ANALYSIS OF INCOME DISCLOSURE SCHEME

Background:

With a view to provide opportunity to persons who have not paid full taxes in the past to come forward and declare their undisclosed income, a new chapter, namely Chapter IX, has been enacted in Finance Act, 2016.

“Any person” can avail of the Scheme

The scheme shall apply to “any person”. Thus, it is wide enough to cover all “persons” as defined in section 2(31) of the Act, like, individuals, HUF, firms, companies, AOP, BOI etc.

The declaration may be made by a person irrespective of who may be a “resident” or a “non-resident” or a “resident but not ordinary resident”.

Section 183: Declaration of undisclosed income:

(1) Subject to the provisions of this Scheme, any person may make, on or after the date of commencement of this Scheme but before a date to be notified by the Central Government in the Official Gazette, a declaration in respect of any income chargeable to tax under the Income-tax Act for any assessment year prior to the assessment year beginning on the 1st day of April, 2017—

(a) For which he has failed to furnish a return under section 139 of the Income-tax Act;

(b) Which he has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Scheme;

(c) Which has escaped assessment by reason of the omission or failure on the part of such person to furnish a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise.

(2) Where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on the date of commencement of this Scheme shall be deemed to be the undisclosed income for the purposes of sub-section (1).

(3) The fair market value of any asset shall be determined in such manner, as may be prescribed.

(4) No deduction in respect of any expenditure or allowance shall be allowed against the income in respect of which declaration under this section is made.

ANALYSIS OF SECTION 183

The declaration under this scheme can be made upto A.Y.2016-17

The declaration under this Scheme can be made on or after the date of commencement of this Scheme but before a date notified by the Central Government in the Official Gazette i.e. till 30-09-2016 (as per Notification No.32/2016 dated 19-05-2016)

A declaration under the aforesaid Scheme may be made in respect of any income or income in the form of investment in any asset located in India.

Declaration can be filed for failure to file return u/s 139(1) as well as u/s 139(4). Escapement of income by reason of omission or failure on part of declarant is also covered under the Scheme.

The fair market value of the asset determined shall be reduced by an amount which bears to the value of the asset as on the 1st day of June, 2016, the same proportion as the assessed income bears to the total cost of the asset.

Illustration on FMV Determination:

Investment in acquisition of Asset in A.Y.2014-15 Rs.500

Source for Above Investment is as follows:

a. Disclosed Income in A.Y.2013-14 Rs.200

b. Undisclosed Income

Pertaining to A.Y.2014-15 Rs.300

FMV as on 01.06.16 Rs.1500

Undisclosed Income = FMV as on 01.06.2016*Undisclosed Income

Cost of the asset

No deduction in respect of any expenditure or allowance shall be allowed against the income in respect of which declaration under this section is made.

Section 184: Charge of tax and surcharge

(1) Notwithstanding anything contained in the Income-tax Act or in any Finance Act, the undisclosed income declared under section 183 within the time specified therein shall be chargeable to tax at the rate of thirty per cent of such undisclosed income.

(2) The amount of tax chargeable under sub-section (1) shall be increased by a surcharge, for the purposes of the Union, to be called the Krishi Kalyan Cess on tax calculated at the rate of twenty-five per cent of such tax so as to fulfil the commitment of the Government for the welfare of the farmers.

Section 185: Penalty

Notwithstanding anything contained in the Income-tax Act or in any Finance Act, the person making a declaration of undisclosed income shall, in addition to tax and surcharge under section 184, be liable to penalty at the rate of twenty-five per cent of such tax.

ANALYSIS OF SECTION 184 AND 185

The above sections 184 and 185 provides for computation of tax payable along with surcharge and penalty to be paid at the time of disclosure of income under this scheme.

Tax can be computed in the following manner.

Illustration on tax calculation

Undisclosed Income to be declared under this Scheme 1,00,000

Tax @ 30% on above undisclosed income 30,000

Add:Krishi Kalyan Cess @ 25% on above 7,500

Add: Penalty @ 25% on above tax 7,500

Total Tax Payable as per this Scheme Rs.45,000

In short, flat tax rate of 45% can be applied on the undisclosed income and the same can be paid.

Section 186: Manner of declaration

(1) A declaration under section 183 shall be made to the Principal Commissioner or the Commissioner and shall be in such form and be verified in such manner, as may be prescribed.

