No Penalty Under Section 43 Read With Section 46 for Disclosed Foreign Income and Tax Paid

The ITAT Jaipur held that no penalty under section 43 read with section 46 of the Black Money Act was warranted where the appellant disclosed foreign income from US social security pension and tax paid thereon in the computation of total income, despite non-disclosure in the FA schedule. The department did not dispute the nature of income or tax payment. Given the disclosure of requisite information and absence of opposition from the department, the tribunal set aside the penalty imposed by the AO and the order of the CIT(A).

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ISSUES:

Whether failure to disclose foreign income in Schedule FA of the income tax return constitutes a "default" under Section 43 of the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015.Whether social security benefits received from the United States, taxed at source, are required to be disclosed in Schedule FA and are taxable in India under the India-US Double Taxation Avoidance Treaty.Whether penalty under Section 43 of the Black Money Act is justified where the foreign income was disclosed elsewhere in the return and tax was paid in the foreign jurisdiction.

RULINGS / HOLDINGS:

The Court held that non-disclosure of foreign income in Schedule FA constitutes a default under Section 43 of the Black Money Act, 2015, but this finding is subject to the nature of the income and treaty provisions.The Court recognized that social security benefits received from the United States are "taxable only in the first mentioned state" as per Article 20 of the India-US Double Taxation Avoidance Treaty, and such income is not taxable in India.The Court found merit in the contention that where the foreign income (social security pension) was disclosed in the computation of total income and tax was paid in the United States, imposing penalty under Section 43 of the Black Money Act was not warranted, and accordingly set aside the penalty order and appellate order sustaining it.

RATIONALE:

The Court applied the provisions of Section 43 of the Black Money Act, 2015, which mandates disclosure of foreign income and assets in Schedule FA of the income tax return.The Court relied on Article 20 of the India-US Double Taxation Avoidance Treaty (Notification No. G.S.R.990(E) dated 20.12.1990), interpreting that social security benefits paid by one Contracting State to a resident of the other are taxable only in the paying state.The Court noted the absence of any departmental opposition to the claim that the amount was a pension taxed at source in the United States and that the assessee had disclosed the income and tax paid in the return, albeit not in Schedule FA.The Court concluded that in such circumstances, the penalty under Section 43 was not called for, representing a nuanced interpretation that disclosure elsewhere in the return and payment of tax abroad can mitigate the strict requirement of Schedule FA disclosure for pension income under a tax treaty.

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