Section 3(1), Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act 2015 (‘BMA’) – Relevant point of time for taxation of an undisclosed foreign asset under BMA is point of time when such asset comes to notice of Government – It is immaterial as to whether it continued to exist at time of taxation, or at the time when provisions of BMA came into existence

Section 3(1), Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act 2015 (‘BMA’) – Relevant point of time for taxation of an undisclosed foreign asset under BMA is point of time when such asset comes to notice of Government – It is immaterial as to whether it continued to exist at time of taxation, or at the time when provisions of BMA came into existence

FACTS
The assessee (RMB) and his wife (ARB) were Directors and shareholders in a company incorporated in the British Virgin Islands (‘BVI Co’). The assessee had not disclosed this information in the Return of Income (‘ROI’) filed in India.

The Investigation Wing of the Income-tax Department received information regarding two accounts held in the UBS Bank, Singapore branch by BVI Co. On further probe, including information received through exchange of information provisions under the India-Singapore DTAA, the Department found that RMB and ARB were the beneficiaries and operators of the said accounts. Further, the said accounts showed gross credit entries of US $147 million (INR 999.74 crores @ US $1 = INR 68) over a period of time (which also included intra-bank and contra entries).

The KYC documents related to these bank accounts revealed that passport copies of RMB and ARB were submitted along with handwritten instructions for operating the bank accounts. One of the bank accounts was closed in 2008 and the other one in 2011.

The chronology of investigation by the Tax Authorities is as follows.

At all the above-mentioned stages, the assessee denied having any knowledge of the said foreign bank accounts. Just three days prior to the completion of the assessment, RMB admitted that these accounts were opened in his and his wife’s name by his late father by taking their signatures on papers in the past. He submitted that the credit entries in the accounts were loans taken from UBS Bank which were repaid with interest.

The A.O. rejected various explanations offered by the assessee and held that the assessee is the beneficial owner of the undisclosed foreign bank accounts and computed total income of INR 56 crores. On appeal, CIT(A) gave partial relief of US $3.2 million (roughly, INR 21.8 crores) on account of credits in respect of redemption of investments held earlier.

Being aggrieved, both parties appealed to the ITAT.

HELD1
Applicability of BMA to undisclosed assets held, and income earned, prior to the enactment of the law (i.e., 1st July, 2015)
• The two foreign bank accounts were closed in 2008 and 2011. The assessee contended that an asset which did not exist at the time when BMA came into force cannot be assessed under the said Act.
• Section 3(1) of BMA specifically provides that an undisclosed asset located outside India shall be charged to tax in the year in which it comes to the notice of the A.O.
• It is immaterial whether the asset existed at the point of time of taxation or even at the time when the provisions of BMA came into existence. The only relevant date for levying tax is when the undisclosed asset comes to the notice of the A.O.
• The assessee further contended that BMA cannot be invoked in respect of a foreign asset which was already in the knowledge of Revenue authorities (i.e., Investigation Wing of the Income-tax Department) before the said Act came into force. The assessee relied upon the CBDT Circular2 which prohibited assessees from making a one-time voluntary declaration of foreign assets in respect of which the Government has prior information on the specified date.
• The said Circular is relevant only for voluntary declaration under BMA and it cannot be relied upon for making assessments under BMA.
• For taxation under BMA what is relevant is that either such foreign income is not disclosed in the ROI filed, or that the ROI is not filed at all by the assessee in India.

Bank account is an asset under BMA
• The assessee contended that an undisclosed foreign bank account is not an asset u/s 2(11) of BMA. The assessee argued that though Black Money Rules provide for valuation of undisclosed bank accounts, section 2(11) of the BMA does not cover a foreign bank account which does not exist.
• The assessee also contended that since section 2(11) of the BMA refers only to such assets having ‘cost of acquisition’ (i.e., source of investment), a bank account cannot be treated as an undisclosed foreign asset.
• Amount receivable from the bank in respect of a bank account is an asset of the person holding that account. If the owner of a bank account can substantiate the source of investment which is duly disclosed to Revenue authorities, to that extent, the source of investment is explained and the requirements of section 2(11) can be satisfied even in respect of a bank account.

Beneficial owner of asset
• The assessee contended that section 2(11) of the  BMA defines an undisclosed asset as one in which the assessee is a ‘beneficial owner’. Since this term is not defined under the BMA, it must derive its meaning from section 139(1) of the Income-tax Act, 19613.
• Merely because the expression ‘beneficial owner’ is defined under the Income-tax Act, 1961, per se, it cannot as well apply to BMA. Reliance was placed on the ITAT decision in the Jitendra Mehta case4 where it was held that beneficial owner can be interpreted with reference to the dictionary meaning and the provision in other statues keeping in mind the object and purpose of the BMA. The ITAT rejected the above arguments and held the assessee to be the beneficial owner of the foreign bank accounts under the BMA.