaration could never be considered as a valid declaration in first place and as such the question revising it should not arise at all. Any new declaration complete in all manner, can alone be treated as a declaration provided it is filed within the time permissible under the Scheme.

Thirdly, S. 186(3) in no manner restricts the rectification for revision of a declaration. It simply prohibits filing of any other declaration. It should mean that a person is prohibited from filing another declaration once a valid declaration is already filed.

Fourthly, the Central Government is empowered vide S. 198 to issue an order to remove any difficulty in giving effect to the Scheme as long as it is not inconsistent with the Scheme. Permitting expressly a person to file a revised declaration cannot be inconsistent with the scheme. [PNK]

Editorial : Circular No. 27 of 2016 dt. 14th July, 2016 Reads as under. Q. No. 1. Can a declaration made under the Scheme be revised before the date of closure of the Scheme i.e. 30-9-2016? Ans : It is expected that the declaration made under the Scheme are filed correctly. However, a revised declaration can be filed on or before the date of closure of the Scheme provided the undisclosed income in the revised declaration is not less than the undisclosed income declared in the declaration already filed.

S. 186 : Time for payment of tax – Challan

Q.26. In accordance with S. 187 read with Notification dated 19-5-2016, the amount as specified by the Commissioner, after receipt of intimation from the Principal Commissioner / Commissioner is to be paid.

Issue: As no separate Challan is specified, Challan 280 may be used. In such a case a separate Challan may be required for each assessment year. In order to avoid any confusion it is desirable that a separate Challan is specified.

Ans. As per section 186(3) of the Finance Act, 2016 a declarant can file only one declaration for all the assessment years in respect of his / it undisclosed income in Form 1, hence he has to make payment of tax, surcharge and penalty under one Challan bearing ITNS 280. In type of payment it should show as “self assessment tax” and in details of payment he should show the total amount in column “others”. As per note No. 5 at the back of the challan first assessment year is to be mentioned. [HNM ]

Editorial: As per Circular No. 27 of 2016 dt. 14th day of July, 2016, Ans. to Q. No. 1 a revised declaration can be filed under certain circumstances.

S. 187 : Time for payment of tax

Q.27. Whether the Principal Commissioner or Commissioner has the power to extend the time for payment of tax?

Ans. In Hemlata Gorgya v. CIT (2003) 259 ITR 1 (SC), interpreting the Sec. 66 & 67 of VDIS, 1997, the Hon’ble Apex Court held that the words ‘shall’ means that the provision is mandatory. While referring to an earlier Judgment in Maqbool Ahmed v. Onkar Pratap Narain Singh AIR 1935 PC 85, 86 it observed that “It is well-settled that when consequences of the failure to comply with the prescribed requirement is provided by the statute itself, there can be no manner of doubt that such statutory requirement must be interpreted as mandatory”.

As the language used in IDS is similar and has also prescribed that the consequences of non-compliance of the payment of tax, surcharge & penalty in respect of the declaration made u/s. 183 on or before the specified date are that the declaration shall be deemed never to have been made. Hence, the Principal Commissioner or Commissioner has no power to extend the time for payment of tax in IDS. Recent press release says that the payment of the tax can be made by installments and clarification will be issued in due course. [KS]

S. 187(3) : Time for payment of tax – Challan

Q.28. S.187(3) read with Notification provides that if the amount intimated by the Principal Commissioner / Commissioner is not paid by 30-11-2016 and proof of payment is not filed, the declaration filed shall be treated as never have been filed.

Issue: In absence of a specified Challan, as the declarant may be paying the amounts through separate Challan for each year and Challan for any year is inadvertently not filed in time, the declarant should be asked to produce the Challan. In any case the information of payment would also be available with the Department. ?

Ans. Sub-section (1) of section 187 makes it mandatory to make payment of sum due by appointed date. Sub-section (2) requires the declarant to file proof of such payment within specified date. The consequence of treating declaration not having filed is applicable only if payment is not made within time specified and not to filing of proof. Therefore, the issue raised in the query is not emerging from the provisions of the Act.

