Making a mess of Indians’ black money abroad - T. N. Pandey - Article published in Business Advisor, dated November 10, 2014 http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/

1. Volume IX Part 3 November 10, 2014 3 Business Advisor
Making a mess of Indians‘ black money
abroad!
T. N. Pandey
Since sometime past, there is almost ad inifinitum
reporting in media regarding making public names of
persons who have stashed their unaccounted money
abroad in foreign accounts. Almost hysteria has
developed in regard to disclosure of names of such
persons disregarding that mere disclosure of names,
without checking the veracity of the information, is no
solution to the problem because in the list received,
there could be names who hold such accounts legally.
Further, the Central Government has received names of such persons,
relating to the year 2006 from Governments of France and Germany and
disclosure of such names is being insisted upon right from the apex court of
the country to opposition parties, who have made this issue a political
football and are blaming the new Government for inaction and going back
from the promise in this regard even when the Government has been in
office for only little over 5 months.
Regretfully, the apex court too expressed profound displeasure and has
used strong words against the Government pulling it up for showing
‗interest‘ in people on the list and holding out a ‗protective umbrella‘ for
such persons discarding the Government‘s pleas that it has already
submitted such list to the Supreme Court appointed SIT on 27.06.2014 and
that it would breach the confidentiality clause in the tax treaties (DTAAs) if
the names of such persons are made public. The general understanding in
these treaties has been that the information furnished could not be made
public in a general way and could be used only for tax purposes. The
Supreme Court overruled such pleas saying that give us the names and the
The general understanding in the treaties has been that the
information furnished could not be made public in a general
way and could be used only for tax purposes.

2. Volume IX Part 3 November 10, 2014 4 Business Advisor
SIT would then decide whether names should be disclosed to the public or
not. The court is reported to have observed:
―Why are you bothered? Why are you taking that sort of protective umbrella
for these persons? Why do you bother with investigations? You give us the
information. We will pass it on to the SIT. Let the SIT take it to its logical
end‖.
The court even asked the Government to distance itself from inquiries into
the matter, suggesting that it may direct the I.T. Department, the CBI or the
SIT to look into the information and monitor progress. This raises the issue
whether the apex court is intruding on the functions of executive?
Thus, the Government has been reprimanded of being favorable to foreign
accountholders disregarding the position that the Supreme Court appointed
SIT was already given the list of foreign accountholders and Vice-Chairman
of SIT, Pasayat J., after the court‘s admonishment, admitted while talking to
press reporters that there had been ‗communication gap‘. Apparently, the
distrust of the Government from the Supreme Court, it is said with great
respect, was unmerited. Anyway, the list has been submitted to the
Supreme Court, which seems to have decided not to make it public and the
matter stands at that stage with the Supreme Court.
The issue relating to getting information about foreign accounts of Indians
and its disclosure are sensitive matters and cannot be handled by
sentiments prevailing over reasoning and commitments, subject to which
the information has been furnished. The Congress is highly critical of NDA
Government forgetting that it had the names with it since 2009 but did not
disclose these either to the court or in public. How can then it blame the
new Government, which had been in office for just over 5 months for
inaction? May be that the NDA people and persons like Baba Ramdev, who
holds no Government position and has no financial background and
knowledge of tax laws/DTAAs in sheer overenthusiasm made some
declarations but then these have to be considered in a practical way within
the framework of law and tax treaties – not in a snapshot manner more so
The issue relating to getting information about foreign
accounts of Indians and its disclosure are sensitive matters
and cannot be handled by sentiments prevailing over
reasoning and commitments, subject to which the
information has been furnished.

3. Volume IX Part 3 November 10, 2014 5 Business Advisor
by critics, who themselves disregarded Supreme Court‘s order regarding
constitution of SIT for years and did not make the names public when they
were in office!
The impact of handling the issue in non-pragmatic ways, as stated earlier,
has seriously affected solution to the problem. Some such impacts are:
[a] According to a report in Economic Times, ‗Wary Swiss Banks Advise some
Indians to cash out‘.
[b] Countries that shared information are not likely to do so easily in future
and information sharing may dry up.
[c] Countries, with which India is planning new pacts for sharing
information, seem less inclined for this.
[d] India has deferred signing of new global protocol [Multilateral Competent
Authority Agreement] for automatic exchange of information on tax evaders.
The reason given is ‗domestic procedural requirement‘. India, which
spearheaded the fight on information exchange on tax evaders and bank
accounts in G20 deliberations, skipped signing the agreement because it
was not prepared to give an international commitment on confidentiality of
information as it awaits clarity from the apex court. The German Finance
Minister was informed that India supported the global initiative
wholeheartedly but was unable to be a signatory to this at this point of time.
[e] In a fresh threat to the flow of information about Indians, holding
accounts in foreign banks, Switzerland, on 30th October, 2014 has said that
information exchanged with India under its tax treaty, cannot be disclosed
‗in-principle‘ to a court or any other body outside the proceedings of a
specific and relevant case.
[f] The Government has to sign Foreign Account Tax Compliance Act before
31st December, 2014. This will depend on Government‘s agreeing to the
confidentiality clause in the Act. To accept this clause, the Government may
have to seek Supreme Court‘s nod. Considerable prejudice is likely to be
Countries that shared information are not likely to do so
easily in future and information-sharing may dry up.

