New Income Tax Act – Federation’s View

Federation has organized a 14th National Convention at New Delhi from 7th to 9th December, 2007. About 600 delegates from different parts of our country attended the conference. The theme of the convention was “Do we get Value for Taxes”. One of the sessions was addressed by Dr. Parthasarthy Shome, Advisor to Hon’ble Finance Minister. The Federation has put forward the following suggestions for the consideration of Dr. Parthasarthy Shome to be incorporated in the proposed New Income-tax Act.

1. Accountability and Transparency in Tax Administration

Dr. Raja Chelliah in his report (1992) 197 ITR 177 (St.) (Para 5.9 Pg. 257) suggested that there has to be Accountability in tax administration. The Assessing Officer makes huge additions for the sake of addition, when additions are made the assessee has to face the consequence of recovery, attachment and mental torture. When additions are deleted getting refund of tax paid is very difficult.

Federation suggested for introduction of Accountability provision in the proposed New Income-tax Act.

2. Transparency in Appointment of members of Settlement Commission and the Board

At present, the appointment of members of Settlement Commission is done not by way of interview, it is on ad-hoc basis whereas for appointment of members of Income Tax Appellate Tribunal, there is complete transparency, interview is done by Senior most Judge of Supreme Court, Law Secretary, Member of Law Commission and President, ITAT. Federation suggests that the procedure laid down for appointment of members of ITAT may be followed for appointment of members of Settlement Commission and the Board. The Income-tax Act provides that a person who is man of integrity and knowledge can be appointed as member of Settlement Commission. However, though more than 30 years have passed over 100 members are appointed, the Government has not appointed a single professional as member of Settlement Commission.

3. Advance Rulings for Taxation — Scope may be extended

One of the very important provisions introduced in the Maharashtra VAT legislation is the provision for obtaining Advance Rulings on the interpretations of any provision of this Act, Rules or Notification in respect of a transaction proposed to be undertaken by any registered dealer even though any question relating to the said provision has not arisen in any proceeding. The Advance Rulings will be given by the Bench constituted consisting of three members of Sales Tax Tribunal, Senior Practitioners nominated by the President of the Tribunal and Officer of Sales Tax Department not below the rank of Jt. Commissioner nominated by the Commissioner of Sales Tax. The Federation is of the opinion that all the states to introduce such provision in their legislation and also to the Union of India to introduce such provision under the Income-tax Act and Central Excise, Customs & Service Tax for all residents, which can reduce the litigation. Federation is of the opinion that the Income Tax Appellate Tribunal is more competent to decide the issues relating to Advance Rulings. It is therefore suggested that in respect of residence the power of authority for Advance Rulings may be given to the Income Tax Appellate Tribunal.

4. Legal cell of tax department at board level and zonal level

1. City of Mumbai contributes 40% of Direct Tax Revenue. However, it is very unfortunate that major of tax litigant before the High Court of Bombay does not have its own legal department. Before Bombay High Court 2000 references and 3000 appeals are pending of which 80% are of the Department. Though the references are pending for more than 20 years the tax administration is not able to comply with the legal requirement of serving the notice and papers to the parties concerned, due to which when matters reach before the Hon’ble Court, matters have to be adjourned number of times. Whenever adjournments are taken the tax administration has to make payment to the counsel concerned. The fees for adjournment are paid from the tax-payers’ money. This leads to waste of courts precious time as well as wasting of tax-payers’ money only for paying the professional fees for seeking adjournments. The Federation, therefore, suggest as under:—

1. Separate legal cell of Tax Department

Each state should have a separate legal cell in the Tax Department. The legal cell shall be managed by the panel of lawyers in co-ordination with the Chief Commissioner Judicial. Before filing an appeal the legal Cell should consider the tax involved, issues involved and chances of success. Once panel of legal department satisfied then only the appeal be directed to be filed. As soon as the appeal is filed the legal department should be able to find out the issues involved and the tax effect. If it is a very important issue affecting the large number of matters the legal department should make a request to group all the matters together. If it is of national importance the legal department may engage any special counsel of eminence to represent the matter, which will help the court to decide the matter early. At Board level there has to be central legal Cell to monitor the tax appeals pending before various High Courts and Apex court. Each State legal Cell should send the list of cases filed before the High Court the issues involved and matters heard and disposed of. Once in a year the Board should prepare the list of cases pending before the various High Courts, Apex court and publish the same for the information of tax-payers.

2. Technique of the Income Tax Appellate Tribunal may be adopted

At any given point of time the Income Tax Appellate Tribunal is in a position to inform the tax-payers bench wise, how many appeals are pending and how many are of the Department. The technology of the Income Tax Appellate Tribunal may be adopted by the Board for monitoring the matters before various High Courts.

3. Co-ordinations with the panel of lawyers and Commissioners

In earlier days, one departmental representative was always present in the court, which helped the counsel to co ordinate with the Commissioners. However, such a system is discontinued. Nowadays only inspectors of respective officers are deputed to the court to help the counsel. The tax administration should re-consider and send the departmental representative, preferably one who has done law, to help the counsel, representing the matter before the Court. This will help the tax administration ensure better representation before the court.

4. Research team to monitor the tax matters before various High Courts

The City like Mumbai should have a well equipped library to assist the counsel who represents the matters before the Court. The Department may take assistance of young lawyers by paying a small honorarium to assist the counsel. They have to prepare the note on issues involved, cases for and against. This may make for better representation before the Court. This may help the tax department to build the team of panel of lawyers for the Tax Department.

2. Federation desires that Chairman of Central Board of Direct Tax, Chief Commissioner of Mumbai and other places will initiate a dialogue to have a separate Legal Litigation Cell of Department for Income tax, which may help to Tax Administration and Taxpayers.

5. Appeal against orders of Commissioners may be made appealable to Tribunal in all cases to reduce the burden of High Courts At present, the assessee can file appeal only against the order under section 263 passed by the Commissioner (Revision Order). There are number of other orders passed by the Commissioner for which no appeal is prescribed. The only remedy available with assessees is to approach High Court under writ jurisdiction, which is becoming very costly and time consuming. If a simple amendment is made in the Income-tax Act, stating that all orders of Commissioners are appealable to Tribunal; Federation feel that the precious time of Court can be utilized for better purposes. Some of the orders of Commissioners which are creating hardships to assessees are –

1. Order under section 179.

2. Order under section 264.

3. Order under section 273A.

4. Not staying the Recovery when appeals are pending before first appellate authority.

5. Order passed by the tax authority to auction the property.

6. Issue of notice under section 148.

To decide the issues relating to above matters, the authorities have to go into details about fact. The Income Tax Appellate Tribunal being final fact finding authority under Direct Taxes, it is desirable that the appeal may be heard and disposed of by the Income Tax Appellate Tribunal and thereafter the aggrieved party may file an appeal before High Court on question of law. If such a provision is introduced stating that all orders passed by the Commissioners are appealable to Tribunal, the precious time of various High Courts can be utilized for rendering justice to people at large, of our country.

6. Representation of AIFTP at Board Level

All India Federation of Tax Practitioners being the representative of 105 professional organizations, they are in a position to make representation and put forward the difficulties faced by the assessees in different parts of our country. They can also help the Government to bring more assessees under tax net. It is therefore, desired that Federation may be considered as one of the representative bodies at Board level.

7. Dr. Parthasarthy Shome has highly appreciated the suggestions and assured that he will look into the same and forward the same to respective committee.