Figures of institution, Disposal and Pendency of Appeals as on 1-4-2015.

1. Best Judgment Assessment

During the course of survey, assessee’s place of business was visited and no books of account were found. Assessing Authority passed Best Judgment Order and enhanced the turnover liable to tax. First Appellate Authority partly allowed the appeal by making a reduction in the tax imposed. In second appeal, the Tribunal upheld the Order of the First Appellate Authority. On revision to the HC against the Tribunal Order, the Court by placing reliance on the judgment in the case of
New Plaza Restaurant v. ITO 309 ITR 259 (HP); Sanjay Oil Cake v. CIT 316 ITR 274 (Guj.); Vijay K. Talwar v. CIT (2011) 1 SCC 673 and Commissioner, Customs v. Stoneman Marbles (2011) 2 SCC 758 held that estimation of turnover was a question of fact. As no question of law is involved, Revision Petition stands dismissed.

Jai Ambe Traders v. Commissioner, Trade Tax (U.P.) (2015) NTN (Vol. 57) 149 (All.)

2. Check-Post Penalty vis-a-vis “Material Particulars”

In this case, the goods were carried by assessee and was intercepted by authorised officer of the Department. The relevant documents were produced. All the columns of Form ST-18C were filled in except the column of invoice no. and date. As per Assessing Officer, there was violation of provision of Rule 54 of Rajasthan Sales Tax Rules, and accordingly, he imposed penalty holding that there was intention to evade the tax. The Rajasthan HC held that where quality, weight, description and value of goods were clearly filled in and stated, then it cannot be said that “material particulars” have not been filled in. Though all other particulars may be important but would not be relevant for imposition of penalty. So far as the present case was concerned, the decision of the Supreme Court in the case of
Guljag Industries (2007) 11 STJ 361 (SC) was distinguishable. Merely not filling in the invoice no. and date would not fall in the category of “material particulars”. When all “material particulars” namely quality, weight, description and value of goods, and names of transporters, consigners and consignee were duly filled in, then apprehension of the Dept. that the form could be reused was not sustainable. The Tax Board and Dy. Commr. (Appeals), were justified in arriving at the conclusion of deleting the penalty.

Asstt. Commercial Taxes Officer, Anti Evasion v. Rathi Bars Ltd. And Anr. (2015) 26 STJ 384 (Raj.)

3. Condonation of delay For Reference/Rectification

In the present case, delay of 52 days in filing the Reference Application was noticed without mentioning the cause of delay and there was no request for condonation of delay. Yet, the application was registered by the Registry. In these peculiar facts, the Appellate Board rejected the Reference Application as barred by Limitation.

2. Thereupon, the applicant prayed for conversion of Reference Application into Rectification Application which prayer was in time. However, the Appellate Board rejected the said request as Reference Application was filed late and was rejected as time barred, therefore, the same could not be converted into a Rectification Appln. Accordingly, both the prayers were rejected.

Hawkins Cookers Ltd., Bhopal v. Commissioner C.T. (2015) 26 STJ 401 (M.P.-Bd.)

4. Contract – Actual Contract, whether a compact deal

In the present case, the assessee entered into an agreement with M/s. Daewoo Motors India Ltd. for running a canteen and after the process of tender the assessee was authorized to charge
Rs. 22 per meal. In the meal, the curd and salad were also included. The assessee contended that both the items are exempted from the net of trade tax. The assessee also submitted that for the said purpose, separate bills were issued in favour of Daewoo Motors India Ltd., and, hence, the items like Curd and Salad may be removed from the tax net. As against this, the Dept. submitted that the meal was supplied against
Rs. 22 per head, it included the price of curd and salad. Therefore, it was a compact deal and it cannot be bifurcated as per the contention of the assessee. So, revenue justified the Order by the Tribunal.

2. The HC, after hearing both the parties at length and on perusal of the material available on record, held that the actual contract with the assessee was to supply the meal which included various items including curd and salad. Therefore, there was no separate sale to the individual pertaining to these items. When it has to come integral part of the meal, then, the tax was leviable on the meal. Bifurcation of the independent items was not possible when the same could not be sold separately. Hence, individual tax cannot be charged on each items, because the price was fixed on the entire meal being a composite deal, then, there was no question to give separate treatment to any item. Accordingly, the revision filed by the assessee was dismissed.

Aakash Catering Services Pvt. Ltd. v. Commissioner of Trade Tax (U.P.) (2015) NTN (57) 154 (All.)

5. Enhancement in turnover

Though normally merely on the basis of admission of undisclosed money by the assessee for the purpose of income tax, addition cannot be made in the turnover for the purpose of levy sales tax, it would be necessary not only to show that the source of money has not been explained but also to show the existence of some material to indicate that the said undisclosed money has resulted from transactions liable to sales tax and not from other sources. In the present case, the assessee had no other income except from her business of selling of good and drinks. Moreover, before the Income Tax Authorities, the assessee herself admitted the profit from unaccounted sales and she had income. Therefore, the sales tax authorities were justified to enhance the turnover on the basis of the said declaration by the assessee.

U.D. Rotighar, Bangalore v. Jt. Commr. C.T. (2015) 26 STJ 334 (Kar.)

6. Input Tax Rebate

In this case, the main issue was regarding eligibility for input tax rebate in respect of cotton seed consumed for producing cotton seed oil and tax free oil cake. Applying the decisions of M.P. High Court in the case of
Ruchi Soya Industries (2014) 24 STJ 235 (M.P.) and Shreeram Agro Industries (2014) 24 STJ 498 (M.P.), the Appellate Board allowed the appeal and held that ITR could not be made in proportion of production of oil and oil cake. With this reasoning, the appeal was allowed.

