1. Tax Laws

Tax laws are complicated, complex, highly technical and beyond understanding of a commoner. Interpretation of tax laws is very much painful and difficult. Lately, there has developed a tendency to amend tax laws frequently and retrospectively. It is not a healthy sign. It is immoral and unethical. It does not very much affect the national exchequer, but puts a greater injury to a citizen of this great democracy. It shakes faith of the tax payers in tax laws and prompts them to resort to unethical practices.

1.1 Tax, Corporate and regulatory laws are strict. Frequent amendment of the Act and the Rules and a plethora of decisions of the Honourable Supreme Court, High Courts and Tribunals apart from instructions, directions and circulars of the competent authorities have been noticed. Conflicting views are expressed by various High Courts and it takes long years to have an authoritative interpretation. Retrospective amendment is made to nullify the effect of the interpretation of the Supreme Court. There appears a tug-of-war between the legislators and the judiciary, crushing honest tax payers.

1.2 Language is not simple and understandable. There are “Explanations”, “Provisos”, “Subject to”, “Notwithstanding anything contained in”, deeming fictions, provisions/phrases which lead to litigation. Such provisions are impacting the ease of doing business and cause impediments in free trade. Predictability and certainty is absent. Discretionary power vests with the tax administrators. There are apparent and patent conflicts, overlapping, different interpretations and convergence in tax laws, inviting long drawn litigation at all levels, with waste of time, energy, money and uncertainties.

2. Changes

“The Indian Income-tax Act, 1922” simple, short and easy to understand, was replaced by highly complex, complicated and bulky “The Income-tax Act, 1961” with 298 sections, sub-sections, clauses, sub-clauses, provisos, explanations, 14 schedules, rules, regulations, circulars, instructions, etc. That apart frequent massive amendments, insertions, alterations, deletions by the amending Acts and annual Finance Act, many with retrospective effect from 1962. Chapter XXI has been inserted conferring power to impose 35 types of penalties on non-compliance and technical defaults. Tax payer has been loaded with a burden to submit statements and information. Tax, however, with passage of time rate of tax has been made moderate to 30% and with deductions, allowances, etc. net rate may reach 22% only. Now remains only income-tax with interest, surcharge and power to levy penalty, fees, collection and recovery and prosecution. Provisions relating to Tax Deductions at Source have been widened with liability to collect treating as “assessee-in-default” with interest, penalty and disallowance of the expenditure u/s. 40a(ia). Sections 285 and 285A have been inserted and expanded requiring furnishing of information or statement or documents, with an intention to cross-check. Section 44AB for compulsory audit has been made stricter requiring extensive scrutiny, examination, information, verification, certification etc. Efforts have been made to streamline, but compliances and obligations have increased tremendously. Returns, appeals etc., are online. Refunds for smaller amount is automatic and with expedition. But records are in a mess and rectifications are not automatic and smooth. One has to rush before battery of officers and human face could not be eliminated. For some assessments a tax payer may have to appear and satisfy multiple assessors.

2.1 "One Nation – One Tax" – Namely "Goods & Services Tax" has been introduced from 1st July, 2017, along with GST rules. In the GST regime, the Union and the States including Union Territory with legislature will concurrently levy Central GST (CGST) and State GST (SGST), Union Territory (UTGST) on inter-state supply of goods or services while Union will have exclusive power to levy Integrated GST (IGST) on inter-state supply and also on supply in the course of import into the territory of India. GST subsumes all existing taxes and duties on goods and services except certain items. Certain essential goods have been exempted. 5 multi-taxed basic rates @ 0%, 5%, 12%, 18% and 28% have been made applicable. Power to reduce vests with the States. Law is simple but compliances are cumbersome and online, within specified period. One may have to obtain several registrations with obligation to file returns monthly / annually and payment of taxes, assessments, audit etc. Some returns are to be filed within a few days of next month. Sale invoices have to be in the prescribed format. There would be phenomenal rise in the cost of compliance. Small traders would suffer the pinch. However, if efficiently administered would cut-down prices by 1 to 2%. Anti-profiteering provision would take care of the consumers. In my view it should have been levied and collected by Union as income-tax and distributed between the various States. That would have been better for the tax administrators and the stake-holders. Its wings are expanding.

2.2 The Modi Government gave golden opportunity to declare under “Income Declaration Scheme, 2016” on payment of 45% by way of tax, interest and penalty and bring 55% in the normal channel with all immunities, even from Benami Transaction Prohibition Act, apart from facility of making payment by instalments, with net tax effect of 41% and odd. Tax payers had become daredevils and very few sensible persons availed of it. It proved as an utter failure and was an ‘illusion’. The tax payers were under the bona fide belief that as and when they want to convert black to white, would pay advance-tax, deposit in bank, declare in the regular return and tax liability would be only 30% with no penalty. The tax payers were under ‘delusion / confusion’.

