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    Background: 

    The Finance Minister, in his budget speech, while acknowledging the limitations under the existing law, had conveyed the considered decision of the Government to enact a comprehensive new law on black money to specifically deal with black money stashed away abroad. He also promised to introduce the new Bill in the current Session of the Parliament. 

    In order to fulfil the commitment made by the Government to the people of India through the Parliament, the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 has been introduced in the Parliament on 20.03.2015. The Bill provides for separate taxation of any undisclosed income in relation to foreign income and assets. Such income will henceforth not be taxed under the Income-tax Act but under the stringent provisions of the proposed new legislation. 

    Summary of the Bill: 

    This Article is our effort to summarize the introduction of the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 (“Bill”) in the lower house of the Parliament. 

    Presently, the Bill is applicable to a person resident of India who has undisclosed foreign income/ assets (including financial interest in any entity). The Bill proposes to tax such income at the rate of 30% and also levy stringent penalties. 

    The Bill provides for stringent prosecution mechanism. However, as a one-time voluntary compliance, the Bill proposes to provide immunity from prosecution if appropriate taxes and penalty have been paid. The Bill, once passed, proposes to be effective from tax year 2015-16. 

    With Effect from: 

    The Bill proposes to be enacted with effect from 1 April 2016 i.e., tax year 2015-16. 

    Residents covered: 

    The Bill proposes to include all taxpayers who are resident in India under the Indian Tax Laws (ITL). The Bill however, excludes category of “resident but not ordinarily resident ” from its ambit. 

    Domain of the Bill 

    • The Bill proposes to include undisclosed foreign income/ asset which is defined to mean (a) undisclosed income from a source located outside India, and (b) value of undisclosed asset (including financial interest in any entity) located outside India which is held in the name of the taxpayer/where the taxpayer is a beneficial 
    • Undisclosed foreign income/value of undisclosed foreign assets is taxable at 30% on gross basis, without any benefit deduction/ allowance/set of losses as provided under the 
    • Foreign income is considered as “undisclosed” if the same is not reported in the return of income (ROI) of the relevant year furnished under the ITL, or in respect of which ROI was to be furnished, but was not filed within the stipulated time under the Foreign asset is “undisclosed” if the taxpayer is not able to explain the source of investment in such asset or explanation offered, in the tax authority ’s opinion, is not satisfactory. 
    • Undisclosed foreign asset will be chargeable to tax with respect to fair market value, which will be determined in accordance with the prescribed Such asset will be taxable in the year in which the same comes to notice of the tax authority. 

    Tax office Audit procedure 

    • The Bill does not require the taxpayer to file ROI under the proposed The Bill proposes direct assessment of undisclosed foreign income/ asset on the basis of information received from any sources. In such a case, the Bill proposes to follow the principles of natur al justice, such as, issue of notice (no specific time limit prescribed in the Bill for issuance of notice), granting an opportunity of hearing to taxpayer, furnishing documentary evidences etc.
    • Subsequent thereto, the tax authority is required to pass a final order, in writing, within two years from the end of tax year in which the notice was 
    • The Bill proposes remedial measures such as appeal , along the lines of the ITL. The Bill also lays down guidelines on rectification/revision of tax authority ’s orders, provisions for recovery for arrears etc., which is largely on the lines of the ITL.

     

    Levy of interest

    • The Bill proposes to levy interest if ROI has not been furnished, or in case of default on compliance with advance tax liability under the ITL, in relation to the undisclosed foreign 

    Penalties: 

    • The Bill has proposed stringent penalties in respect of undisclosed overseas income/ asset which are as follows:

    Particulars

    Penalty

    Penalty for concealment of overseas income/ asset

    3 times the amount of tax

    Failure to furnish ROI within specified time under ITL

    •  Resident taxpayer (excludes resident but not ordinarily resident) who fails to furnish

    •  ROI within specified time under ITL, and who, at any time during the relevant year

    •  Held any overseas assets (including financial interest in any entity) as beneficialowner/ otherwise; or

    •  Held beneficial interest in any overseas assets (including financial interest in any entity); or Earned income from a source outside India

     

    No penalty will be levied if overseas asset comprises of bank account only, and wherethe aggregated balance does not exceed INR 5,00,000 at any time during the tax year

    INR 10 lakhs

    Failure to furnishing information or furnishing inaccurate information in ROI under ITL

