New provisions coming to unearth black money, Centre tells court

The Centre proposes to incorporate new provisions in the Direct Taxes Code Bill for unearthing black money by defining a taxable asset as inclusive of deposits in banks located outside India in the case of individuals if such deposits are not records in the books of accounts.

In respect of others, the Bill will deal with aggressive tax planning devices being used to circumvent laws, the Centre said in a fresh affidavit filed in the Supreme Court on Wednesday.

The government had completed negotiations for the Tax Information Exchange Agreement (TIEA) with 10 countries — Bahamas, Bermuda, the British Virgin Islands, the Isle of Man, the Cayman Island, the British island of Jersey, Monaco, St Kitts and Nevis, Argentina and the Marshall Islands — where money was believed to have been stashed away. Cabinet approval had been granted for eight of these agreements, the Centre said.

The affidavit has been filed on a petition filed by the former Union Law Minister Ram Jethmalani and others, accusing the government of lack of sincerity in retrieving black money.

The affidavit said the government had initiated negotiations with 65 countries to amend the Double Taxation Avoidance Agreement (DTAA) and broaden the scope of the article on exchange of information. As a consequence of the initiative and pressure brought by India, many of the tax havens now agreed to end banking secrecy.

“India is also actively participating in the Global Forum on Transparency and Exchange Information for Tax Purposes as a member of the steering group and as vice-chair of the Peer Review Group of the Global Forum.”

The protocol amending the DTAA with Switzerland had also been signed and it would come into force after internal processes of ratification were completed by that country. It would allow India to obtain banking information as well as information without domestic interest from Switzerland in specific cases from April 1, 2011.

The Centre said the United Nations Convention against Corruption was an international instrument which would oblige states to implement or widen their range of anti-corruption measures. On preventive measures, the government said that according to the Global Financial Integrity report the major reason for illicit outflow of money was mispricing, which accounted for 77.6 per cent of the total illicit outflows. In the last 18 months mispricing of Rs. 33,784 crore had been detected, up from Rs. 14,655 crore detected the previous four financial years. Further, the Income Tax Department detected an undisclosed income of about Rs. 15,000 crore during the last 18 months in search operations.

“However, keeping in view the recent international and domestic developments, a study has now been proposed to be conducted by the Finance Ministry for a thorough assessment/survey of unaccounted income/wealth both inside and outside the country, particularly bringing out the nature of activities engendering money laundering with its ramifications for national security.”

In view of the stringent measures required to deal with undisclosed foreign bank accounts and cross-border transactions, the Central Board of Direct Taxes asked Income Tax authorities that in specified categories of cases, prosecution proceedings be initiated immediately after completing assessment or reassessment. Once prosecution was launched, the information would be available for other law enforcement agencies, and also in the public domain, the affidavit said.

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