2.3 The Taxation Laws (Second Amend) Act, 2016 with effect from 1-4-2017 substituted existing Section 115BBE providing tax on incomes referred to in section 68 or section 69, 69A, 69B or 69C or 69D of the Act from 30% to 60%, with no set off of any loss. In view of the declaration that bank notes of denomination of ₹ 500 and ₹ 1,000 ceased to be legal tender with effect from November 9, 2016, it gave an opportunity to pay tax with heavy penalty so that the remaining part of the declared income legitimately comes into the formal economy. The amendments to section 271AAB and the introduction of sub-section (1A) provide to that end that, in a case where search has been initiated under section 132 on or after December 15, 2016, the assessee shall pay by way of penalty 30 per cent of the undisclosed income of the specified previous year, if the assessee in a statement under section 132(4), admits the undisclosed income and specified the manner in which such income has been derived and on or before the specified dates pays the tax, together with interest, if any, and furnishes the return of income for the specified previous year declaring such undisclosed income therein. In other cases the penalty shall be at 60 per cent. Thus in search cases the liability for tax, interest, surcharge and penalty may be 143.25% of undisclosed income (Tax 60 % + Surcharge 15% + Cess 2.25 % = 77.25% + Penalty u/s. 271AAC – 6% + Penalty u/s. 271AAB(1A) – 60%), apart of hanging the sword of prosecution. It may be ‘confiscatory’, but valid and legal as evasion of tax is a social crime. Evaders have no sympathy. It is terrorism. Tax payers must come to senses.

2.4 In order to achieve the object of ‘less cash’ transactions, section 40A(3) was amended reducing the amount payable to ₹ 10,000/- instead of ₹ 20,000/- in a single day to a person. A new section 269ST has been inserted by the Finance Act, 2017 with effect from April 1, 2017, i.e., applicable for assessment year 2017-18 and subsequent years, whereby no person shall receive an amount of ₹ 2 lakh or more, in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Some exceptions have been provided. To make this section effective, penalty for failure to comply with the provision has been provided u/s. 271DA, in a sum equal to the amount of such receipt.

2.5 A fourth proviso to sub-section (1) of section 153A was inserted by the Finance Act, 2017 with effect from April 1, 2017, i.e., applicable for assessment year 2017-18 and subsequent years, to provide that notice under the section can be issued for an assessment year or years beyond the sixth assessment year already provided up to the tenth assessment year if (i) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income which has escaped assessment amounts to or is likely to amount to ₹ 50 lakh or more in one year or in aggregate in the relevant four assessment years (falling beyond the sixth year); (ii) such income escaping assessment is represented in the form of asset; (iii) the income escaping assessment or part thereof relates to such year or years. The amended provisions of section 153A shall, however, apply where search under section 132 is initiated or requisition under section 132A is made on or after April 1, 2017.

2.6 To stop circulation of black / corrupted money, to eliminate fake currency and to check its use in terrorism activities, strongman – Shri Narendra Modi – declared demonetisation at 8.00 p.m. on 8th November, 2016, declaring existing 500 and 1000 rupee currency notes as illegal tender from 9th November except for specified purposes. The old currency to be converted into new currency by banking channels up to December 30, 2016. The Specified Bank Notes Cessation of Liabilities Ordinance, 2016 was promulgated on December 30, 2016. Many traders accepted old currency from 8th night and onwards showing invoices for sale in earlier dates and deposited in the Banks with connivance of bank officials. Notices have been issued and the assessees have been required to disclose cash amount deposited from 9th November and onwards. The income-tax officials are well-equipped to make scrutiny, examination, verification and if unsatisfied would deem as income u/ss. 68, 69 etc. with liabilities as above stated. It has caused ‘threats’ and ‘turmoil’.

2.7 Prevention of Corruption Act failed to book corrupt and prosecute successfully. Modi Government amended “Prohibition of Benami Property Transactions Act, 1988” w.e.f. 1-11-2016. It is very wide and meaning of benami transactions have been expanded. It may be stated that the term “property” for the purpose of benami transaction has been defined very widely and it includes assets of any kind whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes any right or interest of legal documents or instruments evidencing title to or interest in the property. It also provides, in case property has been converted in any other form then the property in converted form or sale proceeds of the same will also be deemed to be benami property. It shall cover all “benami transactions” which are not bona fide transactions. Income-tax Department has been entrusted with the job of initiation and adjudication. Right to confiscate vests in the Central Government apart from prosecution. Special Courts shall try and conclude trial within 6 months. Laloo Yadav’s family and his daughter Meesa have been prosecuted. Necessity would be its efficient and expeditious implementation. Many searches have been conducted by the Enforcement Directorate and prosecutions launched. It is a ‘tragedy’.