    •   Resident taxpayer (excludes resident but not ordinarily resident) who has furnished ROI under ITL but does not furnish any information/furnishes inaccurate particulars inrelation to any overseas asset (including financial interest in any entity); or

    •   Any income from a source located out side Indiaoverseas assets could be held as a beneficial owner or held on account of a thirdperson

    •   No penalty will be levied if overseas asset comprises of bank account only, and wherethe aggregated balance does not exceed INR 500,000 at any time during the tax year

    INR 10 lakhs

    Failure to pay tax under proposed law

    •                  Where taxpayer is treated as a defaulter in making payment of any tax and he is incontinuing default

    Equal to the amount of t ax

    Particulars

    Penalty

    Other penalty

    Any person is liable to penalty if, without any reasonable cause, fails to:

    •  Answer any question from the tax authority in exercise of its powers conferred under the Bill;

    •  Sign any statement in any proceedings under the Bill, which the tax authority may legallyrequire such person to sign;

    •  Attend/produce book of account/documents/evidence as required

    INR 0.50 lakhs– INR 2 lakhs

    Key aspects for levy of penalty:

    • Principle of natural justice will be followed, e., issue of notice, opportunity of hearing etc.
    • Prior approval of Joint Commissioner,subject to specific quantum of
    • No penalty can be imposed after expiry of one year from the end of the tax year in which notice for levy of penalty was 

    Prosecution: 

    The Bill has proposed initiation of prosecution for certain non-compliances in respect of undisclosed overseas income/ asset. The Bill clarifies that prosecution for offences shall be in any other Indian laws. The Bill proposes the following:

    Offence

    Punishment

    Resident taxpayer (excludes resident but not ordinarily resident) who “wilfully ” fails to furnish ROI within specified time under ITL, or who has furnished ROI, wilfully fails to furnish any information/ furnishes inaccurate particulars in relation to:

    •  Any overseas asset (including financial interest in any entity); or Any income from a source outside India

    •  No prosecution if ROI is furnished before the end of the assessment year

    •  Overseas assets could be held as a beneficial owner or held on account of a third person

    Rigorous imprisonment(RI) for 6 months- 7 years, with fine

    Offence

    Punishment

    •  Resident taxpayer (excludes resident but not ordinarily r esi dent ) “ wi l f ul l y at t empt s ” t oevade any tax/interest/penalty under proposed law

    •  Any person who “wilfully attempts” to evade payment of any tax/interest/penaltyunder proposed law

    •  The term “wilful attempt” has been defined widely.

    RI for 3 years –10 years, with fine

     

    RI for 3 months –3 years, plus if the Court levies any fine

    •  If a person makes a statement in any verification, or delivers any account/ statementwhich is false or which he believes to be false

    •  If a person abets/induces another person to make and deliver an

    •  account/ statement/declaration which is false or which he believes to be false

    RI for 6 months -7 years,with fine

    •  Punishment where any person is convicted for the same offence in the above cases more than once

    RI for 3 years -10 years, with fine of INR 5lakhs -INR 1Crore

    Key aspects on prosecution:

    • C o u r t s h a l l p r e s u m e m e n s r e a , i . e . , c u l p a b l e m e n t a l s t a t e ( w h i c h i n c l u d e s intention/motiv e/knowledge ), and it is for the taxpayer to prove absence thereof. 
    • Approval from Principal Commissioner/Commissioner/Commissioner (Appeals) is a pre-requisite to initiate prosecution 
    • For offences committed by a company, all persons responsible for the conduct of the company’s business (generally, director/manager/ secretary ) at the time of the offence will be held guilty,unless such person proves that the offence was conducted without his knowledge or that he had exercised due diligence to prevent the commission of such offence.
    • There is no provision for compounding 

    One time window-period for compliance:

    • The Bill provides for a one time limited period opportunity f or taxpayers to declare any undisclosed foreign income/ asset which he has acquired from income chargeable to tax under the 
    • The Taxpayer will need to file declaration in prescribed form before the specified tax authority within a stipulated time period, and pay tax at 30% of the value of asset, and an equal amount of In such cases, no prosecution proceedings will be initiated. Such person will enjoy exemption from levy of wealth tax for past years in relation to the declared assets. 
    • Such declaration will be invalid if the taxpayer does not pay the appropriate tax and penalty within the notified period, or in cases where there is any misrepresentation/ suppression of 
    • The Taxpayer is not eligible for one time declaration (a) if in relation to the undisclosed foreign asset including (bank account whether having any balance or not) located outside India, any proceeding under the ITL is pending for any past year; or (b) where information in respect of such assets has been received by competent authority from other country under an agreement, or (c)prosecution proceedings have been initiated under certain specific 

