One of the key requisites for economic stability is a stable fiscal policy and consistent tax pattern. The absence of a Long Term Fiscal Policy and a consistent policy in tax matters have been a cause for concern. In one of my earlier letters I had referred to the proposed legislation on Limited Liability Partnership. The professionals had hailed the legislation as a new business form which would promote globalisation of the profession. The professionals in India and abroad looked upon the Limited Liability Partnership as an advantage in more than one ways, particularly in regard to the tax liability in the case of a Limited Liability Partnership. There is a recent report in Economic Times that the Government proposes to tax Limited Liability Partnership directly on its income and not the share of income of the individual members. One of the main reasons for the professionals welcoming the Limited Liability Partnership is that it would considerably straighten the tax liability on professionals. The general law of taxation of partnerships was expected not to be applicable to Limited Liability Partnerships insofar as it was believed that the partners would pay the tax at the individual rates applicable to each of them, subject to the domestic laws. In the context of the globalisation of the profession, the Limited Liability Partnership is expected to be more popular in Cross Border Partnership where taxing the partnership instead of the individuals composing the partnership would create tax problems and hardship. The major disadvantage of taxing a Limited Liability Partnership in the case of Cross Border Partnerships is that, while the partnership would pay tax in India and a portion thereof would be borne by the foreign partner insofar as he is not directly taxed in India, he would not be able to claim double taxation benefit even though he is located in a country, with which India has a Double Taxation Avoidance agreement. Notwithstanding this position, the share attributable to him from the Limited Liability Partnership would be the income arising to him and would attract tax liability in his home country. If Limited Liability Partnership is taxed in India, the Indian partner would secure an advantage insofar as his share of profit would not again attract tax liability under the Indian Income-tax Act, while the share of profit received by the partner abroad would be taxable in his home country without a corresponding benefit in respect of the tax paid by the partnership. It is in this context that it was expected, and rightly so, that in the case of Limited Liability Partnerships, unlike in the case of Regular Partnerships, the individual partners would be subjected to tax rather than the partnership itself. In such an event the non-Indian partner would be able to secure the benefit of Double Taxation Avoidance, if his share of income is taxed in India and his home country. On the other hand, if his share is not taxed in India, he would be paying tax only in his home country, thus avoiding double taxation on his share of income. One of the major advantages expected of a Limited Liability Partnership is a cross border arrangement between the partners of two different countries with the attendant benefit of Double Taxation Avoidance Agreements entered into between the two countries. It is hoped that the Government would reconsider this proposal in the light of the adverse effect it would have on the globalisation of the profession which is a need of the country for the present and a Limited Liability Partnership is considered the world over as the most favoured business model for association between individuals of different countries.

Yet another issue of concern is the increasing number of departmental appeals challenging even settled issues and in cases where the tax effect is minimal. The Central Board of Direct Taxes had taken note of the difficulties arising from the department filing appeals in cases where the tax effect is low and had issued Instruction No. 1979 dated 27th March, 2000 which was subsequently clarified by Instruction No.1985 dated 29th June, 2000 and Instruction No.2/2005 dated 24th October, 2005. Very recently, by Instruction No.5 of 2007 dated 16th July, 2007, a further clarification has been issued revising the monetary limits for filing appeals by the department. The latest Instruction comes into force with effect from 16th July, 2007. Despite the various Instructions the department has been filing appeals even in cases where the tax involved is below the fixed monetary limit. Not satisfied with flouting its own instructions, when its Instruction was brought to the notice of the High Court by the assessee, the department chose to challenge its own Instructions and secure judgment to the effect that these Instructions are not binding on the Court or Tribunal and hence, notwithstanding the violation of the Instructions by the departmental authorities, the Court of Tribunal should not decline to entertain the appeals, resulting in a strange situation, of departmental discipline or the lack of it. A controversy of this nature, which should have been nipped in the initial stage itself by the Central Board of Direct Taxes, has been allowed to be argued before almost every Court in the country, resulting in conflicting judgments. While the Bombay High Court has taken the view that insofar as the Instructions are binding on the subordinate authorities they should not file the appeal and consequently the Tribunal and Courts are bound to enforce the instructions, while other High Courts, including Rajasthan, Punjab and Haryana, Madras and Delhi, have taken a different view creating a vertical split on this simple issue. This unseemly controversy does not add to the image of the department and sooner the Central Board of Direct Taxes steps in and ensures that its Instructions with regard to the monetary limit for filing appeals are adhered to by the subordinate authorities, the better to itself and the assessees. The Central Board of Direct Taxes should also ensure that the Commissioners or other authorities who recommend the filing of appeals contrary to the Instructions should be made to answer. While the department has every right to file an appeal which is statutorily permitted, having taken a decision not to file appeals where the tax effect is below the monetary limit determined by it, it is only fair that it ensures that the Instructions are followed in letter and spirit.