New direct tax legislation – Duties and responsibilities of tax
professionals to send their suggestions objectively to have
better tax law for our country
On 22nd November, 2017, the CBDT issued a press release for constitution of a task force comprising of a seven member committee for drafting a new direct tax legislation. The task force has to submit its report to the Government within six months. The terms of reference of the task force is to draft an appropriate direct tax legislation keeping in view the following:
(i) The direct tax system prevalent in various countries;
(ii) The international best practices;
(iii) The economic needs of the country; and
(iv) Any other matter connected thereto,
The intention of the Government to simplify the present Income–tax Act, 1961 is laudable; however is it possible for the Committee to submit a comprehensive report on or before May 2018? A classic example of rushed legislation is the Goods and Services Tax Act, 2017, (GST),which is well conceived and with good intention. However the Government is not able to get the desired results because of poor implementation (Abicor and Binzel Technoweld Pvt. Ltd. v. UOI (Bom.)(HC) www.itatonline.org). It is desired that the Government does not needlessly hurry to bring the new Income-tax Law without discussing the implications of the same with the concerned stakeholders. It is desired that the members of the taskforce committee may reach out to small towns as well as large metropolitan cities and interact with tax professionals and small assessees to understand the difficulties faced by the taxpayers. It may be an impossible task to reach and understand the concerns of the tax payers and professionals across the country and compile a comprehensive report within six months. Tax professionals as citizens, bearing duties to the nation may have to consider sending objective suggestions for the consideration of the Committee and the Honourable Finance Minister. The Representation Committee of the Federation will be sending specific suggestions on various sections. In this article, I am sharing my personal views on various conceptual issues for consideration and discussion by the readers.
1. Terms of reference
Terms of reference put before the committee should have been very broad. For e.g. “to examine the existing Income–tax Act, 1961, and to suggest changes that have become necessary for doing easy business and compliances“.
Members of the Federation had an opportunity of discussing the issues with two learned Members of the Task Force i.e. Mr. Mukesh M. Patel, Advocate, and Dr. Girish Ahuja, CA. According to them, the mandate is very clear to rewrite the new Income –tax Act, considering the need of our Country, it is not direct taxes code, it will be a new Income–tax Act. They are very positive that the new Income–tax Act will be tax payer friendly which will bring accountability on the part of the tax administrators as well as the tax payers. They are working with clean slate and out of box thinking.
2. Time frame for submitting the report
The present Income–tax Act, 1961, refers to 98 Central Acts, various State Legislations and more than 800 Sections, Rules, Notifications and various case laws of the Apex Court, High Courts, Appellate Tribunals and Authorities for Advance Rulings. It may not be possible to consider all the aspects within a period of six months. Ideally, there has to be an on-going process for at least two years.
3. Accountability provision
One of the suggestions made by Dr. Raja J. Chelliah in his committee 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 also 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”. Federation has sent representations from time-to-time to introduce the accountability provision in the Act. It is desired that the accountability provision as suggested by Dr. Raja J. Chelliah Committee may have to be incorporated in the proposed new Act. Bringing in accountability in tax administration is the first step in reducing avoidable litigation, and would benefit honest taxpayers of the country. If accountability provision is not introduced, whatever may be the law, the desired object of simple tax law may not be achieved.
4. Culture of tax services
The Hon’ble Prime Minster always says that he is the servant of the people of our country, however it does not seem to be the case when it comes to tax administration. The honest taxpayers are finding it difficult to get the refund due to them. Rectification applications are not disposed off in time. In a recent judgment, the Bombay High Court in Bajaj Auto Finance Ltd., it held that the (www.itatonline.org), Officers are not following the judgments of Jurisdictional High Court and Tribunal. The Hon’ble Court has held that if the decision of the Court/Tribunal interpreting a provision is to be ignored by the Assessing Officer, it shall ring the death knell of Rule of law in the country. It is only the big assessees, who can afford to go to the High Court in appeal but for a small assessee, he will be at the mercy of the tax administration to get the refund or rectification as per the assessment. The CBDT in the year 1955 has issued the Circular (XL-35 dated 11-4-1955) dealing with refunds and reliefs. The circular stated that the Officers should guide the assessees and if any claim which is rightfully due to the assessee is not claimed in the return, it must be allowed to the assessee. How many officers have given the relief to the assessee which he is entitled to and not claimed in the return? The need of the hour is a change in the mind-set of the tax administration from that of tax collection to that of providers of tax services.