Shri Krishna Oil Industries v. Commr. C.T. (M.P.) (2015) 26 STJ 416 (M.P.-Bd.)

B. In this case, there was no dispute that the assessee was in the business of manufacture and sale of sunflower oil from Sunflower oil cake by solvent extraction process. But, in the process, after sunflower oil is extracted, there remained DOC which was exempt from tax. But, merely because the said DOC also has a value and the assessee sold the same, there was no justification to deny benefit of input tax credit to the assessee, because there is no direct nexus between sunflower oil cake and the DOC. Sunflower oil cake was purchased for the purpose of extracting oil, and assessee had not put up the unit for manufacture of DOC. The entire raw material i.e., sunflower oil cake was purchased for manufacture of sunflower oil. The authorities had not properly appreciated statutory provisions. The Legislative intent was defeated in denying benefit of input tax credit to the assessee relying on Section 11(a)(1) r/w. section 17 of the Act. Therefore, the impugned order was unsustainable. Accordingly, the revision petition was allowed.

M. K. Agrotech (P) Ltd. v. State of Karnataka (2015) 26 STJ 328 (Kar.)

7. Interpretation of Entries

‘Keo Karpin Baby Oil’ was manufactured under a drug licence and has prophylactic qualities, protecting children from rickets and checking vitamin A and E deficiency in them, entitling it to be classified as a drug and medicine.

2. “Drugs and Medicine”, according to Supreme Court in the case of
Ponds India Ltd. (2008) 13 STJ 355 (SC), held that the meaning of it under the Drug and Cosmetics Act, 1940 was very wide. It included therapeutic and prophylactic products even without very significant quantities of medicine which however defined the character of the product.

3. According to Supreme Court, the burden of proof as per the case of Ranbaxy Laboratories Ltd. (2006) 8 SCC 637 was on the revenue to prove certain items are exigible to tax and fall under a given taxable entry is always on the revenue. Accordingly, the petition of the revenue was dismissed.

CTO, Special Circle-I, Jaipur v. Dej Medical Stores Ltd. (2015) 26 STJ 379 (Raj.)

B. Assessee sought determination of tax rate on “voltage stabiliser” under the U.P. Trade Tax Act. Following the Apex Court judgment in the case of
Commissioner of Trade Tax v. Parikh Gram Udyog reported in (2010) 43 NTN DX 367 JT 2010 (8) 337
holding that ‘voltage stabiliser’ were electronic goods and chargeable to tax at 8%. Hence, revision petition filed by the Dept. was dismissed.

Commissioner of Commercial Tax v. Sai Computer Pvt. Ltd. (2015) NTN (57) 146

8. Opportunity of Hearing

Section 94 of Kerala VAT Act provided that the authority shall decide the question after giving the parties to the dispute a reasonable opportunity to put forward their case and produce evidence. Kerala HC held that when consideration of evidence and hearing of parties were contemplated, the exercise of such power should be coupled with expression of reasons, dependent upon the facts and materials available. But, the impugned order passed by the Commissioner did not disclose the reasoning by which the Commissioner had concluded that the goods fall under SRO No. 82 of 2006. Therefore, the said Order was set aside by the Court.

India Motor Parts & Accessories Ltd. v. State of Kerala & Ors. (2015) 26 STJ 376 (Ker.)

9. Payment of Tax

The assessing authority did not give credit of challan of Rs. 1 lakh deposited in the Treasury. But this point was not raised by the appellant in the First Appeal. However, before the Appellate Board, appellant submitted a photo copy of the said challan. On consideration of the same, the Appellate Board held that in the interest of justice, the appellant should get credit for the amount so deposited by him, and for that purpose the case was remanded to the assessing authority to verify the said challan and pass the order accordingly.

Madhyanchal Steels Pvt. Ltd., Indore v. Commissioner C.T. M.P. (2015) 26 STJ 339 (M.P.-Bd.)

10. Submission of Form ‘C’

The appeal pertained to 1996-97. The appellant went in revision against the assessment order. Revisional Authority remanded the case with specific direction for verification of ‘C’ forms of
Rs. 30,00,000. In the re-assessment made in terms of revision order, appellant submitted additional ‘C’ forms of
Rs. 36,19,509, but the same were not accepted by the Assessing Authority due to non-submission of requisite information along with the ‘C’ form. In the appeal filed against the said re-assessment order, the Appellate Authority also did not accept the said ‘C’ forms of
Rs. 36,19,509 due to non-submission of requisite information. However, the Appellate Authority accepted ‘C’ form of
Rs. 8,39,984 submitted at the time of appeal and gave relief of Rs. 48,461. Against the said First Appeal Order, the present appeal was filed on the point of non-acceptance of ‘C’ forms of
Rs. 36,19,509. On behalf of the Dept. it was contended that as the case was remanded by the Revisional Authority only for verification of ‘C’ forms of
Rs. 30,00,000, therefore, the appellant’s objection about non-acceptance of ‘C’ forms of
Rs. 36,19,509 was not justified. Also, in the Second Appeal, a request was made by the Dept., for enhancement of tax to the extent of relief of
Rs. 48,461 given by the First Appellate Authority as the same was against the Revision Order which had become final. The appellant did accept that by Revision Order the case was remanded only for verification of ‘C’ forms for
Rs. 30,00,000 and the whole case was not remanded. But the appellant prayed for relief on the ground of natural justice.

