Tuesday, 9 August 2016

A high level constitutional authority in possession of black money

Honesty is our motto


 John McCarthy (1857-1943) was US politician

“There is more honesty among thieves.” These words of wisdom were given to me sometime in February 1969 – my second year in the field after training - by a well-known and highly respected name in the field of law. (I may add that after what he told me, I considered him as one who strictly followed the code of conduct.)

Our gurus at the Academy to impart professional training to the IRS officers had told us that quite often tax evaders left behind traces of their crime. One of the methods to discover the traces they taught us was to go through the entire file. While going through the file of  that wise man who had retired from a very high level constitutional position only a couple of months back, I discovered that during the preceding financial year he had paid income tax of  Rs.7.5 lakhs in cash. Those days, as for many decades thereafter, files were in physical form and contained   printed, typed and handwritten documents. Each of  the two receipts for the payment of advance tax had the Reserve Bank of India stamp on it clearly stating ‘PAID IN CASH’. It was a big amount those days. For people like me, it is a big amount even today.

The payment in cash per se was not illegal. The only question was the source. Before calling him for interrogation, I sent for his bank passbooks. When I did not find any matching withdrawal at any stage, I called him to my office. As soon as I confronted him with the evidence in my possession about payment of income tax in cash and asked him to explain the sources, without blinking an eye, he asked for a sheet of paper. That was duly given to him. He wrote on that paper: ‘This is my undisclosed income and I hereby surrender it for addition to my taxable income.’

I was stunned by the swiftness of what had happened. I was expecting him to give all sorts of excuses but here was the man, sitting calmly and drinking water from a glass, without any remorse or tension on his face. After a few minutes, he said that while Rs. 6.5 lakh was his money, he had borrowed Rs. 1 lakh from a friend. In response to my suggestion to give the name and address of the friend for verification so that if found correct, the amount could be excluded, he said: ‘There is more honesty among thieves. I don’t know whether the money he has given is black or white. You tax the entire Rs. 7.5 lakh in my hand. If he tells me that it was his white money, I  will go in appeal against the addition of Rs. 1 lakh only.’

 I passed the income tax assessment order after adding Rs. 7.5 lakh to his declared income and initiated penalty proceedings for concealment.

After leaving my office he might have realised that he, a big man, had surrendered before a mere tax officer. A couple of days thereafter he went to the then Finance Minister, Morarji Desai, to seek advice and help. His worry was not the amount of additional tax he had to pay but the heavy penalty which could be imposed. He was very close to Morarji Desai and was being considered for nomination to the Rajya Sabha. Heavy penalty for tax invasion would  ruin his chance.

Morarji Desai sent for the file, though he had no business to do that. My Commissioner of Income Tax – those days Commissioner was the senior most officer in the field – obtained full facts from me and assured me full support in case there was any pressure or harassment. I had apprised my immediate boss of the detection of concealment of income by that powerful person a day after the incident. He had already told me to complete the proceedings without any fear.

Morarji Desai did a favour to his friend. The power to impose penalty in that case was with the Commissioner of Income Tax. The Commissioner was pressurised to impose fine of less than Rs. 25,000. Morarji Desai’s friend was nominated to the Rajya Sabha for six years.

That big man’s friend had perhaps given his white money. The appellate authority accepted the proof and reduced the amount of undisclosed income by Rs. 1 lakh.
Devendra Narain
April 22, 2016