Taxation is a fascinating branch of law, though highly complex and complicated to comprehend. lts practice demands an adequate knowledge of accountancy and economics besides a fair knowledge of various commercial laws, personal laws, laws relating to property as also civil criminal laws.

The system of taxation has been in existence since time immemorial when people started to organise themselves into societies and with the establishment of some form of governing bodies. The legitimacy of the collection of tax by the governing body for the welfare of its subjects has been accepted from a long time. But from the ancient time to the modern age, the concept has witnessed a multi-pronged transformation. Justice Oliver Wendell Homes once said “taxation is the price we pay for civilisation”.

In India, financial liberalisation was the centrepiece of the larger programme of “economic reform”. Much of the prescriptions of the western world found their echo in the post-1991 economic reform programme in India. It began with a radical programme of stabilisation and structural adjustment, assisted by the World Bank and the IMF. Immediate measures of macro-economic stabilisation, fiscal correction, exchange rate adjustment, monetary targets and inflation controls were announced. These stabilisation measures were to be supplemented by structural reform measures, which included industrial deregulation, liberalisation of foreign direct investment, trade liberalisation, overhauling of public enterprises and financial sector reforms.

Taxation, which was originally a means to sustain the survival of the State, over the years underwent substantial changes and now, as we stand in the 21st century, is perceived as one of the major means to vitalise economic development. And thus, it could be concluded that taxation carries forward the important task of economic vitalisation, income redistribution, and socio economic cohesion.

The fundamentals of our economy must be very strong but the economy of our country depends upon augmentation of the resources for which taxation is absolutely essential. The people of the country pay taxes and the lawyers encourage them to pay the legitimate taxes to the State. But we expect that the taxes should be properly utilised.

The tax profession is a solemn and serious occupation. It is a noble calling and all those who belong to it are its honourable members. Although the entry to the profession can be made merely by acquiring the qualification of tax competence, the honour as a professional has to be maintained by its members by their exemplary conduct both in and outside the Court.

The role of tax professionals in the current global economic scenario is extremely important. They have started to play a crucial role in ensuring the sound functioning of domestic tax systems. Hence, the well-functioning of a tax system depends to a large extent on the efficacy of the tax advisors. However, there exists some real and potential conflict between the duty to provide zealous representation of clients and a more abstract responsibility towards “the system”.

The taxpayers, in order to pay less tax, often try to exploit the inconsistencies and ambiguities in the tax legislation. Where different tax consequences follow two different forms of a transaction, the taxpayer will, if properly advised, often adopt the form that incurs the lowest tax burden. And, where there is some ambiguity in the application of the statute, the taxpayer will seek to interpret the ambiguous wording in the most advantageous way possible.

Thus, any law aimed at regulating the tax advisors must take into consideration the state’s interest in raising revenue and the client’s interest in minimising tax. It is also necessary to put in place proper regulations to protect the clients from unscrupulous or incompetent tax advisors.

In the era of globalisation and e-technology the entire world has become a global village and we have to get ourselves fully equipped with the latest developments in each field of taxation.

Tax evasion as a matter of major concern

The state’s financial experts as well as the economists and social scientists feel that the growing tax evasion is mainly due to our defective, irrational and anti-conditioned taxation policy. The variety of tax preferences that are extended to the subjects have not only distorted the after-tax rates of return on various types of investments in unintended ways, but also have significantly eroded the tax base. The wide ranging tax preferences have led to large scale avoidance of the tax by companies resulting in several “zero tax” companies. In order to correct this, Minimum Alternate Tax (MAT) was imposed since 1997-98.

In India there has been insufficient manpower for tackling evasion. While complete elimination of evasion may well be an uphill task, it is quite possible to subject returns to better check. Taxpayer education and use of media is another area through which better compliance is possible.

Also, we cannot be unmindful of the fast-paced changes taking place in the taxation regime in the country, and even internationally. In our own country, in the next few years, the Income-tax Act of 1961 is likely to be replaced by the Direct Tax Code. The Central Excise, Service Tax and Value Added Tax regimes are proposed to be subsumed under the Goods and Services Tax. Perhaps, a beginning has already been made with the new Companies Act, 2013. A lot of systems would be interlinked through the use of information technology. There would be a paradigm shift in our taxation system on all fronts. Not only the content of the law shall stand changed, but also the manner in which we approach taxation itself will undergo a complete transformation.

