INTERPLAY of LAWS dealing with ECONOMIC OFFENCES (With Emphasis on International Transactions) Ashwani Taneja (FCA, ACS, AICWA, FICA, DISA, NCFM, LL.B, LL.M) (EX- MEMBER, INCOME TAX APPELLATE TRIBUNAL- MINISTRY OF LAW & JUSTICE-GOVERNMENT OF INDIA) EMAIL: ashwani@taxindia.net
CASE-STUDY 2 . ALLEGED VIOLATION OF 1 . FACTORY PURCHASED IN ENVIORNMENT PROTECTION ACT AND THE YEAR 2005. WATER POLLUTION ACT IN THE YEAR 2009. 4. FACTORY ACQUIRED IN 2005 3. POC ILLEGALLY HAVING NO NEXUS WITH POC CALCULATED FROM THE YEAR ATTACHED BY THE ED UNDER PMLA 2007-08 TILL 2012-13. IN 2018
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Interplay of various Laws Dealing With Economic Offences. ● Implication under Income-tax Act on benamidar and beneficial 1 owner vis-à-vis the unexplained ● Whether Persons acting in investments and credits concert are subject to Income-tax Act, ● Impact on holding company Benami law? 1961 structures for denial of beneficial ownership criteria Benami 2 SEBI Regulations Companies Act, 2013 4 law Prohibition of Money Laundering ● Property outside India – whether ● Significant Beneficial Owners Act, 2003 and covered under the Benami law or Black Money law Reporting under Black Money law? ● Dematerialization of shares in ● PMLA invoked, Benami law 3 Unlisted Public Company – applicable step to curb benami dealing ?
INCOME BLACK TAX MONEY ACT,1961 ACT,2015 PBPT ACT, COMPANIES 1988 ACT, 2013 SMUGGLING (SCHEDULED OFFENCE) SEBI PMLA, 2002 Act,1992 Insolvency and FEMA, 1999 Bankruptcy Code,2015
NEW FINDINGS of INVESTIGATION AGENCIES MOST COMMON INGREDIENT FOUND IN VIOLATION OF LAWS RELATED TO ECONOMIC OFFENCES TRANSACTIONS DONE ARE „ BENAMI ‟ IN NATURE.
Benami Transaction – Background A B Sale consideration Seller Beneficial owner C Transfer of title Benamidar Factors leading to the origin of Benami law Fraud on creditors | Tax evasion | Black Money Corrupt practices
What is a Benami Transaction? TRANSACTION / ARRANGEMENT A B C D • Property transferred to • Property held in • Payer of • Owner or held by Benamidar; Fictitious Name Consideration and • Not aware of • Not traceable • Consideration paid by ownership Beneficial owner; and • Fictitious • Denies • Property held for ownership benefit of Beneficial owner Exception • Person acting in fiduciary capacity - Executor, Trustee, Partner, Director • Karta Consideration • Spouse / child paid out of • Brother, Sister, lineal D/A (Jt. Ownership) known sources
Authorities under Benami law Authorities Initiating Approving Adjudicating Appellate Administrator Officer (IO) Authority Authority Tribunal Bench of three Assistant / Deputy Additional / Joint Members chaired Bench of three Commissioner of Commissioner of Income Tax Officer by CIT / Joint Members Income Tax Income Tax Secretary Conducting Grants Pass order Review the To receive and inquiries, impound approval to IO confirming or order passed by manage the documents revoking the Adjudicating property provisional Authority Provisional To dispose of attachment attachment of the property property Pass order for confiscation of property Adjudicating authority to pass order confirming / revoking the provisional attachment within one year from the date of reference made by the IO
Assistance from other Authorities RBI Income Tax Authorities Foreign Exchange Management Act Customs and Central Excise Department SEBI Authorities Narcotics Drugs and Any „body corporate‟ Psychotropic Substances Act constituted or established under State of Central Act. Recognized Stock Central Government, State Exchange Government, local authorities or banking companies, notified by Central Government „ Shell Companies‟ - PMO set up a task force in February 2017 under the joint chairmanship of the Revenue Secretary and Secretary, MCA
Interplay with Income Tax Act Whether provisions of Implication under section Benami law can apply to 56(2)(x) ? 01 02 the transaction covered under section 68 and 69A ? Whether a transaction Whether application of 04 03 subjected to GAAR be both the law is mutually also exposed to the exclusive or it can be Benami cumulative also ? Law ?
