BMA s.3

BMA s.3 — the law in short

What the courts have decided on section BMA s.3, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Union of India v Gautam Khaitan Supreme CourtHelps departmentNo later treatment found
  The department says the Black Money Act applies to my foreign account from July 2015. Is that retrospective?
  No. Notifying 1 July 2015 as the commencement date of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 did not make the Act retrospective. The date was advanced only so the one-time compliance window in s.59 could operate, and tax under s.3 is still charged only from assessment year 2016-17 onwards.
• Bindu Todi v DDIT ITATHelps taxpayerNo later treatment found
  My Black Money Act assessment was passed more than two years after the s.10 notice. The Department says the covid relaxation law extended the time. Did it?
  Not for the Black Money Act. Section 11(1) gives two years from the end of the financial year in which the s.10(1) notice was issued, and the Delhi Bench quashed an assessment passed outside that period. Notification No. 113/2021 dated 17 September 2021 issued under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020 extended time only for the Income-tax Act and the Prohibition of Benami Property Transactions Act, not for every specified Act, and did not extend the time for completing an assessment under the Black Money Act.
• Addl. CIT v Yashovardhan Birla ITATHelps taxpayerUnder appeal
  I am named as one of several beneficiaries of an offshore discretionary trust my uncle settled. Does that make the trust's assets my undisclosed foreign assets?
  No, on this line of orders. The Mumbai Bench dismissed the Revenue's appeal and upheld the setting aside of an assessment under s.10(3), following the coordinate Bench in the assessee's own case which had held the s.10(1) notice invalid. A discretionary trust gives a beneficiary no right to any part of the income but vests a discretionary power in the trustees, and where the trust was irrevocable, settled by another, and the assessee was one of several beneficiaries without control, ownership of the assets could not be thrust on him.
• Elangovan Malarmangai v JCIT ITATCuts both waysNo later treatment found
  The assessment under the Black Money Act has been quashed. Does the s.41 penalty go with it, and does the s.43 penalty go too?
  The s.41 penalty goes; the s.43 penalty does not. Because s.41 is a penalty on undisclosed foreign income and assets assessed under s.10, once the Tribunal deleted the additions on a legal ground the s.41 penalty of Rs 18,09,74,151 became infructuous and was directed to be deleted. The Rs 10,00,000 penalty under s.43 was separately upheld in the same order, because it turns on what was or was not put in the return and not on the assessment.
• Prasad Nimmagadda v DIT (Inv) ITATHelps taxpayerNo later treatment found
  I disclosed the foreign assets in every year except one. Does the s.43 penalty for that one year stand?
  Not on these facts. The Tribunal deleted a s.43 penalty where the same foreign assets had been shown in Schedule FA for the years before and the years after, and the source of the investment had been accepted. It reasoned from s.46 that if the penalty were bound to follow the default there would have been no purpose in requiring a show-cause notice at all.
• Tara Kejriwal v DDIT (Inv.) ITATHelps taxpayerNo later treatment found
  The assessment rests on bank statements the department got from a foreign tax authority. They are uncertified and parts are blacked out. Do they prove anything?
  Not by themselves. The Kolkata Bench allowed all three appeals and deleted additions of about Rs 2.52 crore based on four accounts with BNP Paribas, Geneva standing in the names of foreign companies. Copies of bank records that no bank has certified, with portions darkened beyond legibility, have to be corroborated by other evidence before they can establish that the assessee held an asset abroad; passport entries showed the assessee was not in Switzerland when the accounts were opened, and naming in an account opening form did not make him the beneficial owner.
• JCIT v Vikash Marda ITATHelps taxpayerNo later treatment found
  They have issued notices under the Black Money Act for 2014-15 and 2015-16. Can the Act reach those years at all?