2. The Appellate Board observed that ‘C’ Forms of Rs. 36,19,509 were not verified as well as certain ‘C’ forms were not backed by purchase orders and there were deficiencies in it. Also, no time was given for production of ‘C’ forms of
Rs. 14,61,671. Therefore, considering these points, the board felt that reasonable opportunity of hearing was not given to the appellant and, therefore, natural justice was denied to them. In the circumstances, the board felt that one more opportunity should be given to the appellant and, hence, the matter was remanded to the Assessing Authority to decide in accordance with law.

Raymond Wollen Mills Ltd. v. Commr. C.T. M.P. (2015) 26 STJ 404 (M.P.-Bd.)

D. H. Joshi
Advocate

Set-off and tax collection

Rule 52(1)(a) of MVAT Rules 2005 grants full input credit of the taxes collected separately from any registered dealer if the purchases are debited to profit & loss account or trading account. Rule 53 has not prescribed any restriction for reducing set-off available if the goods are used in manufacturing of taxable goods. However, the STRA people feels that whatever taxes are collected must be as per Schedule rate as they prescribe. Sometimes even though the VAT rate is 4% or 5%, still for the sake of precaution when the Schedule rate is not clear the seller charges 12.5% and deposits the same with his returns. Still the STRA people object in granting full set-off.

Queries

1. Whether the assessing authority can refuse grant of input credit specially when the vendor has deposited full collections and the same has been verified after cross check?

Reply

The set-off is granted under Rule 52 of the MVAT Rules, 2005. The said rule reads as under:

“52. Claim and grant of set-off in respect of purchases made in the periods commencing on or after the appointed day. –

(1) In assessing the amount of tax payable in respect of any period starting on or after the appointed day, by a registered dealer (hereinafter, in this rule, referred to as “the claimant dealer”) the Commissioner shall in respect of the purchases of goods made by the claimant dealer on or after the appointed day, grant him a set-off of the aggregate of the following sums, that is to say,-

(a) The sum collected separately from the claimant dealer by the other registered dealer by way of tax on the purchases made by the claimant dealer from the said registered dealer of goods being capital assets and goods the purchases of which are debited to the profit and loss account or, as the case may be, the trading account

(b) Tax paid in respect of any entry made after the appointed day under the Maharashtra Tax on the Entry of Motor Vehicles into Local Areas Act, 1987, and

(c) The tax paid in respect of any entry made after the appointed day under the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2003.”

Thus, set-off is allowed of the sum collected by the selling dealer as tax from the claimant dealer.

There is no reference to tax collection at particular rate. The reference is to tax amount. So, as per plain language, whatever amount is collected as tax by the vendor is eligible for set- off.

It cannot also be argued that the tax collected more than prescribed rate is not tax amount. In the invoice the amount is represented as tax amount and hence it has to be considered as tax amount only and not any other amount.

The above issue is also supported by number of judgments like in case of
Ingersoll Rand (India) Ltd. v. State of Gujarat (92 STC 548)(Guj.). The small gist of judgment is as under:

“Departure form the legislative dictionary or statutory meaning of words is not only permitted but justified. If literal interpretation or interpretation according to the legislative dictionary is likely to lead to unjust result or is not likely to achieve the object of the provision wherein the words occur.

The word “tax” is not used in the Gujarat Sales Tax Act, 1969 in one sense only. An amount which is levied and collected in excess of the amount really due and payable under the Act is also treated as tax for certain purposes.

Set-off means adjustment or deduction from the tax payable by a repurchasing dealer to the Government of the amount to be returned to such purchasing dealer in respect of the purchase tax paid by him or as representing the amount of sale tax or general sales tax collected from him by his vendor. Deduction drawback or set-off are an integral part of the scheme of single point tax. In this context the word “tax” in Rule 42(B)(i)(a) of the Gujarat Sales Tax Rules 1970, should be interpreted to mean the amount of sales tax or general sales tax actually paid and recovered by way of tax, and not only the amount of tax which could have been legally recovered.

Held accordingly that the dealer was entitled to set-off at the rate of 8 per cent, the rate at which tax was paid on its purchases and not at 3 per cent or 4 per cent the rate determined by the Commissioner to have been applicable to its purchases.”

Otherwise also there cannot be any grievance about allowing set off at full amount from the revenue side. The excess collection, if any, will definitely get forfeited and hence there is payment of amount by the vendor and under the VAT principle, the said amount should be available as set-off to the buyer.

2. When the Schedule rate of tax on commodity is not clear, whether the Assessing Authority assessing the buyer or claimant dealer can determine the rate of VAT even though tax is leviable on sales and not purchases?

Reply

Assessment is a comprehensive appreciation of the various claims including set-off. Therefore, the assessing authority can certainly look into the tax invoice and tax charged. It can observe about rate of tax, though as discussed above, there is no justification for disallowing set-off, even if the rate is determined at lower rate.

C. B. Thakar

Advocate

Query No. 1 (Impartible Estate of HUF)

What is the Law laid down by Hon. Supreme Court in respect of impartible estate of HUF property?

Answer

Section 6 of the Hindu Succession Act, 1956 as it stood before its substitution by the Hindu Succession (Amendment) Act, 2005 w. e. f. September 9, 2005 is reproduced as under:

“When a male Hindu dies after the commencement of this Act, having at the time of his death an interest in a Mitakshara coparcenary property, his interest in the property, shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with this Act.

PROVIDED that if the deceased has left him surviving a female relative specified in Class I of the Schedule or a male relative specified in that Class who claims, through such female relative, the interest of the deceased in the Mitakashara coparcenary property shall devolve by testamentary or intestate succession, as the case may be, under this Act and not by survivorship.

