Of late, there has been a lot of public outcry against the illegal money of Indian nationals stashed away in foreign banks. Media and news channels have been making sensational debates and substantiated and unsubstantiated disclosures, leaders in opposition are howling the government for the alleged backing out from the promise made before the electorate during the general election on the war with black money while the common man and intelligentsia are divided in opinion on the issue.  This author was amused to see that a gentleman political analyst and commentator has gone to the extent of demanding resignation of the Prime Minister Modi led government for an order passed by the Supreme Court on the subject.

During the past many years, there were agitations (most prolonged and eventful being the one led by Baba Ramdev), debates in media and assurances from the government without any credible outcome on the subject. It’s true that the issue is dragging on without the government showing any noticeable progress during the last 5-6 years. Perhaps, it symbolizes the frustration of the biggest democracy of the world that ultimately the apex court i.e. the Supreme Court of India has taken the reigns of the monitoring of the investigation into the black money in their hand consequent to a petition filed by Ram Jethmalani, an eminent lawyer and ex- Law Minister and others in 2009.

On the very first day in office, the NDA government under Prime Minister Narendra Modi has constituted a special investigating team (SIT) under the chairmanship of the retired justice MB Shah to unearth the black money. Another retired Supreme Court judge Arijit Pasayat is the Vice-Chairman of SIT and the members include Revenue Secretary, Deputy Governor of Reserve Bank of India, Directors of Intelligence Bureau (IB), Enforcement Directorate (ED), Central Bureau of Investigation (CBI), Financial Intelligence Unit (FIU) and Research and Analysis Wing (RAW), Chairman of Central Board of Direct Taxes (CBDT), Directors General of Narcotics Control Bureau (NCB) and DRI, and Joint Secretary (Foreign Tax and Tax Research Division-I).

The step certainly indicates the seriousness and resolve of the present Indian government to tackle the menace of the black money in the system. While addressing Parliament, President of India too expressed the government's determination to deal with the threat of the black money, "My government is determined to rid the country of the scourge of corruption and the menace of black money. As a first step in this direction, the government has already constituted a SIT to unearth black money stashed abroad. This will be followed up vigorously by proactively engaging with foreign governments.”

Black Money - Its Magnitude

In common parlance, the black money is considered as the amount earned in the black market on which income and other taxes have not been paid. There are various guesstimates but the total amount of illegal money deposited in the foreign banks by Indians is still unknown. In February, 2012, CBI Director held that an estimated around 500 billion dollar (about Rs 24.5 lakh crore) of illegal money belonging to Indians is deposited in tax havens abroad. Various sources citing even those of Swiss Bankers Association and Switzerland had estimated the total amount parked by the Indian citizens in Swiss banks between US$ 2 billion to 1.4 trillion.These reports were, however, later denied by Swiss Bankers Association and the Central Bank of Switzerland.

As for back as in 2011, the UPA government had received a list of 782 Indians who had accounts with the Hongkong and Shanghai Banking Corporation (HSBC) bank. Although the government confirmed that the list did not contain names of any Member of Parliament but they refused to reveal the names on the list and, instead, agreed to come out with a white paper on the subject. According to the White Paper published on Black Money in May 2012, the total amount of deposits of Indian nationals in all Swiss banks, by the end of 2010, was US $2.1 billion (Rupees 9,295 crore). The source of this information was cited as the Swiss Ministry of External Affairs.The Government of India also claimed in May, 2012 that the total deposits of citizens of India in Swiss banks constitute approximately only 0.13 per cent of the total bank deposits of all countries.

What is Double Taxation Agreement?

While engaged in any profitable venture, it is possible for a company or individual who is resident in one country and makes taxable income (earnings, profits) in some other country. Under the domestic laws, the concerned person may be required to pay tax on income locally besides he may also be required to pay in the country in which the venture earned such a gain. Since this situation is considered unfair and against the ethics of the business, many countries enter into arrangements of bilateral double taxation agreements with each other. The chief objective of such agreement between the two tax administrations of the two countries is to eliminate the double taxation.

Depending upon various situations, in certain cases, this tax is payable in the country of residence and is exempted in the country it arises. In other cases, the country where the taxable income arises deducts tax at source and the taxpayer receives a compensating foreign tax credit in the country of residence to the effect that tax has already been paid. In such case, the taxpayer declares himself non-resident in the foreign country.