For any professional, be that a Chartered Accountant, Advocate, Tax Practitioner or Engineer, Doctor or Architect, the integrity and honesty is the supreme which makes the man straightforward and sincere to his profession.

For achieving success, one has to be quite objective as well as fair and impartial to his colleagues, subordinates and to the work itself.

When it comes to a professional, not only entire stake but some time the life of a person is put in the hands of the professional. Hence, the professional’s competence is supreme which can be achieved by having the complete knowledge and information about the subject and the laws with which we are dealing.

The statutory bodies of advocates and chartered accountants or the Bar Council of India, State Bar Councils and the Institute of Chartered Accountants of India have the duty to control the working of the professionals.

However, in today’s world, tax professionals must be concerned also with risk management, tax contingencies, disclosure requirements and reputational risk. In order to keep the professional reputation always high, it is absolutely essential that we must be very careful and we should not make a part of our professional family such persons, individuals or the professional firms who have indulged in various unscrupulous work.

Moreover, with the convergence of International Financial Reporting Standards (IFRS) and lndian Accounting Standards, and the convergence of accounting treatment under the Companies Act and the Income-tax Act, it will not be long before these systems are inter-linked and the tax authorities can, at the click of the button, verify the actual accounts of an assessee. At a more mundane level, with the introduction of information technology, it is far easier to ascertain the authenticity of transactions for claiming deductions or tax credits. Taxpayers profiling, which provides the tax authorities with a rich source of information, is common now, at least on the Income-tax side, and is made easier with the e-filing initiatives.

Every year, Economic Co-operation and Development, or OECD deeply examines and brings out a report on a particular aspect of taxation, such as Voluntary Disclosures, Tax Avoidance Processes, Role of Technology in Taxation etc. ln a globalised world, where we are slowly inching towards adopting the same processes and frameworks as are prevalent in the Western world, we have much to learn from these studies and reports.

Make in India Campaign

Indian markets have significant potential and offer prospects of high profitability and a favourable regulatory regime to entice investors. With the new ‘Make in India’ campaign the Government further intents to attract the Non Resident Indians to make financial investment in India. The ambitious ‘Make in India’ campaign launched on September 25 aims at turning the country into a global manufacturing hub. Government’s initiative to create ‘Make in India’ a global phenomenon will bolster and help increase per capita income and will create jobs for over 10 million people.

The tax professionals are advisors and not Senior Executive Officers of the corporate world. We must act independently according to our knowledge and wisdom and not according to the desire or dictate of any assessee or client, howsoever big it may be.

The nature of business is also undergoing a change. Globalisation is slowly leading to a situation where size of business is becoming all important – not just for expansion, but even for survival. Global competition is leading to the obliteration of any business which does not have the capacity to cope with the challenges, and increasingly, with size or scale of the business, the capacity to survive is increasing, while smaller businesses are being wiped out. Take any sector of the economy, be it finance, construction, real estate or retail, the big have to get bigger and smaller are on the risk of being wound-up.

Conclusion

Taxation is a sharp-edged weapon of fiscal management. The developing countries face the problem of financial inadequacy mainly due to the limited avenues for its generation. Taxation remains the lone source in the hands of the Government either for augmenting the State revenues or for carrying forward the task of economic development.

India today remains as an unbeatable combination of an ancient civilisation embracing economic globalisation in a context that is open and democratic, and that is what really makes India the emerging giant that it has become.

In the changing times present tax professionals are facing new challenges. But fortunately, the tax professionals as a group are not hesitant to embrace change, and embrace it successfully. Even though, there may be initial hiccups, but I am sure that the tax professionals will master their new role.

[Source: Inaugural Speech delivered at National Tax Conference held on 20th December, 2015 at Jaipur]

Hon’ble Mr. Justice R. K. AgrawalJudge, Supreme Court

NATIONAL SCENARIO

My beloved Members,

At the outset, I extend greetings and best wishes to all of you on the eve of New Year 2015!

