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Black money SIT Decides To Solve Tax Treaties Secrecy Puzzle



June 08, 2014 New Delhi: Tasked with the job of recovering illicit wealth stashed away by Indians, the SIT on black money has decided to look into the contentious issue of secrecy clauses in India's tax treaties with Switzerland and other countries. India has signed tax information exchange treaties with many countries, but they typically contain a 'confidentiality' clause which forbids sharing of details obtained through such treaties with other law enforcement and investigation agencies, thus coming in the way of coordinated actions by them.

At the centre of discussion of the Special Investigation Team - headed by retired Supreme Court Judge MB Shah - are close to half-a-dozen black money cases in which information has been received from a foreign jurisdiction by the Income Tax Department or allied agencies, sources said. However, this information cannot be shared with any other investigative agency as a strict non-disclosure of information clause accompanies these information exchange treaties, they added.

The SIT, sources said, would look into the possibility of requesting competent courts and the relevant authorities in foreign jurisdictions for permission to share with other agencies the data obtained by the Central Board of Direct Taxes and the I-T department.

The agencies for which the data access could be requested include Enforcement Directorate (ED), Directorate of Revenue Intelligence, Reserve Bank of India and CBI, so that suspects in such cases can be probed from various angles and under provisions of criminal laws. CBDT and Income Tax department obtain data from foreign nations and tax haven jurisdictions under Double Taxation Avoidance Agreements (DTAAs) or Tax Information Exchange Agreements (TIEAs).

Officials said that a full-fledged foreign exchange violation and money laundering probe in the LGT Bank accounts case has been slowed down due to restrictions on information-sharing between various agencies. "The agencies only have access to a limited number of documents in the LGT case and hence the probe is not (progressing at the pace it) should. If the documents are available, prosecution can easily be started in these cases with regard to contraventions in the foreign exchange domain and possibly money laundering laws too," officials said.

India, at present has over 80 operational DTAAs and 40 TIEAs. The government had imposed a penalty of Rs 24.66 crore on 18 individuals who have bank accounts with Liechtenstein's LGT Bank on the basis of information provided by German authorities.

Germany had in 2010 provided the names of some Indians who held secret accounts in Liechtenstein's LGT Bank. These names were part of about 1,400 stolen bank account details purchased by Germany. The Income Tax department alone has reported collecting 7,704 "discrete items" of information from treaty countries containing details of payments received by Indian citizens in various countries, besides information on LGT bank accounts. The government had said that this information is in "various stages of processing and investigation". Also, during the last financial year, CBDT's foreign taxation wing made more than 175 requests to treaty partner countries in case of "specific taxpayers".

Investigators probing these cases have confirmed that a number of these are good from the point of view of getting revenue and achieving success during prosecution for tax evasion and cheating of foreign exchange. The SIT, formed upon the directions of Supreme Court, had held its first meeting on June 2 here and will meet again in the middle of this month for a second time. Retired apex court judge Arijit Pasayat is the Vice Chairman of the SIT while top officials of 11 high-profile agencies and departments are its members.

The government, after the first meeting of the SIT, had said that the detailed modalities of proceeding further with the Supreme Court mandate were discussed and the roadmap decided. The SIT's mandate, as notified by the Department of Revenue (under the Finance Ministry), requires it to go into "all issues relating to matters concerning and arising from unaccounted monies of Hasan Ali Khan and Kashinath Tapuriah". Pune-based Khan, a stud farm owner, was arrested by Enforcement Directorate in connection with money laundering and tax evasion cases. Tapuriah is his aide.

The other tasks of SIT include all investigations already started and pending or awaiting to be initiated with respect to any other known instances of the stashing away of unaccounted cash in foreign bank accounts by Indians or other entities operating in India. The panel has also been empowered "to further investigate even where charge-sheets have been previously filed and IT may register further cases and conduct appropriate investigations and initiate proceedings for the purpose of bringing back unaccounted monies unlawfully kept in bank accounts abroad." The SIT will also keep the apex court informed about all major developments by filing periodic status reports in this regard, the government notification had said.

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India Desperately Needs New Fiscal System to Accomplish Modi Dream

A few years back, when the world was looking at us with high expectation of growth and stability, the apathetic fiscal management severely dented the Indian economic system. Anyway, that is past. Let’s look forward to a brighter future in the hands of indomitable team of Governors.  In 1947, one rupee used to fetch one dollar and let’s hope the time returns. I am confident that, an emotional connects to nation and financial sensibilities in economic policy framing can show us again those respectable days.

Present Indian fiscal system is perplexing to all concerned. Government is collecting revenue through multiple tax legislations. The basic tax concept is centuries old and had its origin somewhere in Egypt and travelled through Greece U. K. to India with British. Revenue laws are written in thousands of pages and most seasoned tax professional are often found totally befuddled in their interpretation and application. That is why the end result is recent cases of Nokia and Vodaphone. These two cases have disgraced the country around the world. We need to have fundamentally something very different from the present and aptitude to accept out of box thinking.