Explanation 1: For the purpose of this section, the interest of a Hindu Mitakshara coparcener shall be deemed to be the share in the property that would have been allotted to him if a partition of the property had taken place immediately before his death irrespective of the fact whether he was entitled to claim partition or not.

Explanation 2: Nothing contained in the proviso to this section shall be construed as enabling a person who has separated himself from the coparcenary before the death of the deceased or any of his heirs to claim on intestacy a share in the interest referred to therein.”

On the basis of the then existing section, the Supreme Court in
State of U.P. v. Raj Kumar Rukmini Raman Brahma [AIR 1971 SC 1687]
pointed out that an estate, which is impartible by custom, cannot be said to be the separate or exclusive property of the holder of the estate. “If the holder has got the estate as an ancestral estate and he is succeeded to it by primogeniture, it will be part of the joint estate of the undivided Hindu family.” The Supreme Court further held that right of maintenance and right of survivorship would still remain,

Query No. 2 (Deduction u/s. 35AD)

The assessee is a partnership firm carrying on medical profession. At present it is carrying on Gynic Branch only for the last several years. It decided to set up 200 bedded multi-specialty hospital and accordingly started the project in May, 2012 under the same partnership firm as a separate unit in order to avail under section 35AD @ 150% of eligible capital expenditure:

(a) Whether this unit can claim deduction under this section though the place of business and the nature of services will be different? No old machinery etc. will be transferred to new building/unit.

(b) Whether the income of both the units owned by the firm will be consolidated for the purpose of applicability of section 115JC or separate treatment?

(c) Can there be any difficulty to claim deduction under section 35AD in case if old unit (Gynic) is also shifted to new Hospital? The new unit may start operation by April-May, 2015.

Answer

a) Yes, the partnership firm can claim deduction under section 35AD @ 150% on capital expenditure incurred for setting up and operating hospital anywhere in India with more than 100 beds for patients. From the fact, it is clear that no old machinery would be transferred to new building/unit, hence, it would not be set up by splitting up or the reconstruction of a business already in existence. The expression “splitting up of the business already in existence” indicates a case where the integrity of a business earlier in existence is broken up and different sections of the activities previously conducted are carried on independently. [see
CIT v. Hindustan General Industries Ltd. – 137 ITR 851 (Del.)]. The term “reconstruction” implies that the identity of the business should not be lost and substantially the same business should be carried on by substantially the same persons as per the Supreme Court in
Textiles Machinery Corporation Ltd. v. CIT [107 ITR 195].

b) Yes, income of both the units would be consolidated of the assessee firm and if tax payable is less than Alternate Minimum Tax (AMT), then the assessee firm will have to pay AMT on adjusted total income. While calculating Adjusted Total Income, the deduction claimed under section 35AD to be added after reducing depreciation allowable under section 32 on such capital asset, at the rate prescribed in Rule 5 of the Income-tax Rules, 1961.

c) No difficulty as explained above

Query No. 3 (Charitable Trust)

Clause 3 of Finance Bill 2015 proposes amendment to section 2(15) of Income-tax Act, 1961 wherein certain proposals are being incorporated to restrict the activities of Charitable Trusts rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. What is the impact of such proposal?

Answer

The present definition in section 2(15) was substituted by Finance Act, 2008 and the first proviso was added to state that the advancement of any other object of general public utility will cease to be a “charitable purpose” if it involves any “trade, commerce or business” and aggregate receipts from such activities exceed rupees twenty five lakh. Thus, the proviso is very widely worded and implies that even smallest commercial activity will render the entire organisation not charitable.

Now, to mitigate the impact of the above proviso, the bill proposes that as regards the advancement of any other object of general public utility is concerned, there is a need to ensure appropriate balance being drawn between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organisation as part of actual carrying out of the primary purpose of the trust or institution.

It is, therefore, proposed to amend the definition of charitable purpose to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless –

(i) Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii) The aggregate receipt from such activities, during the previous years, do not exceed twenty per cent of the total receipts of the trust or institution undertaking such activity or activities, for the previous year.

Thus now instead of rupees twenty five lakhs amount percentage of total receipts to be considered for deciding whether the trust / organisation is non-charitable.

Query No. 4 (Charitable Trust)

(a) As we are charitable organisation / trust involved in education related activities. We are paying service tax on the fees collected from students. However, no Cenvat on input services is available while making payment of service tax as the head of organisation is of strong opinion that it will invite unnecessary audit queries and attention from the service tax department. The Cenvat credit for F.Y. 2012-13 works out to around
Rs. 20,00,000/-. Section 13 of the Income- tax Act, 1961 provides for protection of property of the Trust and hence not claiming Cenvat of
Rs. 20,00,000/- is a violation of the section?

(b) In charitable organisation, the trustees have given full authority to Director General and consequently Director General is also very vigilant in sanctioning any payments. Out of abandon caution and moral, ethical responsibility, Director General would like that payment made to him or his relative should be approved by the trustees. Whether his contention is right?

(c) A charitable trust involved in medical related facilities have received part income tax refund from department and that also without interest. The head of the organization is not in favour of writing a letter asking for part refund as well as interest on refund fearing any harassment from Income-tax Department. Whether such stand would invite section 13 of the Income tax Act, 1961?

Answer

(a) Section 13 of the Income-tax Act, 1961 provides for withdrawal of exemption granted to charitable trust granted under section 11 of the Act.

