To understand the implication of the said sums a reference to a bit of recent history is inevitable. It may be recalled that in January 2007, the income-tax department had first raided Hassan Ali Khan’s residence across the country and seized documents that revealed that he had a sum of USD 8 billion deposited in the UBS AG bank, Zurich. The department also found that Khan had not filed income-tax returns since 1999. Later, the Enforcement Directorate (ED) started investigating as it was also a case of suspected money laundering. ED has also been probing Khan and his associate Tapuriah for violating the Foreign Exchange Management Act and laws against money laundering.
Subsequently, income-tax department had issued notices to Hassan Ali Khan, alleging money laundering to the tune of several billion dollars along with others for suspected tax evasion. According to press reports a show-cause notice was issued by the IT department demanding Rs 40,000 crores (on taxes alone) against Hassan Ali for not disclosing funds in several foreign bank accounts, including the above-mentioned USD 8 billion in an account in UBS AG, Zurich. Further his associates were also alleged by the ED to have an account at Credit Suisse and between 2001 and 2005 and two transactions worth USD 1.6 billion were made through it.
It is interesting to note that Hassan Ali Khan is out on a bail on a fake passport case. According to various press reports of February 10, 2010 the Bombay High Court had dismissed the appeal of the state government to cancel this bail. Interestingly the court observed that the state itself was not interested in cancelling the bail granted to Hassan Ali Khan.
In this connection Justice D G Karnik said, “The state government is not interested in serving notice [to the accused and other parties] even after six months of filing an appeal.” Justice Karnik also added that if the government was not keen on pursuing its own appeal, then the court had no reason to waste time on it.
This is the power of the man and his ability to move levers of power at the state level. Naturally it is interesting to note his influence at the central level.
Confirmed tax liability of more than Rs 50,000 crores
This tax liability of Hassan Ali was confirmed by the Government as late as August 4 2009. The government while disclosing the list of tax defaulters in the Rajya Sabha stated that Hassan Ali Khan topped the list of tax defaulters with an outstanding arrear of “more” (emphasis mine) than Rs 50,000 crores. The tax due after adding all interest for belated payment of tax according to rough estimates exceeds Rs 70,000 crores as on date.
Along with his associate, Tapuria, this amount could approximately aggregate to a staggering Rs 100,000 crores. Yet, the entire tax dues of the government of India as per the Budget documents (both disputed and non-disputed) for all taxes as per the statement of tax revenues raised but not realized aggregates to a mere Rs 117,065 crores.
It is pertinent to note that the income tax due from individuals (both disputed and undisputed) alone is a much lower sum of Rs 50,000 crores. This is the amount relevant for comparison with the tax due from Hassan Ali and his associate. Obviously some one in the Finance Ministry has missed out Hassan Ali and his associate. Whether this was an error of omission or one of commission is the moot point.
But there is yet another possibility - What if Hassan Ali and his associates have paid their taxes aggregating to approximately Rs 100,000 crores by February 26th 2010 when the Budget was delivered? Interestingly, The Week in its issue dated 14th March 2010 has carried out an interview with the Hon’ble Finance Minister precisely on this subject. The Hon’ble FM seems to categorically assert that the government seems to have recovered the tax dues from Hassan Ali.
Unfortunately, this cannot be true, as the revised estimates for 2009-10 do not reflect the same. Rs 100,000 crores is too large a sum to be lost even in the government of India’s budget. Either the Hon’ble FM is wrong or has been misquoted by The Week.
The Hassan Ali amendment to the IT Act
There is yet another dimension to this issue: The amendment to the Income-tax Act relating to the provisions of Settlement Commission. Under the existing provisions of section 245A(b) of the Income-tax Act, the term “case”, in relation to which an application to the Settlement Commission can be made excludes assessment proceedings arising from a search initiated under the Act.
Budget of 2010 now proposes to include proceedings for assessment resulting from search within the definition of a “case” which can be admitted by the Settlement Commission.
The direct beneficiary of this amendment seems to Hassan Ali Khan who was hitherto excluded by law from approaching the Settlement Commission but now thanks to this amendment can do without any let or fear. But why should the government be in such seeming hurry in granting this escape route to Hassan Ali Khan?
The answer to the same lies in para 124 of the Budget where in Hon’ble FM states “Last year, amendments to the statute enabled Government to enter into tax treaties with specified territories besides sovereign states. We have commenced bi-lateral discussions to enhance the exchange of bank related and other information to effectively track tax evasion and identify undisclosed assets of resident Indians lying abroad.”
The heat to go after the illicit wealth parked in tax havens in gathering global momentum. India cannot remain a mute spectator as the international pressure mounts on tax havens to disclose the names of those who have their accounts in such places.
Consequently, India has to perform its share of war dance on this subject. One way of doing it is to seemingly go after tax defaulters who have parked their wealth abroad. It is in this connection that the government seeks to pursue cases of wealth secreted abroad in proven cases of tax evasion. This is what is effectively confirmed in Para 124 of the Budget.
Now that the Hon’ble FM has confirmed to The Week that the government has collected taxes from Hassan Ali, there is no case for the government to pursue this matter any further in other countries. In case he has not yet paid the taxes (as is most likely the case), the escape chutes (by amending the Income-Tax act pertaining to the settlement commission) are already opened. Either way, the government has done enough spade work to ensure that the curious case of Hassan Ali and his associate is given a quietus.
What makes the Hassan Ali case interesting is that money was laundered from India using the Hawala route. Those in the know of money laundering would readily confirm that a stud farm owner could not have been an originator of such gargantuan income. Obviously it was not his money that was laundered. At best he could well have been a conduit for several prominent Indians who could have used the Hassan Ali (read Hawala) route to transfer their ill-gotten wealth abroad. Naturally, the source of money in India to Hassan Ali is as interesting as to whom as the ultimate beneficiary of the laundered money.
But all these inconvenient questions can be side stepped if Hassan Ali comes to the Settlement Commission and settles his case. In fact, settlement commission is precisely aimed at cases that are complex and where the Income-tax department finds it tough to determine even the income of an assessee. By its very definition, Hassan Ali squarely fits the bill.
In such a scenario where Hassan Ali’s case could be effectively settled through the Settlement Commission, it must be noted that in the books of the Government of India he could no longer be a tax defaulter. To that extent there is no locus standii for the government to pursue his case any further with any other country, much less in case of tax havens.
And that in my considered opinion would save the reputation of several prominent Indians. To this extent this Budget aims at protecting these very characters – the conmen of India instead of the common man of India.