With an intent to tax illegitimate / undisclosed foreign income and assets earned / acquired outside India by residents to India, the Central Government had enacted The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (hereinafter referred to as "Black Money Law") which became effective from 01.07.2015. Section 4(3) of the said law provided that undisclosed foreign income and assets brought to tax under Black Money Law shall not from part of total income for the purpose of charging income-tax under the Income-tax Act, 1961 (hereinafter referred to as "The Income-tax Law").
It may be pertinent to point out that prior to the enactment of Black Money Law, the Government had also amended the Income-tax Act to provide powers to the tax authorities to collect tax in relation to undisclosed foreign income and assets of resident in India.2 In this regard, the Income-tax Law also contained provisions relating to taxation of Undisclosed Foreign Income / Assets of a person.
Considering that Black Money Law ousts the applicability of the Income-tax Law , which contains several provisions of taxation of Undisclosed Foreign Income / Assets, in this article an attempt has been made to re-concile the scope of applicability of both the aforesaid laws on undisclosed foreign income /assets outside India of a resident in India.
Re: Analysis of Black Money Law
Section 3 of Black Money Law brings to charge two categories of items, viz., "Undisclosed Foreign Income"3 and "Undisclosed Assets located Outside India",4 in the hands of a resident in India with effect from AY 2016-17 and onwards. In other words, Undisclosed Foreign Income and Assets relating to previous year 2015-16 and onwards can only be brought to tax under Black Money Law in terms of section 3(1) of the Act. The first proviso to section 3(1), however, overcome the period of limitation to tax acquisition of an Undisclosed Foreign Asset in earlier year(s) by providing "Undisclosed assets located outside India shall be charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer".
In view of the above, under the Black Money Law while there is limitation to tax Undisclosed Foreign Income only in relation to undisclosed income earned in previous year(s) 2015-16 and onwards, in terms of proviso to5 section 3(1) there is no limitation to tax the undisclosed foreign asset, since the same would be deemed as undisclosed income of the year in which such undisclosed asset comes to the notice of Assessing Officer.
In view thereof, if the tax authorities find an undisclosed asset of a resident in India stashed outside India, the same would, as per the extant legal position, would only be taxable under the Black Money Law. However, where a resident in India is found to have earned Undisclosed Foreign Income outside India, then such income pertaining to periods prior to AY 2015-16, would be taxable under the Income-tax Act, subject to the period of limitation contained therein. The undisclosed income earned in assessment year 2016-17 and onwards would be taxable under the Black Money Law. Accordingly, a situation cannot be ruled out where a resident in India who is found with undisclosed income and assets outside India then such person can be subjected to both Income-tax Law and Black Money Law.
Few illustrations explaining the interplay of both the aforesaid laws are dealt hereunder:
1. If a resident in India i.e. Mr. A earned 100 dollars from source outside India in AY 2003-04, which were utilized to acquire a gold coin of equivalent value which continues to be held by him outside India. In February 2017 tax authorities came to know about holding of gold coin by Mr. A outside India.
In the aforesaid illustration since the undisclosed income of 100 dollars is represented by undisclosed asset viz. gold coin of equivalent or enhanced value, the undisclosed assets will be brought to tax in the hands of Mr. A under Black Money Law in AY 2017-18. In the author's view, since the undisclosed income in the form of undisclosed asset has been brought to tax under Black Money Law the provisions of sub-section (3) to section 4 of Black Money Law will get attracted and such income will not, in the author's view, be taxable under Income-tax Law.
2. Mr. A, being resident in India earned income of 100 dollars from source located outside India during assessment year 2003-04, which was expended completely for personal purposes in the subsequent years. In February 2017, the tax authorities came to know of such foreign bank account containing transactions of deposit and withdrawal of 100 dollars.
In the aforesaid situation, if Mr. A explains the source of deposit of 100 dollar, then the amount so deposited would not be considered as undisclosed asset located outside India within the meaning of Black Money Law. Accordingly, such asset would be outside the purview of Black Money Law and subject to the period of limitation, such income can be brought to tax under Income-tax Law. However, if Mr. A does not explain the source of deposit of 100 dollars to the satisfaction of Assessing Officer, then such deposit would fall within the meaning of undisclosed asset located outside India under the Black Money Law. Accordingly, notwithstanding that the entire amount was expended, since there was a deposit in the bank account, the said amount, as an undisclosed asset, would be taxable under Black Money Law in the previous year in which such account came to the notice of Assessing Officer i.e. AY 2017-18.
3. Mr. A did not held any bank account outside India, but received payments in cash from a foreign bank or made certain payments on his behalf to third party in AY 2003-04.
In the aforesaid illustration, since there is no asset held by Mr. A or the source of such income is not unexplained (i.e. source of income being foreign company) the aforesaid sums would not be considered as undisclosed asset of Mr. A outside India. The aforesaid sum would, in the author's view, fall within the meaning of undisclosed foreign income under the Black Money Law. However, since Black Money Law for undisclosed foreign income is applicable only in relation to income earned from AY 2016-17 onwards, such income will be outside the ambit of Black Money Law. Considering that such income falls outside the ambit of Black Money Law, the same can, in the author's view, be brought to tax under the Income-tax Law, subject to the period of limitation contained therein.
 By Gaurav Jain, Advocate [B.Com (H)/CA/LLb] and Partner, Vaish Associates, Advocates
 Finance Act 2012 amended Section 147 by expanding the meaning of "Income escaping assessment" to include undisclosed assets located outside India and also removed bar of limitation of four years where income escaping assessment related to such undisclosed assets. Simultaneously, section 149 was amended to provide enhanced time limit of sixteen years instead of six years for reopening assessing under section 147 where income escaping assessment related to undisclosed assets located outside India.
A useful reference can also be made to the decision of Delhi High Court in Brahm Datt v. ACIT: [TS-7126-HC- 2018(DELHI)-O] wherein it was held that the extended time limit of sixteen years shall not be applicable to assessment years which got time bared on the date of aforesaid amendment by the Finance Act, 2012, with effect from 01.07.2012.
 "undisclosed foreign income and asset" means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India, referred to in section 4, and computed in the manner laid down in section 5
 "undisclosed asset located outside India" means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of the Assessing Officer unsatisfactory
 The retrospective applicability of Black Money Law is subjudice before the Supreme Court in the case of UOI vs. Gautam Khaitan in SLP No. 4911 of 2019.
Originally published by Taxsutra.
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