Declared capital gains under the Income Declaration Scheme remained capital gains despite non-payment of tax, not unexplained income.

Income declared under the Income Declaration Scheme, 2016 retained its declared character as capital gains even though tax under the Scheme was not paid. Default in payment did not, by itself, convert the declaration into unexplained income or permit assessment under section 68 read with section 115BBE, because the Scheme was silent on altering the nature of declared income on default and the Revenue did not dispute the declared character. The declared capital-gains treatment, including the reference to section 54F, therefore had to be respected and the assessment recomputed on that basis.

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Issues: Whether income declared under the Income Declaration Scheme, 2016, on which tax was not paid, could be brought to tax as undisclosed income under section 68 read with section 115BBE of the Income-tax Act, 1961, or whether it had to be assessed according to its declared character as capital gains.

Analysis: The declaration under the Income Declaration Scheme, 2016 disclosed the amount as capital gains. Non-payment of tax under the Scheme did not alter the character of the income declared or convert it into unexplained income. The Scheme was treated as silent on changing the nature of declared income on default in payment, and the declaration made by the assessee was not disputed by the Revenue authorities. The assessment, therefore, could not proceed by recharacterising the declared capital gains as income under section 68 and taxing it at the higher rate under section 115BBE. The reference to deduction under section 54F also formed part of the declared capital-gains treatment.

Conclusion: The income declared under the Scheme had to be taxed as capital gains in the hands of the assessee, not as undisclosed income under section 68 read with section 115BBE.

Final Conclusion: The assessee succeeded on the substantive tax characterization issue, and the assessment was directed to be recomputed on the basis of capital gains treatment.

Ratio Decidendi: Default in payment of tax under the Income Declaration Scheme does not by itself change the nature of the income declared, which must be assessed according to its declared character unless the Scheme expressly provides otherwise.

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