Declare foreign assets by September 30, 2015, or perish”, thundered the government on September 21. Government’s press release reads: “persons” holding undisclosed foreign assets after September 30, 2015, would be slapped with higher penalty, forfeiture of assets and prosecution. So, declare forthwith, warned the government; and escape with a lesser damage. Income-tax (I-T) officials will keep your name secret, and will never harass you, assured the finance ministry. Really?
But who are these “persons” being targeted? “Residents” under the Income-Tax Act, 1961. You become a resident by staying in India for 182 days. The act envisages several other situations in which residential status is conferred on those who travel in and out of India frequently. The moment you become a non-resident, you are out of the clutches of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
Everything else becomes irrelevant. You may hold an illegal foreign account in contravention of Foreign Exchange Management Act, 1999 (Fema), yet you are out of the zone for crucification under the new law. This is curious since Fema has extraterritorial jurisdiction; it applies to all branches, offices and agencies outside India, owned or controlled by a resident of India.
When the Black Money Bill, 2015, was introduced in the Lok Sabha on March 20, 2015, it was mentioned in Clause 1 (3) that the law would come into force on April 1, 2016. That was enough of a notice (377 days) to all the residents, holding undisclosed foreign assets, to plan to change his/her residential status.
The enacted Black Money Act, 2015, also clearly stipulated that it would come into force on April 1, 2016.
This enactment of a farcical law must have been seen through by some within the government, so on July 1, 2015, the government abruptly issued an order clarifying that the law has come into force on July 1, 2015.
The enforcement date of the law was preponed by 276 days. This was a glaring illegality. Parliament alone could have altered the date. It is elementary that an administrative order cannot violate or supersede an act of Parliament. So, a farcical law was superseded by an illegality. It’s surprising that none challenged this illegality in a court of law.
As the deadline of September 30, 2015 approaches, the government seems desperate to coerce disclosure to garner revenue. Garner revenues it will, but how much and at what cost is the issue. Only those about to be caught are likely to disclose. Not others. This is because Section 5 of the I-T Act already provides that a resident’s global income is taxable and therefore needs to be declared. Failure to disclose can obviously entail penalty and prosecution under the existing I-T Act.
The new law barely scales up the penalty, and instils a little more fear. That’s not enough ground to be optimistic about the zooming success of the Black Money Act, 2015. If the existing tax law has not scared one, it is facile to assume that a more stringent version would. Government’s assurance, that information would be kept confidential in terms of Section 138 of the I-T Act and that fears of harassment are unfounded is unlikely to make a difference. A stringent law will only dampen the investment climate.
A serious flaw in the Black Money Act, 2015, is that there is no provision to compel the declarant to repatriate funds in foreign exchange. There should have been a requirement that all tax and penalty must be compulsorily remitted to India in convertible foreign exchange through the approved banking channel. In the absence of any such requirement, there would be a propensity to pay tax and penalty only in rupee.
This will have a three-fold negative impact: first, payment in rupee would imply that the declarant will have to generate additional rupee, which may well be generation of black money. It is not clear whether the I-T depart-ment would question the source of payment of tax and penalty.
If it does, another Pandora’s box may be opened. Second, India would be denied the foreign exchange. And third, 40 per cent of the declarant’s black foreign assets would stand legitimised. Can this be the intention of the legislation? It defies logic as to why those residents, who have surreptitiously accessed convertible foreign exchange (forex) abroad, should not be compelled to pay/repatriate forex in India and, instead, continue to retain them abroad!
This is absurd. And now, on September 24, the Reserve Bank of India announced that there would be no action on foreign assets declaration under the Fema! It’s a joke to announce this barely six days before the compliance window closes. Besides, can the RBI through rule-making power override a law made by the Parliament? Surely not!
What the RBI announced through the press ought to have been a part of the bill introduced in Parliament on March 20, 2015. The amateurish manner in which the Black Money Act, 2015, has been handled by the government inspires little confidence. The law is flawed ab initio and is unlikely to succeed.
The new law fails to recognise that today residents can freely hold, own, transfer and invest foreign assets throughout their life if these assets were acquired while one was a non-resident. This is the mandate under Fema, made effective on June 1, 2000. Now, after 15 years, a criminal flavour is being given to a legitimate foreign exchange transaction abroad. Is this not retrospective amendment, Mr Jaitley?
The writer is ex-additional solicitor-general of India and senior advocate, Supreme Court
