TaxTMI 
TaxTMI 
2011 (7) TMI 844
X X X X Extracts X X X X
X X X X Extracts X X X X
....ieties, are the ones for which people are willing to pay a price for. Values, and social actions, for which an effective demand is not expressed in the market, are neglected, even if lip service is paid to their essentiality. However, it cannot be denied that not everything that can be, and is transacted in the market for a price is necessarily good, and enhances social welfare. Moreover, some activities, even if costly and without being directly measurable in terms of exchange value, are to be rightly viewed as essential. It is a well established proposition, of political economy, and of statecraft, that the State has a necessary interest in determining, and influencing, the kinds of transactions, and social actions, that occur within a legal order. From prevention of certain kinds of harmful activities, that may range from outright crimes, to regulating or controlling, and consequently mitigating, socially harmful modes of social and economic production to promotion of activities that are deemed to be of higher priority, than other activities which may have a lower priority, howsoever evaluated in terms of social utility, are all the responsibilities of the State. Whether such ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ferring them abroad, and the routing them back to India may not actually be creating a culture that extols the virtue of such cycles, and the activities that engender such cycles are viewed as desirable modes of individual and group action. The worries of this court also relate to the manner, and the extent to which such cycles are damaging to both national and international attempts to combat the extent, nature and intensity of cross-border criminal activity. Finally, the worries of this court are also with respect to the extent of incapacities, system wide, in terms of institutional resources, skills, and knowledge, as well as about incapacities of ethical nature, in keeping an account of the monies generated by various facets of social action in the country, and thereby developing effective mechanisms of control. These incapacities go to the very heart of constitutional imperatives of governance. Whether such incapacities are on account of not having devoted enough resources towards building such capacities, or on account of a broader culture of venality in the wider spheres of social and political action, they run afoul of constitutional imperatives. 5. Large amounts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... society, may all be cited as some examples of the kinds of public goods that the State is expected to provide for, or enable the provision of. Inasmuch as the market is primarily expected to cater to purely self-centered activities of individuals and groups, markets and the domain of purely private social action significantly fail to provide such goods. Consequently, the State, and Government, emerges to rectify the co-ordination problem, and provide the public goods. 8. Unaccounted monies, especially large sums held by nationals and entities with a legal presence in the nation, in banks abroad, especially in tax havens or in jurisdictions with a known history of silence about sources of monies, clearly indicate a compromise of the ability of the State to manage its affairs in consonance with what is required from a constitutional perspective. This is so in two respects. The quantum of such monies by itself, along with the numbers of individuals or other legal entities who hold such monies, may indicate in the first instance that a large volume of activities, in the social and the economic spheres within the country are unlawful and causing great social damage, both at the indi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ror or extremist groups, or those that have been nurtured and sustained in hostile countries, depend on networks of formal and informal, lawful and unlawful mechanisms of transfer of monies across boundaries of nation-States. They work in the interstices of the micro-structures of financial transfers across the globe, and thrive in the lacunae, the gaps in law and of effort. The loosening of control over those mechanisms of transfers, guided by an extreme neo-liberal thirst to create a global market that is free of the friction of law and its enforcement, by nation-States, may have also contributed to an increase in the volume, extent and intensity of activities by criminal and terror networks across the globe. 12. Increasingly, on account of "greed is good" culture that has been promoted by neo-liberal ideologues, many countries face the situation where the model of capitalism that the State is compelled to institute, and the markets it spawns, is predatory in nature. From mining mafias to political operators who, all too willingly, bend policies of the State to suit particular individuals or groups in the social and economic sphere, the raison d'etre for weakening the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....decline, stagnate, or may not generate the revenue for the State that is consonant with its responsibilities. From within the neoliberal paradigm, also emerged the under-girding current of thought that revenues for the State implies a big Government, and hence a strong tax collecting machinery itself would be undesirable. Where the elite lose out in democratic politics of achieving ever decreasing tax rates, it would appear that State machineries in the hands of the executive, all too willing to promote the extreme versions of the neo-liberal paradigm and co-opt itself in the enterprises of the elite, may also become all too willing to not develop substantial capacities to monitor and follow the money, collect the lawfully mandated taxes, and even look the other way. The results, as may be expected, have been disastrous across many nations. 