Delhi High Court Ruling Reshapes Black Money Law Enforcement
The Delhi High Court has issued a significant order that alters the enforcement scope of the Black Money law for individuals compelled to remain in India against their will. This development introduces complexities for the Income Tax Department, as it now cannot automatically compel such persons—including deported fugitives, defaulters under lookout circulars, extradited suspects, or those cooperating with investigative agencies—to disclose details of their overseas bank accounts, businesses, or assets.
Court Stays Tax Directive in High-Profile Case
According to a recent report, the Delhi High Court has stayed an income tax department directive that required Dubai-based businessman Rajiv Saxena, extradited to India in January 2019 in connection with the AgustaWestland case, to furnish information on his foreign assets. This decision underscores a pivotal shift in how tax residency is interpreted under duress.
Implications of the Court Order
As a result of this ruling, tax officials are barred from routinely applying the Black Money Act (BMA) solely because an individual has been classified as a 'resident' after staying in India for more than 181 days involuntarily. Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which took effect on July 1, 2015, residents must disclose overseas assets in their income tax returns. The income tax department had argued that the Income Tax Act does not distinguish between voluntary and involuntary residence, maintaining that since Saxena had been living in India from January 30, 2019, he should be treated as a resident subject to the BMA. However, the court observed that if the petitioner is found not to qualify as a resident during proceedings, action under the BMA cannot be pursued.
Residency and Tax Liability Framework
According to the Income Tax Act, residents are liable to pay tax on income earned both in India and abroad, whereas non-resident Indians are not taxed on their foreign earnings. Although the Income Tax Department had sought information on Saxena's overseas assets by treating him as a resident, it had not issued a formal order in the matter. This raises critical questions about whether the BMA can be invoked if periods of involuntary stay are excluded from residency calculations. In such scenarios, the individual would be regarded as a non-resident, and the provisions of the BMA would not apply.
Legal Experts Weigh In on the Ruling
Ashish Karundia, founder of the CA firm Ashish Karundia & Co., commented, "There can be various reasons for involuntary stay, including passport revocation. The department's intent seems clear, as recognized in circulars no. 11/2020 and 2/2021, which did not provide blanket exemptions but allowed limited, case-by-case relaxation even during the Covid-19 pandemic when movements were restricted and many non-residents were stranded." He added that tax authorities fear granting relief beyond exceptional circumstances could undermine the legal framework, potentially leaving individuals tax-stateless—an outcome not intended by the Income Tax Act.
Ashish Mehta, partner at the law firm Khaitan & Co., noted that the Black Money Act does not establish a separate process for deciding residential status but relies entirely on the classification under the Income Tax Act, 1961. Residency is primarily determined by the number of days a person is physically present in India, forming the basis for tax liability and disclosure requirements related to foreign income and assets. He also highlighted that shortly before the BMA came into force, the Delhi High Court, in its 2015 judgment in the Suresh Nanda case, ruled that periods of compulsory or involuntary stay in India should be excluded when calculating presence for residential status.
Background on the Black Money Act
Introduced by a government prioritizing anti-corruption efforts, the BMA aimed to address limitations in the Income Tax Act and enable taxation of undisclosed wealth held abroad. This includes funds in Swiss and offshore bank accounts, assets held through discretionary trusts in tax havens, and stakes in unlisted companies where beneficial owners remain concealed. The recent court order challenges the blanket application of this law, emphasizing the need for nuanced consideration of individual circumstances.
