Sep 19, 2022

Benami Decision – Impact On Black Money Litigation

The Hon’ble Supreme Court by way of its judgment dated August 23, 2022, in the case of Union of India v. Ganpati Dealcom Pvt. Ltd[1], inter alia, dismissed the Government’s appeal whilst noting that the amendments brought into the Benami Transactions (Prohibition) Act, 1988 (“Benami Act”) by way of the Benami Transactions (Prohibition) Amendment Act, 2016 (“2016 Act”), being substantive in nature, could not be applied retrospectively in light of the mandate of Article 20(1) of the Constitution of India (‘Constitution’). The Hon’ble Supreme Court while noting the nature of the amendments such as introduction of penal provisions, requirement of mens rea, detailed definition of benami transaction et al, noted that although the Benami Act was being slated as a civil legislation, it was a criminal legislation in substance and hence, the amendments brought in by way of the 2016 Act were hit by the bar envisaged under Article 20(1) of the Constitution.

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘BM Act’) was brought into force with effect from July 1, 2015. A bare perusal of Section 3 and Section 4 of the BM Act indicates that what the BM Act seeks to tax is (a) undisclosed foreign income; and (b) undisclosed foreign assets. Considering the fact that Section 3 of the BM Act has been made effective April 1, 2016, the taxation of ‘undisclosed foreign income’ can only be taxed from AY 2016-17 onwards i.e., prospectively. The issue arises, however, particularly, in relation to ‘undisclosed foreign assets’ which were acquired and disposed-off prior to the BM Act coming into force. In terms of the proviso to Section 3 read with Section 72 of the BM Act, ‘undisclosed asset’ located outside India will be charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer even though the same may have been acquired prior to the BM Act coming into force. Therefore, what the BM Act purports to do is that it seeks to tax an ‘undisclosed foreign asset’, which even though acquired prior to the coming into force of the BM Act, came to the notice of the Assessing Officer post the effectiveness of the BM Act.

Additionally, the Central Board of Direct Taxes (‘CBDT’)[2] had also issued various clarifications qua this issue, although in the context of the amnesty scheme, which clarified the Government’s stance that the BM Act purports to tax an ‘undisclosed foreign asset’, which may have been acquired and even disposed-off prior to the BM Act coming into force, if the same comes to the notice of the tax officer after the coming into effect of the BM Act. This retrospective applicability of the BM Act has been subjected to challenges by various assessees before different High Courts[3] on various grounds especially in cases where the foreign assets ceased to exist before July 1, 2015. Notices have been issued in these petitions and the same are sub-judice as on date.

The settled principle of law dictates that unless a contrary intention appears, a legislation is presumed to have prospective operation. The rationale behind the rule is that a current law should govern current activities and that laws passed today cannot apply to the events of the past.[4] Article 20(1) of the Constitution imposes a bar on conviction of a person for an offence which was not a violation of the law at the time of commission of such offence. However, the defence of Article 20(1) is only applicable to cases of criminal/punitive nature and not to civil law.

In our opinion, the BM Act being draconian in nature with penal consequences including prosecution, would not fall within the ambit of civil law even if it is stated to be one. This assumption is further fortified in terms of Section 54 of the BM Act which provides for a ‘presumption of culpable mental state’. Settled principle of law dictates that mens rea is an essential ingredient for any criminal offence and presumption thereof under the BM Act furthers the understanding that the BM Act would not fall within the confines of civil law and hence, the defence of Article 20(1) of the Constitution would be applicable to the BM Act.

Many of the observations of the Supreme Court while dealing with the challenge under Article 14 or Article 20(1) of the Constitution in the case of the Benami Act can equally be applied to a constitutional challenge to the provisions of the BM Act, particularly in relation to its purported retrospective operation. For instance, the Supreme Court, held the Benami Act, although stated to be civil in nature, in substance was criminal in nature. In the words of the Court, “a punitive provision cannot be couched as a civil provision to bypass the mandate under Article 20(1) of the Constitution which follows the settled legal principle that “what cannot be done directly, cannot be done indirectly”.” This holds true in the context of BM Act as well. Where an asset was acquired and disposed-off prior to the period when the BM Act came into effect, to hold the taxpayer/assessees liable for penal consequences, would be attempting to indirectly extend the application of the BM Act to a prior period, which cannot be permitted under the framework of Article 20(1) of the Constitution.


[1] SLP(C) No. 2784/2020 (Supreme Court).

[2] CBDT Circular No. 13 of 2015, dated July 6, 2015.

[3] Gautam Khaitan v. UOI, W.P.(Crl.) 618/2019 (High Court of Delhi); Deepak Talwar v. UOI, WP(C) 5294/2021 (High Court of Delhi) and Anila Rasiklal Mehta v. UOI, W.P. No. 1300/2018 (Bombay High Court).

[4] Commissioner of Income-tax v. Vatika Township Pvt. Ltd., (2015) 1 SCC 1 (Supreme Court).




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