It definitely cannot be lightly dismissed by anyone, least of all by the Centre and most of all by the petitioners when none other than the Jammu and Kashmir High Court itself and that too not a Single Bench but by a Division Bench comprising of Hon’ble Mr Justice Ali Mohammad Magrey and Hon’ble Mr Justice Mohd. Akram Chowdhary in a most laudable, learned, landmark and latest judgment titled Tabasum Mir Vs Union of India in WP (C) No. 802/2021 along with connected matters and cited in 2022 LiveLaw (JKL) 161 minced absolutely just no words to observe that money stashed abroad by evading tax could be used in ways which could threaten national security. This definitely cannot be taken for granted at any cost and under any circumstances! The Court made these observations in six petitions filed through senior Apex Court counsel P Chidambaram challenging the validity of the notices dated July 6, 2018 issued by the respondents (Union of India, Finance Department, Commissioner of Income Tax, New Delhi, and Deputy Director of Income Tax (Investigation) Investigation Wing under Section 10 (1) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 as also show cause notices dated March 18, 2021. The petitioners had also challenged the penalty notices dated March 29, 2021, assessment orders dated March 31, 2021 and demand notices dated March 31, 2021.
It must be stated that in their plea, the petitioners claimed to be beneficiaries of Mondale Irrevocable Discretionary Trust which was created and established abroad in Bangkok, Thailand. The petitioners brought money of their share in India upon permission granted by the Reserve Bank of India. In the meantime, Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was enforced with effect from 1st of April 2015 or 1st of July 2015. In view of the said Act, a notice under Section 10(1) and thereafter under Section 10(2) were issued requiring certain information from the petitioners. The plea stated that the said notice was duly replied as required by the petitioners, but till date, no order of assessment as contemplated under Section 10 has been passed against the petitioners.
While holding the petitions as “not maintainable” as petitioners had not exhausted the remedy available in the legislation, the Court granted liberty to the petitioners to challenge the same before the appellate authority. The Division Bench while adjudicating upon the matter observed that tax evasion puts a disproportionate burden on the honest taxpayers as they have to bear the brunt of higher taxes to make up for the revenue leakage caused by the evasion. The Court made no bones that stashing away of black money abroad by some people with the intent to evade taxes has been a matter of deep concern to the nation. It also observed that evasion of tax robs the nation of critical resources necessary to undertake programs for social inclusion and economic development.
i. Common questions of fact and the law:
At the very outset, this brief, brilliant, bold and balanced judgment authored by Hon’ble Mr Justice Ali Mohammad Magrey for a Division Bench of Jammu and Kashmir and Ladakh High Court comprising of Hon’ble Mr Justice Mohd. Akram Chowdhary and himself sets the ball rolling by first and foremost putting forth in para 1 that, “Since common questions of fact and the law are involved in all these connected six Petitions, therefore, same, after having been heard together, are being decided by this common order.”
ii. Nature of Challenge thrown:
Simply put, the Division Bench then states in para 2 that, “In the first 03 Writ Petitions, being WP (C) Nos. 594/2021; 596/2021; and 597/2021, the Petitioners have assailed the validity of the notices dated 6th of July, 2018 issued by the Respondents under Section 10 (1) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (for short ‘the Act of 2015’) as also show cause notices dated 18th of March, 2021. Thereafter, by medium of Writ Petitions bearing WP (C) Nos. 802/2021; 803/2021 and 806/2021, the Petitioners have challenged the penalty notices dated 29th of March, 2021, assessment orders dated 31st of March, 2021 and demand notices dated 31st of March, 2021.”