15. In addition, it would also appear that in this miasmic cultural environment in which greed is extolled, conspicuous consumption viewed as both necessary and socially valuable, and the wealthy viewed as demi-gods, the agents of the State may have also succumbed to the notions of the neoliberal paradigm that the role of the State oug....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion. Many dots of information, now collected in ever increasing volume by development of sophisticated information technologies, get ignored on account of lack of co-ordination across agencies, and departments, and tendency within bureaucracy to jealously guard their own turfs. In some instances, the failure to properly investigate, or to prevent, unlawful activities could be the result of such over-specialization, frictions in sharing of information, and co-ordination across departmental and specialized agency boundaries. 17. If the State is soft to a large extent, especially in terms of the unholy nexus between the law makers, the law keepers, and the law breakers, the moral authority, and also the moral incentives, to exercise suitable control over the economy and the society would vanish. Large unaccounted monies are generally an indication of that. In a recent book, Prof. Rotberg states, after evaluating many failed and collapsed states over the past few decades : "Failed states offer unparalleled economic opportunity-but only for a privileged few. Those around the ruler or ruling oligarchy grow richer while their less f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t to be apportioned to those portions of the citizenry that is well informed, or is expected to be informed. Much of that citizenry has disengaged itself with the political process, and with the masses. Informed by contempt for the poor and the downtrodden, the elite classes that have benefited the most, or expects to benefit substantially from the neo-liberal policies that would wish away the hordes, has also chosen to forget that constitutional mandate is as much the responsibility of the citizenry, and through their constant vigilance, of all the organs of the State, and national institutions including political parties. To not be engaged in the process, is to ensure the evisceration of constitutional content. Knee jerk reactions, and ill advised tinkering with the constitutional framework are not the solutions. The road is always long, and needs the constant march of the citizenry on it. There is no other way. To expect instant solutions, because this law or that body is formed, without striving to solve system wide, and systemic, problems that have emerged is to not understand the demands of a responsible citizenry in modern constitutional republican democracies. 20.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies are unaccounted, and in all probability have been generated through unlawful activities, whether in India or outside India, but relating to India. Further, the petitioners also allege that a large part of such monies may have been generated within India, and have been taken away from India, breaking various laws, including but not limited to evasion of taxes. 24. The petitioners contend : (i) that the sheer volume of such monies points to grave weaknesses in the governance of the nation, because they indicate a significant lack of control over unlawful activities through which such monies are generated, evasion of taxes, and use of unlawful means of transfer of funds ; (ii) that these funds are then laundered and brought back into India, to be used in both legal and illegal activities ; (iii) that the use of various unlawful modes of transfer of funds across borders, gives support to such unlawful networks of international finance ; and (iv) that inasmuch as such unlawful networks are widely acknowledged to also effectuate transfer of funds across borders in aid of various crimes committed against persons and the State, including but not limited to activities that may....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., certain documents and evidence had been discovered regarding deposits of 8.04 billion dollars with UBS bank in Zurich. It is the contention of the petitioners that, even though such evidence was secured nearly four and half years ago, (i) a proper investigation had not been launched to obtain the right facts from abroad ; (ii) the individuals concerned, though present in India, and subject to its jurisdiction, and easily available for its exercise, had not even been interrogated appropriately ; (iii) that the Union of India, and its various departments, had even been refusing to divulge the details and information that would reveal the actual status of the investigation, whether in fact it was being conducted at all, or with any degree of seriousness ; (iv) given the magnitude of amounts in question, especially of the demand notice of income-tax, the laxity of investigation indicates multiple problems of serious non-governance, and weaknesses in the system, including pressure from political quarters to hinder, or scuttle, the investigation, prosecution, and ultimately securing the return of such monies ; and (v) given the broadly accepted fact that within the political class corr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t seems that the RBI reversed its decision in 2009, and no good reasons seem to be forthcoming for the reversal of the decision of 2008. 30. The petitioners contend that such a reversal of decision could only have been accomplished through high level intervention, and that it is further evidence of linkages between members of the political class, and possibly even members of the bureaucracy, and such banking operations, and the illegal activities of Hassan Ali Khan and the Tapurias. Hence, the petitioners argued, in the circumstances it would have to be necessarily concluded that the investigations into the affairs of Hassan Ali Khan, and the Tapurias, would be severely compromised if the court does not intervene, and monitor the investigative processes by appointing a special investigation team reporting directly to the court. 