Currently, India has comprehensive Double Taxation Avoidance Agreement (DTAA ) with 88 countries, out of which 85 have already been operational. This includes major countries like US, United Kingdom, Australia, Canada, Saudi Arabia, UAE , Singapore, Switzerland, New Zealand and Mauritius and a host of others including countries considered to be tax havens. Under the Income Tax Act 1961 of India, under Section 90 and Section 91 specific relief to taxpayers is provided to save them from double taxation. Section 90 addresses taxpayers who have paid the tax in a country with which India has signed DTAA, while Section 91 keeps provisions for tax payers who have paid tax to a country with which India has not signed a DTAA.

Here it is relevant to note that the DTAA is about the declared incomes (i.e. white money) of persons or entities so as to ensure the levy of tax in one or the other country, avoiding double taxation. Black income of the person or entity is not disclosed by the taxpayers in either of the two countries. Thus the data on black money is not legally available to either of the two countries, hence logically the question of the data on black money exchange should not arise under the agreement.

SIT on Black money

On a petition filed by the eminent Lawyer and former Union Law minister Ram Jethmalani and others, on 4th July, 2011, the Supreme Court of India had passed order for the appointment of a high-level Special Investigation Team (SIT) under the Chairmanship of the retired Supreme Court Judge Justice BP Jeevan Reddy with Vice-Chairman Justice MB Shah to monitor the investigations and steps being taken to bring back black money stashed away in foreign banks. The SIT was inter alia empowered to prosecute and investigate cases on black money.

Supreme Court bench, while making some hard hitting observations against the government, had also simultaneously directed the Union Government to disclose to SIT the names of all persons who had been issued show cause notice in connection with the investigation into the alleged black money kept. The bench also observed that the problem of the black money must be taken with all seriousness by the government in an endeavor to bring back money into the country and punish people who have stashed away money in the foreign banks.

On 4th August, 2011, the then Attorney General GE Vahanvati, appearing on behalf of the Union Government, pleaded serious reservations of the government about the SIT appointed by the Supreme Court. Raising the issues of judiciary impinging into the authority of executive, among other things, he pleaded,  "It impinges upon the well-settled principle that courts do not interfere with the economic policy which is the domain of the executive and that it is not the function of the court to sit in judgment over matters of economic policy, which must necessarily be left to expert bodies.” He further added, “It (SIT) can`t act as a super power or you forget Parliament. If the SIT has to function it needs funds. But it is finally Parliament which has to approve it."

Thus largely due to the then government’s strong reservations and reluctance to issue notification for constitution of SIT, the one set up by the Supreme Court in 2011 to monitor the probe conducted by the government agencies remained dormant for long. While retired Justice BP Jeevan Reddy later expressed his unwillingness to head the team, the government too remained indecisive in issuing the notification having opposed to its creation in the first place.

On 1st May, 2014, the Supreme Court bench led by Justice HL Dattu reconstituted the SIT with Justice (retd) MB Shah as its chairperson and Justice (retd) Arijit Pasayat its vice-chairperson, directing the government to issue the necessary notification in three weeks. As the UPA government was routed in the general elections, the Supreme Court had granted the new government one week's time to constitute the SIT for monitoring of all black money cases. Following the above order, the present NDA government notified the constitution of SIT referred to in an earlier paragraph of this article.

Criticism of the Government

Earlier the UPA government had refused to publish the names of Indians having account with HSBC in 2011. In April, 2014, the UPA government disclosed to the Supreme Court the names of 26 people who had accounts in the banks in Liechtenstein based on information shared by the German authorities.

On 27th October 2014, the present NDA Government submitted name of three people in an affidavit to the Supreme Court who have black money account in foreign countries, among a lot of speculation and demand among the media and public to reveal all such names available with the government. On the following day, the Supreme Court passed order directing the Union Government to reveal all the names of black money account holders which they had received from various countries like Germany. The bench also asked the government not to carry out any probe rather just hand over the names to the Supreme Court, who will pass the order for further probe. Following this order, the Government submitted in sealed cover three files, 627 names of Indians with foreign bank accounts and a status report on steps taken so far on 29th October, 2014. The government also held that they are fully cooperating with the SIT and are ready to provide all assistance to any agency the court might choose to further probe the issue.

