Court order trips tax hounds in hunt for secret foreign assets : 17-12-2018

Many people having money in tax-haven banks, overseas properties and interests in offshore trusts may escape the wrath of the Indian tax office.

According to a recent order — which would also spare several NRIs and even residents with legitimate income from harassment at the hands of tax officers — the income tax (I-T) department will find it difficult to question overseas earnings and assets prior to March 31, 2005.

As tax havens began sharing information, laws have been strengthened over the years to bring undisclosed foreign assets under the tax net.

Originally, under Section 148 of the Income Tax Act, the tax department can slap notice for reassessment of income. The time limit for the issue of such a notice is six years from the end of the assessment year (AY) for which income has escaped assessment. This provision in the law applies to income that was earned in India but on which no tax was paid.

But, for undisclosed income earned outside India or assets acquired abroad, the time limit was raised to 16 years by an amendment to I-T Act in 2012. For example, if the I-T office suspects that income in India had escaped tax in AY 2012 -13, it has to serve notice on or before March 31, 2019. However, in case of concealed foreign income or assets pertaining to AY 2012-13, the law has empowered the department to issue notice till March 31, 2029.

The present case relates to 84-year-old Brahm Datt, who was an NRI between AY1984-85 and AY 2003-04.

While working in Jordan and Iraq, he filed tax returns in India for income generated in India. In his statement, he told tax officers that while he did not maintain any account with a foreign bank in his personal capacity, he had contributed (while he was a non-resident) about $2-3 million at the time of settling of an overseas trust out of income earned from sources outside India.

The I-T department sent Datt a notice on March 24, 2015 under section 148 of the Act for initiating reassessment proceedings for AY 1998-99. Datt moved the court on whether the notice can be issued for a particular AY for concealment of foreign income since 6 years had lapsed even though it was within 16 years. The Delhi High Court in a ruling earlier this month held that notice for AY 1998-99 cannot be issued on 2015 as the period of 6 years had lapsed in March 2005.

“This ruling will help assesses who had concealed income before the 16-year time limit came into effect on July 1, 2012, but had not received any notice within 6 years — between 2006 and 2012 — for income earned in any year prior to 2005. However, their happiness would be short-lived, if the department decides to invoke the Black Money Act to chase them as there is no time limit on issue of notice under this Act,” said senior chartered accountant Dilip Lakhani.

According to a senior professional dealing in foreign exchange laws and PMLA, the department has been sending notices to even those who had invested abroad under RBI’s liberalised remittance scheme. In at least three cases he is advising, notices have been served on individuals who had invested in Resurgent India Bonds which were issued SBINSE -0.09 % in 1998.

Source : Financial Express

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