India: Value Of Uncertified Foreign Bank Records Under DTAA For Prosecution Under The (Indian) Income Tax Act And Black Money (Undisclosed Foreign Income And Assets) And Imposition Of Tax Act

Last Updated: 6 August 2019

By

Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email Id: vpdalmia@vaishlaw.com
Mobile No.: +91 9810081079
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And

UDIT TEWARI
VIVEKANANDA INSTITUTE OF PROFESSIONAL STUDIES
Udittewari25@gmail.com

The intention of the legislature is pretty clear from recent development in the field of law dealing with white-collar crimes. The legislature focuses on setting out legal provisions which will help the government in curbing out the issue of Black Money. One of the major developments in this aspect is the enactment of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. This Act was enacted specifically to deal with the problem of Undisclosed Foreign Assets held outside India by Indian residents. The Income Tax Act, 1961 makes it mandatory for an ordinary resident[1] to declare all of his/her foreign assets and income. When a person being a resident does not disclose a foreign asset, such person is considered to be evading tax and can be penalized under The (Indian) Income Tax Act,1961 and other relevant legislation dealing with the offences pertaining to evasion of tax.

A bare reading of all these Acts and various International Treaties such as Double Taxation Avoidance Agreements (DTAA) indicates that prosecution for evading tax liabilities about undisclosed foreign income has become inevitable. However, the ground reality regarding admissibility and evidentiary value of the evidence procured from foreign countries and foreign banks falls in a no man's land from the perspective of the prosecuting Authorities.

This is a well-established principle of law that for establishing the guilt of a person, mere accusations and arguments are not enough. One has to produce cogent proof and evidence to substantiate its accusations which could be "considered by the courts" while they are deciding the matter and after being satisfied, the courts can rely on the same to establish the culpability of the accused.

The phrase "considered by the courts" mentioned above is of a great significance when one is dealing with evidentiary value and admissibility of evidence submitted in a court of law. When Income Tax Authorities prepare a case against a tax-evading resident (being an ordinary resident under section 6 of Income Tax Act 1961), having Undisclosed Foreign Assets held outside India, they try to gather all the information and proof regarding such undisclosed foreign assets.

Now, the pivotal issue in the case of Income Tax Authorities is that the evidence to prove the existence of Undisclosed Foreign Asset of the resident is to be gathered from different sources outside India. These sources can be Financial Institutions, Banks, Government Authorities, etc. These sources, according to case studies, are not known to have a co-operative attitude in providing Indian Tax Authorities with incriminating evidence against Indian residents possessing assets under their domain.[2] Hence, the Tax Authorities usually try to build their case on

  • whatever evidence they can gather on their own or
  • whatever evidence they already have,

without ascertaining the admissibility and evidentiary value of the evidence produced by them in the Courts of Law, which has all the potential of failing the prosecution case.

Base Notes

Sometimes, Tax Authorities only have Uncertified Photocopies of Foreign Bank records or a piece of information received from Foreign Government under agreements like DTAA which are classified as Base Notes. The evidentiary value of these kind of Uncertified Evidence is often challenged while determining liability of the accused under serious offences like tax evasion because even a copy of a bank record can only be presented as Evidence if that copy is duly certified and authorized by the person authorized to do so, in accordance with section 2(8) of The Banker's Book Evidence Act, 1891. For example, an Indian resident is holding a bank account in a foreign bank, supposedly in Hong Kong and Shanghai Banking Corporation (HSBC) Geneva branch. This account is undisclosed to Tax Authorities in India and hence, is an asset causing tax evasion. Now, generally, Indian Tax Authorities receive information about the existence of Undisclosed Foreign Asset through Foreign Government under DTAA. It has been observed that foreign government provide this information in an informal manner, which is regarded as "Base Note" in most of the cases. These Base Notes are not certified or authenticated by these Foreign Governments. After this, when Tax Authorities approach the resident holding such bank account and ask for an explanation regarding the same, the person might confess to holding such asset or deny such a claim.

  • In cases the resident accepts the accusation right in the first instance, he can be charged under relevant provisions.
  • However, in cases where the person denies holding any kind of Undisclosed Foreign Asset, Tax Authorities might ask the person to sign a consent form. Consent form authorizes Tax Authorities to gather information from the concerned Foreign Bank, regarding the details of bank account and verify the claim of the resident that he is not the holder of that bank account which is in question.

Now, no matter how smooth the situation might look, it is highly unrealistic even to think that a person will voluntarily sign a consent form so that incriminating evidence could be gathered against him. Therefore, Tax Authorities are stuck with Unauthenticated Evidence. Then they request different sources for information, which generally are International Financial Institutions, Foreign Banks, Foreign Government Authorities, etc. Considering they are not under an obligation to provide any information, the Tax Authorities are left high and dry. Hence, even after reaching the stage of the trial, alleged Tax Evaders walk out free due to lack of strong and reliable evidence against them.

