INCOME TAX

Voluntary Disclosure of Income Scheme, 1997--Clarification regarding

Circular 755

Dated 25/7/1997

To

All Chief Commissioners of Income-tax.

Sir,

I am forwarding herewith a second set of clarifications on Voluntary Disclosure of Income Scheme, 1997.

Yours faithfully,

Under Secretary to the Government of India.

[F. No/ 142/53/97-TPL]

Clarifications on Voluntary Disclosure of Income Scheme, 1997 (II)

Question NO. 26 :  If disclosure of income is made in respect of assessment year 1988-89 and this is represented by an asset which has not been disclosed for wealth-tax purposes or which has been under-stated in the return of wealth, whether wealth-tax will be payable and, if so, for which assessment years ?

Answer :   Some ambiguity has arisen as a result of the answer given to Question No. 19. It is hereby clarified that if a declaration is made during the period of operation of the Scheme relating to any assessment year, no wealth-tax will be payable by virtue of section 73(1) for any assessment year up to assessment year 1997-98. Wealth-tax will, however, be payable in accordance with the provisions of the Wealth-tax Act on the asset, if any, relatable to the income disclosed in terms of clause (a), (b) or (c) of section 73(1) for assessment year 1998-99 and subsequent years.

Question No. 27  :  Whether survey under section 133A(5) of the Income-tax Act, will also bar a person from making a disclo­sure ?

Answer :   Yes, for the previous year in which the survey was carried out.

Question No. 28  : Whether any evidence regarding purchase of jewellery is to be furnished ?

Answer :   It will be in the interest of the declarant to disclose the true year of purchase/acquisition. In case the jewellery declaration in respect of an assessment year prior to assessment year 1987-88, the value for purposes of declaration shall be as on 1-4-1987. Some evidence to show the year of acqui­sition has to be filed in all cases of declaration of jewellery.

Question No. 29  :    A search under section 132 of the In­come-tax Act bars a person from making a disclosure in respect of the previous year in which the search took place and also for any earlier previous year. In case, a search warrant is issued in the name of one person, can others who also reside at the same prem­ises and whose statements may have  been recorded during the course of the search, make a disclosure of their income ?

Answer :   Yes, but not in respect of income, assets, etc., seized during the course of the search or discovered as a result of the search.

Question No. 30  : Will the tax payable in respect of the disclosed income be adjusted by the tax deducted at source earli­er in respect of that income ?

Answer :   No.

Question No. 31  : Will the tax payable in respect of the disclosed income be adjusted by the tax deducted at source earli­er in respect of that income ?

Answer :   Yes. There are, however, exceptions under section 64(1A) of the Income-tax Act, and in the following cases, the minor's income shall not be included in the income of the parents :-

(i)    Where the minor child suffers from any disability of the nature specified in section 80U;

(ii)   Where income accrues or arises to the minor child on account of any - (a) manual work done by him/her; or (b) activity involving application of his/her specialised knowledge and expe­rience.

Question No. 32  :  Whether immunity from levy of penalty in respect of a disclosure is restricted only to penalty under section 271(1)(c) of the Income-tax Act ?

Answer :   No. Penalties under other sections would also not be levied for the assessment year(s) to which the disclosure of income relates to.

Question No. 33  : If undisclosed long-term capital gains is offered for taxation under the VDIS, what is the rate at which tax has to be paid?

Answer  :   The rate of tax specified in section 64 of the Finance Act, 1997, i.e., in the case of a company or a firm, at the rate of 35% of the voluntarily disclosed income and in the case of others, at the rate of 30%.

Question No. 34  :  Mr. Y and filed returns for assessment years 1984-85 to 1987-88 under the then Amnesty Scheme. tax was also paid under that scheme. Can he take the advantage of the VDIS and declare further income for the above years ?

Answer  :   Yes.

Question No. 35  :      Action under section 132 of the Income-tax Act was taken in the case of Mr. A on 30-3-1992 and the same was concluded on 5-4-1992. Can he take advantage of VDIS for assessment year 1993-94 and subsequent years ?

Answer :   Section 64(2)(ii) of the Finance Act, 1997 lays down that no disclosure of income can be made in respect of the previous year in which a search is initiated or in respect of any earlier previous year. In the case cited above, search was initi­ated in assessment year 1992-93. Therefore, disclosure can be made (except for the income/assets discovered seized during the search referred to), in respect of assessment year 1993-94 and subsequent years.

Question No. 36  :  Survey operations were carried out u/s 133A of the Income-tax Act in case of Mr. 'D' on 30-9-1993. Can the make a declaration under VDIS in respect of assessment year 1993-94 and earlier years ?

Answer :   If the survey operations were carried on 30-9-1993, i.e., "previous year 1993-94," no disclosure can be made for "assessment year 1994-95". The declaration of income can be made for assessment year 1993-94 and earlier assessment year. The declaration can also be made for assessment year 1995-96 and subsequent assessment years.

Question No. 37  :  Whether multiple declarations can be made by a person at different time during which the VDIS is in operation and in respect of different assessment years ?

Answer :   No.

Question No. 38  :  If a person defaults in filing return for the assessment year 1997-98, can he file a declaration for the same year ?

Answer :   Yes. Declaration can be filed for the assessment year 1997-98.

Question No. 39  :  If return for assessment year 1996-97 has been filed, can a person make a disclosure in respect of this assessment year?

Answer :   Yes.

Question No. 40  : Notices u/s 148 are issued in the case of a firm for assessment years 1992-93 to 1994-95 on 15-5-1997. The returns are due within thirty days. Can the firm make a disclosure for assessment years 1992-93 to 1994-95 ?