Section 13(1)(c ) read with section 13(3) provides for withdrawal for exemption where a part of the income of a charitable or religious trust or institution enures or is used or applied directly or indirectly for the benefit of:

i) The author of the trust or the founder of the institution;

ii) Any person who has made a substantial contribution to the trust or institution i.e., any person whose total contribution up to the end of the relevant previous year exceeds
Rs. 50,000/-

iii) Where such author, founder or person is a Hindu Undivided Family, a member of the family;

iv) Any trustee of the trust or manager (by whatever name called) of the institution;

v) Any relative of any such author, founder, person, member trustee or manager as aforesaid;

vi) Any concern in which any of the person referred to above has substantial interest.

Explanation 1 to section 13 states “relative” in relation to an individual and Explanation 3 to said section defines “substantial interest” in a concern.

In view of the above, if CENVAT credit of Rs. 20/- lakhs or part of the income tax refund or interest on the said refund not claimed by the Trust, the trustee/s would be liable under section 36A of the Bombay Public Trust Act, 1950 for not protecting the property of the trust. However, the trust can not lose the exemption under section 3 of the Act as the amount is receivable from the Government.

In fact Article 265 of the Constitution provides that “no tax shall be levied or collected except by authority of law’. Therefore, section 237 of the Income tax Act, 1961 specifically provides that if any person satisfies the AO that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of excess. Similarly, section 244 provides for interest on refund where no claim is needed.

Thus, it is a right of the assessee (trust) to claim refund as well as interest from Department and Department is bound to issue refund along with interest.

b) The contention of the Director General of the trust is correct as he is covered by section 13(3)(cc)of the Act.

CA. H.N. Motiwalla

The Chief Minister (Finance Minister) presented Rajasthan State budget in the State Assembly on 9-3-2015 and the detailed impact thereof, is summarised as under :

1. Reduction in rate of tax under Rvat Act w.e.f. 9-3-2015:

2. Increase in rate of tax under RVAT Act w.e.f. 9-3-2015 :

3. The rate of tax under Composition Scheme for Gems Stones & Sarafa dealers has been amended. Earlier the composition fee was
Rs. 500/- for every rupees two lakhs or part thereof. Now the composition fee has been changed to
rupees one thousand five hundred for every rupees two lakhs or part thereof
w.e.f. 1-4-2015.

4. Exemption allowed from Tax Liability under Rvat Act

The following items have been exempt from tax under RVAT Act as per Notification No. F.12(23)FD/Tax/2015-194 dated 9-3-2015

5. Works Contract

i. The government has issued a notification No. F.12(23)FD/Tax/2015-206 dated 9-3-2015 w.e.f. 1-4-2015 under Exemption Scheme on payment of Exemption Fee by giving two options as under:

OPTION A :

Conditions

1. The dealer, who has opted for payment of exemption fee in lieu of tax under option A of Clause 1, shall purchase taxable goods within the state from the registered dealers of the State for the execution of works contract.

2. In case such dealer, procures or purchases any goods in any manner other than the manner as provided in clause (a) above he shall, in addition to the exemption fee, be liable to pay an amount equal to the amount of tax that would have been payable had the goods been purchased in the State from a registered dealer.

3. In this option the contractor will not be entitled to claim the Input Tax Credit on purchase of the taxable goods within the State of Rajasthan.

OPTION B

Conditions

1. The dealer, who has opted for payment of exemption fee in lieu of tax under option B of Clause 1, shall be entitled to purchase the goods involved in execution of works contract from outside the state i.e. goods purchased against
Rs.C’ form will be allowed.

2. In this option the contractor will not be entitled to claim the Input Tax Credit on purchase of the taxable goods within the State of Rajasthan.

ii. TDS (Tax Deduction at Source):

With effect from 1-4-2015 the rate of TDS under Works Contract will be applicable @ 6% of such sum, if payment is made to a dealer registered under the RVAT Act. In case of unregistered dealer, the rate of TDS under Works Contract will be applicable @ 7%. In case the exemption certificate is issued u/s. 8 of the RVAT Act, the awarder or any person authorised by him, shall deduct, in lieu of tax, an amount equal to rate of exemption fee as mentioned in the exemption certificate.

iii. Developers & Builders:

The government has amended the notification No. F.12(59)FD/Tax/2014-18 dated 14-7-2014 with effect from 1-4-2015. As per amended notification there are two options for payment of tax liability by the developers/builders as under :

Option A : Rupees one thousand three hundred for every two lakhs or part thereof, of the consideration received in the relevant period subject to the following conditions:

i. The developer/builder shall purchase the goods from within the state for execution of the works contract from a registered dealer of state;

ii. In case such dealer, procures or purchases any goods in any manner other than manner as provided in condition No. (i) above, he shall, in addition to lump sum amount, be liable to pay an amount equal to the amount of the tax that would have been payable, had the goods been purchased in the state from a registered dealer.

Option B : Rupees eight thousand for every two lakhs or part thereof, of the consideration received in the relevant period.

NOTE : i. The dealer opting to pay tax in lumpsum has to submit his option in the application for permission.

ii. In both the options the ITC will not be available.

Amendments in Rules

1. Under Rule 16, sub-Rule (3) of RVAT Rules, 2006 the time limit for finalisation of the assessment after closure of the business (cancellation of RC) was 30 days. Now the time limit has been increased to
180 days.

2. Under Rule 19 sub-Rule (8) the time limit for filing the Revised Return has been increased. Earlier the provision was nine months from the end of the relevant year.
Now the dealer can revise the Return within 15 days from the last date of submission of Annual Return. This will come into force
from 1-7-2015.