2.8 New concept of penalty in cases of “under reporting” and “mis-reporting” of income have been introduced from 1-4-2017 with insertion of Section 270A. On “under-reported income” and “mis-reported income” penalty would be 50% and 200% of such income respectively. Many illustrations and exceptions have been inserted. Immunity from penalty and prosecution in case of “un-reporting” would be available u/s. 270AA on fulfilment of specified conditions. It is advisable for the Authorised Representatives / Return preparers / Chartered Accountants / Tax Advocates to be vigilant, cautious, careful and not casual, while auditing, examination of accounts, supporting vouchers, bank statements, other transactions, etc., and to report carefully and make all possible additions, disallowances while computing true and correct income. Requisite information, disclosure of primary and relevant facts for computing income without concealment or misrepresentation be furnished along with the return or by a separate letter immediately after filing of the return, to avoid penal provisions u/s. 270A of the Act. If for any reason non-reporting is noticed, make application to AO, pay the due tax, do not prefer appeal and seek immunity from penalty and prosecution. Purchase peace.

2.9 Taking undue advantage of Section 10(38), a fairly large number of unscrupulous assessees indulged in shady deals through shell companies, understated purchase price, over-stated sale consideration (unreal) and sought and got exemption from long term capital gains. More than two lakh such companies were detected, resulting in assessment / re-assessment with tax, penalty, interest and some prosecutions. To curb this menace and to put a stop to such abusive acts, to check revenue loss, to discourage diversion of investment in financial assets, the Finance Act, 2018 withdrew the exemption on transfers on and after the 1st day of April, 2018. A new section 112A in the Act has been inserted from 1-4-2018 to provide that long term capital gains arising from transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust, shall be taxed at 10 per cent of such capital gains exceeding one lakh rupees. It will be applicable to such long term capital gains, if (i) in a case where long term capital asset is in the nature of an equity share in a company, securities transaction tax has been paid on both acquisition and transfer of such capital asset; and (ii) in a case where long term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, securities transaction tax has been paid on transfer of such capital asset.

2.10 To regulate housing sector Real Estate Regulation Act has been enacted to curb misuse of funds received on booking of apartments, strict audit by Chartered Accountants, for registration, maintenance of accounts, bank accounts, and heavy interest on delay or default. Prevention of Money Laundering Act was activated and enforced with full vigour and many persons have been roped in, resulting in confiscation of ill earned tax evaded money and assets.

3. Challenges

The last two years have been years of fear, illusion, delusion, confusion, threats, turmoil, tragedy and terrorism, to weed out black money and corruption, which are anti-social acts. It is advisable for the Authorised Representatives / Return preparers / Chartered Accountants / Tax Advocates / Corporate Advisors to be vigilant, cautious, careful and not casual, while auditing, examination of accounts, supporting vouchers, bank statements, other transactions, etc. and to report carefully and make all possible additions, disallowances while computing true and correct income. Requisite information, disclosure of primary and relevant facts for computing income without concealment or misrepresentation be furnished along with the return or by a separate letter immediately after filing of the return, to avoid penal provisions. If for any reason “non-reporting” is noticed, to purchase peace, pay the due tax and seek immunity from penalty and prosecution. Compliance requirements under GST, Income-tax, Companies Act, SEBI, etc. are fairly large to be complied in very short time and all over the year. Professionals would have to be more attentive, alert and active.

3.1 The assessment is civil liability. Penalty is quasi-criminal in nature and prosecution is criminal. Provisions of search, seizure, rate of tax on undisclosed income, prosecutions etc. have been made more strict and stricter from year to year. It has become an annual phenomena. It is advisable to follow the law, comply the procedure and discharge liability inaccordance with law. Forget about leakages, loopholes and evade due and correct taxes. Create tax culture. Be law abider and not breaker. Tax advisors must function as torch-bearers and encourage, inspire, instigate and advice tax payers to be on the right side. One should be peaceful not hounded by tax collectors. Take caution from provision contained in Section 271J for imposition of penalty and prosecution u/s. 278 for abatement.

4. Compliances

It is solemn duty of tax payers as also tax administrators to understand intricacies of law, to comply with its provisions and procedure and to act in accordance with law. It is two way traffic. Taxpayer alone is not to be singled out or inflicted with penalty on non-compliance. Tax administration is expected to be respectful and sympathetic towards tax payers. They should also be transparent and accountable and should not abuse or misuse the powers conferred under the Act. To maintain discipline, decorum and to avoid chaos and arbitrariness ‘Judicial Discipline’ has been built-up by the judicial precedents, judge made law. The basic object is to bring in consistency; to avoid unwanted litigation, which is costly and full of uncertainties; to avoid harassment of taxpayers; to eliminate denial of justice and to put a closure to the controversy.