5. Pendency of tax litigation
Before the introduction of new tax legislation, the Government must chalk out an action plan on how to reduce the pendency of tax litigation before Apex Court, various High Courts, the Appellate Tribunal, Commissioner of Income-tax (Appeals) and Prosecution matters before various designated Magistrate Courts. The pendency of tax matters before Bombay High Court is alarming. Appeals filed take nearly five years to come up for admission. Once admitted, it takes another 10 years for them to come up for final hearing and disposal. Now the Bombay High Court is taking up the matters which were filed in the year 2015 for admission and final hearing matters which were admitted in 2002. It takes more than three years to get an order from the CIT(A) and another two years from the Appellate Tribunal. If the matters are taken to the Apex Court, another five years may be consumed before the matter comes for hearing. That means tax litigation takes nearly 20 years to attain finality. Unless the Government makes serious efforts to reduce the litigation, whatever may be the law, the desired objects of simplifying and streamlining the tax administration and adjudication may not be achieved. The Federation has made various suggestions from time-to-time to the Government with respect to the ways and means to reduce tax litigation. One of the suggestions was to set up an e-Bench of Supreme Court, linking of the Supreme Court to various High Courts and that SLP in tax matters can be heard by arguing the matters from respective High Courts. (refer www.itatonline.org). Similarly hosting of various issues pending before various High Courts by CBDT on their website as directed by the Bombay High Court in CIT v. TCL Ltd. (2016) 241 Taxman 138(Bom.) (HC) and Independent National tax litigation cell separate legal cell. As regards prosecution, setting up of special Courts to deal with prosecution in relation to direct and indirect taxes was proposed. In Mumbai, more than 300 cases of prosecution have been launched in the year 2018. One will be surprised to know that the prosecution notice is issued for few days delay on filing of return though the taxes along with interest were paid.
6. Tax deduction at source
In the Income–tax Act, 1961, there were only two sections under which the assessee was liable to deduct tax at source, whereas presently, there are more than 25 sections under which the assessee is required to deduct tax at source and file the tax return. If there is a failure to deduct the tax at source such a payment is not allowable as deduction. By deducting the tax at source and depositing such amount to the Government Treasury, the assessee is doing the honourary duty of the Government. As of today, upon a few days delay in depositing the tax or return of tax deducted at source, he is made liable to pay interest, penalties and the omnipresent threat of prosecution. Many-a-times there is no clarity on various issues that can be faced while deducting such tax. It is desired that one may think of having the concept of a passbook and only one return for all TDS deducted at source. The assessee may deposit the amount as advance or may adjust against various taxes to be deducted. This will help to reduce the compliance provisions.
7. Advance Ruling for taxation – Scope may be extended to residents by giving power to Income Tax Appellate Tribunal
It has been observed that on many occasions the assessee is not able to find out what the tax liability would be i.e. whether the expenditure will be capital or revenue, whether the said amount will be allowed as deduction or not, what is the rate of tax, etc. For the resident assessee, there should be a provision for approaching the Authority for Advance Ruling. Such a power can be given to the existing Income Tax Appellate Tribunal and the modality can be worked out to integrate this within the existing system of tax administration. This will greatly reduce tax litigation. Relevant provisions in the Maharashtra VAT legislation can be considered as a guiding force.
8. Settlement Commission: Transparency in appointment of Members of Settlement Commission
An ideal Settlement Commission should comprise of one representative from the revenue and one each from the legal and the accountancy professions. The Members may be selected by inviting applications and following the due process of interviews in a transparent manner. There has to be a minimum term of five years for serving as a member of the Settlement Commission. The scope of the Settlement Commission may be broadened wherein a once in a life time opportunity may be given to an assessee who comes before the Settlement and voluntarily pays the taxes.
9. Independent Committee to suggest amendment in tax law
An independent committee consisting of representatives from the tax profession, tax administration, taxpayers, judiciary etc. may be constituted. It may scrutinise suggestions received from various bodies on a concurrent basis. After examining suggestions in detail, the committee may suggest amendments which should be made public and debated. If this process is followed, I am sure that 90% of litigation will be reduced.
10. An ideal tax reform committee
An ideal tax reform committee, should preferably be headed by a retired Judge of the Supreme Court or the High Court having experience of dealing with taxation matters as chairman. Representatives from professional organisations, trade associations, constitutional experts, economists, representatives from tax administration, etc. should constitute the remainder for the committee.
The drafting of a new direct tax law for the country requires members from different backgrounds who can think about the progress and vision of the country at least for another 50 years. The law should be drafted in a manner that they spell out the objects behind the law and duties expected of the taxpayers. There should be a reasonable time before a draft law or amendment is suggested and the enactment of such law. The draft law should be widely circulated for suggestions and such suggestions have to be carefully considered before the draft gets finalised. It is desired that the committee may invite suggestions from Bar Associations, eminent tax professionals and senior advocates who practice on direct taxes on certain specific issues. There has to be on-going research to understand the implementation of tax law. We hope that we may have new Income-tax Act law which will be taxpayer friendly possibly by the time we celebrate 75 years of Independence.
Dr. K. Shivaram