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March of the Professional |
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Speech by Hon’ble Dr. Justice
Arijit Pasayat, Judge, Supreme Court of India, at the function of Theme : Tax Profession – Yesterday, Today and Tomorrow |
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Taxation is a complex and complicated branch of law. The legislature has not made tax-payers’ and tax collectors’ job easier, as would be evident from various provisions in the taxing statues. To take an example, Income-tax Act, 1961 in the last four decades, has undergone nearly 3500 amendments; i.e., roughly about 100 amendments every year. The frequent changes add to the complexity. Some of the provisions run into several pages with provisos, non obstante clauses and explanations galore. As Lord Summer had once observed, way of tax-payers is hard and legislature does not go out of its way to make it easier. Taxation is the price which we pay for civilization, said Lord Holmes. But, this illuminating comment prompts the reflection that if the price is too high, civilization will be threatened by corruption. If the price is too low, civilization will be threatened by violence. What is therefore, required is striking of proper balance. As observed in Commissioner of Wealth tax Gujarat II vs. Shri Arvind Narottam (AIR 1988 SC 1824), unless waste and ostentatiousness are avoided or eschewed no amount of moral sermons will change peoples’ attitude to tax avoidance.” It is often said that two things are certain in life death and taxes. But as someone said in lighter vein, physical death comes only once, but taxes bring apprehension of death at the time of every annual budget. The financial difficulties following Sepoy Mutiny, saw the advent of the taxation of income in India. Though intended as a temporary measure, it has been “regularized” as is commonly known in service laws. After few experiments, a casual visitor became a permanent guest. Financial difficulties due to First World War, again added reason for its permanent occupancy. Ambiguity of taxation laws leads to increased litigation. On a rough estimate more than 3.5 lakhs cases are pending before various branches of the Tribunals and the High Courts. Serious consideration is necessary to find out ways for early disposal of these cases on priority basis. That would be ideal for both the tax-payers and revenue. Authorities would do well to involve efficient lawyers, tax consultants and departmental officers who can render valuable suggestions. Steps must be taken for making litigation inexpensive, accessible, free from technicalities by using expert knowledge of laws and accounts. There can be no doubt that if these aspects are kept in view, functioning of the Tribunals/Courts dealing with tax matters shall be in the right direction. With nearly 3.5 lakhs cases pending for disposal, these criteria would certainly help in early disposal of the cases, thereby reducing the pendency. Functioning of Tax Benches continuously would be also helpful. Income-tax laws have so many it’s, buts, deeming provisions that one sometimes wonders why ignorance of law cannot be a legitimate excuse. In this context, I shall repeat some amusing definitions, which I read : Politician – A person who promises to build a bridge even if there is no river. Policeman – A person who is never present for help in times of trouble. Student – Young pensioner without any previous service. Banker – One who lends his umbrella when the sky is clear and takes it away as soon as it rains. Economist – A man who knows more about money than people have. Husband – One who lays down the law to his wife and accepts all the amendments. Income Tax Officer – One who levies tax on income you never really earned. According to the Smritis the King could not levy taxes at his pleasure and sweet will. The rates of taxes varied according to the commodities and also according to the times if they were normal or there was danger of invasion or some other calamity impending. In Udyogaparva of Mahabharatha we have the following shlokas : Udyoga Parva 34, 17-18 (the English translation reads as follows): Just as the bee draws honey but at the same time leaves the flowers uninjured, so the King should take wealth from men without harming them. One (a bee) may search each flower (for honey) but should not cut the very root, just like a garland-maker but not like a coal maker. Our ancient texts insisted that the king should not be moved by greed in levying taxes lest the very source should dry up in due course. They laid down rules in detail regarding the mode of taxation, rates of taxation and exemptions from taxation. We have only to see those texts to understand how equitable those rules were. During the last two World Wars and subsequently the era of heavy and unconventional taxation began. The laws of taxation grew up in a haphazard manner. Expediency appears to be the rule. In the first place the legal theory grew up that equity and taxation are strangers. In the second place the other theory grew up that there is no necessary co-relation between logic and taxation. Both equity and logic lost ground in the laws of taxation. Even interpretation and construction of fiscal statutes and some important judicial decisions on the subject went so far as far as to say that neither equity nor logic, nor presumption, nor intendment had a place in taxation. (See the observation of Viscount Simon L.C. in Canadian Eagle Oil Co. Ltd. vs. The King (1964) A.C. 119 at p. 1401), Latilla vs. Commissioner of Inland Revenue (1941 (25) T.C. 107 at p.117 (H.L.) and Charles, James Partington vs. The Attorney General (1869) L.R. 4 H.L. 100 at p.122). Recently, the heavy burden of taxation and the abuse of revenue collected by the taxation have made the two considerations of both logic and equity predominant in this field of jurisprudence. This was helped by another growing doctrine that there is nothing immoral in the attempt of a citizen to avoid taxation if he can do so by appropriate interpretation and construction of the statute itself. If a taxing statute shows that the legislation closes only one of two doors, it is then no evasion to use the other, which may have been left open. Lord Atkin in Duke of Westminster vs. Commissioners of Inland Revenue (1934 (19) T.C. 490) said in the House of Lords. “it has to be recognized that the subject, whether