The Black Money Bill: Piecemeal and Superfluous

[The following guest post is contributed
by Dr. Nigam Nuggehalli, who is an
Associate Professor at Azim Premji University, Bangalore]
The Modi government has been unique
among the current and past political dispensations in giving unprecedented political
currency to the issue of undisclosed foreign assets of Indian residents. The so
called black money issue, always simmering under the surface in Indian
politics, has now taken on an urgent and conspicuous hue because of its use in
the NDA’s electoral campaigns. The Undisclosed Foreign Asset and Income
(Imposition of Tax) Bill
2015,
popularly known as
the Black Money Bill,

is the legislative expression of the NDA’s campaign
against foreign assets and income that have not been disclosed to Indian tax
authorities. The Bill does not
confine
itself merely to penalising and criminalising
tax
evasion
; instead it
purports to create an entire
administrative
and penal
machinery to address this behavior. If
this legislation is enacted,
Indian
residents
who have not disclosed their assets or
income from
foreign sources
would be subject
to a
legislative architecture that

exhaustively details
the investigation of foreign (not domestic) tax evasion,
the trial procedures
for
tax offenders
and the sentencing of such offenders.
Catching tax
evaders requires complex forensic investigation, which would
be
conducted by designated officials

who would have extensive
powers of discovery and inspection, powers to examine people on oath, and to
compel the production of books of accounts
.
The assessment orders under
the Bill can be appealed to the Income Tax Commissioner (Appeals) with further
appeals to the Income Tax Appellate Tribunals, High Courts and the Supreme
Court. Much like the provisions in the Income Tax Act, 1961, the money due from
tax evaders can be recovered directly from the employers or the debtors of the
tax evaders. The penalties for non-payment of taxes are severe: three times the
amount of tax payable.
There are separate
penalties for non-cooperation with tax authorities. For example, a taxpayer can
be
penalised for not
answering questions put to him by a tax authority, if such refusal to answer
questions does not have a reasonable cause behind it.
The headline grabbing feature of
the
Black Money Bill
relates to the criminalisation of tax evasion. A person found
guilty of willfully evading taxes under
the Bill can expect to go to
jail for a minimum period of three years and a maximum of ten years. A person
can be held to be willfully evading taxes for a variety of reasons including by
virtue of being in possession of books of accounts containing false entries. The
persons at risk of
prosecution under the Bill need not necessarily be tax evaders; such persons
can also include banks and financial institutions that aid tax evaders in
hiding their income abroad.
The Bill has modified
the traditional safeguards of criminal law that
often help the accused. For example,
the mental state required to be convicted under this Bill (‘wilfully’)
would be assumed by the court trying the accused and it is for the accused to
prove otherwise.
Recognising that
many cases of tax evasion are undertaken by corporates rather than individuals,
the Bill provides that where an offence has been committed by a company, every
person in charge of and was responsible for the conduct of the business of the
company shall be deemed to be guilty of the offence, unless the offence was
committed without his knowledge or he had exercised all due diligence to
prevent the tax evasion. Interestingly, the Bill does not contain any
provisions specifically targeting foreign trusts, and this omission is
particularly glaring in the light of the well-known fact that for reasons of
secrecy, illicit assets abroad are usually held through trusts.
The provisions
described above make it appear that the Black Money Bill is a

remarkable piece of law making
.
However, appearances are deceptive. The Indian

Income Tax Act, 1961 already addresses all the issues
purported to be addressed by the Black Money Bill.
If
an Indian resident
does not disclose his income