iii. Genesis of the present litigation:
To put things in perspective, the Division Bench then envisages in para 3 that, “One Abdul Rashid Mir had three children, namely, Late Mujeeb Mir; Late Sabeha Mir; and Tabasum Mir. Late Mujeeb Mir is stated to have been a citizen of India who, however, primarily lived outside India since his childhood and his primary place of residence was at Bangkok, Thailand. The said Mujeeb Mir is claimed to be a Non-Resident Indian for the purpose of Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’) since 1990. On 22nd of March, 2002, without the knowledge to the Petitioners, the said Late Mujeeb Mir issued letter of instructions to M/s Trumax Nominees Limited for establishment of trust to be called the ‘Mondale Irrevocable Discretionary Trust’. On 8th of October, 2002, without the knowledge of the Petitioners, the said Mujeeb Mir settled ‘Mondale Irrevocable Discretionary Trust’ with Trumax Company Limited, a Company incorporated under the Laws of Isle of Man to act as Trustees for the Trust. On 8 th of October, 2002, without the knowledge of the Petitioners, the said Mujeeb Mir subscribed to the entire share capital of the Company Mondale SA that was incorporated under the laws of Republic of Panama and transferred the said shares to ‘Mondale Discretionary Trust’. On 9th of October, 2002, without the knowledge of the Petitioners, the said Mujeeb Mir excluded the erstwhile beneficiaries (a Wildlife Sanctuary) and made his siblings, namely, Tabasum Mir (Sister); Ms Sabeha Mir (Sister); and his first cousin brother-Amir Mir as the beneficiaries of ‘Mondale Discretionary Trust’. On 31st of January, 2005, the said Mujeeb Mir passed away and his father-Abdul Rashid Mir was appointed as the Manager of the Estate of his deceased son pursuant to orders passed by the Courts in Thailand. On 11th of September, 2007, a deed of appointment and indemnity was entered between Trumax Company Limited (Trustees) and Abdul Rashid Mir representing the beneficiaries. Through Abdul Rashid Mir, the Petitioners learnt that there were three beneficiaries. The deed, inter alia, stated that ‘the Trustee hereby irrevocably appoints to the Beneficiaries in equal shares absolutely the appointed fund for their own absolute use and benefit freed and discharged from all the trusts of the Trust’. On 2nd of January, 2008, the Stabitrust Fiduciaries Limited were appointed as Trustee of the Mondale Trust as successor Trustee to Trumax. On 18th of January, 2010, beneficial interest in bank account of Mondale S. A. operating with Banque Baring Brothers Sturdza SA, Geneva was transferred to the beneficiaries of the trust. On 4th of March, 2010, the Petitioners wrote to the Reserve Bank of India and disclosed the creation of Mondale Discretionary Trust by Late Mujeeb Mir and apprised them about the inheritance on account of his demise. Furthermore, permission was sought under Section 6(5) of the Foreign Exchange Management Act, 1999 to hold securities in a foreign company (Mondale SA) and consequent beneficial interest in a foreign bank account. On 5th of April, 2010, the Reserve Bank of India replied to the letter of one of the Petitioners and referred to Master Circular No. 01/2009-10 which, inter alia, provided that a general permission has been granted to resident of India to hold foreign securities and to acquire shares by way of inheritance from a person resident out of India. On 28th of January, 2011, the balance lying with the foreign bank account (1/3rd share) was declared in the Wealth Tax Return for the Accounting Year (AY) 2010-11 and Accounting Year (AY) 2011-12 of the Petitioners. On 4th of July, 2011, Rs. 5,92,64,869/, being 1/3rd share of each of the Petitioner, was remitted from the bank account of Mondale SA to India. On 6th of July, 2011, the Jammu and Kashmir Bank Limited issued certificate of Foreign Inward Remittance specifying the remittance of money on account of the dissolution of the trust and 1/3rd of inheritance. In April, 2016, the Panama Paper Leaks Article was published in Indian Express newspaper giving names of various individuals reportedly having foreign assets. Thereafter, income tax proceedings under Section 131 (1-A) of the Act of 1961 initiated against the Petitioners seeking details of foreign assets. Information as called for was provided by the Petitioners. On 6th of July, 2018, notice under Section 10(1) of the Act was issued to the Petitioners seeking various details. On 2nd of August, 2018, the Petitioners submitted information in response to the documents called for by the authorities which, inter alia, included information about receipt of money