In view of seriousness of the consequences, the declarant may consider to be more vigilante, responsible and careful about maintenance of poof of payment and filing it within time. It has been informed by member (L & C) CBDT that a new Challan No. 286 is being notified soon. [CAK]

S. 187(1), (2) : Time for payment of tax

Q.29. The proof of payment is to be filed with the Principal Commissioner or Commissioner on or before 30-11-2016 in Form No. 3 appended to the Income Declaration Scheme Rules, 2016.

Issue: The tax, surcharge and penalty payable under the Scheme would generally be paid close to the last date. In some cases the Challan for payment may not be readily available for any technical reason, though the payment can be established from other record/evidence. The Principal Commissioner / Commissioner should be empowered to grant further reasonable time to produce the Challan. ?

Ans. S. 187(2) states that not only the tax is to be deposited on or before the date notified u/s. 187(1)( [which is 30-11-2016] but also the intimation in this regard is also to be submitted to the PCIT on or before the said date. As per Form 3 a declarant has to submit proof of payment to the Principal Commissioner / Commissioner mentioning BSR Code of Bank, date of deposit, serial number of Challan and amount. In view of this it is necessary to make the full payment to bank much before the last date, so the aforesaid particulars could be furnished before November 30, 2016. As per the press release the payment can be made in installments. [HNM]

S. 190 : Benami transactions.

Q.30. S.190 grants exemption from the provisions of Benami Transactions (Prohibition) Act, 1988, if the property is transferred in name of beneficial owner by 30-9-2017.

Issue: If for any unavoidable reason or on account of some pending litigation, the property cannot be transferred by 30-9-2017, the exemption shall not be available. The Principal Commissioner / Commissioner should be authorised to grant further time in genuine cases?

Ans. The Income Declaration Scheme, 2016, operative from 1-6-2016, with exit date 30-9-2016, entitles a person to own investments held in benami name of other persons and provides an opportunity to declare benami investments, pay tax, interest and penalty and safeguard such investments. As holding an investment benami’s name is an offence and such investments are liable to confiscation, the scheme by Section 190 of the Finance Act, 2016 grants immunity from the provisions of the Benami Transactions (Prohibition) Act, 1988. However, an additional condition has been put requiring the asset existing in the name of a benamidar be transferred to the declarant, or his legal representative, within the period notified by the Central Government. The Central Government has notified the last date for transfer as 30-9-2017. On account of this second condition, on non-fulfilment, the declaration would be ineffective and inoperative. The immunity would not be available. The word used is “shall” and hence condition is mandatory.

Suggestion : It is a harsh condition. For many reasons beyond the control of the declarant, the transfer may not fructify by the specified date. For unforeseen circumstances there may be delay. It is advisable that power be conferred on the PCIT / CIT, to condone the delay and grant immunity. Federation is advised to make representation to the Government to confer requisite power for condonation after recording of reasons. If immunity is not granted, it would be justiciable by writ jurisdiction.

Form Nos. 1 as well as 4 shall be required to be modified. In the verification in clause (i) the factum of condonation power shall have to be specified. [NMR].

S.190 : Benami – Purchase of Kisan Vikas Patra

Q.31. I have purchased Kisan Vikas Patra in the name of my brother-in-law in FY 2013-14 for ₹ 20 lakhs.

The investments belongs to me and I want to take the benefit of IDS, 2016. The scheme provides the transfer of Benami property within six months but as per postal rules the KVP cannot be transferred before maturity.

Ans. The Scheme requires transfer of benami property by 30-9-2017, not within 6 months. The querist should convince the Kisan Vikas authorities that it is only a change of name and not a transfer by sale, gift or otherwise. The name – holder must apply for change of name duly supported by declaration of the brother-in-law and the declarant along with the evidence of declaration and tax payment. (NMR)

S. 190 : Benami property

Q.32. Assessee discloses the Benami property and pays the tax. After paying the tax, he lodges the document for registration. Registering authority values the property higher than the declared value, what will be consequences under section 50C of the Act? Unless tax is deducted the registering authority may not register, what will be the consequences, when the information is received by the income tax department based on the registered document in the case real owner and benamidar. If it is flat in Housing Society whether the Society can insist for payment of transfer fees for transferring the flat in the name of real owner?