4.1 In Bhopal Industries Ltd. v. I.T.O. (1960) 40-ITR-618 (S.C.), the Supreme Court observed: If a subordinate Tribunal refuses to carry out directions given to it by a superior Tribunal in the exercise of its appellate powers, the result will be chaos to the administration of justice. Such refusal is in effect a denial of justice, and is further more destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts. The Supreme Court in Union of India v. Kamlakshi Finance Corporation Ltd. – AIR 1992 S.C. 711 at 712 emphasised : “The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax Laws”. The Apex Court again in Assistant Collector v. Dunlop India Ltd. (1985) 154-ITR-172 stated : “the judicial system works only if someone is allowed to have the last word and that last word, once spoken, is loyally accepted. The better wisdom of the court below must yield to the higher wisdom of the court above”.

4.2 “Judicial Discipline” deserves to be followed religiously and its sanctity must be understood. It is painful that despite plethora of decisions commencing with Bhopal Industries, the AO and CIT(A) and few of the members of the Tribunal are flouting judicial discipline and committing contempt. It is high time that appellate authorities correct the errant authorities with heavy hand. It is being noticed that the Supreme Court and High Courts are taking indiscipline seriously. Recently on 24-4-2018 the Hon’ble Supreme Court in U.O.I. v. Prithvi Singh dismissed the appeal with cost of ₹ 1 lakh. However there remains non-compliance by tax administration.

4.3 The Central Board of Direct Taxes must keep a watch and vigil and take serious disciplinary action against the wrong doers. Malady must go. Law is Supreme – Not the Tax Authorities. Taxpayer and tax authority are on equal footing. Compliance should be on both sides. Non compliant officers should also be dealt seriously and severely. There should be no discrimination. Alas, politeness and normal courtesy upkeep of standards, talent and judicial acumen are becoming things of the past. Unhealthy ego is increasing. One is prone to misuse. One has to be honest to oneself to the greatest possible degree and maintain absolute total integrity, morality and ethics. The phenomena has intensified by continual interference of multiple higher authorities and fixation of target. Taxpayers are fastened with “responsibility”, “obligation” and “duties” – not “rights”, which have become a dream. It is apparent that artificial assessments are framed to create huge unrecoverable paper demand with coercive recovery. Challenges & lack of compliances are on the part of tapayers as well as tax administrators. Taxpayers / tax consultants and tax administrators are two sides of the same coin, if any part is deficient / non-compliant, economy would suffer.

4.4 Such being tax litigation scenario on large number of representations and directions of Commission, section 254(2B) was inserted by Finance Act, 1999 w.e.f. 1-6-1999, which provides : “The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal”. Statistics show that over 19 years, in negligible few cases cost commensurate with the expenditure, damages, compensation has been awarded by the Tribunal. Even if specific ground is raised and forcefully argued, discretion is not judiciously and judicially exercised. Even High Courts are slow in awarding cost / exemplary costs. However, it is heartening to note that some Benches of the Tribunals, High Courts and Supreme Court finding uncurable malady have started awarding token cost. It is high time to realise “Professional Social Responsibility”. Be an active partner in building the nation. Serve the taxpayers faithfully and carry them to the right path. Be prepared for it.

[Source : Article printed in Paper Book of National Tax Conference, Thane, held on 6th & 7th October, 2018]

Dear Brothers & Sisters,

Happy Dhanteras and Happy Diwali to all my brothers and sisters of AIFTP. It is indeed fascinating to greet when everyone is relaxed and in a festive mood. It is good that the work deadline is over. We have recently noticed that Rajasthan High Court and later Guwahati High Court have directed the authorities to consider the request for extension of time for making statutory compliances under the various taxing statutes. No doubt in view of natural calamities and new GST law it was difficult for everyone to meet the deadlines be it professional or business.

Fortunately 2018 being election year for three States the Government had a positive response and extended the time for audit and I.T. Returns. The result of extension of time for GST is yet to be seen when pursuing this communiqué.

The question still reminds us at large that should the judiciary give direction to pass speaking order on request for extension of time made by organisation. To my mind it is purely executive function and judiciary has no role in it. The extension of time for compliances has far reaching effect on the working of Government functionaries, everything is postponed the inward revenue of the State may cause delay in ongoing welfare projects.

The discretion for extension of time has no prejudicial functions involved; it is purely executive consideration requiring application of mind on serial aspects.

We have seen in several cases that even judiciary is not able to adhere to the timeline recommended for disposal of important cases as set in the order of Supreme Court and the plea is that State High Courts are not administratively subordinate to the Supreme Court. My intention is not to criticise the orders of the Courts for consideration of application for extension of time but it is to initiate a healthy and intellectual debate on this issue in view of independence of the Constitutional functionaries and their area of operation. Leaving it at that.