Interplay with Income Tax Act - Holding Structures Typical issues in holding company Ultimate structures Parent • Benefits under tax treaties available to beneficial owners • 100% Beneficial Ownership of Assets and Income of SPV under challenge under the Income Tax Proceedings • Can denial of tax treaties on beneficial ownership Hold Co criterion be the basis for invoking Benami law? Beneficial SPV Owner? Implications under Benami law Singapore/ Mauritius • Is the Ultimate Parent a Beneficial Owner? • 100% Is SPV a Benamidar? Holding Property for the Ultimate Parent- Consideration provided by Ultimate Subscription of Parent shares of I Co / • ECB to I Co Can shares held in Indian company be held as Benami Property? Subject to provisional attachment? • Holding company structures – recognized under Indian various commercial laws – Can it be subject to challenge under Benami law? company Burden of showing that transaction is benami lies on the IO
Significant Beneficial Owner disclosure under Companies Act 2013 – uncover Benami holding? Key considerations Significant Beneficial Owner (SBO) • SBO required to make disclosures of his Individual – acting alone or together , or through one beneficial interest to the Reporting or more persons or trust, possess one or more of Company, which in turn to be reported to the following rights or entitlements in reporting Registrar of Companies company • SBO disclosures would enable the authorities to “follow the money” in monetary examinations including suspect 1. 2. 3. 4. accounts/assets held by Benamidars Holds Has right to Has right to Holds receive or exercise or • indirectly, or Holding of persons “acting together” is indirectly, or participate in actually together with clubbed in respect of their shareholding / together with not less than exercises, any direct influence / control. However, this term has 10% of the total significant holdings, not any direct distributable influence or not been defined less than 10% holdings, not dividend, control, in any of the voting through manner other ⎼ For determining situations of “acting less than rights in the indirect than through together”, can one take reference shares 10% of the holdings alone, direct from definition of “Persons acting in or together holdings shares with any direct alone concert (PAC)” from SEBI Takeover holdings Regulations, 2011? Subjective threshold Objective threshold
Burden of proof and Intention of the person P. Leelavathi (D) v. Shankaranarayana Rao (SC - Civil Appeal No. 1099 of 2008) (2019) • Burden of proof on the person who assert the transaction is benami which is to be discharged by legal evidence Mangathai Ammal (Died) vs. Rajeshwari and Ors. (SC - Civil Appeal No. 4805 of 2019) (SC) • Intention of the person contributed to the purchase money relevant to determine the nature of transaction as benami • The Amendment Act would not be applicable retrospectively Followed in Smt. Pamela Bhardwaj case by Tribunal under the amended Benami law
Determination of beneficial owner of alleged property prerequisite for treating transaction as Benami 1 Manpreet 5 Individuals & Developer 5 directors of Estate LLP Seller Companies (Benamidar) IO Allegation 3 Manpreet Estate LLP (MEL) has taken • Employees loan from DHFL which was related 2 party of RKW Developers P L (RKW) 4 • Consideration received by sellers transferred to RKW or to its related concerns Related party – • RKW was beneficiary of development RKW Developers DHFL common promoters, activity undertaken by MEL on said (Beneficial owner) directors and office property Lender • Prerequisite for determining transaction as benami – identification of beneficial owner of alleged property • Evidences establishing the genuineness of transaction which are at arm’s length relevant to determine nature of transaction as benami • Admissibility of written evidences vs. oral evidence • Attachment of properties as per rules prescribed IO v. M/s. Manpreet Estates LLP (FPA-PBPT-206/MUM/2018)(2019)
buys land in his Remits funds to his name friend who is resident in India Land acquisition in India by an NRI (based in USA) (cannot buy agricultural land in India being a non-resident) Search by ITD He (Indian Friend) BENAMI LAW takes makes a statement that PROCEEDINGS place he is mere facilitator for transactions done by NRI friend INCOME TAX FEMA PROCEEDINGS PROCEEDINGS
MONEY LAUNDERING: The Prevention of Money Laundering Act,2002 defines the offence of Money Laundering u/s 3 as
PROCESS OF MONEY LAUNDERING STAGE – I COMMISSION OF THE STAGE-III SCHEDULED COMMISSION OF OFFENCE MONEY LAUNDERING BY: PLACEMENT STAGE-II GENERATION OF LAYERING PROCEEDS OF CRIME INTEGRATION
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