Ans. S. 190 provides that the provisions of the Benami Transactions (Prohibitions) Act, 1988 shall not apply in respect of the declaration of undisclosed income made in the form of investment in any asset. In other words such a property would not be confiscated under the said Act, even if it is found to be held in the name of the Benamidar, provided it is declared under the Scheme. This exemption from the said Act is subject to a condition that the asset in question is transferred to the declarant or his legal representative within the notified period which period is now notified to be 30th day of September, 2017.

The querist is concerned with his liability, to deduct tax at source u/s. 194-IA, at the time when the property in question is “transferred” to the Declarant. In my considered opinion, the Declarant is not required to deduct any tax at source at the time of the said transfer by the Benamidar, simply, for the reason that he is not responsible for paying any sum by way of consideration for the said ‘transfer’ to the said Benamidar. He is neither required to credit the account of the Benamidar nor required to make any payment to him for the transfer. In this view of the matter, the registering authority shall not obstruct the registration and the Income Tax Department would have no hesitation in accepting the reality behind the transaction. For the same reasons, the society cannot insist for payment of the transfer fees, however it is a matter unrelated to taxation of income.[PNK ]

Editorial. Refer Circular No. 27 of 2016 dt. 14th day of July , 2016 Q. No. 4. In a case where the declarant gets the benami asset transferred in his name without payment of any monetary consideration to the benamidar, whether capital gains would be chargeable in the hands of benamidar consequent upon such transfer and whether the tax at source @ 1% would be deducted in such case?.

Ans. In this case the consideration for acquisition of benami property has already been paid by the beneficial owner and the fair market value of the property has been declared by the beneficial owner under the scheme. Since, the transfer of property from the benamidar to beneficial owner is only regularise and there will be no involvement of monetary consideration for transfer of immovable property by the benamidar in the name of declarant, the question of capital gains in the hands of benamidar and deduction of tax at source therein shall not apply.

S. 191 : Refund of tax paid

Q.33. If the tax was paid beyond prescribed period due to which the declaration is rejected, can he get back the amount of tax paid?

Ans. Circular No. 16 of 2016 dated. 20-5-2016, explanatory notes on provision of the IDS, 2016, in para 8(b) states that “Any tax, surcharge or penalty paid in pursuance of the declaration shall, however, not be refundable under any circumstances”, The language used in section 191 of the Finance Act 2016, is similar to the language used in S. 69 in the VDIS, 1997.

In Sajan Enterprises v. CIT (2006) 282 ITR 636 (Bom.)(HC), relying on
Hemlata Gorgya v. CIT (2003) 259 ITR 1 (SC) held that, where entire tax liability was not paid within a period of three months as contemplated under VDIS, declarant was not entitled to get benefit of scheme and in such case, amount paid by assessee beyond period of 90 days under the scheme was to refund to the petitioner. Similar view was taken in
R. Ranganatha Reddiar v. ITO (2005) 194 CTR 479 (Ker) (HC). The Hon’ble Apex Court had directed the Revenue authorities “to refund or adjust the amounts already deposited by the assessees in purported compliance with the provisions of the Scheme to the concerned assessees in accordance with law”. Applying this ratio in a case where the declaration is rejected due to delay in payment of tax, the assessee may be able to claim the refund by approaching the Court by way of Writ Petition. [KS]

S. 192 : Immunity – Prevention of Money Laundering Act

Q.34. Can provisions of the Prevention of Money Laundering Act be launched against an assessee who makes a declaration under the Income Declaration Scheme, 2016?

Ans. S.192 of the Finance provides that the declaration made under the scheme shall not be admissible in evidence for the purpose of prosecution under the Income-tax Act or the Wealth-tax Act. S. 191 provides relief for certain cases in which the provisions of the Benami Transactions (Prohibition) Act shall not apply to declarations. Though the Finance Act, 2016 by itself does not offer a shield against prosecution under Anti-Money Laundering Laws to an assessee making a declaration under the said scheme, a wilful attempt to evade tax under the Income-tax Act is not a scheduled offence under the PMLA Act. In contrast, wilful attempt to evade tax (S.51) under the Undisclosed Foreign Income & Assets (imposition of Tax) Act is a scheduled offence and can give rise to proceedings under the PMLA Act. It is also pertinent to note that though the wilful attempt to evade tax under the Income-tax Act is not a scheduled offence; any disclosure of income or property as defined u/s. 2(u) of the PMLA Act could attract the provisions of the Act. While CBDT Circular No. 13 of 2015, dated 6-7-2015 clarifies that with respect to the tax compliance provisions under Chapter VI of the Undisclosed Foreign Income & Assets (Imposition of Tax) Act, declaration made under Sec. 59 of the Act shall not attract the provisions of Sec. 51 of the Act, no such clarification has been made for the Income Declaration Scheme, 2016.

