The debate on black money is probably as old as our civilisation itself. Several working groups and committees have burnt the midnight oil trying to find a solution but with limited success. Successive governments have promised to deal with the issue with an iron hand but the menace continues unchecked. A report published in 2013 by Global Financial Integrity states that the total black money outflow from India was nearly $343 billion during the last decade. This puts India at the fifth position on global exporter of illicit money. Driven substantially by the higher education sector, real estate deals and mining income, India’s black economy could now be nearly three-quarters the size of its reported gross domestic product (GDP).

Experts suggest that high tax rates and complex laws are some of the stated reasons for black money. Late Nani Palkhivala once mentioned “Even if you have a zero per cent tax rate there will still be black money in this country”. The Finance Minister has recently mentioned that while black money stashed abroad is something to deal with, it is equally important to first unearth black money within the country.

Penalty

One of the provisions dealing with black money is contained in Sections 269SS and 269T which precludes any person from accepting any loan or deposit above the prescribed limits from any other person except through account payee cheque or account payee bank draft.

These set of provisions introduced in 1984 were designed to counteract evasion of tax and prevent cash dealings in loan and deposit transactions. Violations of these provisions entail penalty equivalent to the amount of loan/ deposit accepted or repaid. One of the many areas where black money gets generated and rotated is via the short-term loan routes avoiding the banking channels.

In this regard, the Finance Bill 2014 (Passed by both houses of Parliament and pending assent of the President) has expanded the coverage of such transactions to include internet banking and payment gateways facilities. These will not be treated as cash dealings in the context of the aforesaid provisions. The amendment is welcome but could have once and for all clarified that all types of payments otherwise than cash is permitted. This would have taken care of situations where repayment of loans can be made through asset or asset worth or in kind where the source and value can be established. There have been various instances where the judicial authorities have tried to bring out the coverage under Sections 269SS and 269T. The ruling in the case of ACIT v Jag Vijay Auto Finance (P.) Ltd. (78 ITD 378) states that “….. the amount credited in the company’s bank account through proper banking channels are as per spirit of Sec. 269SS and thus the assessee company has not violated the provisions of Sec. 269SS in any manner.” In other words, as long as transactions are routed through banking channels they are treated as above board and do not partake the character of “black”.

Interestingly the Supreme Court in the case of Assistant Director of Investigation v A. B. Shanthi (255 ITR 258) also had an occasion to deal with the constitutional validity of Sec. 269SS and held the provision was valid in law notwithstanding that it seeks to punish the receiver of the loan in cash and allows the giver to go scot free.

The Minister of State for Finance mentioned in Rajya Sabha that there will be no voluntary disclosure scheme since it differentiates between an honest tax payer and the dishonest ones. Such schemes in the past have been successful up to a point but places a premium for dishonesty.

Time has come to realise that taxes are the price one pays for civilisation. Out of 125 crore Indians only 3.5 crore pay taxes, which is abysmally low by any standards. There must be a unified resolution that everybody should participate in the development agenda set out by this government by increasing the tax base and eliminating the generation of black money.

The author is Tax Partner, EY

(Views expressed are personal)

This article first appeared in >The Hindu print edition dated August 11, 2014.

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