For a long while as regards cutting the RBI Bank Repo rate Governor Raghuram Rajan and Union Finance Minister Mr. Arun Jaitley, were having different views due to their own perspective of the Indian Economy, especially in the context of inflation affecting the common man. However, RBI stunned the market on 15th January, 2015 on the auspicious occasion of ‘Makar Sankranti’ by cutting Repo rate from 8 per cent to 7.75 per cent, ahead of its February 3 policy review taking into consideration the Government’s commitment to adhering to its fiscal deficit target. Obviously, the white collar members of the society as well as traders and industrialist welcomed the above fast decision of the RBI which will boost the economy of the country. It is interesting to note here that ‘Care Ratings’ had forecast the said reduction on the ground of overall wholesale price index of inflation having been down at acceptable limits.

Meantime, Prof. Jagdish Bhagwati, an eminent international economist had stated thus: – “The Modi Government should overcome populist anti-reformers both politically and intellectually. Simultaneously, he lauded PM Narendra Modi for his right direction towards trade openness.”

Mr. Arvind Panagariya has taken charge of the ‘NITI AAYOG’ as Vice-Chairman, holding Cabinet rank, and stated in his personal capacity that a rethink on GST and Centre should try to first ‘straighten out’ central taxation. “Let us have proper value-added central sales tax on both goods and services. I think it will open the door a lot better for States to come on Board,” he said, conceding his view was different from the conventional one (source: ET, P 17, dated 8th January, 2015).

Meantime, Bishwajit Bhattacharya, a lawyer – PIL Petitioner has challenged the recently enacted law that granted Constitutional status to the ‘National Judicial Appointments Commission (NJAC)’ that would replace the collegium system of judges appointing judges. The PIL, inter alia reads : “such violence done to the basic structure of India’s Constitution is reminiscent of the dark days of emergency. The sanctity, chastity of the Constitution and its basic structure cannot be permitted to be defiled, defaced and demolished by the executive acting in conjunction with legislature in order to take over the function of the CJI and his senior colleagues to appoint and transfer Judges of HCs and the Supreme Court. That would destroy the doctrine of separation of power and the independence of the judiciaries.” So, let us await the decision on the PIL filed by the aforenamed petitioner.

I am pleased to share with you that the National Tax Conference 2014 held at Jaipur on 20th-21st December, 2014 was a great success inasmuch as over 900 delegates and invitees attended the said Conference. The hallmark of the Conference was, it being webcast live through internet and being watched across the world on a real time basis, apart from which it was live on twitter.

The next National Tax Conference is scheduled to be held at Darjeeling on 17th April, 2015. Members are requested to attend the same in large numbers and promote the cause of AIFTP to spread education in direct and indirect taxes.

With best wishes and regards,

J. D. Nankani

National President

Finance Bill 2015 – Wish list of tax professionals – Simple tax laws and better tax administration to achieve the goal of the Honourable Prime Minster to have “Ache din” for honest taxpayers

Professionals and honest tax-payers are having great expectations that this year’s Budget will be a vision document of the Honourable Finance Minister to have a simplified tax structure and better tax administration. The Federation has short-listed some of the issues for the kind consideration of the Honourable Finance Minister which can be deliberated upon:

1. Accountability provision in the direct tax law

Due to lack of accountability on the part of the Assessing Officers and his supervising officers, it is common to find additions being made for name sake which is not permissible in quasi-judicial proceedings, knowing well that they might not withstand judicial scrutiny. In order to keep a check on such frivolous additions, the accountability provision as suggested by Dr. Raja J. Chelliah, in his report [(1992) 197 ITR 177 (St) (257) Para 5.9] must be incorporated in the Income–tax Act, 1961, taking into consideration that the Honourable Bombay High Court has passed a number of orders against frivolous appeals filed by revenue when the Tribunal has followed the judgment of Supreme Court.

2. Speedy justice in taxation matters by Income–tax Appellate Tribunal which is the final fact finding authority is a need of the hour.