The Income Declaration Scheme, 2016 does not have a specific secrecy clause, as was the case with the VDIS Scheme of 1997. However, Q. 13 of CBDT Circular 17 of 2016, dated 20-5-2016 clarifies that the disclosure of information in respect of assessees shall be kept confidential as the scheme incorporates the provisions of S. 138 of the Act and shall be granted the same privileges of confidentiality as that enjoyed by a return of income, hence eliminating the need of a separate provision. Circular No. 27 of 2016 dt. 14th day of July, 2016, CBDT once again clarified as under Q. No. 5. Under what provision can a declarant be sure that the information contained in a valid declaration shall not be shared with in the Income-tax department for investigation ? Ans. Section 195 of the Act provides that provisions of section 138 of the Income-tax Act shall apply in relation to the proceedings under the scheme. Vide Notification S.O. 2322E dated 6-7-2016, an order has been passed by the Central Government directing that no public servant shall produce before any person or authority any such document or record or any information or computerised data or part thereof as comes into his possession during the discharge of official duties in respect of a valid declaration made under the scheme.

Therefore considering the assurance given by the Honourable Prime Minister of India and Hon’ble Finance Minister ,the assesses need not worry about the confidentiality of the information other Govt. agencies will not be able to get any information in respect of IDS. [KS]

S. 192 : Declaration not admissible in evidence against declarant

Q.35. It is understood that the information shall not be used for any other purpose.

Issue: The declarant needs to be assured in categorical terms that the information shall not be used for any other purpose. In view of Circular No. 143/8/2016 – TPL dated 30-6-2016 it appears confidentiality has been assured and would be maintained.

Ans. S.192 of the Finance Act, 2016 is reproduced :

“192. Declaration not admissible in evidence against declarant. Notwithstanding anything contained in any other law for the time being in force, nothing contained in any declaration made under section 183 shall be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty, other than the penalty leviable under section 185, or for the purposes of prosecution under the Income-tax Act or the Wealth-tax Act, (27 of 1957)”.

It simply grants immunity from penalty in any other law. It says the contents of the declaration shall not be admissible in evidence. It is vague. It is not clear that it shall be inadmissible in evidence under all other laws for any purpose whatsoever.

Central Board of Direct Taxes has issued a Circular No. 16 of 2016 dated 20th May, 2016 (2016 384-ITR144 (St.) by way of explanatory notes on the provisions. Para 9 (b) says “The contents of the declaration shall not be admissible in evidence against the declarant in any penalty or prosecution proceedings under the Income-tax Act and the Wealth-tax Act.” (Page 148 St.)

Circular No. 17 of 2016 dated 20th May, 2016 (2016 384-ITR-148 (St.) has been issued by way of clarification. Question No. 13 with its answer is extracted hereunder :-

Question No. 13 : Will the declarations made under the Scheme be kept confidential ?

Answer: The Scheme incorporates the provisions of section 138 of the Income-tax Act relating to disclosure of information in respect of assessees. Therefore, the information in respect of declaration made is confidential as in the case of return of income filed by assessees. (Page 152 – 153 St.)

It says the information is confidential and at par with the return of income. It says shield is Section 138 of the I.T. Act. Supreme Court has construed the provisions of Section 138 in Dangiram PindiLal v. Trilok Chand Jain (1992) 194-ITR-228 and has held that in compliance to order of the Court the records and documents would be required to be sent to the Court. [NMR]

Editorial: Refer Circular No. 27 of 2016 dt. 14th day of July, 2016, CBDT once again clarified in response to Q. No. 5.

