The Karnataka High Court in a recent order held that punishment provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 cannot have a retrospective effect.
In its judgement in Dhanashree Ravindra Pandit versus Income Tax Department case, the court clarified that non-disclosure of foreign income and assets before 2015 cannot be punished.
In the case, the petitioners were directors of two companies incorporated as British Virgin Island (BVI) companies from Singapore in around 2008-2009. The BVI authorities struck off these companies around 2009-2010, and their bank accounts were closed. However, one of the companies had a transaction of $56,000 before being struck off. In 2018, an Assessing Officer was appointed who issued a notice to the petitioners u/s 10 of the Black Money Act. The petitioners, during oral depositions, denied the existence of any foreign bank account and stated that the companies had ceased to exist well before the Black Money Act came into force.
SECTION 72 OF THE BLACK MONEY ACT STATES THAT IF AN INDIVIDUAL DOES NOT DECLARE AN ASSET MADE/ACQUIRED BEFORE THE BLACK MONEY ACT CAME INTO FORCE, IT WILL BE DEEMED AN OFFENCE UNDER THE ACT.
The Black Money Act
Section 50 of the Black Money Act penalises a person if the said individual fails to furnish any information of an asset located outside India including their financial interests (like shares/bonds, etc). Further, Section 72(c) of the Black Money Act directs that when an asset has been acquired prior to commencement of the Black Money Act i.e., 2015 and no declaration in respect of such asset is made, such asset will be deemed to have been acquired or made in the year in which notice under Section 10 of the Black Money Act is issued by the Assessing Officer.
In other words, Section 72 of the Black Money Act states that if an individual does not declare an asset made/acquired before the Black Money Act came into force, it will be deemed an offence under the Black Money Act.
SECTION 50 OF THE BLACK MONEY ACT PENALISES A PERSON IF THE SAID INDIVIDUAL FAILS TO FURNISH ANY INFORMATION OF AN ASSET LOCATED OUTSIDE INDIA INCLUDING THEIR FINANCIAL INTERESTS (LIKE SHARES/BONDS, ETC).
The Verdict
The court heard arguments from both sides and determined that imposing criminal liability on the petitioners under Section 72(c) of the Black Money Act is against Article 20 of the Constitution of India i.e., the fundamental right of a person not to be convicted for an act that was not considered a crime under the law when it was committed.
Accordingly, the court held that the retroactively applicable punitive provisions of the Black Money Act are unconstitutional, emphasising that no statute supersedes the Constitutional safeguards. The retrospective effect of the Black Money Act was concerning for many families who had been using these tax havens for years and are now suddenly brought under the ambit of this Act. The ruling comes as a significant relief to numerous families affected by the stringent measures imposed by the Income Tax authorities.
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