(2) The declaration shall be signed,—

(a) where the declarant is an individual, by the individual himself; where such individual is absent from India, by the individual concerned or by some person duly authorised by him in this behalf; and where the individual is mentally incapacitated from attending to his affairs, by his guardian or by any other person competent to act on his behalf;

(b) Where the declarant is a Hindu undivided family, by the Karta, and where the Karta is absent from India or is mentally incapacitated from attending to his affairs, by any other adult member of such family;

(c) Where the declarant is a company, by the managing director thereof, or where for any unavoidable reason such managing director is not able to sign the declaration or where there is no managing director, by any director thereof;

(d) where the declarant is a firm, by the managing partner thereof, or where for any unavoidable reason such managing partner is not able to sign the declaration, or where there is no managing partner as such, by any partner thereof, not being a minor;

(e) Where the declarant is any other association, by any member of the association or the principal officer thereof; and

(f) Where the declarant is any other person, by that person or by some other person competent to act on his behalf.

(3) Any person, who has made a declaration under sub-section (1) of section 183 in respect of his income or as a representative assessee in respect of the income of any other person, shall not be entitled to make any other declaration, under that sub-section in respect of his income or the income of such other person, and any such other declaration, if made, shall be void.

The declaration may be filed online on the e-filing website of the Income-tax Department using the digital signature of the declarant or through electronic verification code or in paper form before the jurisdictional Principal CIT/CIT.

ANALYSIS OF SECTION 186

S.No.	Status of the Declarant	Signing Authority
1	Individual	Individual; Where individual is absent from India, person authorised by him Where the individual is mentally incapacitated, his guardian or other person competent to act on his behalf.
2	HUF	Karta, where the Karta is absent from India or is mentally incapacitated from attending to his affairs, by any other adult member of such family
3	Company	Managing director thereof, or where for any unavoidable reason such managing director is not able to sign or where there is no managing director, by any director thereof;
4	Firm	Managing partner thereof, or where for any unavoidable reason such managing partner is not able to sign or where there is no managing partner as such, by any partner thereof, not being a minor
5	Any other association	Any member of the association or the principal officer
6	Any other person	That person or by some other person competent to act on his behalf.

Section 187: Time for payment of tax

(1) The tax and surcharge payable under section 184 and penalty payable under section 185 in respect of the undisclosed income, shall be paid on or before a date to be notified by the Central Government in the Official Gazette.

(2) The declarant shall file the proof of payment of tax, surcharge and penalty on or before the date notified under sub-section (1), with the Principal Commissioner or the Commissioner, as the case may be, before whom the declaration under section 183 was made.

(3) If the declarant fails to pay the tax, surcharge and penalty in respect of the declaration made under section 183 on or before the date specified under sub-section (1), the declaration filed by him shall be deemed never to have been made under this Scheme.

ANALYSIS OF SECTION 187

The Central Government has notified 30th September, 2016 as the last date for making a declaration under the Scheme

30th November, 2016 as the last date by which the tax, surcharge and penalty shall be paid.

Accordingly, a declaration under the Scheme in Form 1 as prescribed in the Rules may be made at any time before 30.09.2016.

The declarant shall furnish proof of payment made in respect of tax, surcharge and penalty to the jurisdictional Principal CIT/CIT in Form-3 after which the said authority shall issue a certificate in Form-4 of the accepted declaration within 15 days of submission of proof of payment by the declarant

The above dates have been notified by the Central Government in the Official Gazette vide Notification No.32/2016 dated 19-05-2016.

Section 188: Undisclosed income declared not to be included in total income

The amount of undisclosed income declared in accordance with section 183 shall not be included in the total income of the declarant for any assessment year under the Income tax Act, if the declarant makes the payment of tax and surcharge referred to in section 184 and the penalty referred to in section 185, by the date specified under sub-section (1) of section 187.

ANALYSIS OF SECTION 188

v Amount of undisclosed income declared not to be included in the total income of the declarant for any of the assessment years, if the declarant has fully paid the tax, surcharge and penalty on such undisclosed income

v However, late submission of proof of payment shall not have any impact on the inclusion/exclusion of undisclosed income in the total income.

Section 189: Undisclosed income declared not to affect finality of completed assessments.

A declarant under this Scheme shall not be entitled, in respect of undisclosed income declared or any amount of tax and surcharge paid thereon, to re-open any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957, or claim any set off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment.

ANALYSIS OF SECTION 189

v This section talks only about the disentitlement of declarant but not the privilege of the Department to reopen the assessment.

v Further the declarant is barred from claiming any relief in appeal in respect of income declared under the scheme.

Instance- If the asseessee’s income declared is also a subject matter of appeal, he shall have to contest the case on its standalone merits. The assessee cannot take the advantage of income declared in this scheme while pleading his appeal.

v As per Circular 17/2016 dated 20-05-2016 under such circumstances, the declarant can however, declare other undisclosed income for the said assessment year which has not been assessed under the Income-tax Act.

