Income Tax Dept cannot probe Foreign Assets of Assessee after Six Years: Delhi High Court [Read Judgment]
The Delhi High Court, in its recent decision, quashed an order of the Income Tax department questioning the overseas earnings and assets prior to March 31, 2005.
The earnings included money in tax-haven banks, overseas properties and interests in offshore trusts and applies to non-resident Indians as well. The assessee, an 84-year-old Brahm Datt, challenged the re-assessment orders passed by the income tax department.
The assessee was working in Jordan and Iraq between assessment years (AY) 1984-85 and 2003-04, had filed tax returns in India for income generated in India.
During the proceedings, the assessee submitted before the authorities that he did not maintain an account with a foreign bank in his personal capacity, as a non-resident Indian (NRI) he had contributed about $2-3 million at the time of settling of an overseas trust out of income earned from sources outside India.
In the year 2015, the department passed a re-assessment order against the assessee. The question before the Court was that whether a notice can be issued for a particular AY for concealment of foreign income since six years had lapsed.
Section 148 of the Act allows the tax department to send out Income Escaping Assessment notices to the taxpayer. The time limit for the issue of such a notice is six years from the end of the assessment year (AY) for which income has escaped assessment.
In the year 2012, the Income Tax Act was amended to allow the department to issue Income Escaping Assessment notices for AY 2012-13 anytime till March 31, 2019, when it comes to a taxpayer’s income in India. But for income from abroad, the department is empowered to send out such a notice any time before April 1, 2029.
Allowing the petition, the bench comprising Justices Ravindra Bhatt and Prateek Jalan held such a notice for AY 1998-99 cannot be issued in 2015 as the prescribed period of six years had lapsed in March 2005.
The bench relied on the Apex Court decision in Commissioner of Income Tax v Scindia Steam Navigation Co. Ltd wherein it was held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year, i.e., the first day of April, any change in law upsetting the position and imposing tax liability after that date, even if made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year.
“In view of the above discussion, it is held that the petition has to succeed; the impugned reassessment notice and all consequent proceedings are hereby quashed and set aside. The writ petition is allowed,” the bench said.