    Analysis/ Comments: 

    • The Bill also proposes to amend Prevention of Money Laundering Act (PMLA), 2002 to include offence of tax evasion under the proposed legislation as a scheduled offence under Thus, in keeping with the commitment of the government for focussed action on black money front, an unprecedented and multi-pronged attack has been launched to root out the menace of black money. The Government is confident that this new law will act as a strong deterrent and curb the menace of black money stashed abroad by Indians. 
    • Income/ assets which are stashed overseas, particularly in tax havens, and offshore financial centres, have dominated public debate in the recent Evasion of tax robs the nation of critical resources to undertake programs for social inclusion and economic development. 
    • The Supreme Court of India and the public, at large, have unequivocally expressed concerns on the 
    • In the past, the GOI had, on a number of occasions, promised to track down and bring back undisclosed foreign assets/incomes. 
    • Recognizing the limitations of existing laws in India and in keeping with its commitment, the GOI has launched a multi-pronged attack to root out the menace of undisclosed overseas assets/incomes by tabling the Bill in the lower house of the Indian 
    • The Bill provides separate regime for taxation of undisclosed foreign income/ asset which was not disclosed or reported under the ITL and which has come to the notice of the tax authority on or after 1 April 
    • The foreign income/ asset detected by the tax authority before 1 April 2015 wil lcontinue to be governed by the Further, by providing taxation of undisclosed foreign assets in the year in which such asset comes to notice of the tax authority, the Bill has tried to overcome challenges in reopening past assessments under the ITL including reopening within a period of 16 years. 
    • The Bill proposes to apply to all persons resident in India, and may extend to expatriates who, by virtue of their presence in India, acquire the status of a ‘resident.’ The Bill may also apply to a foreign company which, on account of the residency test of place of effective management, proposed in Finance Bill 2015, becomes a ‘resident ’ in The Bill, however, offers a one-time opportunity to the taxpayer to pay taxes/penalty and mitigate rigourof stringent prosecution risk. 
    • The Bill will need to be passed in the lower house of the Parliament, and thereafter, in the upper Once passed, the GOI will await ascent by the President of India before the Bill is enacted.
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    To err is human: 

    It is very human, to make a mistake or to do something which should have not been done or not doing something which should have been done in time, so as to be compliant with the law of the land. 

    But, Ignorantia juris non excusat/ignorantia Legis non excusat!!! 

    Which simply means, ignorance of any law/legislation is no excuse, and if ignorance is considered an excuse, a person responsible of doing a particular thing or not doing a particular thing under a law/legislation, would merely claim that he was not aware of the law or provision in question to avoid liability thereunder. 

    The act of doing something wrong or not doing something which ought to have been done, under a particular law constitut es an offence under the law. 

    Let us see the definition of the word Offence: 

    Definition of the word Offence: 

    “Offence” shall mean any act or omission made punishable by any law for the time being in force. [Section 3(38) of General Clauses Act, 1897]; 

    "Offence" means any act or omission made punishable by any law for the time being in force and includes any act in respect of which a complaint may be made under section 20 of the Cattle-trespass Act, 1871( 1 of 1871); [As per Section 2(n) of the Code of Criminal Procedure, 1973]; 

    So, a person guilty of commit ting an offence is liable to be prosecuted under the relevant provisions of law. 

    Now, is getting prosecuted under the relevant provision is the lone remedy available to the person guilty of committing an offence or is there an alternate resolution available to him, is where the concept of Compounding comes in the picture. [the scope of this article is restricted to the provisions of the Companies Act] 

    As per Black’s Law Dictionary “Compounding” means to settle a matter by money payment in lieu of other payments. 

    Further, it is to noted that not all the offences under the Companies Act, are compoundable and some are non-compoundable offences. The types of offences that are eligible for composition under the act, are discussed in the Article. 

    What is Compounding of an Offence ? 

    Having seen the words “Offence” and “Compounding ”, now we need to understand as what is ”Compounding of an Offence(s)”.

    The concept of “Compounding of an offence(s)” in legal parlance generally means, a process to settle the matter(charge/ offence) amicably before the respective adjudicating authority, by paying the fine as imposed by the respective authority, thereby avoiding prosecution under the relevant provision, attending court hearing and undergoing mental tensions/pressure. 