4. Volume IX Part 3 November 10, 2014 6 Business Advisor
caused to the country‘s interest if the agreement is not signed. It may
impact private flows of capital because of higher tax deduction at source.
Interest on RBI Bonds from U.S. Treasury may also entail higher
withholding tax by U.S. Government, impacting Indian Government‘s
finances.
These aspects need serious consideration at the enthusiasts‘ end for making
the task of Government and SIT difficult. Nothing is likely to be achieved by
criticism of the Government for its presumed inaction. Instead, it would be
helpful if concrete suggestions are given for punishing the tax evaders and
repatriation of money stashed abroad.
Regarding the furnishing of 627 names to the SIT and Supreme Court, only
350 persons are said to be ‗residents‘ in terms of the I.T. Act provisions and
in their cases only the proceedings under the Indian Income Tax Act can be
initiated. The remaining ones can be proceeded against under the Indian tax
law only if money in their accounts is proved to be received, arisen or
accrued in India. The burden to establish this would be on the I.T.
Department and this will not be an easy task and cannot be performed
merely by getting names and publishing the same. Supporting records and
papers would be necessary to support the claim of tax evasion, which would
not be an easy task. Justice M. B. Shah, Chairman of the SIT, is reported to
have said:
―We have already filed the first report (on black money) in August.
Certainly, I am hopeful about it (timely submission of second report).
Investigation is going on. Without investigation, it is very difficult to say that
a person is guilty or that person has done something wrong. A person is
required to be heard first‖.
Thus, the sailing is not going to be smooth.
Media reports show that the I.T. Department had got 100 odd HSBC
accountholders to accept that they maintained accounts in the Swiss bank
and coercive provisions of tax laws have been used to make them pay
Nothing is likely to be achieved by criticism of the
Government for its presumed inaction. Instead, it would be
helpful if concrete suggestions are given for punishing the tax
evaders and repatriation of money stashed abroad.

5. Volume IX Part 3 November 10, 2014 7 Business Advisor
penalties. This strategy may not be possible in respect of all the accounts.
Further, what is needed is that such persons may be prosecuted to work as
deterrence. Mere collection of tax and penalty cannot be a solution to the
problem.
Further, media reports also show that data sent by German/ French
Governments is not that received through legal sources. This represents
data stolen by some disgruntled employee and sold to these Governments.
Whether any legal assessment can be made on the basis of such data
remains a moot issue.
With Swiss authorities refusing to share any information about these 350
odd accounts held by resident Indians on the ground that they dated to a
period between 1999 and 2006, there was little the Department could have
done had they refused to comply with the I.T. Department notices. Also,
there is hardly any chance of tax recovery in such old matters. In short,
nothing much can be expected to be achieved from these 627 cases.
Hasty actions and approaches cannot provide solutions to the problem of
black money abroad, which is only one facet of the stupendous task of
chasing black money, which has many other facets also. The exercise has to
be under two broad heads, viz., [i] curative, and [ii] preventive.
Chasing black money abroad is only one aspect of the problem. Merely
concentrating on this aspect cannot be helpful. Steps will equally be
necessary to prevent its outflow and growth in the country. There are much
more important matters than trying to repatriate black money from foreign
countries. These tasks require detailed planning and concentrated follow
up. Getting information from other countries is not an easy task.
International practices and bilateral agreements have to be honoured – not
bypassed. Hard time-consuming negotiations are involved in this process.
To expect a Government, which is only few months old, to solve the age old
problem in just a few months, is to desire the moon.
What needs to be seen is whether the Government is making sincere efforts.
If not, it could be criticised for this. But, overruling its legitimate
suggestions would not be fair.
There should be no observations and criticism regarding the integrity of the
Government unless strong grounds supporting it are found. The judiciary
and executive should not be demeaned without any strong reasons on mere
presumptions and conjectures. The problem would get resolved only with
perseverance and patience.
(T. N. Pandey is Former Chairman, Central Board of Direct Taxes)