As on 1-12-2014 there are 1,00,420 appeals which are pending before the Income-tax Appellate Tribunal (the “Tribunal”) before its 63 Benches across the country. Pendency has increased due to non-appointment of members to the Tribunal. Though the interview process was completed about six months back, the appointment of members is not yet done due to reasons best known to the Government. It is essential that the members may be appointed at the earliest, which will help to reduce the pendency as well as release revenue to the Government, if any.

3. Proposal of appointment of Members of the Tribunal and Customs Excise and Service Tax Appellate Tribunal only for five years may be scrapped as it will not yield the desired result.

4. Formation of regular ‘Tax Bench’ in all High Courts to deal with direct and indirect taxes.

As the provisions of National Tax Tribunal Act have been struck down by Apex Court, it is essential that for quick disposal of taxation matters, the respective High Court may be requested to constitute a regular Tax Bench so that tax litigation may be settled within a reasonable time. The Bombay High Court has huge pendency. To clear the old references and appeals admitted, the Bombay High Court may require at least three Tax Benches and proactive support from the Tax Bar and the Department as well.

5. Transparency in the appointment of members of the Settlement Commission

To settle the taxation disputes the Settlement commission provision was introduced. If the scope is widened, many tax-payers may approach the Settlement Commission. Federation has made suggestions from time to time to bring transparency in appointment of the members of Settlement Commission and some members may be selected from the profession of law and accountancy. In this connection also, process of appointment of members of the Tribunal may be adopted which will be quite beneficial.

6. Reconciliation and arbitration within the department

A mechanism may be introduced within the department for reconciliation and arbitration with a view to final determination of cases, subject to suitable safe guards, as is the practice followed in countries like USA.

7. Quarterly circulars on every High Court judgment involving legal issues, may be published on the website of the CBDT.

8. All orders of A.O. may be made appealable to CIT(A) and all orders of CIT & CIT(A) may also be made appealable to the Tribunal.

9. Amendment be made to section 255(3) of the Income-tax Act, 1961 to increase the jurisdiction of the Single Member Bench from Rs. 5 lakhs to Rs. 25 lakhs. The last amendment was made w.e.f. 1-4-1971. Over the years, due to steep inflation, the rupee value has gone down considerably and therefore the suggestion made is worth considering without any further delay.

10. Direct appeal be provided to the Supreme Court to attain finality on very important issues which are affecting large number of assesees.

11. Special provisions for avoiding repetitive appeals – Chapter XIV-A, provision may be extended to revenue appeals.

12. Postponement of demand be made on account of arbitrary assessment by coercive methods till decision of first appeal. This is necessary because the Dept. has failed to arrest arbitrary and high-handed assessment orders which is the norm of the day.

13. Advance ruling for all resident Indians.

14. Prosecution matters in taxation – Compounding of technical offences may be done by charging nominal charges.

15. Withholding tax on payments made to non–residents under Explanation 2 to section 195 to be restricted to persons having tax presence in India.

16. Hardship arising out of the Supreme Court‘s decision in Goetze (India) Ltd v. CIT (2006) 284 ITR 323 (SC).

17. Research in tax liability to reduce generation of unaccounted money.

18. Honest Officers must be protected.

19. Transparency in tax administration and corruption free India

Government initiative regarding ‘Swachh Bharat Abhiyan’ is well received by the citizens of our country and everybody is supporting this vital cause. On the same objective, is it possible to have corruption free India? There are good number of officials and professionals whose integrity and devotion to duty cannot ever be doubted. If professionals take the oath that whatever may be the temptation or compulsion they will not indulge in unethical practice, we can have clean and unpolluted tax administration. This is the serious thought we are proposing to our fraternity for debate and response thereto.

The Federation has sent a representation to the Honourable Prime Minister, the Honourable Finance Minister, the Honourable Law Minster and also to the Chairman of the Law Commission. The Federation has presented its views on various issues before the High Powered Committee of the Finance Ministry (refer pg. No. 63) in this regard. The Federation has also sent detailed representations identifying problem areas in litigation relating to tax payers. Readers may also send their suggestions to the office of Finance Ministry by e-mail at [email protected] and [email protected].

Dr. K. Shivaram

Editor-in-Chief