Controversy Over Vdis Prosecution

Quibble over provisions pertaining to Fera violators not served summons

The official launch of the Voluntary Disclosure Income Scheme (VDIS) was marred by controversy over the scope of the Act pertaining to prosecution in cases being investigated under the Foreign Exchange Regulation Act (Fera).

This followed a clarification issued by the Central Board of Direct Taxes late last evening stating that no unusual benefits would be conferred under VDIS to persons facing enquiries, proceedings or prosecutions.

This, however, contradicted the stand adopted by CBDT while responding to queries at a press conference in the morning where the scheme was launched.

 

CBDT chairman Ravi Kant had categorically said tax evaders, even those under investigation under the Foreign Exchange Regulation Act (Fera), have the opportunity to come clean without penalty.

The chairman had stated that under the VDIS Act, only those detained or arrested would not be eligible for amnesty. The immunity from prosecution extends also to the Income Tax Act, 1961, Wealth Tax Act, 1957 and Companies Act, 1956.

Endorsing this and quoting from the VDIS Act, 1997, CBDT member (investigations) A K Batabayal had said, People investigated under Fera can avail of VDIS.

Significantly, tax consultants have concurred with the chairmans view. Our interpretation as per the VDIS Act, 1997 is that if summons under Fera have not been served due to any reason whatsoever or the investigation has not arrive at any final conclusion, then an individual can come clean under this Act and claim immunity, says top consultant, Subhash Lakhotia,

This had given rise to the fear in some sections of government that it could affect the process of investigations in some of the high-profile cases being investigated by the Enforcement Directorate.

These include ITC Ltd which is charged with Fera violations of up to $100 million; Manu Chhabria, chairman of Shaw Wallace, who is charged with illegally siphoning off from the company; Ashok Jain, chairman of Bennett & Coleman, for allegedly retaining the premium on his shares of Bank of Rajasthan of about Rs 4 crore abroad which amounts to Fera violation; and

Sitaram Kesri, the then treasurer of the Congress (I) for receiving foreign donations for the party of about Rs 10 crore whose source has not been disclosed, which amounts to a Fera violation.

In fact, a news agency report had claimed that the alleged charges of Fera violation against a business tycoon would be dropped if he chose to come clean under VDIS.

Section 71 of the VDIS Act states that the declaration under the scheme cannot be required by any court as information or evidence. In addition, no interest is payable against declarations made under VDIS irrespective of the years in which the income was earned.

The veracity of all deliberations will be taken at face value and no further proof will be sought by the CBDT.

However, the CBDT clarification issued by Batabayal states that rule of evidence in Section 71 would not give an individual, who was already being investigated under Fera or had been served summons, immunity against prosecution.

Finance ministry officials maintained that while individuals being investigated under Fera could make a declaration under VDIS, it did not necessarily mean that prosecution against them would be dropped.

Earlier, at the launch of the scheme, officials said the VDIS, which had been broadly outlined in the 1997-98 budget presented on February 28, would begin on July 1 and end on December 31. They further said that collectors would crack down on tax evaders after the plan closed in six months.

They argued that many citizens who have avoided paying taxes will come forward because income and corporate tax rates were lowered in the 1997-98 budget.

They declined to estimate how much additional tax revenue would be brought in under the scheme.

We really dont have a target. Our target is that people should take much advantage of the scheme, the chairman said.

Officials maintained that this scheme would be the last and the final date would not be extended beyond December 31.

We do not really expect the need for these schemes in the future, Kant said.

There is a vast parallel economy in operation. There is a need to bring this into the mainstream, Kant said, without elaborating on the size of the parallel economy.

No questions would be asked of people applying for the VDIS about their sources and uses of income. There is no penalty, no surcharge, no interest, he added.

The CBDT member in charge of investigations, A K Batabayal, clarified that under the scheme even a minor could declare earlier undisclosed income and seek amnesty.

Scrap scheme, says BJP

Our Political Bureau NEW DELHI

The Bharatiya Janata Party yesterday flayed the Voluntary Income Disclosure Scheme (VIDS) for offering amnesty to economic offenders and demanded that the scheme be scrapped.

The VIDS is Chidambarams biggest failure. Through this scheme, he has sent a strong signal to hoarders of black money that they can expect mercy, said BJP spokesperson Yashwant Sinha.

Down in black and white

Persons making the disclosures will not be liable for prosecution under the Income Tax Act,

Wealth Tax Act, Fera or Companies Act

No court can ask IT department or declarant to produce any information or evidence about disclosures

VDS will not apply to persons against whom an order or detention has been made under Cofeposa; persons prosecuted under Chapter IX of Chapter XVII of the Indian Penal Code, Narcotic Drugs and Psychotropic Substances Act, Tada, Prevention of Corruption Act, or for enforcement of any civil liability; to any person notified under section 3 of the Special Court (trial of offences relating to transaction in securities) Act.

No person can make a voluntary disclosure for an assesment year if notices under section 142 or 148 have been served on him and the return has not been furnished before July 1, 1997.

A person is not allowed to make disclosure of income in respect of the previous year in which a search is initiated under section 132 or requisition is made under section 132a.

Disclosed income to be taxed at 35 per cent for companies and firms and 30 per cent for individuals.