31. The learned senior counsel for the petitioners sought that this court intervene, order proper investigations, and monitor continuously, the actions of the Union of India, and any and all governmental departments and agencies, in these matters. It was submitted that their filing of this writ petition under article 32 is proper, as the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... from the RPO in Patna, possibly with the help or aid of a politician. 36. During the course of the hearings the Union of India repeatedly insisted that the matter involves many jurisdictions, across the globe, and a proper investigation could be accomplished only through the concerted efforts by different law enforcement agencies, both within the Central Government, and also various State Governments. However, the absence of any satisfactory explanation of the slowness of the pace of investigation, and lack of any credible answers as to why the respondents did not act with respect to those actions that were feasible, and within the ambit of powers of the Enforcement Directorate itself, such as custodial investigation, leads us to conclude that the lack of seriousness in the efforts of the respondents are contrary to the requirements of laws and constitutional obligations of the Union of India. It was only upon the insistence and intervention of this court has the Enforcement Directorate initiated and secured custodial interrogation over Hassan Ali Khan. The Union of India has explicitly acknowledged that there was much to be desired with the manner in which the investiga....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... back the monies stashed in foreign banks, for which purposes a need may arise to register further cases. The Union of India also claims that the formation of such a committee indicates the seriousness with which it is viewing the entire matter. 38. While it would appear, from the status reports submitted to this court, that the Enforcement Directorate has moved in some small measure, the actual facts are not comforting to an appropriate extent. In fact we are not convinced that the situation has changed to the extent that it ought to so as to accept that the investigation would now be conducted with the degree of seriousness that is warranted. According to the Union of India, the HLC was formed in order to take charge of and direct the entire investigation, and subsequently, the prosecution. In the meanwhile a charge-sheet has been filed against Hassan Ali Khan. Upon inquiry by us as to whether the charge-sheet had been vetted by the HLC, and its inputs secured, the counsel for the Union of India were flummoxed. The fact was that the charge-sheet had not been given even for the perusal of the HLC, let alone securing its inputs, guidance and direction. We are not satisfie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d a crucial role in opening an account with the branch of the same bank in another jurisdiction. The volume of alleged income- tax owed to the country, as demanded by the Union of India itself, and the volume of monies, by some accounts US $8.04 billion, and some other accounts in excess of Rs. 70,000 crores, that are said to have been routed through various bank accounts of Hassan Ali Khan, and Tapurias. Further, from all accounts it has been acknowledged that none of the named individuals have any known and lawful sources for such huge quantities of monies. All of these factors, either individually or combined, ought to have immediately raised questions regarding the sources being unlawful activities, national security, and transfer of funds into India for other illegal activities, including acts against the State. It was only at the repeated insistence by us that such matters have equal, if not even greater importance than issues of tax collection, has the Union of India belatedly concluded that such aspects also ought to be investigated with thoroughness. How-ever, there is still no evidence of a really serious investigation into these other matters from the national security p....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the retraction of the monitoring of these matters by this court would be unconscionable. 46. The issue is not merely whether the Union of India is making the necessary effort to bring back all or some significant part of the alleged monies. The fact that there is some information and knowledge that such vast amounts may have been stashed away in foreign banks, implies that the State has the primordial responsibility, under the Constitution, to make every effort to trace the sources of such monies, punish the guilty where such monies have been generated and/or taken abroad through unlawful activities, and bring back the monies owed to the country. We do recognize that the degree of success, measured in terms of the amounts of monies brought back, is dependent on a number of factors, including aspects that relate to international political economy and relations, which may or may not be under our control. The fact remains that with respect to those factors that were within the powers of the Union of India, such as investigation of possible criminal nexus, threats to national security, etc., were not even attempted. Fealty to the Constitution is not a matter of mere material succe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dia [2011] 1 SCC 560. 