Information about Indian black money holders in foreign banks has been the subject of heated discussions in and outside Parliament. Some time back, there has been walkout by the Opposition parties in Parliament on Finance Minsiter refusing to disclose the names. The apex court has expressed serious concern for such money saying “the amount is nothing but plunder of the nation”.

The demand for disclosure of names of the account holders has been denied by the Minister on the ground that in view of covenants in the Double Tax Avoidance Agreements (“DTAAs” hereinafter), he cannot disclose the names. The names will automatically come into public domain when the cases against such account holders are filed in courts. Article 26 of the DTAA contains rules under which information may be exchanged. Paragraph 1 relates to the subject matter of the information, its purpose, scope and extent of information that can be given. This article requires the competent authorities to provide assistance through exchange of information that is necessary or foreseeably relevant to the administration and enforcement of the domestic laws of the contracting States concerning taxes covered by the convention, i.e. necessary for or relevant to determination, assessment and collection of taxes investigation and prosecution in tax matters. The information is to be treated confidential. The exchange of information is not restricted by Article 1. It can be requested for and provided with respect to persons who are not residents of either of the contracting States. As for taxes, the scope of the article extends to “taxes of every kind and description imposed…” with a limitation “insofar as the taxation… is not contrary to the Convention”.

Confidentiality rule

Paragraph 2 of Article 26 relates to confidentiality of the information exchanged. It states “any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State”. It applies to all types of information received under this paragraph. Maintenance of confidentiality in the same manner as information obtained under the domestic laws suggests that secrecy is a matter of the domestic law and that any violation would be governed by the domestic penal laws.

Confidentiality rule requires that any information required shall be treated as confidential and may be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, or enforcement or prosecution in respect of, or the determination of appeals in relation to, taxes covered by the convention. Such persons shall use such information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. The information may not be disclosed to any other person or entity or any other jurisdiction without express written consent of the competent authority of the requested State. Thus the information procured may not be disclosed to a third party or used for other purposes (See paragraphs 12.2 and 12.3 of the OECD's commentary on Article 26).

The foregoing discussion shows that the issue regarding confidentiality has to be decided in the light of secrecy provisions of the domestic law. Section 138 of the Income-tax Act, 1961 (Act) prohibits income-tax authority from disclosing information received under the Act unless authorised by the CBDT if in its opinion it is necessary to enable any public authority to perform its functions. Even the Assessing authority who has obtained it cannot use it in another taxpayer's case unless authorised by the giver of the information. Thus the income tax authority in receipt of the information received has to observe secrecy and the same restriction will apply to information obtained under the DTAA. The information cannot be denied on the ground of bank secrecy or on ground of a trade or other secret if it is necessary for carrying out the provisions of the domestic laws concerning taxes covered under the DTAA, and not for any purpose.

Hence the Minister's stand not to disclose the names merely on asking cannot be faulted.

Surprising aspects

However, there are two surprising aspects. The German authorities some time back offered to give information without any preconditions, but the Central Government did not avail of it in any effective way. Further, India has no Double tax Avoidance Agreement with Liechtenstein and hence there is no impediment in disclosing the information regarding bank account holders in that jurisdiction.

The Finance Minister's denial to disclose the names in a general way is justified. But the Government has information which can be disclosed. Why even such information is not being disclosed is surprising!

(The author is a former chairman of CBDT.)

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