Retrospective Application Of S.50 Black Money Act For Failure To Disclose Foreign Assets Unconstitutional: Karnataka High Court

The provision penalises assessee's failure to furnish any information of an asset located outside India, including financial interest.

A single judge bench of Justice M Nagaprasanna allowed the petitions filed by Dhanashree Ravindra Pandit and others and quashed the proceedings by saying, “In the considered view of the Court, the prosecution so initiated against these petitioners did not and cannot pass constitutional muster under Article 20 of the Constitution of India.”

The Union Government had brought the Act on April 01, 2016 and in June 2018, assessment proceedings under the Act were commenced and sanction to prosecute was granted against the petitioners.

Petitioners claimed they were only Directors of the Companies against whom the proceedings were sought to be initiated and that the companies had been closed way back in the year 2010, long before coming into force of the Act.

They argued that as per Article 20 of the Constitution, a person can be proceeded against only for any violation of law at the time of commission of offence and not any law that would come in future. Therefore, a post-facto law cannot be made applicable to them.

The respondents opposed the petitions by saying that Section 72 of the Act is retrospective in operation and, therefore, proceedings under Section 72(c) of the Act can be initiated even if the offences are committed prior to the coming into force of the Act.

After hearing both sides, the bench said observed that on the date of the Act coming into force, there was neither any financial interest of the petitioners nor any foreign asset, as everything had been closed in the year 2010 itself.

“The law on the date alleged, was not the law of such disclosure of assessment. Therefore, the criminal law cannot be set into motion against the petitioners in the aforesaid facts of the case, as it cannot pass muster of Article 20 of the Constitution of India. The Special enactment is a statute. Article 20 comes under Chapter III of the Constitution of India, a fundamental right. The Constitution of India is not a statute. It is the fountainhead of all statutes including the special statute. The rigour of any provision of the Act should pass muster of Article 20 of the Constitution of India and it fails to pass such muster in the case at hand and the failure leads to obliteration of the crime against the petitioners.”

Respondents had also cited Section 72 of the Act which deals with removal of doubts and creates a deeming section in terms of Section 72(c). Section 72(c) directs that when an asset has been acquired prior to commencement of the Act and no declaration in respect of such asset is made, such asset will be deemed to have been acquired or made in the year in which notice is issued by the Assessing Officer and the provisions of the Act will apply.

In this context, the bench referred to Supreme Court judgment in Kumaran v. State of Kerala (2017) wherein it was held that a legal fiction or a deeming fiction should not be extended beyond the purpose of the Act for which it is created or beyond the language deployed in the enactment.

Court observed, “In the case at hand what is given effect under Section 72(c) is a deeming section which creates criminal liability. It is a matter of record that all the facts that become the offences are alleged to have happened five years prior to the Act coming into force. Article 20 of the Constitution makes it a fundamental right to a person who would be convicted for an offence except for violation of law in force at the time of 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. Non-disclosure of an assessment of the tax return for the year 2007-08 or 2009-10 cannot be used to criminally prosecute these petitioners, for an act that has come into force in the year 2015.”

Accordingly it allowed the petitions.

Appearance: Advocate Sangram S. Kulkarni for Petitioners.

Advocate Y.V. Raviraj for Respondents

Citation No: 2024 LiveLaw (Kar) 282

Case Title: Dhanashree Ravindra Pandit AND The Income Tax Department

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