49. In light of the above we herewith order : (i) That the High Level Committee constituted by the Union of India, comprising of (i) Secretary, Department of Revenue ; (ii) Deputy Governor, Reserve Bank of India ; (iii) Director (IB) ; (iv) Director, Enforcement ; (v)Director, CBI ; (vi) Chairman, CBDT ; (vii) DG, Narcotics Control Bureau ; (viii) DG, Revenue Intelligence ; (ix) Director, Financial Intelligence Unit ; and (x) JS (FT & TR-I), CBDT be forthwith appointed withimmediate effect as a Special Investigation Team ; (ii) That the Special Investigation Team, so constituted, also include the Director, Research and Analysis Wing ; (iii) That the above Special Investigation Team, so constituted, be headed by and include the following former eminent judges of this court : (a) The hon'ble Mr. Justice B. P. Jeevan Reddy as chairman ; and (b) the hon'ble Mr. Justice M. B. Shah as vice-chairman ; and that the Special Investigation Team function under their guidance and direction ; (iv) That the Special Investigation Team, so constituted, shall be charged with the responsibilities and duties of investigat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st measure, by the Special Investigation Team so constituted and functioning, by extending all the necessary financial, material, legal, diplomatic and intelligence resources, whether such investigations or portions of such investigations occur inside the country or abroad. (viii) That the Special Investigation Team also be empowered to further investigate even where charge-sheets have been previously filed ; and that the Special Investigation Team may register further cases, and conduct appropriate investigations and initiate proceedings, for the purpose of bringing back unaccounted monies unlawfully kept in bank accounts abroad. 50. We accordingly direct the Union of India to issue appropriate notification and publish the same forthwith. It is needless to clarify that the former judges of this court so appointed to supervise the Special Investigation Team are entitled to their remuneration, allowances, perks, facilities as that of the judges of the Supreme Court. The Ministry of Finance, Union of India, shall be responsible for creating the appropriate infrastructure and other facilities for proper and effective functioning of the Special Investigation Team at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d did not specify that the names and other information pertaining to such names ought to be requested only pursuant to any double taxation avoidance agreements it has with other countries. The petitioners also alleged that the Union of India has chosen to proceed under the assumption that it could have requested such information only pursuant to the double taxation avoidance agreement it has with Germany. The petitioners contend that the Government of India took such a step primarily to conceal the information from public gaze. 54. The response of the Union of India may be summed up briefly : (i) that they secured the names of individuals with bank accounts in banks in Liechtenstein, and other details with respect to such bank accounts, pursuant to an agreement of India with Germany for avoidance of double taxation and prevention of fiscal evasion ; (ii) that the said agreement proscribes the Union of India from disclosing such names, and other documents and information with respect to such bank accounts, to the petitioners, even in the context of these ongoing proceedings before this court ; (iii) that the disclosure of such names, and other documents and information, se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d sovereign nation-State. The agreement between Germany and India is with regard to various issues that crop up with respect to German and Indian citizens' liability to pay taxes to Germany and/or India. It does not even remotely touch upon information regarding Indian citizens' bank accounts in Liechtenstein that Germany secures and shares that have no bearing upon the matters that are covered by the Double Taxation Avoidance Agreement between the two countries. In fact, the "information" that is referred to in article 26 is that which is "necessary for carrying out the purposes of this agreement", i.e., the Indo- German DTAA. Therefore, the information sought does not fall within the ambit of this provision. It is disingenuous for the Union of India, under these circumstances, to repeatedly claim that it is unable to reveal the documents and names as sought by the petitioners on the ground that the same is proscribed by the said agreement. It does not matter that Germany itself may have asked India to treat the information shared as being subject to the confidentiality and secrecy clause of the Double Taxation Avoidance Agreement. It is for the Union of India, and the courts, in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r before this court, relate both to the issue of tax collection with respect to unaccounted monies deposited into foreign bank accounts, as well as with issues relating to the manner in which such monies were generated, which may include activities that are criminal in nature also. Comity of nations cannot be predicated upon clauses of secrecy that could hinder constitutional proceedings such as these, or criminal proceedings. 59. The claim of the Union of India is that the phrase "public court proceedings", in the last sentence in article 26(1) of the Double Taxation Avoidance Agreement only relates to proceedings relating to tax matters. The Union of India claims that such an understanding comports with how it is understood internationally. In this regard, the Union of India cites a few treatises. However, the Union of India did not provide any evidence that Germany specifically requested it to not reveal the details with respect to accounts in the Liechtenstein even in the context of proceedings before this court. 60. Article 31, "General Rule of Interpretation", of the Vienna Convention of the Law of Treaties, 1969, provides that a "treaty shall be interpret....