Intro: SIT has to submit its status report on Black Money by November 30 and finance minister should ensure some concrete steps are taken.
Indian law doesn’t restrict any citizen from holding any bank account in foreign country and therefore declaring all such money as national asset is just a bizarre demand. Reluctance in disclosing the names to Supreme Court was an ill informed decision and the finance minister is paying the price. The government is facing serious challenges to restore its credibility on this matter and unless something tangible happens on this front it is going to backfire on BJP.
Prime Minister Narendra Modi raised the issue of bringing back black money in his election campaign and the first decision his cabinet took was to constitute a “Special Investigation Team (SIT)” to look into this matter. The government appeared committed and everything was going well, but all of a sudden, an ill informed decision resulted into unwarranted negative publicity. The matter got so much public attention and criticism that the prime minister himself assured the nation that every penny of black money will be brought back.
As a country if we are concerned over the round tripping of illegal money then we have to act on both the fronts i.e. stop outflow and check source of inflow.
The government understands the importance of this issue, and it has taken steps to unearth and recover the black money. The Supreme Court directed the UPA government in July 2009 to form SIT on this matter, which however was constituted by the Modi government after a lapse of almost 3 years. The SIT now formed is fairly represented by officials from CBI, RAW, IB, Enforcement Directorate (ED), RBI and Central Board of Direct Taxes (CBDT). However, despite the conviction to bring back black money, the damage has been done.
The stand taken by the government that the tax treaty prohibits it from disclosing the name had no merit. Tax treaty with respect to exchange of information is almost similar with USA and France (Article 28 of DTAA with both the countries). By a plain reading of the DTAA provisions three things become very clear-
i) Any information received by India shall be treated as secret in the same manner as information obtained under the domestic laws of our country.
ii) If the information is regarded as secret in USA/France, it shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes which are the subject of the Convention (i.e. Income tax, Gift tax and Wealth tax).
iii) Such persons or authorities shall use the information only for such purposes, but may disclose the information in public Court proceedings or in judicial decisions. The competent authorities shall, through consultation, develop appropriate conditions, methods and techniques concerning the matters in respect of which such exchange of information shall be made, including, exchange of information regarding tax avoidance.
It is clear from the above that the plea taken by attorney journal for not disclosing the names citing the confidentiality clause under DTAA had no merit. The honest finance minister is paying the price of an ill informed decision. There are other concerns that disclosing the names would impact the investments coming from USA as India is yet to sign the “Intergovern-mental Agreements” (IGAs) under “Foreign Account Tax Compliance Act” (FATCA, a law enacted by USA to combat the tax evasion). Under FATCA, Foreign Financial Institution i.e. non-US financial entities who are investing and earning income for US persons are required to fulfill certain obligations otherwise punitive measures by way of withholding tax are prescribed. As far as FATCA is concerned, USA treasury department has issued two models of the IGAs. Model I would require FFIs to report all FATCA related information to their own governmental agencies, which would then report the FATCA related information to the IRS, whereas, model II would require FFIs to report information directly to the IRS. IGAs entered with other countries under both the models specifically mentions that the confidentiality of the information exchanged under the IGA shall be governed by the existing conventions or treaties (mentioned under the preface of the IGAs entered under FATCA). Accordingly if the disclosure of the name is in accordance with the DTAA entered with USA then it is in compliance with FATCA also.
Shshank Saurav (The writer is Chartered Accountant)