poor and humble or wealthy and noble, has the legal right so to dispose of his capital and income as to attract upon himself the least amount of tax”. Lord Summer in Levenue vs. Inland Revenue, 13 T.C. 486 said more forcefully in the earlier decision of the House of Lords “It is trite law that His Majesty’s subjects are free, if they can, to make their own arrangements so that their cases may fall outside the scope of the taxing Acts. This incurs no legal penalties, and strictly speaking, no moral censure, if having considered the lines drawn by the legislature for the imposition of taxes, they make it their business to walk outside them”, Viscount Simon in Latilla vs. Commissioners of Inland Revenue (25 T.C. 107 at p. 117) however criticized this attitude by saying that while it was ‘legal’ it was not a sign of “good citizenship”. On the issue of equity vis-à-vis taxation familiar principles which in Cape Brandy Syndicate vs. Commissioners of Inland Revenue (1921) 12 TC 358) were expressed thus by Rowlatt, J. “In a taxing stature one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” Some illuminating views were expressed which seem to have lost track in the maze of unending amendments, hordes of judicial pronouncements and varying concepts of tax evasion and tax avoidance. In M/s. Murarilal Mahabir Prasad & Others vs. Shri B.R. Vad and Others (1975) 2 SCC 736), it was noted that the principle was approved and adopted by the Supreme Court in several decisions. The principle is variously expressed by saying that in fiscal statutes one must have regard to the letter of the law and not to the spirit of the law, that the subject cannot be taxed by inference of analogy, that in a taxing statute there is no governing principle to look at and one has simply to go on the statute itself to see whether the tax claimed is that which the statue imposes, that while construing taxing statutes it is not the function of the court to give to the words used a stained and unnatural meaning and that the subject can be taxed only if the Revenue satisfies the court that the case falls strictly within the provisions of the law. The principle thus stated has hardly ever been doubted. But it is necessary in the application of that principle to remember that though the benefit of an ambiguity in a taxing provision must go to the subject and the taxing provision must receive a strict construction, “that is not the same thing as saying that a taxing provision should not receive a reasonable construction” (See Commissioner of Wealth Tax, Bihar and Orissa vs. Kirpashankar Dayashankar Worah, (1971) 2 SCC 570). If the statute contains a lacuna or a loopholes, it is not the function of the court to plug it by strained construction in reference to the supposed intention of the Legislature. The Legislature must then step into the resolve the ambiguity and so long as it does not do so, the tax payer will get the benefit of that ambiguity. But, equally courts ought not to be astute to hunt out ambiguities by an unnatural construction of a taxing section. Whether the statute, even a taxing statute, contains an ambiguity has to be determined by applying normal rules of construction for interpretation of statutes. As observed by Lord Cairns in Pryce vs. The Directors of the Monmouthshire Canal and Railway Companies (1879) 4 AC 197J cases which have decided that taxing statutes are to be construed with strictness, and that no payment is to be exacted from the subject which is not clearly and unequivocally required by Act of Parliament to be made, probably meant little more than this, that in as much as there was not any a prior liability in a subject to pay particular tax, nor any antecedent relationship between the tax-payer, and the taxing authority, no reasoning founded upon any supposed relationship of the tax-payer and the taxing authority could be brought to bear upon the construction of the Act and, therefore, the tax-payer had a right to stand upon a literal construction of the words used, whatever might be the consequences. The true implication of the principle that a taxing statute must be construed strictly is often misunderstood and the principle is unjustifiably extended beyond the legitimate field of its operation. Indeed the more well-expressed the principle as in the Cape Brandy’s case (supra), greater the reluctance to see its limitations. In that famous passage marked by a happy turn of phrase, Rowlatt, J. said, “there is no equity about a tax. There is no presumption as to a tax.” There is no equity about a tax in the sense that a provision by which a tax is imposed has to be construed strictly, regardless of the hardship that such a construction may cause either to the treasury or to the tax-payer. If the subject falls squarely within the letter of law he must be taxed, howsoever inequitable the consequences may appear to the judicial mind. If the subject is free it does not matter that such a construction may cause serious prejudice to the Revenue. In other words, though what is called equitable construction may be admissible in relation to other statutes or other provision of a taxing statute, such a construction is not admissible in the interpretation of a charging or taxing provisions of a taxing statute. Speaking for the Court in CIT Madras vs. Ajax Products Ltd. (1995 (1) SCR 700) Subba Rao J. after citing the passage from the judgment of Rowlatt, J in the Cape Brandy case said: “To put it in other words the subject is not to be taxed unless the charging provision clearly imposes the obligation.” Every judicial system consists of two components – A framework provided by the law and Judges who work within the system. Effectiveness of the system usually depends in a substantial measure on the effectiveness of the men who are to operate the same. Same is equally true in the case of tax officials. In their hands lies the effectiveness of tax administration. There is a Chinese proverb which says “It’s better to enter the mouth of a tiger than a court of law.” It is in this background one has to accept that judicial officers and administrative officers discharging judicial or quasi-judicial functions must have requisite operational skill and should be enthused to deliver robust substantial justice. Therefore, the quality of justice depends more on the men who administer justice than the laws they administer. It is these men and women who constitute the backbone