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An Analysis of section 115BBE of the Income Tax Act,1961
01 Jan 1970 CA T.V.Muthu Abirami B.A.B.L.(Hons.),M.L.,A.C.A. Advocate
An Analysis of
section 115BBE of the Income Tax Act,1961.
Introduction Any income received by an assessee in
the previous year, for which the source is known and accounted, is subject to
income tax under the particular head under which that source of income falls.
Issues arises when the source of income is unknown or hidden from the revenue.
In order to charge income tax on such unaccounted income, the parliament
introduced Section 115BBE in the Income Tax Act, 1961 through the Finance Act
of 2012.
History
The provisions of Sec.115BBE was held
to be applicable from the assessment year 2013-2014. This section is contained
in Chapter XII of the Income Tax Act,1961. The title of the section is "Tax on
income referred to in section Sections 68, 69, 69A, 69B, 69C or 69D” – the
specified sections. Any income falling under the above said section shall be
subject to tax at a flat rate of 30%. This section has been amended by the
Taxation Laws(Second Amendment) Act, 2016 with effect from 01.04.2017
applicable from assessment year 2017-18 onwards. This amendment has increased
the rate of tax from 30% to 60%.
The rationale for introducing this
section is to curb the practice of laundering of unaccounted money by taking
advantage of basic exemption limit. The Government wanted to strike at the root
of "capital build up cases” and wanted to tax such undisclosed income at a
higher rate.
Post demonetisation, there were views
that source of the cash that is deposited could be attributed to the specified
sections voluntarily and tax could be paid on such income at the rate of 30% as
per the pre amended section 115BBE and escape the rigours of penalty. (It is
debatable whether the assessee could voluntarily attribute the income under the
specified sections, as the specified sections falls under Chapter VI –
Aggregation of Income and set off or carry forward of loss.) However, on
15.12.2016, this section was amended with effect from 01.04.2017 and the rate
of tax was increased to 60%
The section does not forbid the
assessee from voluntarily introducing an income from any source in the book of
accounts. It only aims to charge them at higher rate.
Features of section 115BBE
After the 2016 amendment, section 115BBE
has the following broad features:
- The
amendment of 2016 is prospective in nature i.e. it is applicable only from
assessment year 2017-18 and onwards.
- It
deals only with the deemed income specified under section 68 to section
69D and is applicable to all the persons.
- Income
can be said to be "voluntarily included” only in case of returns filed
under section 139, including 139(4) and 139(5). However, for revising the
return u/s.139(5), the assessee should "discover” an omission or wrong
statement in the original return of income.
- Whether
a return filed in response to a notice u/s.148 is voluntary? Return filed
in response to a notice u/s.148 would be treated as though the return is
filed u/s.139. But such a return cannot be termed as "voluntary” and
therefore penalty can be levied at a higher rate.
- While
calculating the taxable income and tax u/s 115BBE, no basic exemption
limit or deduction of any expenditure or allowance is permitted. But deduction
under Chapter VI-A is not barred. Similarly set off or carry forward of
the losses is not
permitted.
- The assessee must also pay surcharge and
cess irrespective of the quantum of income under the section.
Some issues in section 115BBE
The provisions of the section is said to be
applicable with effect from the assessment year 2017-18. The amendment was
introduced in the middle of the previous year 2016-17 on 15.12.2016. But the
provisions were said to be made effective retrospectively right from 1.4.2016. Thus,
even those transactions that took place before the law was in existence would
be covered.
It was
argued that the legislators had taken such a step to prevent the assessees who
deposited cash in bank after demonetization from escaping the tax burden of
60%. Nonetheless this still appears to be a case of colourable legislation. The
Supreme Court in CIT v. Vatika Township has
held that legislation which modify accrued rights or which impose obligations
or impose new duties or attach new disability have to be treated as prospective
unless the legislative intent is clearly to give enactment a retrospective
effect.
Section 68 deals with unexplained cash credit like
loans, deposits etc. A question arises whether it will also apply to income
which is already being taxed under any of the five heads of income. Especially
in cases where the Assessing Officer rejects the explanation offered by the
assessee in respect of the income falling under the five heads, it is
questionable whether section 115BBE of the Act can be invoked. Keeping in
view the objective of introducing section 115BBE, which was only to curb the
practice of laundering of unaccounted money, it may be argued that section
115BBE of the Act is only a machinery provision to levy tax on income and it
should not enlarge the ambit of section 68 of the Act to create a deeming fiction
to tax any sum already credited / offered as income.It is
important to note that the assessee may not always be in a position to explain
the source of an income with clinching evidence. Therefore, any income which is
already offered under any of the heads of income should not be brought under
the purview of the specified sections.
If an assessee shows her income from embroidery works
as income from "other sources” and such income is invested by her in another
asset, it is possible that an Assessing Officer after rejecting the head of the
income and bringing such income u/s.68, could also consider such investment as
unexplained investment and make her liable u/s.69 also. For avoiding double
jeopardy, it is necessary to argue that where any amount is declared by the
assessee as income from other sources, there need not be any addition u/s.69 to
the extent of such income utilised for the investment.
Search cases
and section 115BBE - As the return furnished u/s.153A is regarded
as a return u/s.139, is it possible for the assessee to say that such a return
is furnished voluntarily? If incriminating materials are seized during the
course of search, such a return declaring income under specified sections
cannot be treated as voluntary.
"set off of losses” – whether the amendment is prospective
or retrospective? It was
held by Tribunals that the amendment is prospective in nature even though the
amendment states that it is clarificatory in nature.
Anomaly in the section rectified – clause ‘a’ of sub-section 1
is about voluntary inclusion of income from specified sections by the assessee.
Clause ‘b’ is about the income from specified section being determined by the
Assessing Officer. Sub section 2, prior to amendment read that the bar against
deduction of any expenditure or set off of any losses was applicable only to
the cases covered by clause ‘a’. This led to an interpretation that in cases
where the Assessing Officer determines the income as per clause ‘b’, the
assessee can claim deduction of expenditure or set off of any losses. This
anomaly was rectified by the amendment made in 2018, wherein now, the bar
against claim of deduction of expenditure or set off of any losses would be
applicable whether the income is declared by the assessee himself or determined
by the Assessing Officer, in both the cases.
Penalty under 271AAC Section
271AAC provides for levy of
penalty when the Assessing Officer determines during assessment or reassessment,
any undisclosed deemed income referred to in specified sections. This penalty
is applicable in addition to the tax payable u/s.115BBE. However, no penalty
can be levied if the assesse voluntarily discloses the income under specified
sections in his return filed u/s.139 and also pays tax on the said income on or
before the end of the relevant previous year. For this purpose the assessment
year of 2017-18 would be computed as the first assessment year.
The rate of penalty is levied at 10%
of the tax on the income under specified sections determined by the Assessing Officer
which is currently fixed at 60%. So it
is 10% of the 60% tax payable under section 115BBE i.e., penalty is 6% of the
tax. The penalty levied under section
271AAC exclude the penalty under 270A in respect of the income falling under
specified sections.
References:
Search Assessments
– Law Practice and Concepts – G.C.Das and K.Chandrahas·
itatonline.org –
section 115BBE and sections 68/69- taxation of unexplained income / investment
– Advocate Narayan Jain·
ctconline.org –
section 115BBE and penalty under S.271AAC along with principles of
applicability of Ss. 68, 69, 69A and 69B – CA Jagdish T Punjabi
