CBDT issues clarifications on one-time compliance scheme under Black Money Act, 2015

Background:

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘The Black Money Act, 2015’ or ‘The Act’) received assent of the President of India on 26 May 2015. The Act provided for a one-time compliance opportunity (‘compliance window’) to persons who have any foreign assets which have not been disclosed for the purpose of Income tax Act, 1961 (‘ITA’). Under the compliance window, a person would be liable to pay a total of 60% (including 30% penalty) of the value of the undisclosed asset so declared. The Central Board of Direct Taxes (‘CBDT’) released explanatory notes on the compliance window by way of Circular No 12 of 2015 dated 2 July 2015 and clarification thereon vide Circular No 13 of 2015 dated 6 July 2015. Further, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015 (‘The Black Money Rules, 2015’ or ‘The Rules’) have been notified on 2 July 2015.

Summary

The declaration under one time compliance scheme is required to be made on or before 30 September 2015 and the tax and penalty thereon are required to be paid on or before 31 December 2015. It has been clarified that the Black Money Act, 2015 and consequently the compliance window would come in force from 1 July 2015. Thus, where any information in respect of the declared asset had been received by the Competent Authority on or before 30 June 2015, the designated officer would inform the declarant about it. The declarant shall file a revised declaration excluding such asset, within 15 days of the receipt of such intimation. Further, Rule 9 of The Black Money Rules, 2015 prescribe Form 6 for making declaration of assets and Form 7 for issuing acknowledgement of payment of tax and penalty on such declaration by the tax authority.

Circular No. 13 provides 32 clarifications on one time compliance scheme in a question answer format. Some of the important clarifications are on granting of immunity to the declarant and directors of the companies and non-applicability of the provisions of Prevention of Money Laundering Act, 2002 on the assets declared under one time compliance scheme.

Time limit

·         The Central Government has notified 30 September 2015 as the last date for making a declaration under the compliance window scheme. Further, 31 December 2015 has been set as the last date for payment of tax and penalty

·         The designated tax officer shall issue an intimation before 30 October 2015 to the person stating if any information was already received from the Competent Authority under Section 90/90A of the ITA, before 30 June 2015

·         In that case, the person shall revise his declaration, excluding assets already received by the tax officer as intimated, within 15 days of receipt of the intimation. However, the time line for payment of tax and penalty would remain unchanged

Form of Declaration

Form 6 has been prescribed for making declaration of undisclosed foreign assets. Salient features of Form 6 are:

·         Details of declarant - including name, address, Permanent Account Number, details of last income tax return filed, statement of undisclosed assets located outside India, details of taxes paid before date of declaration

·         Description of assets declared - like bank account, immovable property, jewellery, artistic work, shares and securities (quoted and unquoted), any other assets

·         Fair Market Value - Form 6 also requires disclosure of fair market value of asset as computed by Rule 3 of the Black Money Rules. Further, in case of immovable property, jewellery or artistic work, valuation report is also required to be attached with the declaration

Clarification vide Circular No 13, 2015 dated 6 July 2015 on compliance window

CBDT issued a clarification in the form of Questions and Answers vide Circular No 13 of 2015 on the impending compliance window. Some of the key clarifications are as follows:

·         Granting of immunity: It has been clarified that Section 67 provides immunity from prosecution under the five Acts viz. the Income-tax Act, Wealth-tax Act, FEMA, Companies Act and the Customs Act. Further, it has been clarified that provisions of Prevention of Money Laundering Act, 2002 would not be attracted on the assets declared under one time compliance scheme

·         Granting of immunity to directors of a company: It has been clarified that the directors of the company shall not be liable for any offence under the Income-tax Act, Wealth-tax Act, FEMA, Companies Act and the Customs Act in respect of declaration made in the name of the company

·         Capital Gains on future sale of assets declared: It has been clarified that in case of subsequent sale of assets declared under one time compliance scheme, the cost of acquisition for the purpose of Capital Gains shall be the said fair market value (as used for purpose of taxation under Black Money law) and the period of holding shall start from the date of declaration of such asset under one time compliance scheme

·         Declaration where notice under income tax has been issued: It has been clarified that where a notice under Section 142, 143(2), 148, 153A or 153C of the Income-tax Act is served on or before 30 June 2015 and the assessment proceedings are pending for that year, any asset purchased in that year shall be excluded while computing the amount of declaration and such investment shall be taxed in the proceedings under the Income-tax Act. It has also been clarified that where such notice is issued on or after 30 June 2015, the declarant shall be eligible to declare full value of asset even if such asset (or part of such asset) is acquired in the previous year for which such notice is issued

·         Declaration where assessment proceeding under income tax is completed: It has been clarified that a person can declare undisclosed foreign assets which have been acquired or made from income not assessed under the Income-tax Act. Similarly, where a search or survey operation was conducted and the assessment has been completed but the undisclosed foreign asset was not taxed, then such undisclosed asset can be declared under one time compliance scheme

·         Declaration where information has been received under DTAA: It has been clarified that where any information in respect of the declared asset had been received by the Competent Authority on or before 30 June 2015, the designated officer would inform the declarant about it. The declarant shall file a revised declaration excluding such asset, within 15 days of receipt of such intimation. Further, in respect of the assets wherein the information is received prior to 30 June 2015, provisions of Black Money Act shall not apply. However, such information may be used for the purpose of the Income-tax Act and the provisions of the Income-tax Act shall apply

·         Declaration for closed bank account: It has been clarified that since the investment in the bank account was unexplained and was from untaxed income, the same may be declared under Chapter VI of the Act even though the bank account has subsequently been closed. Also, in case of a bank account, tax is required to be paid on the fair market value, which is the sum of all the deposits made in the account computed in accordance with Rule 3(1)(e)

·         Declaration by a non-residents: It has been clarified that if a person who is a non-resident has acquired foreign assets from unexplained sources while he was a resident, out of income chargeable to tax under ITA, he is eligible to file a declaration. If the person acquires an asset from income which was not chargeable to tax under ITA, he is not required to file a declaration

·         Others clarifications:

-       In case of inherited house property, which was in-turn acquired from unexplained sources, the same shall be required to be declared by the inheritor in his capacity as a representative

-       There is no requirement of holding of asset as on the date of declaration. The declaration shall be made if the foreign asset was acquired out of undisclosed income even if the same has been disposed-off and is not held by the declarant on the date of declaration

-       Beneficial owner can file a declaration and not the “beneficiary”. “Beneficial Owner” in respect of an asset means an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person. While, “beneficiary” means an individual who derives benefit from the asset and the consideration for such asset has been provided by any other person

·         If the person, while he was a non-resident in India, acquired or made a foreign asset out of income which is not chargeable to tax in India, such asset shall not be an undisclosed asset under the Act

Our comment:

CBDT has taken a proactive approach in addressing concerns of taxpayers in effectively utilising one time compliance window. This approach is a welcome move. Also clarification that Section 67 of Black Money Act would provide immunity from prosecution under the five Acts viz. the Income-tax Act, Wealth-tax Act, FEMA, Companies Act and the Customs Act would bring great relief to the declarants. Though, one would have expected a complete immunity under these laws including penalty.







Grant Thornton in India