Calcutta, July 15: The voluntary disclosure of income scheme (VDIS) is being viewed with caution by prospective declarants as they could end up playing hosts to income tax officials instead of getting a clean chit.

Finance minister P Chidambaram's ambitious scheme, the government's seventh attempt to unearth black money, says that persons who declare their concealed assets and pay a flat tax of 30 per cent by December 31 this year will not be asked any questions.

But prospective declarants have a question to ask: what is to prevent the tax officials from launching a raid before the commissioner of income tax (CIT) issues the declaration certificate?

The government's media blitz detailing the scheme explains everything -- but does not spell out any time period by which the CIT has to issue the certificate giving the declarant immunity from search and seizures.

Without the certificate, the "declaration" process is not complete. As such, whatever the finance ministry officials have to say, declarants are not quite confident about their defence in cases of "incomplete" declarations.

Although tax liability under the VDIS can be brought down to very low levels by shrewd planning, declarants run the risk of an indefinite wait for completion of the declaration process - and without any "immunity" from search and seizures during the intervening period.

The Central Board of Direct Taxes has, vide notification No 754 dated June 10, 1997, said that disclosures made under the scheme would only be completed after the Commissioner of Income Tax issues a certificate to such effect.

Says tax consultant Amitav Kothari, "There should be a definite time limit of 90-120 days for the CIT to approve or reject the application. It is not proper to ask the declarants to wait indefinitely for completion of the declaration proceedings."

In fact, prospective declarants fear that the department might very well choose not to issue certificates at this stage and wait till December 31, when the scheme expires. They feel that the tax authorities may decide their next course of action on the basis of the response to the scheme.

It is feared that the government will issue the certificates only if the VDIS proves to be an all-out success.

If the scheme closes to a lukewarm response, the government may very well decide to issue certificates only after scrutinising every application and launching raids on those who have used smart tax planning to get through loopholes in the scheme.

Under VDIS 1997, prospective declarants are required to make the declaration in prescribed forms (duly signed a competent person) and file it along with a bank challan (or any other proof of payment of tax on the declared income) to the Commissioner of Income Tax in whose jurisdiction the declarant is assessable to tax.

But the scheme sets no deadline for the CIT to issue the declaration certificate. Until the declarant gets the certificate, the secrecy clause is not applicable and the declarant is at the mercy of the tax officials. A receipt in support of the application will not be enough evidence to ward off action by the tax authorities.

CBDT's notification 754 (Question No. 10) says that in case a declaration is made in respect of an assessment year which is getting time-barred, the commissioner will take steps to issue the certificate.

However, tax consultants opine out that even this clause fails to spell out an action plan. "Declarations in respect of all assessment years till 1994-95 have already become time-barred now, but it has not been clarified what steps the commissioner will take to issue certificates in these cases," Kothari added.

It is also feared that CIT officials will resort to arm-twisting prospective declarants up to the time the declaration is complete, as the scheme does not provide safeguards to them under such situations.

Tax consultants say that the Income Tax Act does have a provision where silence generally denotes consent, and such a clause should have been incorporated in the disclosure scheme.

Moreover, if the CIT decides to reject the declaration, the declarant is not entitled to get back the tax paid on the declared income. Section 70 of the Finance Act of 1997 clearly states: "Any amount of taxes paid in pursuance of a declaration made under section 64(1) shall not be refundable under any circumstances."

Thus, not only will the declarant be unable to get back the amount deposited, he becomes exposed to raids, searches or seizures by the tax authorities.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.