3. Late fee under Rule 19A for delayed submission of the Return has been reduced.

4. Under Rule 21 of RVAT Rules, 2006, the dealers may submit the declaration forms
up to 30-6-2015 in cases where assessments have been completed till 30th September, 2014.

5. Under Rule 22A now the turnover of the sub-contractor shall be deducted from the taxable turnover of the main-contractor in case the sub-contractor has opted the exemption scheme under Works Contract.

6. The Government has amended Rule 27 of RVAT Rules, 2006 and now all refunds will be
issued online w.e.f. 1-7-2015.

7. Forms VAT-10, VAT-22, VAT-23, VAT-24, VAT-36 and VAT-59 will be modified.

Others

1. In cases where the turnover of the dealer in the course of inter-State trade or commerce is more than 50% of the previous year and refund is due because of ITC, in such cases
the refund will be issued online within 30 days after submission of the Quarterly Return and filing of online application for refund.

2. The thrashhold limit of quarterly taxpayers whose annual tax liability was
Rs. 20,000/- for the year preceding to current assessment year, has been increased to
Rs. 50,000/-.

3. The Return under the VAT, CST, Entry Tax and Luxury Tax will be filed in one Return i.e. VAT-10.

4. The amount of court fee stamps for filing the appeals have been changed. For filing the 1st Appeal, there shall be no court fee stamps applicable. For filing the Memorandum of Appeal u/s. 83 (II appeal) the court fee of
Rs. 100/- will be applicable. For filing the Memorandum of Appeal U/s 84 (Revision to High Court) the court fee of
Rs. 150/- will be applicable

5. It is proposed to start online VAT-35, VAT-36 & VAT-36A.

Entry Tax Act

a) Following items have been exempt from Entry Tax:

b. The rate of Entry Tax has been reduced on the following items as per Notification No. F.12(23)FD/Tax/2015-211 dated 9-3-2015 :

Electricity Duty

Electricity duty @ 40 paisa per unit has been levied w.e.f. 16-3-2015 on consumption of self-generated energy for any purpose in respect of energy generated by Captive Power Generating Plants other than by the Diesel Generating sets.

Luxury Tax

Substantial amendments have been proposed and a new Composition Scheme is proposed to be launched.

Stamp Duty

Substantial amendments are proposed in Stamp Duty.

M. L. Patodi, Advocate &
CA. Ishu Jain, Kota (Rajasthan)

Taxation of Undisclosed Foreign Income and Assets

1 Background

The Finance Minister, while presenting his Budget on 28th February, 2015, has divided his tax proposals under six heads. One of this relates to “Measures to Curb Black Money”. In Para 100 of his speech he has stated that “The first and foremost Pillar of my tax proposals is to effectively deal with the problem of black money which eats into the vitals of our economy and society. The problems of poverty and inequity cannot be eliminated unless generation of black money and its concealment is dealt with effectively and forcefully”. In his speech he has extensively dealt with the steps taken for investigation of cases of undisclosed foreign assets. He has observed that “Investigation into cases of undisclosed foreign assets has been accorded the highest priority, resulting in detection of substantial amount of unreported income”. Recognising limitation under the existing legislation, he has stated that it is necessary to enact a comprehensive new law on black money to specifically deal with such money stashed away abroad. To achieve this objective he has introduced “The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015”, in the Lok Sabha on 20th March, 2015. In this article the important provisions of this Bill are discussed.

2. Objective

2.1 The objective for introducing this Bill is explained in the Statement of Objects and Reasons appended to the Bill is as under:

“Stashing away of black money abroad by some people with intent to evade taxes has been a matter of deep concern to the nation. ‘Black Money’ is a common expression used in reference to tax-evaded income. Evasion of tax robs the nation of critical resources necessary to undertake programmes for social inclusion and economic development. It also puts a disproportionate burden on the honest taxpayers as they have to bear the brunt of higher taxes to make up for the revenue leakage caused by evasion. The money stashed away abroad by evading tax could also be used in ways which could threaten the national security.

The Central Government is strongly committed to the task of tracking down and bringing back undisclosed foreign assets and income which legitimately belong to the nation. Recognising the limitations of the existing legislation, it is proposed to introduce a new legislation to deal with undisclosed assets and income stashed away abroad”.

2.2 There are 88 sections in the Bill. Most of the sections deal with procedural provisions for making assessment, appeals, recovery of tax and administrative procedure. These provisions are on the same lines as provisions in the Income-tax Act. After enactment, the provisions of this new legislation will come into force from assessment year 2016-17 i.e. F.Y.: 1-4-2015 to 31-3-2016.

3. Definitions

Some of the important terms defined in section 2 are as under:

(i) “Assessee” for this legislation means a person who is a “Resident” liable to pay tax in respect of undisclosed foreign income and assets. Therefore, the provisions of the Bill do not apply to a “Non-Resident” or a “Resident but not Ordinarily Resident” as defined in section 6(6) of the Income-tax Act. Thus, any Individual, HUF, Firm, AOP, BOI or a company which is a Resident will be considered as an assessee.

(ii) “Undisclosed Assets located outside India” is defined to mean an asset or financial interest in any entity located outside India, held by the assessee in his name or in respect of which he is a beneficial owner. This definition will apply only if the assessee is not able to explain about the source of investment in such asset to the satisfaction of the Assessing Officer (A.O). From the wording of this definition it is evident that if the assessee is a beneficiary in a Trust having assets outside India and if he has not disclosed his interest in the trust, the same will be considered as undisclosed asset located outside India.

