While presenting the Union Budget in 2015, the then Finance Minister announced, that in order to evade taxes in India some people had stashed away their money outside India (which is commonly referred to as Black Money) and in order to curb this malaise a new legislation will be introduced to tackle the undisclosed assets and income of Indian citizens located outside India. To achieve this objective The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (BMA) was enacted on 01.07.2015 which provides a mechanism to track down and bring back the undisclosed foreign assets and income of Indian Citizens. The BMA is a complete code in itself and it not only has stringent provisions for penalties and prosecution but also provides for taxation of the undisclosed income in relation to the foreign income and assets. Under the Income Tax Act, the charging section proposes to tax the income in an Assessment year, which relates back to the immediately preceding Financial Year (previous year) for the purpose of computing income tax liability. However, in a peculiar departure from usual practice, the BMA mandates to tax the Foreign Income/Foreign Asset of the previous year and does not make any reference to the “assessment year”, though previous and assessment years have been defined in the BMA and almost similarly worded as in the Income Tax Act. It is limpid that the concept of Assessment Year is not relevant for the purpose of BMA and assessment will be activated in the Previous Year; which will be determined based on the year of receipt of information and not by the actual year of acquisition or earning. The provisions of section 3 vis a vis the provisions of Chapter VI (which contains section 59 to 72) of the BMA which deals with assessment of foreign income and assets have actually created a legal conundrum. Section 3(1) of the BMA is the charging provision which addresses taxing the foreign income or foreign asset located outside India for every assessment year which will commence from the 1st day of April, 2016.The proviso to section 3(1) stipulates that the undisclosed asset/income located outside India shall be charged to tax on its value in the previous year in which the asset comes to the notice of the Assessing Officer i.e. only when such information is received by the Assessing Officer. On the other hand, Chapter VI of BMA which contains sections 59 to 72 of the Act gives an opportunity to the Assessee for suo moto declaration in respect of any Asset located outside India and acquired from Income chargeable to tax under the Income Tax Act for any Assessment Year prior to the Assessment Year starting on 01.04.2016 and for which no declaration in respect of such asset was made earlier. Section 72(c) in this chapter deems the year of acquisition in such cases to be the year in which Notice under section 10(1) is issued by the Assessing Officer under the BMA for the purpose of making an assessment. The proviso to section 3(1) stipulates that the value of Foreign Asset is to be calculated with respect to the previous year in which the information is received by Assessing Officer but on the other hand, section 72(c) stipulates that where Foreign Asset is acquired prior to 01.04.2016, the year of acquisition shall be deemed to be the year in which notice under section 10 for the purpose of assessment is issued by Assessing Officer under the BMA. Hence, a situation may arise where the information is received by Assessing Officer under the BMA, in the month of March 2022 i.e Financial year 2021-22 in respect of Foreign Asset acquired before the commencement of the BMA i.e. in Previous Year 2014-15 and notice under section 10(1) of the BMA is issued in April 2022 i.e. Financial Year 2022-23. Such a Notice will be absolutely valid because normally, a notice should be issued within 30 days from receipt of information. In such a situation, the Fair Market Value of such assets would be determined under section 3(1) with respect to the Previous Year 2021-22 relevant to Assessment Year 2022-23 but the year of acquisition will be deemed to be Previous Year 2022-23.Such an eventuality will surely raise a statutory conflict that the deemed year of acquisition of Foreign Asset under section 10(1) will be later than the previous year with respect to which the Fair Market Value of the Foreign Asset is required to be adopted under section 3(1) of the BMA which obviously sounds illogical. Thus, there is a conflict between section 3(1) and section 72(c) of the BMA because Assessment Year based on the deemed year of acquisition of Foreign Asset under section 10(1) becomes later than the Assessment Year based on the year of receipt of information with respect to which the Fair Market Value of the same Foreign Asset is required to be adopted under section 3(1) of the BMA. While this contradiction may not have any significant impact on the rights of the parties, it is none the less illogical and contrary to the entire scheme of taxation.

The only probable argument to reconcile this conundrum is that the provisions of section 72(c) are placed under heading “for removal of doubt” which indicates that it is a clarificatory section and is not a part of the charging section. It lays down a procedural mechanism only to take care of a situation where the Foreign Asset is acquired before the commencement of the BMA. Moreover, since the charging section under the BMA does not make any reference to the Assessment Year, the concept of Assessment Year will not be relevant for the purpose of the BMA because the assessment is activated in the Previous Year which will not be the actual year of acquisition of the Foreign Asset but will have to be determined based on the year of receipt of information by the Assessing Officer.

Author is a practicing Advocate and former Senior Standing Counsel Income Tax Deptt, Delhi High Court

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