Answer :   Under section 64(2) of the Finance Act, 1997, a person is barred from making a declaration in respect of any assessment year for which a notice under section 148 has been served upon such person and the return has not been furnished  before the commencement of the scheme, i.e., 1-7-1997. If the returns has been filed before 1-7-1997, then a disclosure of income can be made for assessment years 1992-93 to 1994-95.

Question No. 41  : Mr. 'Y' is engaged in export business. Export income was not disclosed. Whether the amount undisclosed can be declared now ? Whether the gross amount, i.e., the export proceeds has to be disclosed or the net amount after computing the deduction under section 80HHC ?

Answer :   If undisclosed income is solely from export busi­ness, there may be no need for a disclosure under the VDIS, 1997. However, if the undisclosed income is partly from exports and partly from domestic sales, then the declarant should disclose the net income after allowing for deduction under section 80HHC. The amount that should be disclosed is only the taxable income. the declarant would be will advised to keep with him the calcula­tion sheet.

Question No. 42  : Whether the assessment in whose case quantum additions have been made u/s 143 (3) of the Income-tax Act, and the matter is in appeal, can make a declaration under the VDIS ?

Answer :   A declaration can be made but the declarant shall not be entitled to get any relief in appeal, reference or other proceeding in relation to such assessment. Therefore, in case penalty proceedings have been initiated by the Assessing Officer and the quantum addition is sustained, penalty would be levied.

Question No. 43  : Mr. 'A' gifted Rs. 2 lakhs to his minor grandson in 1988. The grandson was 10 years' only at that time. The amount was invested in Units of UTI. Dividend from UTI was deposited in the Bank  account of the grandson every year. This transaction was not disclosed to the tax Department, Mr. 'A' wants to know how the VDIS can be utilised to regularise this matter ?

Answer :   If the amount gifted to the minor grand son was out of undisclosed income, declaration can be made by the grand­father for the assessment years to which the said income relates to. Thereafter, income would have to be disclosed from the units of UTI in the hands of the grandfather upto assessment year 1992-93. From assessment year 1993-94 onwards, income from units would have to be disclosed in the hands of the parent of the parent up to the year when the grandson becomes a major.

Question No. 44  : Is the certificate to be issued in all cases by the Commissioner where a declaration is filed or only where an application is made ?

Answer  :  The certificate will be issued only after the total tax is paid in respect of a declaration. the certificate will be issued only on the receipt of an application. The appli­cation can be made on plain paper.

Question No. 45  : Whether a person who makes a declaration as karta of an HUF, can be questioned subsequently in respect of income accruing on the disclosed income with regard to the cor­rectness of the status ?

Answer :  No.

Question No. 46  : A person declares that his entire undis­closed income is invested in the construction of a building. Whether the Department would sub-sequently get the building valued ? Also, whether it would take action against the person if excess amount of investment is discovered ?

Answer :   It is expected that the true investment will be disclosed under the scheme. No valuation would, therefore, be got done by the Department. However, if on the basis of other infor­mation, it is found that a higher amount was invested that the amount disclosed, then suitable proceedings under the Act can be taken in respect of the difference between the true value of investment and the amount disclosed.

Question No. 47  :  'A' purchases shares for Rs. 25 lakhs in previous year 1992-93 relevant to assessment year 1993-94. The shares were transferred in his name in assessment year 1994-95 when the market value was Rs. 28 lakhs. The current market value of the shares is Rs. 5 lakhs. On what value and for which year, should the disclosure be made ?

Answer             :   Investment in shares was made in previous year 1992-93 relevant to assessment year 1993-94, out of undisclosed income. The undisclosed income may relate only to assessment year 1993-94; in which case, the disclosure should be of Rs. 25 lakhs.

Question No. 48  : If disclosure is made on 31-12-1997, would the declaration be held to be valid if total tax payment is made by 31-3-1998?

Answer :   Yes.

Question No. 49  :  There will be cases where the income disclosed in the declaration from is less than the gross income. The cash to be introduced in the books of account will cash to be introduced in the books of account will consequently be a higher amount. This may create complications at a later stage when the Assessing Officer will only accept the amount specified in the declaration from. What should be done in such cases ?

Answer :   Immunity is only is respect of income disclosed. The Commissioner of Income-tax will not go into the computation of income disclosed. The declarant would be well advised to keep with him the calculation sheet.

Question No. 50  :  If a search is carried out after a declaration is made, what would be the consequences for the declarant ?

Answer :   In respect of amount covered by VDIS no tax would be payable. The declarant will get the benefit of no levy of penalty and no prosecution would be initiated in respect of the disclosed income. In respect of any income other than the dis­closed income discovered during the search, or computed on the basis of evidence gathered, the assessee will be liable to tax, interest, penalty and prosecution.

Question No. 51  :  If the beneficial owner of a property makes a declaration of income in respect of a property held benami, whether he would get immunity under the Benami Transac­tions (Prohibition) Act, 1988 ?

Answer :  Under the VDIS there is no immunity under the Benami Transactions (Prohibition) Act, 1988. However, in such a case income-tax Department will accept the declaration and treat the asset as belonging to the declarant.

Question No. 52  : Whether a declaration can be made in respect of assessment year for which assessment has been set aside ?

Answer  :   Where an assessment order has been completely set aside, the assessee can make a declaration for that year because on the date of declaration there is no surviving assessment. Where an assessment order has been partially set aside, the declaration can be made only with regard to the items of income which were not subject-matter of assessment and those which have been set aside.