Friends, I request all of you to participate in the Prayagraj Conference on 23rd and 24th of November at Allahabad and a chance to have holy dip at Sangam. All out efforts are being made by the organisation to make it a memorable event. However, I shall be missing the chance to meet you all as I shall be out of India during that period.

I request you also to be ready for the mega event of Guwahati National Convention of AIFTP on 21st and 23rd December. Dr. Saraf and team is working hard day and night to make it historical event in the life of AIFTP with galaxy of judges and specially Chief Justice of India Hon’ble Shri Justice Ranjan Gogoi to be present to bless us at inaugural function. The registration has crossed 700 and many more are expected till 28th October, the deadline fixed by the organizers.

I trust you all must be participating.

With best wishes and chance to meet at Guwahati. Take good care of yourself and family.

 

Ganesh N. Purohit
National President

Is it fair to levy interest u/s. 234A of the Act, 
when due date is extended u/s. 139(1)

Section 234A of the Income-tax Act, 1961 is applicable from assessment year 1989-90, seeks to levy interest on the tax due on regular assessment as reduced by advance tax paid and tax deducted or collected at source, if any, where the return of income is filed after due date or is not furnished. The period for which interest is levied begins from April 1, following the financial year and ends on the date of furnishing the return, or in case a return is not furnished on the date of completion of assessment under section 144 of the Act.

Explanations 2 to section 139 defines “due date” for furnishing return of income for various kinds of assessees. Explanation 1 to section 234A clarifies that “due date”, means the date specified in section 139(1).

Recently, the CBDT vide notification dated July 20, 2018 introduced substantial changes in the Form 3CD, made effective for Tax Audit Report furnished from August 20, 2018, which is relevant for the Assessment Year 2018-19. The amendments in the Form 3CD has made these forms far more comprehensive and detailed one. Further, due to system failures and late introduction of “Scheme” / “Utility”, due date of filing income tax return for assessees, who were not required to get their books of account audited was extended by the CBDT from July 31, 2018 to August 31, 2018. But no date was extended by the CBDT for assessees who were required to get their books of account audited. Hence, representations from various stakeholders for extension of due date from September 30, 2018 were made to the CBDT, for filing of income tax returns and various reports of audit pertaining to assessment year 2018-19.

On consideration of various representations, the CBDT vide notification dated September 24, 2018 issued order section 119 of the Act, extending due date for filing of income tax returns as well as all reports of audit (which were required to be filed by the specified date) from September 30 to October 15, 2018 and thereafter vide notification dated October 8, 2018 from October 15 to October 31, 2018, with a rider that “there shall be no extension of the due date for purpose of Explanation 1 to section 234A (Interest for default in furnishing return) of the Act and the assessee shall remain liable for payment of interest as per provisions of section 234A of the Act.

In the mean time, various Tax Bar Associations and other institutions have also approached the various High Courts for directing the CBDT to extend the due date for filing Income tax Returns and Tax Audit Reports. In pursuance to that the Rajasthan High Court in the Rajasthan Tax Consultants Association v. UOI, directed the CBDT to consider the representation of the Association and take a decision on both aspects i.e., extension of date and extension of due date for the purpose of Explanation 1 to section 234 
of the Act for waiver of interest and decide the same by passing speaking order.

As seen above, the CBDT extended the “due date” for filing Income tax Returns and Tax Audit Reports up to October 31, 2018 but with a condition that assessee filing their return of income with extended due date shall liable for levy of interest as per provisions of section 234A of the Act.

Now, is it fair, that CBDT does not follow proper directions of the Court. Is it not contempt of Court? Further, there is no “due date” under the provisions of section 234A of the Act. Explanation 1 to section 234A states that “due date” means date specified in section 139(1). So, if due date is extended by the CBDT for section 139(1), it is automatically extended for Explanation 1 to section 234A of the Act. Therefore, there is no justification to state that there shall be no extension of due date for purpose of Explanation 1 to section 234A. Further, it is to be noted that when CBDT suo motu extended the date for the assessees who were not required to get their accounts audited from July 31, 2018 to August 31, 2018 there was no condition for levy of interest under section 234A of the Act, but in case of audited accounts the assessee shall be liable to pay interest under section 234A of the Act. Is this not an anomaly?

