Mumbai: Here comes a hitch for the taxman. Deported fugitives, truant borrowers slapped with lookout notices, extradited accused or even approvers singing like a canary before law enforcement agencies — the long cast of characters who are unable to fly out of the country — cannot be readily forced to disclose their foreign bank accounts, companies, and properties.
This stems from a Delhi High Court order that has stayed the tax office’s demand that Rajiv Saxena, the Dubaibased businessman who was extradited to India in January 2019 in connection Forced Stay? No BMA, says Court I-T Dept can’t blindly impose law on ‘involuntary residents’ in India to get foreign asset info with the AgustaWestland case, must share the details of his foreign assets.
With this, the income tax authorities cannot blindly invoke the Black Money Act (BMA) simply because a person has unwillingly become a ‘resident’ — following his involuntary stay in India beyond 181 days. Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which came into effect on July 1, 2015, all residents must declare their overseas assets in the annual tax return.
The tax office had argued that the Income Tax Act does not make any distinction between voluntary and involuntary, or so called ‘forced,’ stay. And, it said, since the petitioner has been ‘residing’ in India since January 30, 2019, he must be treated as a resident in India and the black money law can be applied.
‘Various Reasons for Involuntary Stay’
The court noted that in the course of hearings, if it is found that the petitioner does not qualify as a resident, the BMA proceedings cannot continue. “There can be various reasons for involuntary stay, including passport revocation,” said Ashish Karundia, founder of CA firm Ashish Karundia & Co. “There seems to be no ambiguity in the department’s intent. This was explicitly recognised in circulars no. 11/2020 and 2/2021 issued in not providing blanket exemptions, permitting limited, case-bycase relaxation even during the Covid-19 pandemic, when movements were restricted, and several non-residents were stuck here.”
“The revenue’s position appears to be that any relaxation beyond exceptional situations would subvert the statutory framework. This could result in individuals being left without tax residence in any jurisdiction, effectively rendering them stateless for tax purposes, a consequence neither contemplated nor intended under the Income Tax Act,” he said. With the tax department taking a case-bycase approach then, several NRIs who could not leave the country during the pandemic had to deal with the tax office.
“BMA does not provide an independent mechanism for determining residential status. It simply adopts the residential status as determined under the Income Tax Act, 1961. Under the tax laws, residential status is determined primarily based on the number of days an individual is physically present in India,” said Ashish Mehta, partner at the law firm Khaitan & Co. “It’s the foundational basis for assessing taxability and reporting obligations in respect of foreign incomes and assets. Shortly before BMA became effective, the Delhi High Court, in a 2015 ruling in case of Suresh Nanda, held that periods of forced or involuntary stay in India must be excluded when computing the number of days for the purpose of determining residential status.”
Under the Income Tax Act, a resident is taxed on local and foreign earnings while NRIs are spared from paying tax on overseas income. While the Income Tax Department had sought details of Saxena’s foreign assets (by tagging him as a resident), it had not issued any order.
Aquestion that crops up is: Can the BMA be applied if a person’s period of involuntary stay is excluded? Here, he would be considered as an NRI and the BMA Act cannot be used to go after non-residents. Moved by a new government that had made anti-corruption a political plank, BMA sought to overcome the hurdles in the Income Tax Act and tax money stashed away in Swiss and offshore bank accounts, discretionary trusts in tax havens, and unlisted companies whose true beneficial owners lie hidden.
