Income Tax Settlement Commission – Sunset or new Sunrise

Finance Bill 2007 has proposed far reaching changes to provisions for settlement of tax cases. On first reading, proposed provision that search cases or cases of reopening u/s. 147 cannot be settled seem to suggest that they are sunset provisions for Settlement Commission, but a detailed reading of the provisions show that it is reengineering of the Commission for different types of cases. For a new sun to rise and new day a dawn, it is necessary that the sun has to set on earlier day.

For a long time, it has been suggestion of All India Federation of Tax Practitioners that there has to be a mechanism for resolution of tax disputes otherwise than by way of litigation. Like in commercial transactions, where conciliation proceedings are resorted to instead of litigation, similarly for tax disputes there has to be an alternative dispute resolution mechanism. Some steps in the said direction have been initiated in the current proposal. Some of which are: (i) no elaborate procedure for admission of a case; (ii) final disposal of case within nine months of filing application; and (iii) case to go back if settlement does not take place within nine months. Time is essence in any economic activity and a provision whereby within nine months, all the issues for an assessment year, whether of tax, interest or penalty, being decided by a single authority will attract many assessees to give a quick quietus to an issue rather than prolong it for 20 years before finality is achieved. Though to achieve true status of alternative dispute mechanism, certain further changes are still required, we feel that at least a beginning has been made and with time we are sure that legislature will make necessary changes to make the mechanism a first choice over appeals.

Changes have been made to the provisions which are applicable even to existing applications, applications filed before specified date being 1-6-2007. Some of them are: (i) disposal of all cases by 31-3-2008, (ii) payment of tax and interest before 31-7-2007, (iii) cases to abate and go back to Income Tax Authority if not disposed of before the specified date or tax and interest not paid before specified date, etc. Though the intention behind those changes seems to be early disposal of cases which are pending disposal for a long time, it is felt that the provision that case shall go back if not disposed of by specified date, is susceptible to judicial challenge as it alters the basic right of the applicant which cannot be altered at a later day. However, it being a constructive provision, we feel that both the parties to the dispute, assessees and department should make a wholehearted effort to achieve the target of disposal. In the said process, the Bar and Bench will have to share a healthy partnership so that Department recovers its due revenue and assessees achieve a quick quietus to the issue. To achieve the target of disposal of all old cases, we feel that, to start with the Government has to provide necessary infrastructure to the Income Tax Settlement Commission:

1. Setting up two new benches in addition to four benches at present. The two new benches can be at Ahmedabad and Chandigarh, which will share the burden of existing Benches at Mumbai and Delhi, where the pendency of cases is highest.

2. Necessary support staff.

3. Filling up vacancy in posts of Members as well as support staff and also to ensure that appointments are made sufficiently in advance so that no post remains vacant even for a day.

None of the above suggestions are new in that Justice Duggal Committee had made these suggestions nearly a decade back, but they are yet to be acted upon. Instead of treating the cause of for huge pendency, being lack of infrastructure and sufficient number of Benches, the Government seems happy to merely set a deadline for disposal. It is time for the Government to show that its heart is where its’ mouth is. The example of ITAT is before us where after setting up new benches, the pendency has reduced drastically and we are already seeing the fruits of setting up new Benches and providing necessary infrastructure to the judiciary.

Simultaneous to above, we propose that a joint workshop of members of Income Tax Settlement Commission, senior departmental officers and members of the bar may be held, so that we can work out a road map for achieving the target of early disposal. This is one private public partnership which is sure to bear fruits for the nation.

In its new role, the Income Tax Settlement Commi-ssion would be settling primarily non ‘concealment’ cases and it is only when it gets over the present type of cases of concealment that ITSC would be able to realise potential and need of tax-payer public for a forum to resolve normal disputes through settlement rather litigating. We feel that having decided to reengineer the ITSC, following changes to the proposed provisions would ensure that proper alternative dispute resolution mechanism is available to all types of non concealment cases:

1. The term income in S. 245C has not been defined and we feel that wider definition of income escaping assessment in explanation 2 to S. 147 may be made applicable even to S. 245C for determining additional income offered. This will ensure that disputes relating to allowance of relief or deduction or claim for deduction of expenses can also be settled.

2. Definition of case in S. 245A may be widened to include case of short deduction of TDS, FBT and Transfer Pricing issues.

3. We are of the opinion, an ideal forum for settlement of cases shall be one from the tax administration, one from the legal profession and one from the Chartered Accountancy profession.

We desire, that the members, may send their suggestions objectively.