 

N. Motiwalla
Joint Editor

The 21st National Convention of the All India Federation of Tax Practitioners will be held at Guwahati on the 22nd and 23rd of December 2018. The theme of the Conference is “SAARTHI”and the convention is set to be inaugurated by the Honourable Chief Justice of India Mr. Ranjan Gogoi. This is a great opportunity for tax professionals of the country to contribute to the vision of the Honourable Chief Justice of India who is trying to evolve a system which can produce better results

The 21st National Convention of the All India Federation of Tax Practitioners (AIFTP) will be held at Guwahati on 22nd and 23rd of December 2018. The theme of the mega event is “SAARTHI”. The Honourable Chief Justice of India Mr. Ranjan Gogoi will be inaugurating the convention and also releasing a Publication of the AIFTP dedicated to late Justice Dr. B. P. Saraf, the former Chief Justice of India. More than 1,000 delegates from across the country are expected to attend the convention which will prove to be a memorable day for the members of the AIFTP.

One of the major challenges faced by the Judiciary is the large pendency of cases before it. The Honourable Chief Justice of India is trying to evolve a system which can produce better results. Tax Practitioners may have to play a proactive role to fulfil the objective of the Honourable Chief Justice of India to reduce the pendency of litigation. The AIFTP has made various suggestions from time-to-time and immediately after the convention, it desires to forward a discussion paper on direct and indirect taxes to reduce the pendency of tax matters to the Honourable Chief Justice of India, honourable Finance Minister and Honourable Law Minister. Few thoughts are discussed hereunder and we desire that members of the AIFTP and all concerned interested persons may send their valuable suggestions to the AIFTP on or before 30th November 2018 which may help in preparing a discussion paper on the subject mentioned above.

We propose to draft the discussion paper into three parts (1) Conceptual (2) Administrative, and (3) Amendment in law.

1. Conceptual Reforms

1. The setting up of an e-Bench of the Supreme Court can be an effective alternative for having four Regional Benches of Apex Court. The e-Bench of Apex Court will help render speedy justice to the litigants thereby saving huge cost incurred on travelling back and forth to New Delhi.

The Apex Court can have an e-Bench of the Supreme Court. The hearings of the matters before the e-Bench of the Apex Court can be done by linking various High Courts and affording facilities for arguing the matter before the Apex Court from the respective High Courts atleast at the Special Leave Petition (SLP) admission stage. An e-Bench of the Supreme Court can take up the matters High Court wise e.g., One day could be for matters from the High Court of Bombay while another day could be matter from the High Court of Madras, Calcutta or other states. Initially, on a trial basis an option may be given to the parties to hear the matters through either the e-Bench or the regular Bench.

The Income-tax Appellate Tribunal has started an e-Court at Mumbai through which the matters of Nagpur are heard by members sitting in Mumbai at the Mumbai Bench. The experience has been found to be very satisfactory and both the tax payers and the Department have found the functioning of this Bench beneficial. As per the concept, the litigants will be given an option to ‘opt in’ or ‘opt out’ of the e-Bench facility. If the litigants desire not to be heard by the e-Bench and would like to approach the Apex Court in person, they may have an option to opt out. This option would be given to them even at the time of hearing of matter by the e-Bench of the Apex Court. One Court room each of the various High Courts across the country may be converted into an e-Bench.

2. Increase in age limit of judges and members of the Appellate Tribunal from 62 to 65 years.

Parliament has constituted a committee headed by Smt. Jayanti Natrajan as Chairperson for considering the increase in age limit of Judges of High Courts from 62 to 65. The Committee observed as under:

“Taking into account the justifications given by the secretary, Department of Justice, and the statement of objects and reasons appended to the bill, the committee supports the proposal for increase in the retirement age of judges of the High Courts from sixty two years to sixty five years and to be at par with the retirement age of the judges of the Supreme Court. The Committee also acknowledges that the Bill has been brought forth in pursuance of the recommendation made by the Committee in its earlier reports”

Though the committee has made the above recommendation on 7th December, 2010, the recommendation has not been followed till date.

The then Hon’ble Law Minster, Mr. H. R. Bhardwaj, while addressing the Member’s conference at Mumbai on 4th November, 2006, stated that the Government will increase the age limit of all Members from the present age of 62 years to 65 years. A similar representation has also been made by the AIFTP for increasing the retirement ages of High Court judges. We are of the opinion that the knowledge and experience of a Judge/Member is an intangible asset of a precious nature, and therefore it should be used for justice delivery efficaciously. We are of the considered opinion that increasing the age limit will help in reducing the pendency of cases substantially.

2. Institutionalisation of the process of elevation of Members to the High Court

Very few Members of the ITAT have been elevated to the High Courts. This process may be institutionalised. Deserving Members of the ITAT due to their specialised knowledge and experience in ‘taxation’ and ‘commercial transactions’, would be able to understand and decide the issues involving both the subjects in a better manner. This will also attract young bright lawyers to join the Income Tax Tribunal.