With complete new mindset, the entire revenue collection law can be framed in less than hundred pages. A suggestive scheme which will be manageable without the fleet of tax collecting agencies can be drafted on following lines. The simplicity itself will boost revenue collection by manifolds. The scheme may be referred as “Consolidated Revenue Act of India”.

The Consolidated Revenue Act can be drafted on the followings lines.
Income Tax, Wealth Tax, Service Tax, Security Transaction Tax, Dividend Distribution Tax, Excise, and Customs Acts etc. can be consolidated under one single Consolidated Act with dedicated chapters for each one.

The Direct Taxes may contain provision like, Income is a income irrespective of its source of generation, basic Income Tax exemption for all the individual assesses should be Rs. 5, 00,000/- and for all others assesses Rs. 1, 00,000/-, Individuals to pay tax @ 10.00 % of the income over first Rs. 5, 00,000/-, no deductions, no allowances, All other resident assesses to pay tax @ 15.00%, Foreign institutions to pay @ 20%, Accounting Year should be calendar year. Quarterly Advance tax, Accounts to be prepared on cash basis to stop accounting manipulations, Uniform depreciation rate of 10% for all the assets with straight line method, No carry forward / set off of loss to stop manipulations, Tax Returns to be filed with in three months, Assessments to be completed within one year, Returns to carry a statement of assets, Department to verify 10% cases rigorously.

All returns to be certified by Chartered Accountants. Verifications of Returns should be conducted with standardised questionnaire, Assesses should be allowed only one appeal to an Appellate Authority, All appeals to be settled in six months,  Tax defaulters should be charged penal interest, Willful negligence to be subject to prosecution. Chartered Accountants to be accountable, Agricultural income in excess of Rs. 5, 00,000 to be taxed,TDS to be deducted at the flat rate of 10% from payments like salaries, interest, rent, winnings, dividends etc.Individuals living outside India for minimum 180 days to be treated as NRI, Income earned by non - residents outside India not to be taxed in India, Filing default to attract minimum fine of Rs. 10,000/- or 50% of tax and interest due whichever is more, Monetary gifts to be treated as income. Gifts in kind in excess of Rs. 50,000/- to be taxed as normal income, Wealth tax on land without building, unutilized real estate, jewellary and cash to be charged at 1.00% of net wealth in excess of Rs. 2,00,00,000/-, Estate duty to be charged @ 5.00% of net wealth inherited if it exceeds Rs. 5,00,00,000/-, Raids & Surveys to be undertaken in unavoidable circumstances, Final results should be placed in the Parliament, Person in possession of cash in excess of Rs. 15,00,000 to be questioned, Individual to be allowed to open only one bank account in one city.

Indirect Taxes may contain provision like Excise and Custom Duty to classify all items under four heads i. e. Essential for Life – No Duty, General items – 8% Duty, Luxury Items – 15% Duty & Super Luxury Items –100%, Central Classification authority to be appointed, Service Tax should at 8% of value of services if total value is in excess of 50, 00,000/-. CENVAT credit applicable. Provisions regarding assessment, interest, appeal, can be common and same as applicable to direct taxes. All other taxes to be withdrawn. VAT to be operated at State level.

Central Authority of Advance Ruling – This will issue binding clarifications on revenue matter subject to payment of fee.

Infrastructural Funding - Infrastructure needs massive funds which can not be generated through taxes and borrowings. However, the well known parallel Indian economy of black money is flooded with wealth. This can be the possible and cheapest source for infrastructural funding. The scheme may provide immunity from prosecution subject to payment of 12.5% tax and application of funds for Infrastructure development. e.g. Education, Health Services, power generation, transport, communication, rural development and Family Planning etc. Foreign funds will flow in immeasurable quantum.

Free Trade Zones - Andaman and other Islands can be utilized for developing free trade zones on the lines of UAE, Hongkong, Mauritius, Malta, Bahmas etc. The indirect revenue from these Zones can be a mind boggling figure. Besides, great export market for Indian business.

Export of Arms and Defense Material - The profitable business in whole of the world. This industry gives international political maneuvering capabilities.

Border Super Highway Connectivity - India should go for Super Highways along with its land locked and costal borders. The super highway will provide 20 lane road movements at 200 + Km. an hour speed. It can also hold a Railway track Such highways will help in countrywide infrastructure development, costal development, local employment, border security etc. Besides, the Real Estate Development all along with super highways will do the entire funding for this project. The Government will not be required to do any funding.

General Provisions - Cheque Bouncing needs muscular prosecution law, Loan defaulters to be blacklisted and prosecuted quickly, Persons with exceptionally successful background in Business, Profession, Industry etc. to enjoy special status and some exclusive privileges.

The system proposed herein above offers total transparency. A small number of taxman will be able to generate far more revenue in an efficient manner without any kind of policing, coercion, compulsion.