S. 194 : Exemption from Wealth-tax

Q.36. Undisclosed income held in the form of cash, bank deposits, bullion, investment in shares or any other assets, specified in the declaration shall not be liable to Wealth Tax, if no return has been filed or it is not included in the return of Net Wealth.

However, if the asset, declared in the return, is undervalued, the declarant shall have immunity to the extent of income declared under the scheme, for acquisition of the asset.

The partners of a firm shall also get immunity in respect of income disclosed by the firm.

Issue: In Circular No. 16 dated 20-5-2016, it is stated that the value of assets declared in the declaration shall not be chargeable to Wealth Tax. The liability under wealth tax therefore needs to be further clarified. Apparently the circular grants total exemption from wealth tax and seems to be beyond the provision of the Scheme.

Ans. S. 194 of FA, 2016 grants an exemption from payment of wealth tax in respect of the assets declared under section 183 of the Finance Act, 2016 or which has not been shown in return of wealth furnished. In addition, the said s. 194 also grants exemption from payment of wealth tax in respect of that balance part of asset declared under section 183 of the Finance Act, 2016 or which has not been shown in return of wealth furnished.

No immunity is required in respect of the first part of the asset that has been partially disclosed and shown in return of wealth that has already been furnished by the assessee, declarant. It is the balance part that was not disclosed which gets immunity on declaration under the scheme. The other part shown in the return needs no immunity under the scheme.

Circular No. 16 dt. 20-5-2016 simply confirms that the part declared and shown in return of wealth together with the remaining balance part declared under the scheme collectively enjoys the complete exemption from the wealth tax. Accordingly, in our considered view, the circular does not grant any additional exemption and is not beyond the scope of provisions of scheme. [PNK]

S. 196 : Scheme does not apply to certain persons – Initiation of prosecution

Q.37. FIR (First Information Report) is filed under the Code of Criminal Procedure 1973 (CrPC), can the assessee avail the benefits of the IDIS scheme?

Ans. The Hon’ble Uttaranchal High Court in the case of CIT v. Meena Goyal (Smt.) (2011) 334 ITR 428 (Uttaranchal)(HC) held that prosecution gets initiated when summons is issued by Court on the report made by the investigating officer, therefore, the benefit of Scheme cannot be denied to a person against whom only FIR is filed. As the wordings of 196(b) of IDIS are identical to 78(b) of VDIS 1997, the ratio may hold good even for interpretation of IDIS, 2016. [KS]

Scheme not to apply to certain persons – Recovery of cash by police

Q.38. Police recovered cash from a car and the person in car explained that cash was given by X, whose identity and address he gave, and cash was collected at the instance of A. Information was given by police to IT department and warrant u/s. 132A was issued against A. Statement of A was recorded and he explained that cash belonged to B. who gave it to him for purchasing property on behalf of B. Whether B can file declaration under Income Declaration Scheme?

Ans. Case of the Declarant is covered by S. 196, clause (e) which prohibits the declarations of an undisclosed income, under the Scheme, in cases where a notice has been issued under one of the provisions specified in sub-cl. (i) or where a requisition has been made u/s. 132A of the Act under sub-cl.(ii). No notice has been served on the Declarant and as such sub-cl.(i) does not apply to him. His case is covered by sub-cl.(ii) inasmuch as a requisition is made u/s. 132A on A. The condition, contained in sub-cl. (ii) of cl. (e) of S. 196, is not related to or qua any specific person and therefore whether requisition is made on A or B is not relevant for application of sub cl. (ii). However, the latter part of the said sub clause (ii) provides for a cumulative condition to be present before debarring a person from obtaining the benefits under the Scheme. This latter part of the sub clause (ii) requires that a notice under one of the specified provisions has not been issued and the time for issue of notice u/s. 143(2) or u/s. 153A or 153C, should not have expired. The Declarant can proceed with the declaration once the time for issue of the specified notice has expired and the notice has not been issued; till such time he is prohibited from filing the declaration under the scheme. Accordingly in my considered opinion, once the time for issue of notice has expired, B is not debarred from making a declaration under the Scheme for the cash confiscated by the police from an associated person. The issue that may remain open is whether he can claim that if no notice is served by 31-5-2016, it can be deemed the time for issue of notice has expired and he should be permitted to file a declaration. Debatable and doubtful; better to seek clarification from the Board. [PNK]

S. 197(c) : Chargeability of undisclosed income

Q.39. As per the IDS the undisclosed income not declared under the scheme will be taxed in the year in which notice is issued. If notice for A.Y. 2014-15 is issued in the F.Y. 2016-17, then in which year will the undisclosed income detected be taxed – A.Y. 2014-15, or A.Y. 2017-18 i.e. the year in which the notice is issued ?