Indian Government in the past has repeatedly argued against publishing the names of persons on the black money list before the Court. The present NDA government too does not appear in favour of publishing names of such persons received from various countries. Their argument is based on mainly two counts. Firstly, if these names are revealed to the public, this will be in violation of the confidentiality clause of DTAA and in future the foreign governments may stop cooperation on the subject by not divulging with any further details. Prima facie, this argument is not accepted because DTAA basically concerns with the white money so it needs to be made clear as to how it will impinge upon sharing of information on black money. The other argument is that there may be many genuine accounts holders in the foreign banks, the privacy of such individuals should not be violated by the revelation of data.

Government argues that after due diligence through investigation where prima facie a case is found for black money and notice issued accordingly, only such cases should be revealed in the public domain. This argument does have some logic and, therefore, investigations need to be expedited in respect of persons whose names appear in the lists received so far from the foreign governments. The fact that the list containing names of 782 persons was received in 2011 but the nation remains clueless about the progress achieved so far indeed raises doubts in many minds about the seriousness of the government.

Expectations from SIT

SIT is expected to submit its action taken report to the Supreme Court on its findings and recommendations on the illegal funds which inter alia include position of all potential black money and illegal funds cases, India’s black money stashed abroad, recommendations made to various government agencies in the investigative and enforcement domain, and investigation and developments since notification of SIT.

What Eminent Functionaries Say?

During the recent controversies about the disclosure of names in the black money list, Finance Minister Arun Jaitley, referring to a confidentiality clause of the DTAA that India has signed with many countries, stated, “A disclosure without evidence would ensure that evidence is never available…An unauthorized disclosure in violation of tax treaties entails that the disclosure is made for collateral purposes. It is usually not accompanied by any evidence or proof. But when a disclosure is made in pursuance of a charge sheet in a court of law where a criminal prosecution is filed, it would certainly be a disclosure substantiated by adequate proof and evidence."

This statement is significant in the context that the list containing the names of Indian nationals with foreign accounts does not necessarily mean that the accounts are illegal with black money unless evidence to that effect also exists after due investigation. It is also significant that while attempting to unearth black money stashed abroad, the enforcement and investigative agencies should not lose sight and focus on domestic black money.

Justice (Retd) MB Shah, Chairman of SIT on black money, on 2nd November, 2014 stressed that it would require cooperation from the Swiss banks for bringing back black money in the country. He said, "Inquiry is going on, but how much time it takes cannot be said. It's not difficult to bring back black money but if the banks of Switzerland will cooperate then the money will come back." While talking to media, he added that nobody knew yet how much money was stashed abroad and how much of it could be brought back.

Prime Minister Narendra Modi, in his second radio address (mann ki baat) to the nation, assured that he would work to bring every single penny of black money back to the country. He said, "About black money, please trust this 'Pradhan Sevak' (First Servant of the Nation), it is an article of faith for me. This is my commitment. I will leave no stone unturned to bring back black money. I assure you, I will not be held back in bringing back whatever the amount, don't know the numbers yet, many numbers are floating around."

Hope for Future

Detecting a black money account, investigating it to punish the culprits and bringing back money to the nation are not easy tasks. Let us see what happened in the famous ‘Hasan Ali Case’. He was arrested by the Enforcement Directorate and the Income Tax Department in 2007 on the charges of stashing over 360 billion in the foreign banks, having financed the international arms dealer Adman Kasogi on many occasions. Despite years of efforts including seeking cooperation from the Swiss government authorities, the probe against him have not yielded desired results because the law enforcement agencies have precious little evidence to back their allegations. Indeed the area of the black money is a vicious circle and there are vested interests.

Despite public, media and opposition outcry, there is a case to believe that the present government is serious about unearthing and curtailing black money. After the Supreme Court made embarrassing remarks in their recent order seeking the Government to hand over complete list to them, the following day, the complete list along with action taken report was rendered to the Supreme Court in sealed envelopes. The point to note here is that even Supreme Court has passed it onto the SIT without opening or releasing it for the public consumption vindicating the point made by the government. Later the head of the SIT confirmed that the entire list was already made available to the team in June, 2014 by the government. So there appears indeed a point when the government makes suggestion of revealing only those names where prima facie a case for the black money is established after investigation.

Besides the alleged list is only from one such source namely HSBC. At best it can be regarded as the tip of the iceberg because there could be many banks in different countries with a large number of Indians having numerous such accounts with the undisclosed amount of money. So the war against the black money is onerous and long. This government has made assurance to the nation and shown resolve to work for it in tandem with the Apex Court. It is too early for any substantive outcome of this battle but the nation would certainly be keen to judge the government in the times ahead based on its performance to deliver on the assurances made to unearth and bring back the (black) money to the country it belongs.