Relevant Case laws

This article addresses the issue about the admissibility of Evidence tendered in the form of Base Notes/Uncertified copies received under DTAA and inability of Tax Authorities to gather sufficient evidence against Tax Evaders. It is important to consider the following judicial precedents which remotely address these issues:

  1. Shyam Sunder Jindal V/S Asstt. Commissioner of Income Tax[3]
  2. DCIT, Mumbai V/S Shri Hemant Mansukhlal Shukla[4].

These cases highlight instances in which the assessee was accused of having Undisclosed Foreign Bank Account by Income Tax Authorities and the assessee challenged the allegation of Tax Authorities raising an issue that, the addition made to the income of the assessee is based on Unauthorized and Uncertified documents. These documents were Unauthenticated and Uncertified piece of information mentioned as "Base Note" and copies of Foreign Bank Records. It was argued that the accusation of Tax Evasion against the assessee was not maintainable.

In these cases, the Tribunal admitted the contentions of the assessee along with other issues raised and held that the Tax Evasion accusation should be set aside. However, these cases cannot be relied on to form an opinion that Uncertified Foreign Bank records are inadmissible. Tribunal expressed its opinion using phrases like "it would not be safe to place reliance on such photocopies" and refrained itself from declaring such Unauthenticated and Uncertified Bank Records as inadmissible loud and clear. Tribunal nowhere declared such bank records as "inadmissible," rather the Tribunal was of the opinion that these Uncertified Bank Records are not reliable pertaining to the facts of the case.

The Tribunal chose not to decide on this contention, stating that it is ambiguous whether the assessee was even confronted with such bank records or not. Tribunal nowhere said that it does not matter whether the assessee was confronted with such bank records or not. What matters is that even if such bank records are presented as evidence, being Uncertified, it will be inadmissible. Hence, there still exists a moot question pertaining to the admissibility of Uncertified Foreign Bank Records, which might be submitted under DTAA.

Banker's Book Evidence Act 1891

This Act tends to illustrate the provisions, which provide for the conditions which are to be satisfied while submitting bank records as Evidence in a court of law. Section 4 of Banker's Book Evidence Act 1891 deals with the mode of proving such bank records. Bank records should be accompanied by a certificate in accordance with Section 2(8) and 2A of the Act. The certificate is to ensure the accuracy and reliability of the entry in banking records. The printout of entry or copy of such printout along with the certificate by the branch manager/principal accountant and the person in charge of the computer resource which generated that entry together constitute a "certified copy". A certified copy, as defined under Section 2(8) of the Act, of any entry of banker's book, shall be admissible prima facie as Evidence.

Section 65B of the Indian Evidence Act, 1872 is pari materia[5](OM PRAKASH versus CENTRAL BUREAU OF INVESTIGATION (CBI)) to Section 2A of the Banker's Book Evidence Act, which means they are to be construed together. Section 65B of the Act lays down conditions to be followed while admitting Secondary Evidence in electronic form.

The maxim "Generalia specialibus non derogant", suggests that a special law will always prevail over the general law[6](Anvar P.V Versus P.K. Basheer and others) and hence Banker's Book Evidence Act 1891 being a special Act will prevail over the India Evidence Act, 1872. Bankers Book Evidence Act is applicable only in India and defines Bank and Banker, without distinguishing between the Indian and Foreign Banks. Though it is only applicable to India, still an analogy can be drawn to hold that the provisions of Bankers Book Evidence Act include Indian and Foreign Banks, thereby bringing the evidence obtained from the Foreign Banks, subject to the provisions of the Bankers Book Evidence Act for evidence before the Court. It can be construed that when there is a provision under the Banker's Book Evidence Act 1891 (Section 2A) which specifically deals with the admissibility of banking entries in electronic form, the same shall be referred while dealing with the admissibility of banking records in electronic form and not section 65B of the Indian Evidence Act, 1872.

Admissibility of Bank Records

On April 24th, 2009 RBI published a notification[7] advising State and Central Co-operative Banks to comply with the provisions of Banker's Books Evidence Act, 1891 while furnishing certified copies and computer printouts to courts. The notification further says that if such statutory certification is not complied with, the courts will not be obliged to admit the document in Evidence without any further proof.

When we look from the viewpoint of Judiciary relating to the nature of certification under the Bankers' Books Evidence Act, 1891, the decision of different courts helps us understand the concept better. Bombay High Court in one of its judgement[8]( Radheshyam G. Garg vs. Safiyabai Ibrahim Lightwalla) held that when a certificate is signed by an agent of bank, validating the records to be a true copy of the original entry in records, which were maintained in usual course of business and were kept in custody of the bank, then in such cases the court should not adopt a hyper-technical view and should not focus on all the conditions provided for certification under section 2(8) of the Act because the detailed ingredients mentioned in the definition clause are only of directory in nature and not mandatory.