4. Setting up of Special Courts to deal with prosecution in relation to Direct and Indirect taxes

Under the present system, it takes more than 20 years to decide prosecution matters relating to Direct Taxes. Therefore the deterrent provisions fail to achieve the desired object due to delay in disposal of cases by the lower courts. Income-tax being a specialised subject, may be heard by a Special Court of two judges, similar to the Tribunal and thereafter an appeal may lie to the High Court. It may be considered whether the jurisdiction to deal with prosecution matters relating to the respective taxes can be delegated to the Tribunal i.e., prosecution relating to Central Excise and Customs to the CESTAT and prosecution relating to VAT and Central Sales Tax before the Sales Tax Tribunal. A Bench of two Judicial Members may be constituted to hear the prosecution matters. An appeal against the said orders of the Tribunal, before the High Court, may be provided to the aggrieved. The Government need not create separate infrastructure for setting up of Courts. The present set up of the various Tribunals may be sufficient to handle prosecution matters. This will help in the speedy disposal of matters.

2. Administrative Reforms

1. Regular Tax Bench in various High Courts

In all High Courts, there has to be at least one Tax Bench to decide the issues relating to direct and indirect tax matters. The Tax Bench may function throughout the year. If required based on the pendency of tax matters more than one Tax Bench may be constituted.

2. A Responsive system to be established in every Ministry to discuss and take action on suggestions made by the Apex Court, High Courts and other Judicial authorities

It has been observed that various High Courts make several recommendations to Ministries in the Government of India to look into certain matters and take appropriate measures. However, there is no mechanism to find out whether the issue was brought to the notice of the concerned Ministry and whether the directions have been complied with. It is therefore, advisable to put up such orders on the website of the concerned Government department in public domain and after considering the various suggestions, appropriate action can be taken. This will bring transparency and accountability in the functioning of the Ministry.

3. Acceptance of orders of High Courts

In the earlier days, whenever the Department would accept a decision of a particular High Court on interpretation of law, the Central Board of Direct taxes used to issue a circular stating that a particular interpretation of law has been accepted. Such a practice is discontinued now which causes a multiplicity of litigation. If this process is readopted and published on regular basis on the website of the CBDT, it will bring transparency and will benefit the revenue as well as assessees.

4. Monitoring tax appeals

Though the Department is the single largest litigant in the higher Judiciary across India, the Income-tax Department does not have a centralised wing to effectively monitor its appeals from the stage of inception until the final disposal. It is advisable for the Department to have an independent National Tax Litigation Cell to monitor tax appeals before various High Courts and Apex Court. In tax matters, department is always either the appellant or the respondent. With the help of technology, CBDT can find out which are the issues pending before the Apex Court, High Courts and also the Appellate Tribunal. This will help in quick disposal of matters where common issues are involved. At present there is no mechanism to find out which appeals are pending before the High Courts or the Apex Court. As per the 1946 Rules of ITAT Manual, the Tribunal keeps the records only for six years after disposal of the matters and old records are weeded out being more than six years old. If the High Court desires to look into the original records while final hearing of the matters, the record may not be available. It is desired that all records of the ITAT may be digitalised and preserved. It is desired that an amendment may be introduced in the Act or Rules wherein an intimation may be sent to the ITAT as soon as the appeal is filed so that the concerned file may be preserved. There is no mechanism to find out whether appropriate effect is given of the orders passed by Apex Court, High Courts and Appellate Tribunal. System may have to be developed wherein the AO may be able to find out the status of appeal, effect given, refunds to be 
given etc.

5. Settlement Commission – Professionals may also be considered as eligible candidates for the appointment as members of the Settlement Commission

The Income-tax Settlement Commission was established in the year 1976 for the purpose of expeditious settling of disputes between the assessees and the Revenue. The Income-tax Settlement Commission (the “Commission”) is one of the most powerful commissions under Direct Tax laws. Section 245B(3) of the Income-tax Act (the “Act”), in express terms, requires the Central Government to appoint the Chairman, Vice-Chairman and its other members “from amongst persons of integrity and outstanding ability, having special knowledge of, and, experience, in problems relating to direct taxes and business accounts”.

Unfortunately, at present, there is no transparency in the appointment of the Members of Settlement Commission. In the case of appointment of Members of the Income-tax Appellate Tribunal (the “ITAT”), applications for the posts of Members of the ITAT are invited from professionals and Commissioners of Income-tax who are selected by the committee headed by the senior most Judge of the Supreme Court, the Law Secretary and independent professionals (Additional Advocate General or member of the Law Commission) and the President of the ITAT.