    Provisions under Companies Act, 1956 and 2013. Under Companies Act, 1956:

    Section 621 A of the Companies Act, 1956 deals with Compounding of offences under the Act. Vide the Companies (Second Amendment) Act, 2002, the effective date of which is not yet notified, some changes to the section were proposed. Since the said changes are not notified, the provisions of Section 621-A, as inserted by the Companies (Amendment) Act, 1988, and amended by the Companies (Amendment) Act, 2000, are still in force. 

    Based on the language used in Section 621-A, offences under the Act, may be classified as below: 

    Offences Punishable: 

    (I) with Fine only;

    • with imprisonment or with Fine;
    • with imprisonment or with Fine or both;
    • with imprisonment only;
    • with imprisonment and also with 

    Compoundable offences: 

    Of the list above, an Offences punishable 

    • with Fine only, and
    • with Imprisonment or with Fine 

    CAN be compounded. 

    Offences punishable with Imprisonment or with Fine or both, can also be compounded with the permission of the Court.

     

    Non-compoundable offences:

    Offences punishable 

    • with Imprisonment only, and
    • with Imprisonment and also with

    CANNOT be compounded.

    Compounding Authority: 

    The Authority for Compounding offences under Section 621-A of the Companies Act, 1956, depends upon the maximum amount of fine which may be imposed for such offence under the relevant provisions of the Act, as below:

    Compounding Authority

    Maximum aamount of fine which may be imposed for such offence, as mentionedin the Section/provision

    Hon’ble Company Law Board

    Exceeding Rs.50,000/-

    Regional Director concerned

    Not exceeding Rs.50,000/-

    Compounding Procedure:

    • A Company and or any officer of the company who has committed

      a offence

      , may either before or after the institution of any prosecution under the relevant section, can apply for compounding;

    • The compounding authority shall impose amounts

      t o

      be paid for compounding of the offence, and the amount directed by the authority to be paid by the Company or any officer of the company, shall not exceed the maximum fine payable under the relevant section for

      offence

      under composition;

    • The fees for compounding of offences as per the directions of the compounding authority, are to be paid by the respective applicant i.e., in case of Company, then from the funds of the company, and in case of Directors, the fees

      is

      to be paid by the Directors from their own pocket and not from the company funds; 

    • Any amounts paid as additional fees under section 611(2) shall be deducted from the amount specified for compounding of

      offence

    • Compounding  Application  shall  be  made  to  the  Registrar  concerned,  who  shall  forward  such compounding application along with his comments to the compounding authority; 

    • If an offence is compounded before or after the institution of prosecution, intimation  thereof is to be given to the Registrar within 7 days from the date on which the offence is so compounded;

    • If the offence under composition involves filing of any return, form by the Company or any officer of the company, then the Compounding authority, while compounding the offence, in his order may direct, the Company or the officer to file such return, form, with such fees required to be paid under the Act, within such time as may be specified in the order; and any failure on the part of the Company or any of its officer shall be punishable with imprisonment

      upto

      6 months or with fine not exceeding Rs.50,000/- or with both.

    • Any second or subsequent offence committed after the expiry of a period of 03 (Three) years from the date on which the offence was previously compounded shall be deemed to be

      a first

      offence. So, in case an offence is committed within 03 (Three)years period, then the same is not compoundable.

    Compounding Application and Prosecution: Composition of offence: 

    • before Initiation of Prosecution under the relevant section:

    In case the Compounding application is filed and the offence is compounded by the Authority, before the initiation of prosecution against an offence, then no prosecution shall be initiated either by the Registrar or any Shareholder of the Company or any person authorized by the Central Government, against the Company or any officer of the Company. 

    • after Initiation of Prosecution under the relevant section:

    In case the Compounding application is filed after the initiation of prosecution against an offence, and the offence is compounded by the Authority, then the composition shall be informed by the Registrar in writing to the concerned Court, in which the prosecution is pending, and on such notice of the composition of the offence being given, the Company or the officer, in relation to whom the offence is so compounded shall be discharged.

    Provisions under Companies Act, 2013: 

    Section 441 of the Companies Act, 2013, deals with the Compounding of offences. The said section is yet to be notified, and accordingly, the provisions of Section 621-A of the Companies Act, 1956, are applicable, till the notification of Section 441 of the Companies, 2013. 

    The structure of the Section 441 is similar to that of Section 621-A, except for some changes and limits as to authority. 