from the trust settled by Late Mujeeb Mir. On 29th of March, 2019, notice under Section 148 of the Act of 1961 was issued to the Petitioners for reopening of assessment for Account Year (AY) 2012-13. On 19th of April, 2019, the Petitioners sought reasons for reopening of the assessment. On 7th of September, 2019, no response was received by the Petitioners, however, fresh letter was issued seeking further documents. On 18th of October, 2019, the Petitioners filed response to the above and again sought reasons for reopening of assessment. On 20th of November, 2019, notice under Section 10(2) of the Act was issued to the Petitioners asking to produce all relevant documents. The Petitioners sought two adjournments. On 16th of October, 2020, copies of wealth tax returns submitted by the Petitioners for Accounting Year (AY) 2010-11 as directed by the Deputy Director of Income Tax (Investigation), Srinagar. Thereafter, notice for personal deposition of the Petitioners issued by the Deputy Director of Income Tax (Investigation), Srinagar under Section 8 of the Act of 2015. On 9th of February, 2021, additional details as called for by the Deputy Director of Income Tax (Investigation), Srinagar were submitted by the Petitioners. On 22nd of February, 2022, the Petitioners filed a detailed reply to the notice under Section 10(1) of the Act dated 6th of July, 2018. On 3rd of March, 2021, clarification submitted by the Petitioner to Deputy Director of Income Tax (Investigation), Srinagar that the reply to RBI application received only for Mr Amir Mir and, on follow-up with RBI, they were informed that same guidelines apply to other applicants/ Petitioners. On 18th of March, 2021, show cause notice was issued to the Petitioners by the Deputy Director of Income Tax (Investigation) pursuant to filing of the reply dated 23rd of February, 2021. The Petitioners filed three separate Writ Petitions bearing WP (C) Nos. 594/2021; 596/2021; and 597/2021 before this Court challenging the notices issued under Section 10(1) of the Act dated 6th of July, 2018 as also the show cause notices dated 18th of March, 2021. On 29th of March, 2021, this Court passed order directing the Respondents to go ahead with the assessment, but not to proceed with prosecution and penalty proceedings. On 29th of March, 2021, the Petitioners received three notices each dated 29th of March, 2021 under Section 46 read with Sections 41, 42 and 43 of the Act of 2015, respectively, for imposition for penalty. On 31st of March, 2021, vide the assessment Orders dated 31st of March, 2021, the Petitioners were assessed to tax under Section 10 of the Act of 2015 and the total value of undisclosed foreign assets was determined and total tax, accordingly, computed to be paid on account of said undisclosed foreign assets. On 31st of March, 2021, demand notice dated 31st of March, 2021 was issued directing the Petitioners to pay the tax determined within a period of 30 days. Thereafter, penalty notices dated 29th of March, 2021, the assessment orders dated 31st of March, 2021 and demand notices dated 31st of March, 2021 were challenged by the Petitioners through WP (C) Nos. 802/2021; 803/2021 and 806/2021.”
iv. Details of the Writ Petitions:
What merits attention is that the Bench then notes in para 4 that, “In WP (C) No. 594/2021, the Petitioner, namely, Tabasum Mir, has contended that she is a beneficiary of a Trust which was created and established abroad. The Petitioner brought benefit/money of her share in the country upon permission granted by the Reserve Bank of India. In the meantime, Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (hereinafter referred to as “the Act of 2015”) has been enforced with effect from 1st of April 2015 or 1st of July 2015. In view of the said Act, a notice under Section 10(1) and thereafter under Section 10(2) were issued requiring certain information from the Petitioner. The said notice was duly replied by the Petitioner, but till date, no order of assessment as contemplated under Section 10 has been passed against the Petitioner. At the same time, a further show cause notice dated 18th of March 2021 has been issued requiring the Petitioner to show cause why in respect of some of the assets, the Petitioner should not be taxed under the Act and penalties and prosecution be launched against her. It is averred that the aforesaid show cause notice is neither a notice issued under Section 10 nor a notice under any other provisions of the Act and, as such, is without jurisdiction. The Petitioner cannot be prosecuted and saddled with penalties without there being the assessment order passed under Section 10.”