Ans. Answer to Question No. 8 of Circular No. 17 of 2016 dated May 20, 2016 the CBDT has clarified that as per section 197(c ) of the Finance Act, 2016, where any income has accrued or arisen or received or any asset has been acquired out of such income prior to commencement of the Scheme and no declaration is made under the Scheme, then, such income shall be deemed to have been accrued, arisen or received or the value of the asset acquired out of such income shall be deemed to have been acquired in the year in which a notice u/ss. 142 / 143(2) / 148 / 153A/ 153C issued by the A.O. and the provisions of Income tax Act shall apply accordingly. [See also answer to Question No. 4 of Circular No. 24 of 2016 dated June 27, 2016]. (HNM)

S. 197 : Removal of doubts –Maintenance of records

Q.40. As the provisions of Income-tax Act, 1961 the assessee is required to maintain records for six years only and also not required to file personal balance sheet, statement of affairs and also particulars assets and liabilities in the Income tax returns except in case of certain persons having income above certain income from the notified assessment year. In view of the above provision if the assessee has not kept any records beyond six years then how the assessee will satisfy the various income authorities during assessment, search survey and other proceedings regarding whether it is disclose or undisclosed assets/income since 1961 so as to not enable them to evoke the section 197(c) of declaration scheme.

Ans. S.197(c), for removal of doubts, declares that an income for the period up to 31st May, 2016 shall be deemed to be of the year in which a notice u/ss. 142, 143(2), 148, 153A or 153C is issued by the A.O. This has further been confirmed in reply to Q. 8 of the Circular No. 17 dated 20th May, 2016 issued by the CBDT. Accordingly irrespective of the actual year of the income an undeclared income would be deemed to be the income of the year in which the prescribed notice is issued. The provision of S. 197(c) has an audacious effect of overriding not only the relevant provisions for issue of notice but also the provisions of sections 3, 4 and 5 and several other provisions of the Income-tax Act, 1961. Apparently, such an over sweeping and overriding effect of S. 197(c) of the Finance Act, 2016 over the Income-tax Act, 1961 would not be upheld by the Courts unless this deeming provision is incorporated in the Income-tax Act, 1961. Again S. 197(c) is for removal of doubts and therefore is a clarificatory provision. Obviously, it is beyond reason that a provision in the garb of clarification seeks to write altogether a new law. In any case, S. 197(c) even where found to be legitimate, by the Courts, cannot convert a case of ‘no income’ into a case of ‘deemed income’. It only authorises the A.O. to shift the year of taxation but does not discharge him from proving that an income that was taxable has remained to be taxed and that such an income pertained to a period prior to 1st June, 2016. [PNK]

Editorial: Refer the answer of Shri N.M. Ranka to Q. No 23 wherein he has opined that the interpretation of Board may not be constitutionally valid.

General – Assurance whether binding on revenue

Q.41. Whether assurance given by the Hon’ble Finance Minister and answers given by the Department on IDIS, 2016 is binding on revenue?

Ans. Yes. In J.B. Boda & Co. v. CBDT (1997) 223 ITR 271 (SC), the Court held that the Finance Ministers speech is relevant for interpretation a provision. In
Allied Motors (P) Ltd v. CIT (1977) 224 ITR 677 (SC), the Court held that the budget speech of Finance Minister and memorandum explaining the Finance Bill as also the Department circular showing the departmental understanding are relevant in considering a provision. In
Kerala State Industrial Development Corp. Ltd. v. CIT(2003) 259 ITR 51 (SC). [KS]

General – Clarifications is binding on revenue

Q.42. Whether interpretation and clarification given by the CBDT on IDS is binding on the revenue ?

