The Delhi High Court stayed an Income Tax Department order directing extradited businessman Rajiv Saxena to disclose overseas assets under the Black Money Act, ruling that individuals compelled to remain in India cannot be forced to reveal foreign bank accounts or business details.
NEW DELHI: The recent ruling by the Delhi High Court has altered the application of the Black Money law for individuals compelled to remain in India. This development poses challenges for the Income Tax department, as it means that individuals such as deported fugitives, defaulters subjected to lookout circulars, extradited suspects, or those assisting investigative agencies cannot be forced to disclose information about their foreign bank accounts, businesses, or assets when their stay is involuntary.
The Delhi High Court has put a hold on an order from the income tax department that mandated Dubai-based businessman Rajiv Saxena, who was extradited to India in January 2019 related to the AgustaWestland case, to disclose details regarding his overseas assets.
Consequently, tax officials can no longer routinely invoke the Black Money Act (BMA) simply because a person has been classified as a ‘resident’ after spending over 181 days in India against their will. According to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 effective from July 1, 2015 individuals recognized as residents must declare their foreign assets in their income tax returns.
The income tax department had argued that the Income Tax Act does not distinguish between voluntary and involuntary residence. Their stance was that since the petitioner had been residing in India since January 30, 2019, he should be classified as a resident and thus subject to the black money law’s provisions. However, the court noted that if the petitioner is ultimately deemed not to be a resident, then actions under the BMA cannot be initiated.
Under the Income Tax Act, residents are taxed on income earned both domestically and internationally, while non-resident Indians are exempt from taxes on their foreign earnings. Although the Income Tax Department sought information about Saxena’s overseas assets by classifying him as a resident, they had yet to issue an official order on this matter.
This situation raises questions about whether the BMA can be enforced if the duration of involuntary stay is not counted. In such cases, the individual would be deemed a non-resident, meaning the BMA provisions would not apply.
The BMA, introduced by a government committed to combating corruption, was designed to overcome shortcomings in the Income Tax Act, allowing for the taxation of undisclosed wealth abroad, including money stored in Swiss and offshore accounts, assets held through discretionary trusts in tax havens, and stakes in unlisted companies where real ownership is concealed.
Ashish Karundia said,
“There can be various reasons for involuntary stay, including passport revocation,”
He added,
“There seems to be no ambiguity in the department’s intent. This was explicitly recognised in circulars no. 11/2020 and 2/2021, which did not provide blanket exemptions but allowed for limited, case-by-case relaxations even during the Covid-19 pandemic when travel was restricted, leaving numerous non-residents stranded.”
The tax authorities appear to believe that granting relief beyond truly exceptional circumstances could undermine the legal framework. Such a policy might leave some individuals without recognized tax residency in any nation, effectively making them tax-stateless an outcome that the Income Tax Act neither anticipates nor accommodates, he added. Due to the case-by-case approach adopted at that time, many NRIs who were unable to leave during the pandemic had to engage with tax authorities regarding their residency status.
Ashish Mehta stated that the Black Money Act does not create an independent process for determining residential status. Instead, it completely relies on the classification defined under the Income Tax Act of 1961. In these provisions, residency is primarily determined by the number of days a person is present in India.
He emphasized that this classification lays the foundation for understanding tax obligations and the necessity of disclosing foreign income and assets. He also reminded that just prior to the BMA’s implementation, the Delhi High Court, in its 2015 ruling in the Suresh Nanda case, determined that periods of compulsory or involuntary stay in India should be excluded when calculating the duration of presence for establishing residential status.
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