2015 (10) TMI 264 - HC - FEMA

Otherwise acquired foreign currencies - Proceedings under FERA, 1973 - holding the currency as owner thereof and handing a part of for safe custody with the appellant s mother and wife - ownership of foreign currencies - validity of statement before income tax authorities - Held that - FERA and the Income Tax Act are two separate and independent Acts operating in two different fields. Therefore, we do not think that the appellants can take advantage of the decision rendered in the tax case appeal. The decision rendered by the Authorities under the Income Tax Act has to be viewed in the context of the most fundamental principle that no income can be taxed twice. If one person makes a claim for certain amount of money and pays income tax, the Department cannot tax the same money at the hands of another, unless that other person has received it in the form of income through a secondary transaction. Therefore, the non inclusion of the value of these currencies in the income of the appellant in the first miscellaneous appeal, may have been driven by circumstances that provide for avoidance of double taxation. Hence, the first question of law is to be answered against the appellants. The Appellate Tribunal itself has gone into the question relating to the expression acquire in Section 8(1) and came to the conclusion that the non examination of Mrs.Seethalakshmi Nagaraj on the side of the defence was fatal. It was not relied upon by the prosecution. There was no explanation as to why and how the appellant in the second miscellaneous appeal came to the premises that was being raided, with a briefcase carrying foreign currencies. In such circumstances, we do not think that the orders of the Adjudicating Authority and the Appellate Tribunal call for any interference. - Decided against the appellants.

Summary

Issues Involved:
1. Whether the Adjudicating Authority and the Appellate Tribunal could have ignored the orders of assessment passed under the Income Tax Act.
2. Whether the orders of adjudication and the order of the Appellate Authority could be sustained after the appellant was discharged in the prosecution launched by the Enforcement Directorate.

Issue-wise Detailed Analysis:

Issue 1: Ignoring Income Tax Assessment Orders

Foreign currencies were recovered from the premises and the briefcase of the appellants. The appellant claimed that the currencies belonged to Mrs. Seethalakshmi Nagaraj, a family friend. This claim was corroborated by Mrs. Seethalakshmi Nagaraj in her statement under Section 40. The appellant successfully challenged the inclusion of the foreign currencies in his income before the Income Tax Appellate Tribunal, which was confirmed by the High Court. Consequently, it was contended that the Adjudicating Authority and the Appellate Tribunal's orders were contrary to law as the ownership of the money was settled in favor of Mrs. Seethalakshmi Nagaraj.

However, the court held that conclusions under the Income Tax Act do not necessarily preclude prosecutions under FERA or FEMA. The Income Tax Act is concerned with the collection of tax, regardless of the legality of the income's source. Therefore, a favorable income tax decision does not imply no violation of Section 8(1) of FERA. The court noted the Supreme Court's stance in K.T.M.S. Mohamed Vs. Union of India that FERA and the Income Tax Act operate in different fields. Thus, the first question of law was answered against the appellants.

Issue 2: Sustaining Adjudication Orders Post-Discharge in Criminal Prosecution

The appellant in the first miscellaneous appeal was discharged in the criminal prosecution based on the Supreme Court's interpretation of "otherwise acquired" under Section 8(1). The appellants argued that the adjudication orders could not stand once the criminal court declared no contravention. The court noted the Supreme Court's decision in Standard Chartered Bank Vs. Directorate of Enforcement, which distinguished between adjudication proceedings and criminal prosecutions. Section 56 of FERA indicates that civil and criminal liabilities are treated separately, and adjudication proceedings are quasi-criminal at most.

Further, the court distinguished the case from Gopaldas Udhavdas Ahuja, where the Supreme Court held that two different conclusions could not be drawn from the same set of facts. In the present case, the Directorate of Enforcement did not examine any witnesses before the criminal court, and the appellant in the second miscellaneous appeal was convicted after trial. Hence, the decision in Gopaldas Udhavdas Ahuja was not applicable.

The court also noted that the Appellate Tribunal found the non-examination of Mrs. Seethalakshmi Nagaraj by the defense as fatal and questioned the appellant's presence with foreign currencies during the raid. Therefore, the orders of the Adjudicating Authority and the Appellate Tribunal did not warrant interference. The second question of law was also answered against the appellants.

Conclusion:

The civil miscellaneous appeals were dismissed, and the court upheld the orders of the Adjudicating Authority and the Appellate Tribunal. No costs were awarded.