Ans. S.119(1) of the Income-tax Act, 1961, specifically empowers the CBDT to issue general circulars for the general administration of the Act and such instructions issued are binding on the Officers of the Department. In
Navnit Lal C. Javeri v. AAC (1965) 56 ITR 198 (SC), Ellerman Lines Ltd. v. CIT (1971) 82 ITR 913 (SC) and
K.P. Varghese v. CIT (1981) 131 ITR 597 (SC) the Supreme Court laid down that the circulars are binding on the revenue authorities and they are bound to follow them. Even though the circulars were not strictly accordance with law, still the Supreme Court held that such circulars are binding. In UOI v. Azadi Bachao Andolan (2013) 263 ITR 706 (SC), Supreme Court held that a circular which does not specifically state that it was under section 119 has still to be treated as one so issued. In
Spentex Industries Ltd. v. CCE (2016) 1 SCC 780 (SC), the Apex Court held that Central Board of Direct Taxes and Government are bound by their own interpretation. However the assessee can challenge the correctness of Circulars in appellate proceedings (CIT v. Hero Cycles Pvt. Ltd. (1997) 228 ITR 463 (SC), Commissioner of Customs v. Indian Oil Corporation Ltd. (2004) 267 ITR 272 (SC)(277). [KS]

General-Constitutional validity.

Q.43. Are the Income Declaration Scheme, 2016 & The Direct Tax Dispute Resolution Scheme, 2016 constitutionally valid?

Ans. The Income Declaration Scheme, 2016 & Direct Tax Dispute Resolution Scheme, 2016 follow a path set by the schemes that came before it. The courts have on multiple occasions held that the provisions of these prior schemes are constitutionally valid. The Hon’ble Bombay High Court in the case of All India Federation of Tax Practitioners v. UOI [1997] 228 ITR 68 (Bom.)(HC) as upheld by the Hon’ble Apex Court in All India Federation of Tax Practitioners v. UOI [1998] 231 ITR 24 (SC) upheld the constitutional validity of the ‘Voluntary Disclosure of Income Scheme’ (Sec. 64 of the Finance Act, 1997) observing that the provisions of the VDIS scheme were not arbitrary and were not violative of Article 14 of the Constitution of India. In a similar vein, the Hon’ble Delhi High Court in the case of All India Federation of Tax Practitioners v. UOI [1991] 236 ITR 1 (Delhi) upheld the constitutional validity of the ‘Kar Vivad Samadhan Scheme’(Sec. 87 of the Finance (No. 2) Act,1998). As the objects and the schemes as envisaged by the Income Declaration Scheme, 2016 and Direct Tax Dispute Resolution Scheme, 2016 are similar to those that were laid out in ‘Voluntary Disclosure of Income Scheme’ and the ‘Kar Vivad Samadhan Scheme’ the Schemes can be said to be constitutionally valid. [KS]

General – Constitutional validity.

Q.44. Can the scheme as per Section 202 (I) be said to be discriminatory inasmuch as it levies penalty in the cases where the disputed tax exceeds Ten Lakh Rupees but not where the disputed tax is less than Ten Lakh Rupees?

Ans. In S. 88(a) of KVSS, 1998, there was no discrimination w.r.t. the amount payable between the same type of assessee. However, in the case of DTDR, 2016, Sec 202 (I) prescribes a levy of penalty on all tax arrears where the disputed tax amount is above ₹ 10 lakh. There is no corresponding levy of penalty of any sort made on assesses where the disputed tax arrears are below ₹ 10 lakh. This is a case where the same type of assesses are being artificially divided, not based on merit but upon the quantum of tax arrears, potentially leading to a situation where a two different assesses would be treated as different class of assessee not on merits of the matter but only upon the quantum of tax arrears.

The Hon’ble Delhi High Court in the case of All
India Federation of Tax Practitioners v. UOI (1999) 236 ITR 1 (Delhi) (HC) held that the proviso to Sec. 92 (KVSS 1998) was ultra vires Article 14 of the Constitution of India as it results into creating two artificial classes between the same class of assessees. Aggrieved appellants may have to approach their Jurisdictional High court in order to claim relief. [KS]

“Learn Everything that is Good from Others, but bring it in, and in your own way absorb it; do not become others.”

— Swami Vivekananda