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Sunil Agarwal, Advocate (Senior Tax Partner, AZB & Partners) Criminal Consequences under Black Money Law - Can it withstand judicial scrutiny? Date : October 28 2015 1. After the heat and dust over one-time compliance window under The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“BMA”) expired on September 30, 2015: it is now time to have a closer look at enhanced criminal sentence provisions under BMA and several other enactments (as applicable to offences committed in the past) from a constitutional validity perspective. 2. In terms of section 72(c), an unexplained foreign asset acquired upto March 31, 2015 but not disclosed under section 59 in terms of one-time compliance window, will be deemed to have been acquired in the year in which the Assessing Officer ("AO") issues notice under section 10 and all provisions of BMA will apply accordingly. 3. The intent and purpose of this provision has been explained by CBDT Circular No 13/2015 dated July 6, 2015 in FAQ 14 extracted below: "Question No. 14: What are the consequences if no declaration under Chapter VI of the Act is made in respect of undisclosed foreign assets acquired prior to the commencement of the Act? Answer: As per section 72(c), where any asset has been acquired prior to the commencement of the Act and no declaration under Chapter VI of the Act is made then such asset shall be deemed to have been acquired in the year in which it comes to the notice of the Assessing Officer and the provisions of the Act shall apply accordingly. -------------------------------Therefore, if any information of an undisclosed foreign asset acquired earlier, say in the year 1975, for $ 100,000 comes to the notice of an Assessing Officer later, say in the year 2020, when its value becomes, say, $ 5 Million, the liability under the Act amounting to 120 per cent of the fair market value of the asset on the valuation date may arise in the year 2020, besides prosecution and other consequences. In this case if the valuation date is in the year 2020 the amount of tax and penalty under the Act will be $ 6 Million." 4. As an example, while the criminal sentence for committing the offence of acquiring undisclosed foreign asset in the year 1975 was Rigorous Imprisonment ("RI") of 6 months to 7 years with fine under one enactment only, namely Income-tax Act, 1961 ("ITA"), the quantum of criminal sentence has been significantly enhanced not only under ITA, but the same offence committed in the past has been made punishable for the first time under other enactments also. The table below summarises the position: Page 1 of 3 30 Oct 2015 TAXSUTRA All rights reserved

Criminal Consequences under BMA

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Sunil Agarwal, Advocate(Senior Tax Partner, AZB &

Partners)

Criminal Consequences under Black Money Law - Can it withstand judicial scrutiny?

Date : October 28 2015

1. After the heat and dust over one-time compliance window under The BlackMoney (Undisclosed Foreign Income and Assets) and Imposition of Tax Act,2015 (“BMA”) expired on September 30, 2015: it is now time to have a closerlook at enhanced criminal sentence provisions under BMA and several otherenactments (as applicable to offences committed in the past) from aconstitutional validity perspective.

2. In terms of section 72(c), an unexplained foreign asset acquired uptoMarch 31, 2015 but not disclosed under section 59 in terms of one-timecompliance window, will be deemed to have been acquired in the year in whichthe Assessing Officer ("AO") issues notice under section 10 and all provisions

of BMA will apply accordingly.

3. The intent and purpose of this provision has been explained by CBDT Circular No 13/2015 dated July 6,2015 in FAQ 14 extracted below:

"Question No. 14: What are the consequences if no declaration under Chapter VI of the Act is made inrespect of undisclosed foreign assets acquired prior to the commencement of the Act?

Answer: As per section 72(c), where any asset has been acquired prior to the commencement of the Actand no declaration under Chapter VI of the Act is made then such asset shall be deemed to have beenacquired in the year in which it comes to the notice of the Assessing Officer and the provisions of theAct shall apply accordingly.

-------------------------------Therefore, if any information of an undisclosed foreign asset acquired earlier, sayin the year 1975, for $ 100,000 comes to the notice of an Assessing Officer later, say in the year 2020,when its value becomes, say, $ 5 Million, the liability under the Act amounting to 120 per cent of the fairmarket value of the asset on the valuation date may arise in the year 2020, besides prosecution andother consequences. In this case if the valuation date is in the year 2020 the amount of tax and penaltyunder the Act will be $ 6 Million."