of the system. Lord Atkin said in Andre Paul Terence Ambard vs. The Attorney General of Trinidad and Tobago (AIR 1936 P.C. 141) that justice is not a cloistered virtue; she must be allowed to suffer the scrutiny and respectful even though outspoken comments of ordinary man. Much is discussed about accountability. There is nothing wrong with the concept. A person who is given the authority to govern has certain duties, obligations and functions to be performed. Over 2000 years ago, a Greek philosopher had said “Four things belong to a judge – to hear courteously, to answer wisely, to consider soberly, and to decide impartially”. The qualities are equally expected in tax officials. Our justice delivery system is bursting at the seams and immediate remedial measures are necessary in every facet of a democratic set up. Lord Devlin had said, if our business methods were as antiquated as our legal system, we would have become a bankrupt nation long back”. The ultimate guarantee in a Court of law is the personality of the Judge. More than 150 years back Daniel Webster said in the funeral oration of Mr. Justice Story: “Justice, Sir, is the greatest interest of man on earth. It is the ligament which holds civilized beings, and civilized Nations together, wherever her temple stands, and so long as it is duly honoured, there is a foundation for social security, general happiness and improvement and progress of your race. Law is a means to an end, justice is that end. If law shoots down justice, the people shoot down law and lawlessness paralyses development, disrupts order and retards progress”. While dealing with a dreary
subject like taxation also sometimes very amusing things happen. An assessing
officer was earlier a student of English language. His favourite author was
Shakespeare. So while rejecting the books of account on the ground that they
were not reliable, he started with the observation that something was rotten in
the kingdom of Denmark. In the grounds of appeal, the tax consultant took a
ground that the assessing officer had confused the facts of the case with some
other case as the assessee had no business in Denmark. The tax officials should act as watch dogs and not blood hounds, As was observed by Supreme Court in Unichem Laboratories vs. CCE. [Bombay 2002 (145) ELT 502 (S.C.)] “There can be no doubt that the authorities functioning under the Act must, as are in duty bound, protect the interest of Revenue by levying and collection the duty in accordance with law – no less and also no more. It is no part of their duty to deprive an assessee the benefit available to him in law with a view to augment the quantum of duty for benefit of Revenue. They must act reasonably and fairly.” The budget target fever should not affect them. They should not suffer from “targeteria”. We have controlled malaria, filaria, and now effort should be to wipe out “targeteria.” Lawyers and tax professionals are inseparable parts of the judicial system. They add glory, dignity and prestige to the institutions they belong. They are equal partners in the process of dispensation of justice. Their very existence is to uphold and promote the majesty of law. The Judge’s duty is one of
obedience to law and to his judicial conscience. He must not do what he wants to
do but what he ought to do. Same is the position for quasi-judicial
functionaries. If they fail, rule of law would fail. Our brethren in judiciary and quasi- judicial functionaries can take serious note of the difference. We are passing through the phase of globalization. The term ‘globalization’ has become a buzzword to encapsulate some of our amazement and apprehension as we have entered the new millennium. The fascination with the term seems to stem from the fact that it means differently to different people. For some it symbolizes the increasing influence of global corporations, communications and consumerism, all facilitated through increasing liberalization of markets and regulations governing capital flows and overseas investment. For others, it encapsulates the sense that decisions are no longer taken at the local or national level but in some super-national global gathering. Knowledge is the most flexible commodity to transfer globally. While a few years ago professional conferences were necessary for information exchange, the instant exchange of information offered by modern communication has one away with the need for such meetings. Global transfer of information is now possible with the click of button or mouse if you prefer. It has been often said that globalization is creating a global village or that we are living in the era of “global interdependency’ or “global neighbourhood”. This was the view expressed in the Commission of Global Governance in 1995. The era or globalization is bound to offer new opportunities. Increased trade, new technology, foreign investments, expanding media and Internet connection give a boost to economic growth and human advances. All this offers enormous potential for a better financial stability to the country in the 21st century. Therefore, there has to be a greater commitment to a global community. Global markets, global technology, global ideas and global solidarity can enrich the lives of the people. If we have to meet the challenge it is but imperative that our professional standards must grow. It will otherwise be idle to say that the work of Indian professionals is being hijacked by foreigners. The first and foremost duty of the Indian professionals is therefore to ensure excellent professional standards. There is certainly a large scope for tax professional in the era of globalization. But how they shall be able to grab the opportunities is for them to achieve by establishing their expertise and then only there can be full utilization of the opportunities afforded by the era of globalization. The standard of tax professionals all over the country is by and large very high. I have therefore no doubt that they shall meet the challenges presently posed and prove their superiority. They should not for a moment think that they are inferior to anyone so far as the professional expertise and professional competence is concerned. They have to work with confidence, then only they shall be able to meet the challenge and steal march over others. For a tax professional, clarity of thought and expression, capacity, for hard work and strong common sense are essential tools. |