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TMI BlogClarifications on scope and the procedure to be followed for tax compliance for Undisclosed Foreign Income and Assets in Question and Answer form.X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, can the partner file declaration in respect of such asset? Answer: The declaration can be made by the firm which shall be signed by the person specified in sub-section (2) of section 62 of the Act . The partner cannot make a declaration in his name. However, the partner may file a declaration in respect of an undisclosed asset held by him. Question No.2: Where a company has undisclosed foreign assets, can it file a declaration under Chapter VI of the Act ? If yes, then whether immunity would be granted to Directors of the company? Answer: Yes, the company can file a declaration under Chapter VI of the Act . The Directors of the company shall not be liable for any offence under the Income-tax Act , Wealth-tax Act , FEMA, Companies Act and the Customs Act in respect of declaration made in the name of the company. Question No.3: Whether immunity in respect of declaration made under the scheme is provided in respect of Acts other than those mentioned in section 67 of the Act ? Answer: Section 67 provides immunity from prosecution under the five Acts viz. the Income-tax Act, Wealth-tax Act , FEMA, Companies Act and the Customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired during the year for which a notice under section 142/ 143(2)/ 148/ 153A/ 153C is issued and the proceeding is pending before the Assessing Officer. He is free to declare other foreign assets which have been acquired during other years for which no notice under above referred sections have been issued. Question No.7: As per section 71(d)(i), declaration cannot be made where an undisclosed asset has been acquired during any previous year relevant to an assessment year for which a notice under section 142 , 143(2) , 148 , 153A or 153C of the Income-tax Act has been issued. If the notice has been issued but not served on the declarant then how will he come to know whether the notice has been issued? Answer: The declarant will not be eligible for declaration under Chapter VI of the Act where an undisclosed asset has been acquired during any previous year relevant to any assessment year where a notice under section 142 , 143(2) , 148 , 153A or 153C of the Income-tax Act has been issued and served on the declarant on or before 30th day of June, 2015. The declarant is required to file a declaration regarding receipt of any such notice in Form 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been initiated and the time for issuance of notice under section 153A has not expired, even if such notice for the relevant assessment year has not been issued. In this case, however, the person is eligible to file a declaration in respect of an undisclosed foreign asset acquired in any previous year in relation to an assessment year which is prior to assessment years relevant for the purpose of notice under section 153A . (b) In case of survey operation the person is barred from making a declaration under Chapter VI in respect of an undisclosed asset acquired in the previous year in which the survey was conducted. The person is, however, eligible to make a declaration in respect of an undisclosed asset acquired in any other previous year. Question No. 11: Where a search/ survey operation was conducted and the assessment has been completed but the undisclosed foreign asset was not taxed, then whether such asset can be declared under Chapter VI of the Act ? Answer: Yes, such undisclosed asset can be declared under Chapter VI of the Act . Question No.12: Whether a person is barred from voluntary declaration under Chapter VI of the Act if any in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Act and no declaration under Chapter VI of the Act is made then such asset shall be deemed to have been acquired in the year in which it comes to the notice of the Assessing Officer and the provisions of the Act shall apply accordingly. India is expected to start receiving information through Automatic Exchange of Information (AEOI) route under FATCA from USA later in the year 2015. Further, under the multilateral agreement India will start receiving information from other countries under AEOI route from 2017 onwards. As at 18th March 2015, 58 jurisdictions (including India) have committed to share information under AEOI by 2017 and 36 jurisdictions have committed to share by 2018, including jurisdictions which have beneficial tax regime. The multilateral agreement is expected to cover all the countries in the near future. The information under the AEOI will include information of controlling persons (beneficial owners) of the asset. The possibility of discovery of an undisclosed asset may arise at any time in the future; say for example, information of an immovable property can be unearthed if any utility bills/property tax or even gardener s/ caretaker s salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in the return or not) if the source of investment in such asset is unexplained. Therefore, declaration should be made under Chapter VI of the Act in respect of all those foreign assets which are unaccounted/ the source of investment in such asset is not fully explainable. Question No.18: A person holds certain foreign assets which are fully explained and acquired out of tax paid income. However, he has not reported these assets in Schedule FA of the Income-tax Return in the past. Should he declare such assets under Chapter VI of the Act ? Answer: Since, these assets are fully explained they are not treated as undisclosed foreign assets and should not be declared under Chapter VI of the Act . However, if these assets are not reported in Schedule FA of the Income-tax Return for assessment year 2016-17 (relating to previous year 2015-16) or any subsequent assessment year by a person, being a resident (other than not ordinarily resident), then he shall be liable for penalty of ₹ 10 lakhs under section 43 of the Act . The penalty is, however, not applicable in respect of an asset being one or more foreign bank accounts having an aggregate balance n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale price as per Rule 3(2) of the Rules. Question No.22: A person acquired a house property in a foreign country during the year 2000-01 from unexplained sources of income. The property was sold in 2007-08 and the proceeds were deposited in a foreign bank account. Does he need to declare both the assets under Chapter VI of the Act and pay tax on both the assets? Answer: The declaration may be made in respect of both the house property and the bank account at their fair market value. The fair market value of the house property shall be higher of its cost and the sale price, less amount deposited in bank account. If the cost price of the house property is higher the declarant will be required to pay tax and penalty on (cost price sale price) of the house. If the sale price of the house property is higher the fair market value of the house property shall be nil as full amount was deposited in the bank account. The fair market value of the bank account shall be as determined under Rule 3(1)(e) and tax and penalty shall be paid on this amount. (Please also refer to the illustration under Rule 3(3) for computation of fair market value.) Further, it is advisable to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act ? Will he get credit of foreign tax paid? Answer: Declaration under Chapter VI is to be made of an undisclosed foreign asset. In this case, the person being a resident of India, the foreign bank account needs to be declared under Chapter VI as it is an undisclosed asset and acquired from income chargeable to tax in India. The fair market value of the bank account shall be determined as per Rule 3(1)(e). No credit of foreign taxes paid shall be allowable in India as section 84 of the Act does not provide for application of sections 90(1)(a) / 90(1)(b) / 90A(1)(a) / 90A(1)(b) of the Income-tax Act (relating to credit of foreign tax paid) to the Act. Further, section 73 of the Act does not allow agreement with foreign country for the purpose of granting relief in respect of tax chargeable under the Act . Question No. 27: Can a person declare under Chapter VI his undisclosed foreign assets which have been acquired from money earned through corruption? Answer: No. As per section 71(b) of the Act , Chapter VI shall not apply, inter-alia, in relation to prosecution of any offence punishable under the Prevention of Corruption Act, 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act ? Answer: As far as ownership is concerned, as per section 2(11) of the Act undisclosed asset located outside India means an asset held by the person in his name or in respect of which he is a beneficial owner. The definition of beneficial owner and beneficiary is provided in Explanation 4 and Explanation 5 to section 139(1) of the Income-tax Act, respectively (which is at variance with the determination of beneficial ownership provided under Rule 9(3) of the PMLA (Maintenance of Records) Rules, 2005). Therefore, for the purpose of the Act beneficial owner in respect of an asset means an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person. Further, beneficiary in respect of an asset means an individual who derives benefit from the asset during the previous year and the consideration for such asset has been provided by any person other than such beneficiary. Therefore, as per the Act the beneficial owner is eligible for declaration under section 59 of the Act. There may be a case where a person is listed as a beneficiary in a foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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