earned abroad
, he or she is subject to criminal liabilities under the Act.  The
Act has detailed rules on investigation, prosecution, trial and sentencing
of such tax evaders,
and has had these rules since the seventies
. The assumption of a guilty mental state, which
appears to be an innovation under the Bill, is already present in the Income
Tax Act, 1961. The vicarious criminal liability of the directors of the
company, another purported innovation in the Bill, is a feature already
recognised in the Act. Abettors of tax evasion, such as banks and other
financial institutions, can be prosecuted under the Act. The penalty provisions
in the Bill mirror those in the Act. Even the appeals process in the Bill
follows that specified in the Act.
It is clear on a
close reading that the Black Money Bill identifies and provides for offences
and prosecutions that have already been accounted for in the Income Tax Act,
1961.
If this is the case, is there any
particular reason why the
Black
Money Bill
is needed? It is hard to see what
purpose this
Bill
serves
, other than to
enable the current government to make a political statement that it is tough on
black money stashed abroad.
One might believe that
the stringency in criminal sanctions is an innovation.
However, the harshness of criminal
sanctions has hardly had any effect on crime in other
domains in India. Even in the
case of tax evasion, the
Income
Tax
Act already provides for a maximum punishment of
seven years
imprisonment. Increasing the maximum length of incarceration to
ten years is hardly an innovation.
The only genuine
innovation in the Black Money Bill comes in the concluding section of the bill,
where an offence under the Bill becomes an offence recognised by the Prevention
of Money Laundering Act, 2002. The practical effect of this linkage is that the
assets of the tax evader are now subject to attachment and confiscation under
the money laundering legislation. However, it would have been better if the
same linkage could have been established between offences under the Income Tax
Act, 1961 and the money laundering legislation, which would have had the added
virtue of bringing all tax evasion (not only the foreign kind) under the money
laundering legislation.
Last year, a stringent piece of
financial legislation, the Securities Laws (Amendment) Act, 2014, was enacted
to give SEBI more powers

and included a provision for special courts to try securities related offences
expeditiously. Compared to this, the
Black Money Bill
does not
provide income
tax officers with any significant new set of powers to combat the problem of
black money; nor does the Bill provide for special courts to deal with the
problem. Perhaps, if one were to be generous, it can be acknowledged that,
for
the first time
,
black money and foreign jurisdictions have been
explicitly linked. But the
previous government’s white
paper on black money itself admits that ‘a large part of the illicit flows from
India may have returned.’ The White paper focused on the
issue of undisclosed money in the
stock market, property market and jewellery market, among others, and all of
these were Indian locations. Why are we focused on what’s happening abroad when
the real problem is amongst us?
– Dr. Nigam Nuggehalli

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • Commonsense Reaction; more random/sporadic thoughts to share:
    Stuck/stay-put @cross roads; Reason- mutually confusing ‘sign boards’; no clue as ever, which one to take to, for intended (?!) destination!
    The nomenclature, – ‘black money’ itself is a misnomer, a faulty concept to the core. The term ‘money’ itself, which exclusively pertains to the ‘material world’, as opposed to ‘spiritual world’, in the sense of ‘way of life’,- it is wrong and a fallacy to say,- is black. It is the root cause of individual self-centered greediness, an excess of it, underlying the foolhardy aspiration to earn more and more of it, without realizing how it is, apart from being no-beneficial but only harmful to both self and the rest of the humanity that renders or changes its given color being white, to black.
    In short, it is the ‘mindset’ of individual, by and large in the ‘genes’ , mostly irreversible or irremediable, if were to be logically faulty and directionless, that accounts for the evil , cryptically called, corruption. If so, no man-made law can conceivably even be imagined or sanely expected to be effective and persuasive enough to work towards or bringing about any change in the material world we modern sapiens are obsessed with and prefer to live in; more so, de hors / sans any thought ideally need to be given to ‘life values’.
    The foregoing, as understood, appears to be the essence of what the brief discussion, in the form of exchange of views, as set out @, –
    Dr. Subramanian Swamy on black money, hawala, Rafale, taxes and politics
    Any such enactment, If, as noted, were piecemeal, cannot but only prove superfluous, hence never be implementable or enforceable , even remotely.
    < Welcome to ‘Edit’, if so minded and wish, for serving the objective of, – the common good.

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