Issues /Observations/ Ambiguties Regarding Income Declaration Scheme, 2016

1 As per Section 183(2) , FMV of asset on 01-06-2016= Deemed Undisclosed Income u/s 183(1). As per Section 183(3), FMV of an asset shall be determined in prescribed manner.

Also Tax, Surcharge and Penalty is required to be calculated @ 45% of Undisclosed Income u/s 184 and S.185.

However section 183(1) does not mention about Undisclosed Income. Hence the anamoly, ostensibly seminal, may mar the entire scheme.

Under Income Tax Act , the inclusive definition of word Undisclosed Income is provided u/s 158B(b) for limited purpose of Chapter XIV-B, which is also not in operation for searches after 31-03-2003.

The word Undisclosed Income is also defined u/s 271AAB but again for purpose of levy of penalty under that section.

3 It Should be clarified whether declaration can be filed by residents as well as non residents.

4 As per Circular No. 16/2016 dated 20-05-2016, 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
However, it should also be clarified whether declaration can be filed in respect of foreign income [i.e. income accruing or arising outside India or Income received outside India.]

5 Whether stamp duty value of Immovable property can be taken as Fair Market Value under the Scheme

6 As per Circular No. 17/2016 dated 20-05-2016, in Q.No.12, it is mentioned that After the declaration is made the Principal Commissioner/ Commissioner will enquire whether any proceeding under section 142(1)/143(2)/148/153A/153C is pending for the assessment year for which declaration has been made. Apart from this no other enquiry will be conducted by him at the time of declaration.

However, as per Advertisements being published no enquiries to be made. The matter should be clarified.

7 Since an embargo has been placed on making any other declaration, whether it means that revision of declaration already filed is not possible.

If a person files a declaration in representative capacity say as Karta of HUF, whether he can file another declaration in Individual capacity is not clear from the section 186(3) of the Scheme

8 As per Circular No. 16/2016 dated 20-05-2016,
The declarant shall not be liable for any adverse consequences under the Scheme in respect of, any income which has been duly declared but has been found ineligible for declaration. However, such information may be used under the provisions of the Income-tax Act.
The term adverse consequences be defined. Whether such
person shall not be visited with penalty and prosecution
Circular No. 17/2016 dated 20-05-2016
As per Circular No. 17/2016 dated 20-05-2016, In respect of such undisclosed income which has been duly declared in good faith but not found eligible, then such income shall not be hit by section 197(c) of the Finance Act, 2016. However, such undisclosed income may be assessed under the normal provisions of the Income-tax Act, 1961. [Q.No.9]

However, while answering to Q.No.11 in respect of declaration made by person for undisclosed Income which has been acquired from money earned through corruption, it has been stated by Circular NO. 17/2016 dated 20-05-2016 that if such a declaration is made and in an event it is found that the income represented money earned through corruption it would amount to misrepresentation of facts and the declaration shall be void under section 193 of the Finance Act, 2016. If a declaration is held as void, the provisions of the Income-tax Act shall apply in respect of such income as they apply in relation to any other undisclosed income

Subjectivity between what is declared in good faith and what is declared by misrepresentation should be removed.

Further whether not being hit by section 197(c) means taxing the income in the year of accrual and not the year of detection/issue of notice, Further whether it means not inviting penalty and prosecution .

9 Section 189 bars the reopening of assessment or reassessment. However, it should have been further extended to take care of revision also.

Further Section 189 talks about disentitlement of declarant but not the privilege of Income Tax department to reopen the assessment. So, the matter should be clarified.

10 Person other than Declarant can not claim any benefit, concession,
Immunity under the Scheme[Section 197 (a)]

The benefits of the scheme shall only be available to declarant and not any other person.

One Interpretation is that If declaration is filed in different name and tax is inadvertently filed in different name, then subject to timely payment u/s 187, immunity shall be available to declarant and not the person in whose name the tax has been deposited. SO, whether such person needs to deposit tax again ?

Another interpretation that comes from 197(a) is say that if declaration is made by one husband in respect of cash in his hand, and later if the same cash is deposited into the account of wife, whether wife can explain the cash so deposited on the strength of declaration made by husband,

The scope of S.197(a) be clarified

11 As per Circular 17/2016 the period of holding shall start from the said date (i.e. the date of determination of fair market value for the purposes of the Scheme) i.e. 01-06-2016. The Income tax law has not been amended . Without amending section 2(42A), litigation might arise on the issue.

12 As per Circular 17/2016, Discussing the querry No. 3 on “If the notice has been issued but not served on the declarant, then how will he come to know whether the notice has been issued, the CBDT has stated that The declarant will not be eligible for declaration under the Scheme where a notice has been issued and served on the declarant on or before 31st day of May, 2016

Further In the form of declaration (Form 1) the declarant will verify that no such notice has been received by him on or before 31st May, 2016.

However no such declaration is there in Form-1 except for the wording mentioned in Section 196

13 Circular 16/2016 dated 20-05-2016
For the purposes of declaration under the Scheme, it is clarified that the person will not be eligible under the Scheme if any notice has been served upon the person on or before 31st May, 2016 i.e. before the date of commencement of this Scheme.

As per Circular 17/2016, Discussing the querry No. 3 on “If the notice has been issued but not served on the declarant, then how will he come to know whether the notice has been issued, the CBDT has stated that The declarant will not be eligible for declaration under the Scheme where a notice has been issued and served on the declarant on or before 31st day of May, 2016

Hence whether declaration for notices u/s 148 for AY 2009-10 issued but not served till 01-06-2016 can be filed ?

14 As per Circular In the case of survey, a person is eligible to make a declaration in respect of an undisclosed income of any other previous year other than in which the survey was conducted

Comments: In such a case the declarant shall be able to make a declaration even for the previous years before the year in which survey is conducted, although incriminating material for such period is in the possession of the department.

15 Normally under VDIS Scheme, there are no harsh consequences of not disclosing the Income and the assessee is not placed at a position inferior to that he would be if there was no VDIS. But this scheme as per Section 197(c) says:

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

At the onset, the purpose is to disincetivise the assessee for not making the declaration under the scheme and provide for higher valuation of asset by providing deeming provisions but scheme of fixing the year of deemed accrual or acquisition is not clear.

E.g. As per 197(c) for assessment year 2016-17, notice u/s 148 for undisclosed income of AY 2016-17 is issued on 30-09-2018 , then income shall be deemed to have accrued in 2018-19, being the year of issue of notice and not in previous year 2015-16 relevant to assessment year 2016-17. In such a case, how shall AO assess the assessee, when the income itself is not deemed to have arisen in AY 2016-17. Further the Income tax law has not been amended to provide for such fiction.

As per Press Release dated 14-05-2016, Non-declaration of undisclosed income under the Scheme, will render such undisclosed income liable to tax in the previous year in which it is detected by the Income tax Department

Hence there is not only ambiguity but also contradiction regarding application of S.197 (c). Whether the year of issue of notice or year of detection is relevant for S.197(c ).

Further there is no amendment in Income tax law to give effect to section 197 (c).