Holding that information obtained by the income tax department (ITD) under the double tax avoidance agreement (DTAA) with foreign countries cannot be used by the Enforcement Directorate (ED) for investigation under the Foreign Exchange Management Act (FEMA), 1999, a Delhi court has dismissed an application moved by the investigation agency, seeking copies of the complaints made by ITD against former Congress MLA Kuldeep Bishnoi and his son Bhavya Bishnoi.
“The application is dismissed being devoid of merit. The nature of the information is confidential and shall remain so during the entire duration of proceedings before this court,” the court said. Asked whether an appeal has been filed by ED, its counsel, Nitesh Rana said that the query can only be answered by the ED.
The complaints were made by the ITD alleging commission of offence punishable under Section 50 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and documents relied upon by the ITD. Section 50 of the Black Money Act makes non-disclosure of information about an asset (including financial interest in any entity) located outside India, in the income tax return punishable.
The ED had moved an application before the court of additional chief metropolitan magistrate (ACMM), special acts, Tis Hazari, Delhi, stating that it is investigating a case against Kuldeep Bishnoi and Bhavya for violation of FEMA and thus copies of the complaints and relied upon documents were required for the purpose of investigation.
{{/usCountry}}The ED had moved an application before the court of additional chief metropolitan magistrate (ACMM), special acts, Tis Hazari, Delhi, stating that it is investigating a case against Kuldeep Bishnoi and Bhavya for violation of FEMA and thus copies of the complaints and relied upon documents were required for the purpose of investigation.
{{/usCountry}}ACMM, Special Acts, Tis Hazari, Delhi, Anurag Thakur in his July 2 order said that even if the ED gets this information, it is bound by the treaty entered into by the Government of India as information received under the treaty can only be used for tax purposes and not in any other proceedings before any authority or department as the same is expressly prohibited by the DTAA.
“The information cannot be used for investigation under FEMA or any other statute except for tax purposes. It is clear that the information can be supplied to a requesting state and such information shall be disclosed by the requesting state only to persons or authorities who are concerned with the assessment, collection, enforcement and prosecution of cases and determination of appeals in respect of tax. These authorities can disclose information in public court proceedings or in judicial decisions,” the ACMM said.
The court of ACMM said that various documents annexed with the complaint were obtained by the Government of India from the supplying countries. Most of the remaining documents attached with the complaint (statements recorded under Section 132 of Income Tax Act, show cause notices etc.) would invariably contain information derived from documents obtained under DTAA. Even in the accusations levelled in the complaint, some information contained in documents obtained under DTAA would be mentioned.
An affidavit filed by Rohan Thakur, DDIT (investigation), ITD, showed that almost all the double tax avoidance agreement (including those with Jeresy, British Virgin Islands, United Kingdom, Switzerland and Isle of Man) contained an article which regulate the exchange of information and the manner in which it may be used and disclosed by the requesting/receiving state (India). A similar article finds place in the DTAA between India and Singapore.
Court disapproves argument that ED and income tax are same party
The court said ED’s argument that they and ITD be considered as one and same party as both are agencies of Government of India does not find favour with the court as the income tax department is established under a special statute for achieving a very specific purpose. If this specious argument is to be accepted, then any government department like the Archaeological Survey of India may come and claim to be entitled to receive copies of documents filed in this court where another government department may be a party, it said.
Follow the mechanism provided under the treaty’
The court said that there is a mechanism provided under the treaty whereby the information received from the supplying state can be disclosed to the other departments of receiving state and the arrangement stipulates that a request is to be made to the supplying state and upon its agreeing, the information can be disclosed to the other departments like ED and the same may be used for other purposes. The ED can directly get the information by resorting to the mechanism provided in the respective DTAA which then would allow the supplying state an opportunity to see and decide for itself whether information is allowed to be shared with ED or not.