Date:29/06/2007 URL: http://www.thehindu.com/2007/06/29/stories/2007062955351500.htm

National

No VDIS immunity for fraudulent actions: SC

Legal Correspondent

Assessee should make full and true disclosure
Should not be in prior knowledge of IT Department

NEW DELHI: Immunity available under the Voluntary Disclosure of Income Scheme (VDIS) 1997 is not absolute and will not be applicable to fraudulent actions, the Supreme Court has held.

“It is well settled that fraud vitiates all solemn acts. Fraudulent actions shall render the act a nullity. It will be non est in the eyes of law. Acts of a firm vis-À-vis its partners may have to be taken into considerat ion for judging the validity of the action. Any action taken by a partner of a firm vis-À-vis the firm unless otherwise specific binds the firm itself,” said a Bench of Justices S.B. Sinha and P.K. Balasubramanyan.

The scheme laid down certain parameters to be fulfilled before an assessee can take benefit of the immunity, viz. the assessee should make a full and true disclosure and the information should not be in the prior knowledge of the Income Tax Department.

In the instant case, M/s Tanna and Modi filed a writ petition questioning the correctness of an order dated May 13, 2004 passed by the Commissioner of Income Tax, Mumbai city XXV, refusing to entertain an application under the scheme. The Bombay High Court dismissed the petition accepting the department’s contentions. The present appeal is directed against the judgment.

The department had said the assessees did not meet two conditions.

At the time of the VDIS declaration, the assessee should have informed the CIT Central II that there was a search and seizure operation and that the document on the basis of which the declaration was being made was seized at the time of the search operation.

To the contrary, the assessee had deliberately tried to mislead the CIT by stating that the declaration was on the basis of the decision of the Income Tax Appellate Tribunal.

Dismissing the appeal, the Bench said: “The immunity granted pursuant to acceptance of a declaration under the VDIS does not lead to a total immunity. Immunity granted under the scheme has its own limitations. The scheme must be applied only in the event the conditions precedent laid down therefore are applicable.”

Writing the judgment, Mr. Justice Sinha said: “In a case of this nature, where fraud is alleged, we cannot be oblivious of the fact that each firm acts through its partner. In the instant case, the purported disclosure made by the firm relates to the same amount which has been disclosed by the partner. Even the sources of income were found to be the same. As the income of a firm vis-À-vis its partners have a direct co-relation, in our opinion, while construing a statute granting immunity, it should not be construed in such a manner so as to frustrate its object. Having regard to the nature of the fraud practised upon the statutory authorities, we are of the opinion that no case has been made out for invoking our jurisdiction under Article 136 of the Constitution.”