  No. The Kolkata Bench held that the first previous year under the Act is financial year 2015-16, so the first assessment year it can reach is 2016-17, and assessments framed for 2014-15 and 2015-16 were without jurisdiction. The batch is nine Revenue appeals covering both the assessments made under s.10(3) and the deletion of penalties levied under ss.41 and 43, and all nine were dismissed. On the asset, a fund in the United States built out of salary earned there while the assessee was a tax resident of the United States, and taxed there, was held not to fall within the definition of undisclosed asset under the Act.
• Addl. CIT v Krishna Das Agarwal ITATCuts both waysNo later treatment found
  They have taxed the same foreign asset on a protective basis in three earlier years and substantively in the year of the search. Can they keep all four alive?
  No. Section 3 charges undisclosed foreign assets in the previous year in which the asset comes to the notice of the Assessing Officer. Once a substantive addition has been made in that year, the Tribunal held the protective additions in earlier years unsustainable and entirely contrary to s.3, and dismissed the Revenue's appeals against their deletion.
• DCIT v Uday Pratap Singh ITATHelps taxpayerNo later treatment found
  They have taxed me on shares in a struck-off offshore company I paid nothing for. Can there be a charge at all if the shares have no value under the rules?
  No. The Kolkata Bench upheld deletion of an addition of Rs 65,240 on 1,000 shares of a British Virgin Islands company. Rule 3(1)(c) requires unquoted equity shares to be valued at the higher of cost of acquisition and the value worked out from the company's assets and liabilities; the assessee had paid nothing, the company had been struck off and had no balance sheet, so both limbs came to nil and s.3 could not operate, the tax being imposed on the value of the undisclosed asset.
• Addl. CIT v Jatinder Mehra ITATHelps taxpayer
  My name appears as beneficial owner on a foreign bank account opening form I never signed. Is that enough to tax the balance in my hands?
  No. The Delhi Bench upheld deletion of an addition of Rs 5,66,47,000 where the account stood in the name of a British Virgin Islands company whose sole director and shareholder was the assessee's son, and the money had come from a trust. Beneficial ownership under s.2(11) requires that the person provided the consideration and exercises control; a name and a passport number on an account opening form, without more, does not establish it.
• Statutory position — s.3 of the Black Money Act: the charge at thirty per cent, the proviso to s.3(1) that fixes the year of charge for an undisclosed foreign asset, and what ss.4 and 5 bring in and refuse to take out CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  The department has issued a Black Money Act notice for a foreign bank account opened in 2007. The Act only came into force in 2015. On what does the charge on that asset actually rest, and in which year is it charged?
  On s.3(1) and its proviso. The Act came into force on 1 July 2015 (s.1(3): "Save as otherwise provided in this Act, it shall come into force on the 1st day of July, 2015"). Section 3(1) charges tax "on every assessee for every assessment year commencing on or after the 1st day of April, 2016 ... in respect of his total undisclosed foreign income and asset of the previous year at the rate of thirty per cent of such undisclosed income and asset". The proviso to s.3(1) is the provision that matters for an old asset: "Provided that an undisclosed asset located outside India shall be charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer." So the year of charge for an asset is not the year of acquisition but the year of coming to notice, and s.3(2) defines the "value of an undisclosed asset" as its fair market value determined in the prescribed manner. Section 4(1) puts three things into the total: (a) undisclosed income from a source outside India, (b) income from a source outside India where a return was required under s.139 of the Income-tax Act and none was furnished in time, and (c) the value of an undisclosed asset located outside India. Section 4(2) keeps out of the total any variation made under ss.29 to 43C, ss.57 to 59 or s.92C of the Income-tax Act, and s.4(3) keeps what is charged here out of total income under that Act. Section 5(1)(i) forbids any deduction for expenditure or allowance and any set off of loss, "whether or not it is allowable in accordance with the provisions of the Income-tax Act"; s.5(1)(ii) allows one reduction only — income already assessed or assessable under the Income-tax Act or under this Act is reduced from the value of the undisclosed asset if the assessee furnishes evidence to the Assessing Officer's satisfaction that the asset was acquired from that income — and s.5(2) prorates that reduction for immovable property.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.