Section 190: Benami transactions

The provisions of the Benami Transactions (Prohibition) Act, 1988 shall not apply in respect of the declaration of undisclosed income made in the form of investment in any asset, if the asset existing in the name of a benamidar is transferred to the declarant, being the person who provides the consideration for such asset, or his legal representative, within the period notified by the Central Government

ANALYSIS OF SECTION 190

v If declarant provides consideration for asset but held in name of some other person (Benami) and is transferred back to declarant with in period notified by Central Government, provisions of Benami Transactions Prohibition Act 1988 shall not apply.

v As per Notification No. 32/2016 dated 19-05-2016, the undisclosed income declared in the form of investment in benami property and existing in the name of Benamidar shall be transferred in the name of the real owner on or before 30th September, 2017, failing which immunity under Benami Transactions (Prohibition) Act, 1988 shall not be available.

Section 191: Tax in respect of voluntarily disclosed income not refundable

Any amount of tax and surcharge paid under section 184 or penalty paid under section 185 in pursuance of a declaration made under section 183 shall not be refundable.

Section 192: Declaration not admissible in evidence against declarant

Notwithstanding anything contained in any other law for the time being in force, nothing contained in any declaration made under section 183 shall be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty, other than the penalty leviable under section 185, or for the purposes of prosecution under the Income-tax Act or the Wealth-tax Act, 1957.

ANALYSIS OF SECTION 192

Nothing contained in declaration made under this scheme shall be admitted as evidence against declarant for the purpose of proceedings in relation to imposition of penalty, other than the penalty leviable under section 185

Section 193: Declaration by misrepresentation of facts to be void

Notwithstanding anything contained in this Scheme, where a declaration has been made by misrepresentation or suppression of facts, such declaration shall be void and shall be deemed never to have been made under this Scheme.

Section 194: Exemption from wealth tax in respect of assets specified in declaration

(1) Where the undisclosed income is represented by cash (including bank deposits), bullion, investment in shares or any other assets specified in the declaration made under section 183—

(a) in respect of which the declarant has failed to furnish a return under section 14 of the Wealth-tax Act, 1957, for the assessment year commencing on or before the 1st day of April, 2015; or

(b) Which have not been shown in the return of net wealth furnished by him for the said assessment year or years; or

(c) Which have been understated in value in the return of net wealth furnished by him for the said assessment year or years, then, notwithstanding anything contained in the Wealth-tax Act, 1957, or any rules made thereunder,—

(i) wealth-tax shall not be payable by the declarant in respect of the assets referred to in clause (a) or clause (b) and such assets shall not be included in his net wealth for the said assessment year or years;

(ii) the amount by which the value of the assets referred to in clause (c) has been understated in the return of net wealth for the said assessment year or years, to the extent such amount does not exceed the voluntarily disclosed income utilised for acquiring such assets, shall not be taken into account in computing the net wealth of the declarant for the said assessment year or years.

Explanation.—Where a declaration under section 183 is made by a firm, the assets referred to in sub-clause (i) or, as the case may be, the amount referred to in sub-clause (ii) shall not be taken account in computing the net wealth of any partner of the firm or, as the case may be, in determining the value of the interest of any partner in the firm.

(2) The provisions of sub-section (1) shall not apply unless the conditions specified in subsections (1) and (2) of section 187 are fulfilled by the declarant.

ANALYSIS OF SECTION 194

Where the declaration has been made in respect of undisclosed income represented by cash (including bank deposits), bullion, investment in shares or any other assets for which

a. Wealth tax return is not filed for AY 2015-16 or earlier assessment years or

b. Asset is not disclosed in Wealth Tax return filed or

c. Value of asset is understated in the Wealth tax return

Then no Wealth Tax shall be payable on such assets or upto value of asset so represented in declaration of Income under the scheme

CONDITION FOR ABOVE EXEMPTION:

The exemption from Wealth Tax shall not apply unless the tax and surcharge specified u/s 184 and penalty specified u/s 185 is paid within due date prescribed u/s 187 by the declarant.

Section 195: Applicability of certain provisions of Income-tax Act & Chapter V of Wealth tax Act

The provisions of Chapter XV of the Income-tax Act relating to liability in special cases and of section 119, section 138 and section189 of that Act or the provisions of Chapter V of the Wealth-tax Act, 1957 relating to liability in respect of assessment in special cases shall, so far as may be, apply in relation to proceedings under this Scheme as they apply in relation to proceedings under the Income-tax Act or, as the case may be, the Wealth-tax Act, 1957.

