Very often, trust was at the heart of complex arrangements: the bungalows would be in the name of the driver; loyal employees hold shares worth crores; and, a mountain of money would be parked in the accounts of close relatives, or moved overseas using well-oiled hawala machinery to an opaque trust having accounts with secretive and invincible offshore banks. Chartered accountants and lawyers have honed their skills, taking advantage of lax laws and lack of information to perfect the art over the decades. Even after the dramatic drop in tax rates, the old ways continued. It was too good to give up. By then it had become a way of life.
DIFFICULT LAWS, NEW OBLIGATIONS
But all good things must end. One change after another, triggered by forces beyond the control of those who had hitherto hidden their wealth. The unveiling of tax havens began with the global meltdown of 2008 as sovereigns around the world sought funds after bailing out big banks and bailing out their economies.
And, at home, a new government, projecting a fair image, has radically changed the rules.
The music suddenly came to a halt with three tough laws: the Benami Transactions (Prohibition) Amendment Act, which came into force on November 1, 2016 following the amendment of a 28-year-old ineffective law who slept amid whispers of missing files; the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, a draconian law that came into force in 2015; and the Prevention of Money Laundering Act (PMLA), a 2002 law that was revived and recently approved by the Supreme Court.
A ruling on Tuesday stripped the tax authorities of the power to retrospectively apply the Benami law, confiscate Benami’s assets and press charges – allowing men who made deals with drivers and clerks before 2016 to release. The 2016 law had broadened the definition of “Benami” – covering not only “transaction” but also “arrangement” to facilitate transactions with Benami.
Besides confiscating the assets, the taxman can demand a quarter of the market value of the asset as a fine, and dismiss the offenders – the “beneficiary” or “true” owner, the “benamidar” or the “front” as well as the accomplices (CA and consultants who arranged the case) behind bars. Naturally, Benami transactions, at least those that happened before, have become much more difficult since 2016, with the exception of cases of large cash deposits by third parties after demonetization. Benami’s routine transactions, where corporate promoters used others to hold shares on their behalf to evade Sebi’s holding limits and takeover code, became more complex and costly. Today, every report prepared by tax officials after the raid and seizure is shared with their colleagues in the Benami wing.
RING OF RETROSPECTIVITY
In all respects, the Benami Law is a criminal law – similar to the Black Money Law and the PMLA. The retrospective use of such a law to punish someone for an offense that was committed when the law did not exist is always debatable. Thus, the decision of the supreme court is legally valid, even if many former crooks would now escape summons and prosecution under the Benami law. However, it’s unlikely that all of them will completely disappear from the IT department’s radar. In all likelihood, the tax authorities would scan all the information collected during Benami’s investigation to check whether the PMLA or Black Money can be invoked against these people.
The Supreme Court’s ruling on Benami would also draw attention to court cases that have challenged the retrospective element of the black money law. It’s a law that was passed to overcome the limitations of Income Tax (IT) law and tax undisclosed assets held as offshore bank accounts and properties – often tucked away behind trusts. discretionary.
While the IT Act can be used to claim tax on undisclosed income for 10 years, the Black Money (BM) Act empowers the tax department to search for assets acquired decades ago but discovered now. Thus, under the BM law, the year in which the tax authorities obtain the information is the year for which income (or property) is deemed to have been earned (or acquired) by the person.