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Black Money – new Law not needed argues MR Venkatesh

File photo Arun Jaitley

One of the first legal principles is that the any law ought to be prospective in its application; not retrospective. This legal position has been accepted by the Indian Constitution which provides certain safeguards to an Indian citizen [including corporations] accused of any offence. In this connection it guarantees protection to a citizen under the chapter on “fundamental rights” against such retrospective operation of any criminal law.

Specifically, Article 20(1) provides that “No person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.”

Thus it is apparent that the no person shall be convicted by a court of law except for a violation of a “law in force.” That simply means that when a law is enacted later it cannot, thanks to the constitutional bar, hold any citizen of India liable for any act done prior to that law being legislated. Such laws are regarded as inequitable, abhorrent to the notions of justice and hence expressly prohibited by the Constitution.

Put pithily if any act is not an offence as at the date of its commission under a law in force, a citizen of India cannot be tried under a law enacted subsequently. This is the Constitutional position.

A retrospective black money law?
It may be noted that the Hon’ble FM has proposed a “new law” on black money in his Budget speech [Para 103]. The law provides for imprisonment of ten years in case of tax evasion, penalty at the rate of 300 percent of the tax evaded shall be levied for such concealment of income [and consequential assets] and there is express prohibition of approaching the settlement commission.

The FM also proposes to amend the Prevention of Money Laundering Act [PMLA] and Foreign Exchange Management Act [FEMA] to ensure that appropriate punitive actions against those holding illicit wealth abroad.

But the “new law” on black money may take well over six months to get legislated even if this is introduced in the current session of the Parliament as promised by FM in his Budget speech. That implies that possibly only by year-end the “new law” may well be in statue books.

So the question arises – whether the “new law” is applicable prospectively i.e. from the date in which it is notified or whether it is retrospective? The answer to this question lies in the plain reading of Article 20(1) of the Constitution which bars a criminal law from being retrospectively legislated as explained above. Thus the “new law” can at best be prospective not retrospective.

Consequently, only those who after the “new law” is notified in the official gazette do not pay income-tax, generate black money, stash it abroad through some illegal means and create illicit assets out of such money would come under the ambit of this “new law,” not otherwise. Any other interpretation of the “new law” on black money would render it unconstitutional.

But what about those who already have illicit wealth or assets abroad? Does it mean that there is no law in place in India to tackle such wealth as on date? If so, what is Income-tax law supposed to be? Isn’t is supposed to tackle black money within India and abroad?

Pertinently, is a new law required to tackle the menace of black money? Subtly, is the FM hinting that he is unable to proceed against those who have already stashed wealth abroad under the extant legal system? If so, is it a fault of the law or a question of its enforcement?

What about Income-tax Act, 1961?
The answer to all these questions lies in Income-tax Act, 1961. Readers may be aware that the IT Act is a comprehensive law relating to income and by extension is competent to deal with illicit wealth, both in India and abroad.

The IT law precisely anticipating generation of black money and creation of assets from such black money empowers the assessing officer to add to the income of assessee, investments, for which the assessee offers no clear explanation about source of income. These are technically called “Unexplained investments” and dealt with under S 69 of the IT Act.

Likewise where an assessee fails to offer explanations for source for money, bullion or jewellery S 69A empowers the assessing officer to add to the income of the assessee the money or value of bullion or jewellery to the income of the assessee.

Similarly S 69B deals with amount of investment not fully disclosed in the books, S 69C deals with unexplained expenditure and S 69D deals with amount borrowed or repaid on Hundi. In effect these five sections are potent and comprehensive enough to deal with any illicit wealth stashed both in Indian and abroad including expenditure for which the assessee offers no explanation for its source.

Further, the IT authorities have power regarding discovery, production of evidence, search, survey and even seizure. Interestingly the IT Act was amended in 2012 to allow the authorities to reopen assessment up to sixteen years in relation to any asset located outside India while it is merely six years in case of assets located within India.

Over and above this, the authorities can levy interest for belated payment of taxes, charge penalties [Chapter XXI] and in extreme cases also prosecute wilful defaulters [Chapter XXII]. It is pertinent to note that the penalty under the IT Act is 300 percent.

Thus on any information received from any source within India or outside India the IT Authorities can forthwith open assessments of sixteen prior years, re-assess such persons and recover tax, levy interest, penalty and also prosecute such delinquent assessee.

In short the existing IT Act is precisely aimed at tackling the issue of Black Money – both within India and abroad. By promising to legislate a new law the FM seeks to create an impression that he is legislatively handicapped in going after such buccaneers. Frankly, I am unimpressed with this argument.

Pertinently the “new law” mirrors exactly the provision of the existing IT Law except for the fact that it is limited to being prospective in its operation under the provisions of our Constitution. If so, what is new about it? Why have a new law? I am unable to find the rationale.

Crucially, the Hon’ble FM claims to have procured any useful information from other Tax Haven countries including Switzerland. If so, has he set in motion the due process under IT Act? In such a scenario why another law? On the other hand if he cannot use such information in the absence of a law, why send his officers on a wild goose chase abroad?

But what about our politicians who have stashed their illicit wealth abroad? Well, over and above the tax, interest, penalties and possible prosecution available under the provisions of the Income-Tax Act as explained above, a public servant is also punishable under the provision of clause (e) of sub-section (1) of Section 13 of Prevention of Corruption Act [PCA] for possessing assets disproportionate to his known source of income.

Naturally, if the Central Government is in the know of details of any politician having asset abroad which is disproportionate to his known source of income appropriate actions can be initiated under the PCA.

But the billion dollar question remains – in how many cases has the NDA government proceeded against those who posses illicit wealth under the IT Act? In how many cases has it proceeded against our politicians for possessing assets disproportionate to their known source of income under the PCA? The answer to this question in my considered opinion settles the debate.

Remember, you can legislate at best a new law not administrative will or intention.

It may be interesting to note that while in opposition politicians accuse others of indulging in corrupt practices. However when they get elected, especially on the corruption plank, they seem to do precious little against those very people whom they accused of being corrupt. The NDA government seems to be suffering from this inaction syndrome like many of its predecessors when it comes to fighting corrupt and corruption.

Old or new law – let us not forget Government requires hard evidences to fix tax cheats in a court of law. And this till date has flown from foreign countries [as the HSBC Bank and Liechtenstein Bank case demonstrate] in driblets and by divine providence; not due to any concerted efforts of our Government.

Instead of a new law Government requires a dedicated team of people – comprising of men of integrity – and understanding of both national and international laws to go after such illicit wealth stashed abroad. The SIT constituted under the directions of the Hon’ble SC unfortunately is a non-starter.

It is time to look beyond SIT. But surely a “new law” is definitely not the solution.

Last modified on Monday, 09 March 2015 18:43