    Offences Punishable: 

    • with Fine only;

    • with imprisonment or with Fine;

    • with imprisonment or with Fine or both;

    • with imprisonment only;

    • with imprisonment and also with

     

    Compoundable offences: 

    Offences punishable with Fine only CAN be compounded. 

    Offences punishable (a) with Imprisonment or with Fine, or (b) with Imprisonment or with Fine or both, can also be compounded, but with the permission of the Special Court. 

    Non-compoundable offences:

    Offences punishable

    • with Imprisonment only, and

    (ii) with Imprisonment and also with Fine; and

    CANNOT be compounded. 

    Investigation initiated/pendingagainst an offence – Matter cannot be compounded: 

    Apart from the above, any offence by any company or its officer cannot be compounded, if any investigation against such company has been initiated or is pending under this Act. 

    Compounding Authority: 

    The Authority for Compounding offences under Section 441 of the Companies Act, 2013, depends upon the maximum amount of fine which may be imposed for such offence under the relevant provisions of the Act, as below:

    Compounding Authority

    Maximum amount of fine which may be imposed for such offence, as mentionedin the Section/provision

    National Company Law Tribunal

    Exceeding Rs.5,00,000/-

    Regional Director or any officer authorised by the Central Government

    Not exceeding Rs.5,00,000/-

    Compounding procedure: 

    The procedure for composition of offence under Section 441 of the Companies Act, 2013, is similar to that of Section 621-A of the Companies Act, 1956 

    Details of the relevant Sections/Offences under both the Acts:

    Since the aim of the article is bring out the provisions as to composition of offences, the details of the sections/ offences, both under the Companies Act, 1956 and the Companies Act, 2013, that can be/ cannot be compounded, are not being listed.

     

    Discussion Point:

     

    • The main point of discussions is that the provisions of Section 441, of Companies Act, 2013, are not yet notified, so provisions of Section 621-A of the Companies Act, 1956 will be applicable for the compounding proceedings, which again bring lot of confusion as to the following: 
    • Matters that can be compounded:

    Under Companies Act, 1956

    Under Companies Act, 2013

    With Fine only, and with Imprisonment or with Fine

    with permission of court:

    With Imprisonment or with Fine or both

    With Fine only

    With permission of Special Court:

    with Imprisonment or with Fine, or

    with Imprisonment or with Fine or with both

     

    [Offence cannot be compounded in investigations is initiated or pending against the particular offence]

    What would be the position of an offence under the Companies Act, 2013, which is punishable with Imprisonment or with Fine ?

    Whether the same can be directly compounded under 621-A or whether permission of Special Court, is required to be obtained[as prescribed under Section 441 of CA, 2013], is not clear. 

    • Decision of the Compounding Authority:

    As discussed in the beginning of the Article, the threshold limit of the deciding upon the Compounding Authority, as applicable under 621-A [i.e., maximum fine less than Rs.50,000/- then the concerned RD and if Maximum fine more than Rs.50,000/- then Hon’ble CLB], will be applicable for offences under the Companies Act, 2013, also, which some what seems to be improper, because everybody is aware that there are hardly any sections under Companies Act, 2013, which provide for a maximum fine of Rs.50,000/-, thereby all the offences under Companies Act, 2013, will come under the purview of the Hon’ble Company Law Board, by virtue of Section 621-A. 

    While appreciating the efforts made by all the concerned in bring the new Companies Act, in to force, the practical difficulty is that not all the provisions have come in to force, thereby, the 1956 Act, also needs to be referred, in the instant case, for an offence committed under the New act, the compounding procedure under the 1956 Act, is to be referred, thereby creating differences of opinion on interpretation of the provisions and giving way to confusions. Hope these confusions are sorted at the earliest.

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    This Income Computation and Disclosure Standard is applicable for computation of income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” and not for the purpose of maintenance of books of accounts. 

    In the case of conflict between the provisions of the Income-tax Act, 1961 (”the Act ”) and this Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent. 

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    The aim of the series of articles is to give a bird's eye view on the impact of service tax on the various transactions pertaining to the real estate industry. The complications involved in the real estate industry are myriad and often confusing for the trade as regards to the impact of service tax. The confusion prevalent is further accelerated by the stands and interpretation taken by the authorities who are always pro-revenue. Further, the other reason for the confusion is rapid amendments taking place in law pertaining to real estate industry which also makes the lives of the professionals involved in guiding the trade and industry miserable.

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