For paucity of space one is constrained to not mention the details of all the writ petitions.
vi. Discussion and Analysis:
Most significantly, the Division Bench then minces no words to hold in para 27 that, “Before going into the merits of the case, it shall be advantageous to have a glance at the genesis of the Act of 2015. Stashing away of black money abroad by some people with the intent to evade taxes has been a matter of deep concern to the nation. Black Money is a common expression used in reference to tax-evaded income. Evasion of tax robs the nation of critical resources necessary to undertake programs for social inclusion and economic development. It also puts a disproportionate burden on the honest taxpayers as they have to bear the brunt of higher taxes to make up for the revenue leakage caused by evasion. The money stashed away abroad by evading tax could also be used in ways which could threaten the National Security. Recognising the limitations of the existing legislation, a new legislation (the Act of 2015) was proposed to deal with undisclosed assets and income stashed away abroad. Hon’ble the Supreme Court has also expressed concern over this issue. The Special Investigation Team constituted by the Central Government to implement the decisions of Hon’ble the Supreme Court has also expressed the views that measures may be taken to curb the menace of black money. Internationally, a new regime for automatic exchange of financial information is fast taking shape and India is a leading force in this effort. The new legislation has been enacted to apply to all persons resident in India and holding undisclosed foreign income and assets. A limited window is proposed to persons who have any undisclosed foreign assets. Such persons may file a declaration before the specified tax authority within a specified period, followed by payment of tax at the rate of 30 per cent and an equal amount by way of penalty. Exemptions, deductions, set-off and carried forward losses etc. shall also be not allowed under the new legislation. Upon fulfilling these conditions, a person shall not be prosecuted under the Bill and the declaration made by him will not be used as evidence against him under the Wealth Tax Act, the Foreign Exchange Management Act (FEMA), the Companies Act or the Customs Act. Wealth Tax shall not be payable on any asset so disclosed. It is merely an opportunity for persons to become tax complaint before the stringent provisions of the new legislation come into force. This legislation desires to make provisions to deal with the problem of the Black money that is undisclosed foreign income and assets, the procedure for dealing with such income and assets and to provide for imposition of tax on any undisclosed foreign income and asset held outside India and for matters connected therewith or incidental thereto. This Act was enacted on 26th of May, 2015 and was ordained to come into force on the 1st day of July, 2015.”
vii. Conclusion:
Finally and far most significantly, the Division Bench then concludes by holding in para 35, 36 and 37 that, “35. For all that has been said and discussed hereinabove, we declare that these Writ Petitions are not maintainable before this Court in view of the efficacious and statutory remedy of appeal being available to the Petitioners in terms of the mandate of Sections 15 and 17 of the Act of 2015. Accordingly, the preliminary objection raised by the Respondents with regard to the maintainability of these Petitions before this Court sustains, as a sequel thereto, all these Petitions shall stand dismissed. This shall also dispose of any pending miscellaneous application(s) accordingly.
36. We, however, having regard to the fact that the Petitioners have been bonafidely pursuing their claim before this Court by filing these Writ Petitions under Article 226 of the Constitution at the relevant point of time and, admittedly, the decision in these Writ Petitions has consumed more than one year, grant liberty to the Petitioners to avail the aforesaid statutory remedy of appeal against the proceedings initiated against them by the Respondent No.3, including the show cause notices, assessment orders, penalty notices, demand notices, within one month from the date of announcement of this Judgment. In the event any such appeal/s is/are filed before the appellate authority within the time so granted by this Court in accordance with the mandate of the Act of 2015, the appellate authority shall consider the same only on merits without making any reference to the period of limitation and, till then, no punitive action shall be taken against the Petitioners. We also make it clear that the appellate authority shall not get influenced by any observation made by this Court while deciding these Writ Petitions. All the contentions of the parties, on merits, are left open to be gone into and decided by the appellate authority as per law.
37. Registry to place a copy of this Judgment on each connected file.”
All told, the Jammu and Kashmir and Ladakh High Court have indubitably held that black money stashed abroad threatens national security and so there has to be zero tolerance for it. All steps must be taken on a war footing to ensure that the black money stashed abroad is brought back. Why should honest tax payers suffer for no fault of theirs? This all the more necessitates the bringing back of black money which was underscored most vocally by none other than legendary and eminent Supreme Court lawyer late Ram Jethmalani! No dilly-dallying on it as it brooks no more delay any longer!
Sanjeev Sirohi