(iii) “Undisclosed Foreign Income and Asset” is defined to mean the total amount of undisclosed income of the assessee from a source located outside India and the value of an undisclosed foreign asset. The computation of such income or asset is to be made as provided in sections 4 and 5.

4. Computation and Levy of Tax

4.1 Sections 3 to 5 provide for computation of undisclosed foreign income and assets and levy of tax under this new legislation. Section 3 states that tax at the rate of 30% will be payable by the assessee on the undisclosed foreign income or asset in the year in which the same comes to the notice of the A.O. In other words, if the A.O. comes to know about any undisclosed foreign income or asset of an assessee during the F.Y. 1-4-2015 to 31-3-2016, tax as provided in this section can be charged as income of the A.Y. 2016-17. It is also provided in section 3 that tax will be payable on the value of the undisclosed asset located outside India belonging to the assessee in the year in which it comes to the notice of the A.O. The valuation of such asset is to be made at its fair market value determined in the manner specified in the Rules to be prescribed. Such asset will include financial interest in any foreign entity.

4.2 The total undisclosed foreign income and asset belonging to an assessee for any year is to be computed u/s. 4 by aggregating the following items.

(i) Income from a source located outside India which has not been disclosed in the return of income filed u/s. 139 of the Income-tax Act.

(ii) If the assessee has not filed the return u/s. 139 of the Income-tax Act and has some income from a source located outside India. This will mean that if a Resident assessee has not filed return of income as his income is below taxable limit in India (say
Rs. 1,00,000/-) and Dividend Income on his investment in shares of a foreign company (say
Rs. 50,000/-) he will be liable to pay tax @30% under this new legislation on
Rs. 50,000/- if the A.O. comes to know that the assessee has received this dividend income from a foreign company. Thus, it will be advisable for all Resident assessees having income from a foreign investment to file return of income u/s. 139 of the Income-tax Act even if total Indian and Foreign Income is below taxable limit.

(iii) The value of an undisclosed asset located outside India. It may be noted that if a resident assessee has invested in shares of a foreign company in F.Y. 2008-09 for
Rs. 2,00,000/-, which has not been disclosed in the return of income, the A.O. can treat this as undisclosed foreign asset if it comes to his notice in F.Y. 2015-16. In such a case tax @30% will be payable on its fair market value (say
Rs. 5,00,000/-), and not on its cost, in the A.Y. 2016-17 under this new provision.

The above section provides that if the above undisclosed foreign income and asset is taxed under this legislation, it will not be added in the computation of total income under the Income-tax Act. Thus, there will be no double taxation of such income.

4.3 Section 5 states that while computing the total undisclosed foreign income and asset the following adjustments shall be made.

(i) No deduction in respect of any expenditure, allowance or set off of any loss shall be allowed, whether or not it is allowable under the provisions of the Income-tax Act.

(ii) If any income has been assessed for any year prior to A.Y. 2016-17 under the Income-tax Act or any income is assessed or assessable under the new legislation the same shall be reduced from the value of the undisclosed assets located outside India. For this purpose the assessee has to produce evidence to prove that the asset has been acquired from the income which has been assessed or is assessable to tax as stated above.

4.4 For calculating the deduction in respect of undisclosed foreign immovable property, under item (ii) of Para 4.3 above, section 5(2) gives an Illustration as under.

“A house property located outside India was acquired by an assessee in the previous year 2009-10 for
Rs. 50 lakhs. Out of investment of Rs. 50 lakhs, Rs. 20 lakhs was assessed to tax in the total income of the previous year 2009-10 and earlier year. Such undisclosed asset comes to the notice of the Assessing Officer in the year 2017-18. If the value of the asset in 2017-18 is
Rs. 1 crore, the amount chargeable to tax shall be A-B=C, where A =
Rs. 100 lakhs, B = Rs. (100 X 20/50) lakhs i.e. Rs. 40 lakhs, C= Rs. (100-40) lakhs =
Rs. 60 Lakhs.

5. Assessments, appeals etc.

5.1 The administration of this new legislation is entrusted to the officers of the Income Tax Department. Sections 6 to 40 provide for tax administration, assessment, reassessment, rectification, revision, appeals, payment of interest, recovery of tax, interest, penalty and other incidental matters. These procedural provisions are more or less on the same lines as provided under the Income-tax Act.

5.2 The procedure for assessment is laid down is sections 10 and 11. If the Assessing Officer (A.O.) receives any information from an Income Tax authority or any other authority under any law or any information is brought to his notice, he can serve a notice on the concerned person. By this notice that person can be called upon to produce such accounts, documents or evidence as the A.O. may require for the purpose of this new legislation on the specified date.

5.3 The A.O. can also make inquiry for the purpose of obtaining full information in respect of undisclosed foreign income and asset of the person for the relevant financial year.

5.4 After considering such accounts, documents or evidence produced by the assessee and after considering the material gathered by the A.O. he can pass an order in writing assessing the undisclosed foreign Income and Asset and determine the amount of tax, interest and penalty payable by the assessee. It may be noted that section 10(3), as drafted, does not provide that the A.O. should give a hearing to the assessee to present his view point before the assessment is made. There is no specific provision whereby the A.O. is obliged to inform the assessee about any material collected by the A.O. from any outside source which he proposes to use for making the assessment. To this extent section 10(3) as drafted requires to be modified. The principles of natural justice require that the assessee should have an opportunity to rebut any evidence collected by the A.O. behind the back of the assessee and adequate opportunity should be given to the assessee to present his view point before any assessment is made.