Dr. Vijay Kelkar’s Committee recommended instituting transparent procedures for the appointment of Members and Chairman of the Central Board of Direct Taxes [(2012) 258 ITR (Journal) 1 (45)]. We are of the opinion that the appointment of Members of the Commission, being a quasi-judicial body, must be done in the most transparent manner possible. The Federation conducted a survey on various issues – including the appointment of Members of the Commission – relating to tax administration, the findings of which were released at the 12th National Convention at Mumbai on 24-12-2012 (Souvenir, P. No. 149). About 97% of the professionals who were surveyed, opined that the Government should appoint at least few Members from the profession. In order to achieve the desired end in settlement proceedings, it is imperative that the Benches of the Commission consist of persons of diverse backgrounds. The ideal combination of a Bench would be the constitution of a Member each from the Department, the legal profession and the accountancy profession. The Members should ideally have a tenure of at least five years and the Chairman, of at least two years, so that she or he can take important decisions relating to the regulation of its procedures.

3. Amendments to the tax law

1. Appeals to the Tribunal

One of the suggestions made by professional organisations is that all the orders passed must be made appealable. This will save time and amount spent only in deciding whether an order is appealable or not. There are a number of orders of the Commissioners of Income-tax against which no appeal can be filed. E.g. orders under section 264, 273A, waiver of interest charged under sections 234A, 234B, and 234C, orders under section 179, denial of approval u/s. 10(23C) and other approvals by Chief Commissioner, etc. The only remedy available to the taxpayer is to approach the High Court in its writ jurisdiction. A simple amendment in the Income-tax Act may be made stating that all orders of the Chief Commissioner, Commissioner and Commissioner (Appeals) are appealable to the Tribunal. This would save substantial amount of time of the higher judiciary and the taxpayers would get speedy justice from the Tribunal.

2. Amendment to section 255(3) of the Income-tax Act, 1961 to the jurisdiction of the Single Member Bench

As per section 255(3) a single Member can hear the appeal if the assessed income does not exceed ₹ 50 lakh. It is desired that instead of the assessed income being the threshold for the matter to be heard by a single member, the tax in dispute may be made the threshold. A threshold amount of ₹ 35 lakh for tax in dispute, ₹ 15 lakh for penalty and another appropriate amount for the interest amount may be made. This will trigger an increase in disposal of matters where the penalty amount is less or the interest amount is less without causing much burden on the Division Bench.

3. Direct appeal to the Supreme Court to attain finality on important issues

Section 257 of the Income-tax Act provided for direct reference to Supreme Court under old provision of reference. No such provision is incorporated after the insertion of section 260A. The Income-tax Appellate Tribunal refers the matters to Special Bench when there are conflicting decisions of various Benches. In the meantime, one of the High Courts may have taken a contrary view. In such a case the decision of High Court will be binding upon the various Tribunals. Though the Income–tax Act is an all India statute, the Tribunal sitting in a particular State is bound by the decision of respective High Court of the particular State. This brings uncertainty in tax law. To avoid all these controversies, the Tribunal may be given power to refer the matter to Supreme Court either of its own, or upon an application made by the assessee or department. If this process is followed, a certain degree of certainty will be introduced in tax law which will also help in reducing the pendency of cases before various High Courts and finality shall be attained on some of the important issues within a reasonable time.

4. Mechanism for effective consultation before legislation is introduced.

It may be desirable that, before introduction of new legislation, consultations may be held with various State Bar associations. Such a practice in respect of all Central tax laws would help in bringing stability and transparency in tax laws. Proper and timely consultations may also help in avoiding subsequent challenges to the viruses of the legislation.

5. Accountability in tax administration

Due to lack of accountability on the part of Assessing Officers, it is common to find additions being made for namesake, knowing well that they may not withstand judicial scrutiny.

In order to keep a check on such frivolous additions, Dr. Raja J. Chelliah, in his report [(1992) 197 ITR 177 (St) (257) Para 5.9] suggested that ways must be found to hold the Assessing Officers accountable for kinds of assessments they make. He suggested as follows:

“The Assessing Officers should be made accountable for their actions by being blamed for raising demands which are not upheld by a reasonable figure, say 50 per cent, the officer should be given a black mark and reprimanded. On the other hand an Assessing Officer should be protected and defended if he has observed instructions of the Board and followed the Court rulings even though audit might raise objections about his actions.”

Bringing in accountability in the tax administration is the first step in reducing avertable litigation and would benefit the honest tax payers of the country.

Thought for Consideration: The problem of pendency in tax appeals that is plaguing the High Courts and the Supreme court can be reduced considerably if the Judiciary, Ministry of Finance, Ministry of Law and Justice, the Tax Bar and Tax Administration can come together and draft the short term plan and a road map for the long term. By the time we celebrate 75 years of Independence, at least in tax matters, the aim should be that assessees can get finality within two years of the assessment. Readers are requested to send their objective suggestions which can help the AIFTP to prepare the discussion paper for presenting to the Government for their consideration.

 

Dr. K. Shivaram
Editor-in-Chief