ANALYSIS OF SECTION 195

The information obtained in respect of declaration made under this scheme will be kept confidential as in the case of return of income filed by the assessees

Section 196: Scheme not to apply to certain persons

The provisions of this Scheme shall not apply—

(a) To any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974:

Provided that—

(i) such order of detention, being an order to which the provisions of section 9 or section 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under section 8 of the said Act or before the receipt of the report of the Advisory Board; or

(ii) Such order of detention, being an order to which the provisions of section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under sub-section (3) of section 9, or on the report of the Advisory Board under section 8, read with sub-section (2) of section 9 of the said Act; or

(iii) Such order of detention, being an order to which the provisions of section 12A of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under sub-section (3) of that section, or on the basis of the report of the Advisory Board under section 8, read with sub-section (6) of section 12A, of the said Act; or

(iv) Such order of detention has not been set aside by a court of competent jurisdiction;

(b) in relation to prosecution for any offense punishable under Chapter IX or Chapter XVII of the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967 and the Prevention of Corruption Act, 1988;

(c) To any person notified under section 3 of the Special Court (Trial of Offenses Relating to Transactions in Securities) Act, 1992;

(d) In relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015;

(e) In relation to any undisclosed income chargeable to tax under the Income-tax Act for any previous year relevant to an assessment year prior to the assessment year beginning on the 1^st day of April, 2017—

(i) Where a notice under section 142 or sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act has been issued in respect of such assessment year and the proceeding is pending before the Assessing Officer; or

(ii) Where a search has been conducted under section 132 or requisition has been made under section 132A or a survey has been carried out under section 133A of the Income-tax Act in a previous year and a notice under sub-section (2) of section 143 for the assessment year relevant to such previous year or a notice under section 153A or under section 153C of the said Act for an assessment year relevant to any previous year prior to such previous year has not been issued and the time for issuance of such notice has not expired; or

(iii) Where any information has been received by the competent authority under an agreement entered into by the Central Government under section 90 or section 90A of the Income-tax Act in respect of such undisclosed asset.

ANALYSIS OF SECTION 196

The scheme shall not apply in the following cases.

i. Cases where detention order under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974

ii. Offenses under Indian Penal Code, Narcotic Drugs and Psychotropic Substances Act, Prevention of Corruption Act and Unlawful Activities (Prevention) Act.

iii. Persons notified under the Special Court (Trial of Offenses Act)

iv. Any undisclosed income and undisclosed foreign assets to which the provisions of Black Money Act, 2015 applies.

v. Cases where notices have already been issued by the Income Tax Department under section 142 or sub-section (2) of section 143 or section 148 or section 153A or section 153C and the proceeding is pending before the A.O.

vi. Where intimation is received by the Competent Authority under the DTAA.

Section 197: Removal of doubts

For the removal of doubts, it is hereby declared that—

(a) save as otherwise expressly provided in sub-section (1) of section 183, nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under this Scheme;

(b) Where any declaration has been made under section 183 but no tax, surcharge and penalty referred to in section 184 and section 185 has been paid within the time specified under section 187, the undisclosed income shall be chargeable to tax under the Income-tax Act in the previous year in which such declaration is made;

(c) Where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, and no declaration in respect of such income is made under this Scheme,—

(i) Such income shall be deemed to have accrued, arisen or received, as the case may be; or

(ii) The value of the asset acquired out of such income shall be deemed to have been acquired or made, in the year in which a notice under section 142, sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer and the provisions of the Income-tax Act shall apply accordingly.

ANALYSIS OF SECTION 197

Immunity provided under this scheme is not available to any person other than the person making the declaration under this scheme

Where declaration has been made, but no tax, surcharge and penalty specified in sections 184 and 185 has been paid within the time limit prescribed under section 187, then such undisclosed income shall be chargeable to tax under the Income Tax Act in the previous year in which such declaration is made.

Where no declaration in respect of undisclosed income has been made , such income shall be deemed to have accrued and value of the asset acquired out of such income shall be deemed to have been acquired in the year in which a notice is issued by the Income Tax Authorities under the IT Act.

Effects of Valid Declaration:

The amount of undisclosed income declared shall not be included in the total income of the declarant under the Income-tax Act for any assessment year;

The contents of the declaration shall not be admissible in evidence against the declarant in any penalty or prosecution proceedings under the Income-tax Act and the Wealth Tax Act;

Immunity from the Benami Transactions (Prohibition) Act, 1988 shall be available in respect of the assets disclosed in the declarations subject to the condition that the benamidar shall transfer to the declarant or his legal representative the asset in respect of which the declaration of undisclosed income is made on or before 30th September, 2017;

The value of asset declared in the declaration shall not be chargeable to Wealth-tax for any assessment year or years.

Declaration of undisclosed income will not affect the finality of completed assessments. The declarant will not be entitled to claim re-assessment of any earlier year or revision of any order or any benefit or set off or relief in any appeal or proceedings under the Income-tax Act in respect of declared undisclosed income or any tax, surcharge or penalty paid thereon.

Tuesday, 27 September 2016