Definition of Undisclosed asset located outside India – Section 2(11)

DEFINITION OF UNDISCLOSED ASSET LOCATED OUTSIDE INDIA – SECTION 2(11)

An assessee who is holding any ‘undisclosed asset located outside India’ [hereinafter referred to as undisclosed foreign asset] may be liable to pay tax on the value of such asset. [Discussed in detailed at Para 7, Para 9 of this chapter].

Thus, it is important to understand what would be considered as undisclosed foreign asset.  In certain case, an assessee may have certain property situated outside India,  or any bank account outside India,  but such asset or bank may not be covered within the definition of “undisclosed foreign asset” due to non-satisfaction of the conditions given in such definition.

Definition : –

“Undisclosed foreign asset” means the following  asset :  –

• Property situated outside India,
• Bank account outside India,
• Financial interest in any entity located outside India (E.g Interest in a firm/LLP located outside India).

However, such asset shall be covered under the definition of undisclosed foreign asset only when all the following conditions are satisfied : –

1. Ownership of such asset : –

Such asset should be held by the assessee in his name or he should be the beneficial owner of such asset. “Beneficial owner” means an individual who has provided, directly or indirectly, consideration for the foreign asset. Such consideration may be provided for the immediate or future benefit of himself or any other person.

For Example, where a person has an undisclosed property situated outside India, in the name of his spouse, for which the funds for acquisition were provided by such person, the person would be treated as a beneficial owner of the property .

2. Assessee’s explanation about the source of investment in such asset

Assessee has no explanation about the source of investment in such asset or the explanation given by him is unsatisfactory in the opinion of the Assessing Officer.

Note :- Whenever, any undisclosed foreign asset is discovered by the Assessing Officer, the assessee needs to explain the source of investment in such asset. If assessee has purchased such foreign asset out of his legitimate income on which taxes were paid, then such asset would not be treated as undisclosed foreign asset.      

ADDITIONAL POINTS TO CONSIDER : –

• As per Section 139(1) of the Income-Tax Act, it is mandatory for resident and ordinarily resident person to file income-tax return if he is the actual owner or beneficial owner of any undisclosed foreign asset.
• E-wallet/virtual card account on a website hosted in a foreign country would be similar to a bank account outside India. Thus, it may be covered under the definition of undisclosed foreign asset.

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