4. As an example, while the criminal sentence for committing the offence of acquiring undisclosed foreignasset in the year 1975 was Rigorous Imprisonment ("RI") of 6 months to 7 years with fine under oneenactment only, namely Income-tax Act, 1961 ("ITA"), the quantum of criminal sentence has been significantlyenhanced not only under ITA, but the same offence committed in the past has been made punishable for thefirst time under other enactments also. The table below summarises the position:

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Page 2: Criminal Consequences under BMA

Criminal punishment existingat the time of commission of

Offence

Retrospectively enhanced criminalpunishment

1. Rigorousimprisonment of 6Months – 7 years withfine

Section 276 C-Income TaxAct

1. Rigorous imprisonment of 3 – 10 yearswith fine

Section 51-BMA

Not Applicable 2. Rigorous imprisonment 3-7 years withfine

Section 4-Scheduled offence under PMLANot Applicable 3. Imprisonment up to 5 years with fine

Section 13(IC) - FEMANot Applicable 4. Confiscation of property representing

“Proceeds of Crime” after trial by a criminalcourt.

Section 8(5)-PMLANot Applicable 5. Confiscation of assets of equivalent value

in India

Section 37 A -FEMA

5. In other words, the criminal punishment has been significantly enhanced ex post facto, as compared tothe quantum of criminal punishment in force at the time of commission of the offence.

6. In terms of Article 245 of the Constitution of India ("Constitution"), the legislature has plenary powers tomake or amend laws both prospectively and retrospectively. While this position holds good in so far as civillaws are concerned, Article 20(1) of the Constitution places an absolute embargo on legislature's powers tomake retrospective criminal laws. Relevant part of this Article is reproduced below:

"20. Protection in respect of conviction for offences

(1) No person shall be convicted of any offence except for violation of a law in force at the time of thecommission of the act charged as an offence, nor be subjected to a penalty greater than that whichmight have been inflicted under the law in force at the time of the commission of the offence."

7. A Constitution Bench of Supreme Court in the case of "Rao Shiv Bahadur Singh v. State of VindhyaPradesh" AIR 1953 Supreme Court 394, analyzed the protection guaranteed by this Article in the followingwords:

"8. ---------------This Article, in its broad import has been enacted to prohibit conviction and sentencesunder 'ex post facto' laws.

10. ----------------"Law in force" referred to therein must be taken to relate not to a law "deemed" to bein force and thus brought into force but the law factually in operation at the time or what may be

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called the then existing law. Otherwise, it is clear that the whole purpose of Art. 20 would becompletely defeated in its application even to 'ex post facto', laws passed after the Constitution.Every such 'ex post facto' law can be made retrospective, as it must be, if it is to regulate actscommitted before the actual passing of the Act, and it can well be urged that by such retrospectiveoperation it becomes the law in force at the time of the commencement of the Act. It is obvious thatsuch a construction which nullifies Art. 20 cannot possibly be adopted. It cannot, therefore, bedoubted that the phrase "law in force" as used in Art. 20 must be understood in its natural sense asbeing the law in fact in existence and in operation at the time of the commission of the offence asdistinct from the law "deemed" to have become operative by virtue of the power of legislature to passretrospective laws."

8. The above analysis leads to the inescapable conclusion that the retrospectively enhanced provisions ofcriminal punishment for the offence committed in the past but detected and prosecuted now are in directcontravention of Article 20(1) of the Constitution, and are likely to be declared by courts as ultra vires and of noavail. Resultantly, the accused can be ordered to suffer only that quantum of criminal punishment which was inforce at the time of commission of offence, nothing greater.

Assisted by Utpal Kant, Associate

[The views expressed above are personal views of the author and do not necessarily represent theviews of AZB & Partners]

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