Delhi High Court Upholds Supremacy of PMLA Over Income Tax Act in Stockguru India Fraud Case
Seized funds deemed proceeds of crime under PMLA, not taxable income; Income Tax Department's claim denied pending criminal proceedings
In a significant judgment, the Delhi High Court has resolved the conflict between the Income Tax Act, 1961 and the Prevention of Money Laundering Act, 2002 (PMLA) in favor of the latter, addressing the proceeds of crime from the notorious Stockguru India fraud case. The court ruled that funds seized from the accused, totaling Rs.34,69,00,000, constitute proceeds of crime under the PMLA and cannot be treated as taxable income under the Income Tax Act until criminal proceedings under PMLA are concluded.
The case involves the Asst. Commissioner of Income Tax's petition challenging the dismissal of an application seeking the release of seized funds for tax recovery. The funds were initially seized during a search operation on the premises of the accused, Ulhas Prbhakar Khair and Priyanka Saraswat Dev, partners in the fraudulent scheme run by M/s Stockguru India, which duped over 200,000 investors.
The judgment, delivered by Justice Neena Bansal Krishna, emphasized that the PMLA, being the subsequent special law, takes precedence over the Income Tax Act, as it specifically addresses the forfeiture of proceeds of crime and seeks to restore property to legitimate claimants. The court noted that the funds in question do not constitute legitimate income, but are rather proceeds of crime obtained through fraudulent schemes, and thus cannot be subject to tax recovery until the criminal trial concludes.
The ruling comes as a blow to the Income Tax Department, which had sought to appropriate the seized funds towards the outstanding tax liabilities of the accused. The court highlighted the importance of resolving conflicts between special laws through consideration of their dominant purpose and objectives, thereby affirming the PMLA's overriding effect due to its later enactment and specific focus on money laundering activities.
Legal experts view this judgment as a reinforcement of the PMLA's role in combating financial crimes and ensuring justice for victims of fraud. The decision underscores the principle that proceeds of crime must be confiscated and returned to rightful claimants, rather than being prematurely treated as taxable income.
The case now awaits the conclusion of PMLA proceedings, which will determine the final disposition of the seized funds. Until then, the Income Tax Department's claim remains on hold, marking a pivotal moment in the intersection of tax and criminal law.
Bottom Line:
Conflict between the Income Tax Act, 1961 and the Prevention of Money Laundering Act, 2002 (PMLA) resolved in favor of PMLA as it is a later special law addressing proceeds of crime; seized funds not to be treated as taxable income until criminal proceedings under PMLA are concluded.
Statutory provision(s): Income Tax Act, 1961 Sections 132, 132B, 226(4); Prevention of Money Laundering Act, 2002 Sections 5, 8(8), 45, 71
Asst. Commissioner of Income Tax v. State, (Delhi) : Law Finder Doc Id # 2783243