After going through such an unconventional format there will definitely be some apprehension about the anticipated results about quantum of revenue both in short term and long term. The issues can be addressed. Besides, an in-depth analysis will show that the revenue system is simplified without actually waiving revenue. Besides, the new sources will generate additional revenue.

People who know the inside story of Indian economy understand that, only simplicity and reasonableness on the part of tax authorities  can make us honestly pay our taxes. In fact, the parallel economy also known as number two money will fade away and merge with productive resources. Moreover growth and development will automatically raise the tax collection. Some have opined that, an honest and courageous application of this scheme may take you back to the days of 1917 when I am told one rupee used to fetch 13 US dollar. Not to be surprised if US, UK and Middle East countries line up and solicit for your visas.

I suggest to our most respected PM and his Governing Body to accept these proposals in the interest of every common person. For doubts, discussion and detailed presentation - please do not hesitate to call me on my cell no. 98-100-46108.
Authority for Advance Ruling



The scheme of advance rulings was introduced by the Finance Act, 1993, Chapter XIX-B of the Income-tax Act, which deals with advance rulings, came into force with effect from 1-6-1993. Under the scheme, the power of giving advance rulings has been entrusted to an independent adjudicatory body. Accordingly, a high level body headed by a retired judge of the Supreme Court has been set up. This is empowered to issue rulings, which are binding both on the Income-tax Department and the applicant. The procedure prescribed is simple, inexpensive, expeditious and authoritative.

Advance Ruling, means written opinion or authoritative decision by an Authority empowered to render it with regard to the tax consequences of a transaction or proposed transaction or an assessment in regard thereto. It has been defined in section 245N(a) of the Income-tax Act, 1961 as amended from time to time. Under section 245N, a ruling can be obtained by an applicant (who may be either a non-resident or a resident having a transaction with a non-resident) in respect of any question of law or fact in relation to the tax liability of the non-resident arising out of a transaction undertaken or proposed to be undertaken.

Salient features:—
a. Available only for Income-tax: The procedure of advance ruling is available only under the Income-tax Act, 1961.

b. Must relate to a transaction entered into or proposed to be entered into by the applicant. The advance ruling is to be given on questions specified in relation to such a transaction by the applicant.

c. Questions on which ruling can be sought:

i. Even though the word used in the definition is the word "question", it is clear that the non-resident can raise more than one question in one application. This has been made amply clear by Column No. 8 of the form of application for obtaining an advance ruling (Form No. 34C)

ii. Though the word "question" is unqualified, it is only proper to read it as a reference to questions of law or fact, pertaining to the income tax liability of the non-resident qua the transaction undertaken or proposed to be undertaken.

iii. The question may be on points of law as well as on fact; therefore, mixed questions of law and fact can also be included in the application. The questions should be so drafted that each question is capable of a brief answer. This may need breaking-up of complex question into two or more simple questions.

iv. The questions should arise out of the statement of facts given with the application. No ruling will be given on a purely hypothetical question. No question not specified in the application can be urged. Normally a question is not allowed to be amended but in deserving cases the Authority may allow amendment of one or more questions.

v. Subject to the limitations to be presently referred to, the question may relate to any aspect of the non-resident's liability including international aspects and aspects governed by double tax agreements. The questions may even cover aspects of allied laws that may have a bearing on tax liability such as the law of contracts, the law of trusts and the like, but the question must have a direct bearing, on and nexus with the interpretation of the Indian Income-tax Act.

d. Time limit for ruling: - The Authority shall pronounce it advance ruling within 6 months of receipt of the application.

e. Binding nature of advance ruling: - The effect of the ruling is stated to be limited to the parties appear before the authority and the transaction in relation to which the ruling was given. This is because the ruling was rendered on a set of facts before the Authority and can not be of general application.

Question precluded: Under section 245R, certain restrictions have been imposed on the admissibility of an application, if the question concerned is pending before other authorities. According to it, the authority shall not allow an application where the question raised by the non-resident applicant (or a resident applicant having transaction with a non-resident) is already pending before any income-tax authority or appellate Tribunal or any court of law. Further, the authority shall not allow the application where the question raised in it:-

i.  involves determination of fair market value of any property; or

ii. it relates to a transaction or issue which is designed prima facie for the avoidance of income-tax.

Procedure of application for advance ruling: An applicant desirous of obtaining an advance ruling should apply to the Authority in the prescribed form stating the question on which the ruling is sought. The application has to be made in quadruplicate in Form Nos:-

34C  -  applicable for a non-resident applicant
34D - applicable for a resident having transactions with a non-resident.

The application is to be accompanied by an account payee demand draft for 2,500 Indian rupees drawn in favour of the Authority for Advance Rulings and made payable at New Delhi. The application may be withdrawn within 30 days from the date of the application.

This blog is Created by CA Anil Kumar Jain.