Objection for Uncertified Banking Records

The nature of the statutory provisions are discussed above. However, the primary questions which arise are

  • whether or not an objection pertaining to the admissibility of banking records, either Indian or foreign, submitted in court without such certification is possible or not?
  • And if possible, then whether the court will accept such Evidence or not?

These questions are not new! Hence there are some case laws answering the same. Hon'ble Supreme Court of India, in some recent judgments held that if an objection, if any, has to be raised relating to the admissibility of a banking record, such objection has to be raised at the time when such record is tendered in Evidence and not after that. The objections can be of two types:

  1. an objection that the document which is sought to be proved is itself inadmissible in Evidence; and
  1. where the objection does not dispute the admissibility of the document in Evidence but is directed towards the mode of proof alleging [9](R.V.E. Venkatachala Gounder V/S Arulmigu Viswesaraswami & V.P. Temple & AR).

Type (i) objection can be raised even at a later stage when the document is marked as "an exhibit," in appeal or revision.

Type (ii) objection has to be raised at the time when that record is presented for Evidence and not after such record is admitted as Evidence and marked as an exhibit. This is due to the rule of fair play. Court says that objection of type (ii) dealing with the mode of proving, should be dealt with, at the first instance because then it would give appropriate time to the submitting party to remove such defect and also they won't assume that the opposite party is not serious about the mode of proof. The crucial test[10](SONU @ AMAR V/S STATE OF HARYANA) to find out whether an objection should be allowed or not depends on the fact that the defect in question could have been cured at the stage of marking the document and the party tendering Evidence could have opted for a regular mode of proof or not?[11](R.V.E. Venkatachala Gounder V/S Arulmigu Viswesaraswami & V.P. Temple & AR)

What if the Evidence is inadmissible?

Hon'ble Supreme Court in Om Prakash v. Central Bureau of Investigation[12] held that inadmissible Evidence would remain as such, even if marked as an exhibit or no objection relating to the admissibility was raised.

Conclusion

It is pretty clear that bank records which are Authenticated and Certified are admissible. Whereas, admissibility of Uncertified Foreign Bank Record submitted under DTAA and other International Treaties is still a moot point.

If Judiciary is not going against the well-established principle regarding the inadmissibility of Uncertified Bank Records, it will eventually decide the same for Uncertified Foreign Bank Records. The author thinks that any inadmissible evidence goes to the root of the trial, and the same may lead to failure of the prosecution, making it difficult for Income Tax Authorities to successfully prosecute Tax Evaders.

[1] Section 6 Income Tax Act 1961

[5] http://lobis.nic.in/ddir/dhc/MUG/judgement/05-09-2017/MUG05092017CRLA1342016.pdf OM PRAKASH versus CENTRAL BUREAU OF INVESTIGATION (CBI) CRL.A. 134/2016 (HIGH COURT OF DELHI)

[6] https://www.sci.gov.in/jonew/judis/41931.pdf Anvar P.V Versus P.K. Basheer and others. CIVIL APPEAL NO. 4226 OF 2012 (Supreme Court of India)

[8] Radheshyam G. Garg vs. Safiyabai Ibrahim Lightwalla (19.01.1987 - BOMHC) : MANU/MH/0368/1988 , 1987 SCC OnLine Bom 22 : 1987 Mah LJ 725 : (1987) 3 Bom CR 459 : AIR 1988 Bom 361

[9] https://www.sci.gov.in/jonew/judis/19401.pdf R.V.E. Venkatachala Gounder V/S Arulmigu Viswesaraswami & V.P. Temple & AR (Appeal (civil) 10585 of 1996) (Supreme Court of India)

[10] https://www.sci.gov.in/supremecourt/2013/2036/2036_2013_Judgement_18-Jul-2017.pdf (Supreme Court of India) CRIMINAL APPEAL No. 1418 of 2013 SONU @ AMAR V/S STATE OF HARYANA

[11] https://www.sci.gov.in/jonew/judis/19401.pdf (Supreme Court of India) Appeal (civil) 10585 of 1996 R.V.E. Venkatachala Gounder V/S Arulmigu Viswesaraswami & V.P. Temple & AR

[12] http://lobis.nic.in/ddir/dhc/MUG/judgement/05-09-2017/MUG05092017CRLA1342016.pdf (HIGH COURT OF DELHI) CRL.A. 134/2016 OM PRAKASH versus CENTRAL BUREAU OF INVESTIGATION (CBI)

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