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t." Consequently, it has to be understood that the phrase "public court proceedings" specified in the last sentence in article 26(1) of the Double Taxation Avoidance Agreement with Germany refers to court proceedings other than those in connection with tax assessment, enforcement, prosecution, etc., with respect to tax matters. If it were otherwise, as argued by the Union of India, then there would have been no need to have that last sentence in article 26(1) of the Double Taxation Avoidance Agreement at all. The last sentence would become redundant if the interpretation pressed by the Union of India is accepted. Thus, notwithstanding the alleged convention of interpreting the last sentence only as referring to proceedings in tax matters, the rubric of common law jurisprudence, and fealty to its principles, leads us inexorably to the conclusion that the language in this specific treaty, and under these circumstances cannot be interpreted in the manner sought by the Union of India. 63. While we agree that the language could have been tighter, and may be deemed to be sloppy, to use Frank Bennion's characterization, negotiation of such treaties are conducted and secured at v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....use (1) of article 32. 67. Further, inasmuch as, by history and tradition of common law, judicial proceedings are substantively, though not necessarily fully, adversarial, both parties bear the responsibility of placing all the relevant information, analyses, and facts before this court as completely as possible. In most situations, it is the State which may have more comprehensive information that is relevant to the matters at hand in such proceedings. However, some agents of the State may perceive that because these proceedings are adversarial in nature, the duty and burden to furnish all the necessary information rests upon the petitioners, and, hence, the State has no obligation to fully furnish such information. Some agents of the State may also seek to cast the events and facts in a light that is favourable to the Government in the immediate context of the proceedings, even though such actions do not lead to rendering of complete justice in the task of protection of fundamental rights. To that extent, both the petitioners and this court would be handicapped in proceedings under clause (1) of article 32. 68. It is necessary for us to note that the burden of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....antially on such proceedings. 70 Withholding of information from the petitioners by the State, thereby constraining their freedom of speech and expression before this court, may be premised only on the exceptions carved out, in clause (2) of article 19, "in the interests of sovereignty and integrity of India, security of the State, friendly relations with foreign States, public order, decency or morality, or in relation to contempt of court, defamation or incitement to an offence" or by law that demarcate exceptions, provided that such a law comports with the enumerated grounds in clause (2) of article 19, or that may be provided for elsewhere in the Constitution. 71. It is now a well recognized proposition that we are increasingly being entwined in a global network of events and social action. Considerable care has to be exercised in this process, particularly where governments which come into being on account of a constitutive document, enter into treaties. The actions of governments can only be lawful when exercised within the four corners of constitutional permissibility. No treaty can be entered into, or interpreted, such that constitutional fealty is derog....
X X X X Extracts X X X X
X X X X Extracts X X X X
....citizens to petition this court for upholding of fundamental rights is granted in order that citizens, inter alia, are ever vigilant about the functioning of the State in order to protect the constitutional project. That right cannot be extended to being inquisitors of fellow citizens. An inquisitorial order, where citizens' fundamental rights to privacy is breached by fellow citizens is destructive of social order. The notion of fundamental rights, such as a right to privacy as part of right to life, is not merely that the State is enjoined from derogating from them. It also includes the responsibility of the State to uphold them against the actions of others in the society, even in the context of exercise of fundamental rights by those others. 74. An argument can be made that this court can make exceptions under the peculiar circumstances of this case, wherein the State has acknowledged that it has not acted with the requisite speed and vigour in the case of large volumes of suspected unaccounted monies of certain individuals. There is an inherent danger in making exceptions to fundamental principles and rights on the fly. Those exceptions, bit by bit, would then evisce....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 77. The revelation of details of bank accounts of individuals, without establishment of prima facie grounds to accuse them of wrong doing, would be a violation of their rights to privacy. Details of bank accounts can be used by those who want to harass, or otherwise cause damage, to individuals. We cannot remain blind to such possibilities, and indeed experience reveals that public dissemination of banking details, or availability to unauthorized persons, has led to abuse. The mere fact that a citizen has a bank account in a bank located in a particular jurisdiction cannot be a ground for revelation of details of his or her account that the State has acquired. Innocent citizens, including those actively working towards the betterment of the society and the nation, could fall prey to the machinations of those who might wish to damage the prospects of smooth functioning of society. Whether the State itself can access details of citizens bank accounts is a separate matter. However, the State cannot compel citizens to reveal, or itself reveal details of their bank accounts to the public at large, either to receive benefits from the State or to facilitate investigations, and ....