Karnataka High Court quashes Black Money Act proceedings over foreign assets acquired before 2016, ruling that Section 72(c) required assessment in the correct assessment year.
The Karnataka High Court has set aside proceedings initiated under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 against a Moroccan woman in relation to two immovable properties situated in Morocco. The Court held that the Income Tax Department had assessed the foreign assets under the wrong assessment year and, therefore, the proceedings were contrary to the statutory scheme of the Black Money Act.
The judgment is significant for taxpayers having foreign assets acquired before the Black Money Act came into force, particularly where the Department seeks to determine the relevant assessment year based on the statutory deeming provisions.
Background of the Case
The petitioner, Mrs. Hind Sennoun, a Moroccan citizen, had acquired two immovable properties in Morocco through registered sale deeds dated 26 August 2015 and 28 February 2016. Both properties were acquired before the Black Money Act came into force on 1 April 2016.
Subsequently, on 25 January 2017, the Income Tax Department conducted a search and seizure operation under Section 132 of the Income Tax Act, 1961, in the case of the petitioner’s husband. The search also covered their matrimonial residence in Bengaluru.
Following the search, the Department issued a notice under Section 8 of the Black Money Act to the petitioner in April 2017. She responded to the notice and filed her income-tax return for Assessment Year 2017-18.
Thereafter, the Department issued several notices under Section 10 of the Black Money Act. The first such notice was issued on 4 December 2018.
Dispute Over the Assessment Year
The principal issue before the Karnataka High Court was not merely whether the foreign properties could be subjected to proceedings under the Black Money Act. The crucial question was which assessment year was legally applicable to those assets.
The Income Tax Department proceeded to assess the properties for Assessment Year 2018-19 and ultimately passed an assessment order dated 31 March 2021. Penalty proceedings were also initiated against the petitioner.
The petitioner challenged the assessment, arguing that the Department had proceeded against her for an incorrect assessment year.
Her contention was based primarily on Section 72(c) of the Black Money Act. According to her, since the properties had been acquired before the commencement of the Black Money Act and no declaration had been made under Section 59, the statutory deeming provision under Section 72(c) became applicable.
Under this provision, such an asset is deemed to have been acquired in the year in which the first notice under Section 10 is issued.
Since the first Section 10 notice in the petitioner’s case was issued on 4 December 2018, the petitioner argued that the properties had to be treated as having been acquired during Financial Year 2018-19. Consequently, the corresponding assessment could only be made in Assessment Year 2019-20, and not AY 2018-19.
Karnataka High Court’s Findings
Justice S.R. Krishna Kumar considered the statutory scheme and accepted the petitioner’s contention.
The Court noted that there was no dispute that the two foreign properties had been acquired before 1 April 2016, when the Black Money Act came into operation. It was also accepted that the petitioner had not made a declaration under Section 59 in respect of those assets.
The Court examined the deeming fiction contained in Section 72(c). According to the Court, once the statutory fiction applies, the foreign asset is deemed to have been acquired in the year in which the Section 10 notice is issued.
In the present case, the first notice under Section 10 was issued on 4 December 2018. Therefore, by operation of Section 72(c), the assets were deemed to have been acquired during FY/PY 2018-19.
The Court consequently held that the corresponding assessment year would necessarily be AY 2019-20.
Assessment for AY 2018-19 Held Unsustainable
The High Court emphasised the distinction between a previous year/financial year and the corresponding assessment year.
Where an asset is deemed to have been acquired during FY 2018-19, the corresponding assessment year is AY 2019-20. Therefore, proceedings treating the same asset as assessable in AY 2018-19 could not be sustained.
The Court observed that the statutory deeming fiction under Section 72(c) necessarily determines the relevant previous year, after which the corresponding assessment year follows.
Accordingly, the Department’s action in assessing the foreign assets for AY 2018-19 was found to be inconsistent with the statutory framework.
The Court therefore held that the assessment proceedings were contrary to the provisions of the Black Money Act, without jurisdiction and legally unsustainable.
Assessment Order and Consequential Proceedings Quashed
In view of its findings, the Karnataka High Court allowed the writ petition and quashed the assessment order dated 31 March 2021 passed for AY 2018-19.
The Court also set aside all consequential proceedings arising from the impugned assessment, including the proceedings connected with the penalty.
The Court considered it unnecessary to adjudicate the petitioner’s additional contentions concerning other provisions of the Black Money Act because the assessment itself was liable to be quashed on the ground of the incorrect assessment year.
Key Legal Takeaway
The decision in Mrs. Hind Sennoun v. Union of India, W.P. No. 16540 of 2021 (T-IT) provides an important clarification regarding the operation of Section 72(c) of the Black Money Act.
The judgment demonstrates that where foreign assets were acquired before the commencement of the Black Money Act and the statutory conditions for Section 72(c) are satisfied, the Department must correctly determine the deemed year of acquisition and the corresponding assessment year.
The decision also reinforces an important principle of tax law: an assessment must be made for the assessment year authorised by the governing statute. A statutory deeming fiction cannot be ignored while determining the relevant year for taxation.
For taxpayers facing proceedings concerning undisclosed foreign assets, the judgment highlights the importance of examining not only the ownership and source of the foreign asset but also the date of acquisition, applicability of the Black Money Act, statutory notices issued by the Department and the correct assessment year.
Case Details
Case: Mrs. Hind Sennoun v. Union of India
Court: Karnataka High Court
Writ Petition No.: 16540 of 2021 (T-IT)
Decision: 16 September 2026
Judge: Justice S.R. Krishna Kumar
Citation: 2026 LLBiz HC(KAR) 174
Key Provision: Section 72(c), Black Money (Undisclosed Foreign Income and Assets and Imposition of Tax) Act, 2015.
Conclusion
The Karnataka High Court’s ruling is an important decision on the assessment of pre-2016 foreign assets under the Black Money Act. By quashing proceedings initiated for an incorrect assessment year, the Court has reaffirmed that the statutory mechanism for determining the deemed year of acquisition must be strictly followed.
The judgment could be particularly relevant in cases where the Income Tax Department initiates Black Money Act proceedings in respect of foreign assets acquired before 1 April 2016. Taxpayers facing similar proceedings should carefully examine the relevant statutory provisions, dates of acquisition and notices issued under Section 10 before responding to assessment or penalty proceedings.