5.5 If the person to whom notice is given by the A.O. fails to comply with the terms of the notice, section 10(4) provides that the A.O. can complete the assessment to the best of his judgment on the basis of the relevant material gathered by him. In this section, it is specifically stated that the A.O. shall give opportunity to the assessee of being heard before passing the assessment order.

5.6 Section 14 provides that A.O. can make a direct assessment of a person on whose behalf or for whose benefit undisclosed foreign income is receivable or undisclosed asset located outside India is held. It appears that this provision is made to levy tax on a resident assessee who is a beneficiary with specified share in a Foreign Trust if such beneficiary has not disclosed his interest in such a trust.

5.7 Section 11 provides that no order of assessment or reassessment shall be made u/s 10 after the expiry of 2 years from the end of the F.Y. in which the notice u/s. 10(1) is issued. If the A.O is required to pass a fresh assessment order or modify the assessment order due to any direction in any appeal proceedings similar time limit of 2 years from the end of the financial year in which such direction is given is also provided in section 11. Although, the section mentions passing of an order of assessment or reassessment there is no provision in this Bill for making a reassessment. No procedure for reopening an assessment is made in this legislation.

5.8 The following sections deal with the procedure for rectification, revision appeals etc.

(i) Rectification of Mistakes – Section 12

(ii) Appeal to CIT(A) – Sections 15–17

(iii) Appeal to ITA Tribunal – Section 18

(iv) Appeal to High Court/Supreme Court on substantial questions of law – Sections 19 to 22.

(v) Powers to CIT for Revision – Sections 23-24

These provisions are more or less on the same lines as corresponding provisions in the Income-tax Act. The procedure to be followed is similar to the procedure under the Income tax Act.

5.9 Sections 30 to 40 provide for a procedure to recover tax, interest, penalty etc. payable under this legislation. This procedure is on the same lines as per the corresponding provisions of the Income-tax Act. In section 25 it is stated that if any appeal is preferred to the High Court or the Supreme Court, the assessee should pay the tax payable under this legislation. Section 40 provides that if the assessee has any income from a source out of India which has not been disclosed in the return of income, Interest calculated u/s. 234A shall be payable. If no advance tax is paid on such income, interest calculated u/ss. 234B and 234C shall be payable. Such interest shall be payable with tax levied under this legislation. It is also provided in the procedure for recovery that if any part of the tax, interest or penalty levied in respect of undisclosed foreign income or asset is not paid by the assessee the A.O./TRO can recover the tax from his assets located in India.

5.10 In a case where the assessee has property in a country or specified territory outside India with which there are Agreements u/ss. 90, 90A of the Income-tax Act or u/ss. 73(1), (2) or(4) of this legislation, TRO can refer the matter for recovery of assessed tax, interest or penalty to CBDT. On receipt of such intimation CBDT can take appropriate action as provided in the Agreement with that country or specified territory.

6 Penalties

6.1 Stringent penalties are provided in respect of undisclosed foreign income and assets in sections 41 to 47. In brief, these provisions are as under.

(i) Where the A.O. has computed the value of undisclosed foreign income and asset u/s. 10 and assessed as such, penalty at the rate of 300% of the tax on the amount so assessed shall be payable u/s. 41. The A.O. has no discretion in the matter and this penalty cannot be reduced by him. In other words, if the A.O. has found that the assessee has not disclosed his foreign income or asset, he can charge 30% tax and 90% penalty i.e 120% of the value of undisclosed foreign income and asset.

(ii) If a resident assessee fails to furnish his return of income u/s. 139 of the Income-tax Act before the end of the relevant assessment year, the A.O. can levy penalty of
Rs. 10 lakhs if he finds that the assessee had the following foreign income or asset.

(a) The assessee held any asset (including financial interest in any entity) located outside India as a beneficial owner or otherwise, or,

(b) He was a beneficiary of any asset (including financial interest in any entity) located outside India, or,

(c) He had any income from a source located out of India.

(iii) Similarly, if such an assessee has filed his return of income u/s. 139 but has not declared the above foreign income or asset or has given inaccurate particulars about the same in the return of income, the A.O. can levy penalty of
Rs. 10 lakhs.

It may, however, be noted that this penalty will not be levied if the assessee has one or more bank accounts in foreign banks and aggregate of the foreign currency in these accounts converted into rupees does not exceed
Rs. 5,00,000/-.

Reading the above provisions it appears that such levy of penalty is very harsh as it has no relationship with the amount of foreign income or value of the foreign asset. Thus, an assessee having dividend income of
Rs. 50,000/- from his declared investment in shares of a foreign company has not filed a return of income on the ground that his total income in India (including this foreign dividend income) is less than taxable limit, can suffer this penalty of
Rs. 10 lakhs u/s. 42 of this legislation.

(iv) A.O. can levy penalty if an assessee does not pay the tax levied under this legislation before the due date and continues to default in paying this tax. Penalty will be equal to the tax in arrears. It is also provided that this penalty can be levied even if the assessee pays the tax before levy of penalty.

(v) Section 45 provides for levy of minimum penalty of Rs. 50,000/- which may extend to
Rs. 2,00,000/- for other defaults by a person, such as –

(a) Not answering questions put to him by any tax authority.

(b) Failing to sign any statement recorded in the course of proceedings under this legislation by any tax authority.

(c) Failure to attend, produce books of account, documents or evidence in respect to summons issued by a tax authority.

6.2 The procedure for levy of penalty to be followed by A.O. is provided in section 46. This procedure is on the same lines as provided in the Income-tax Act. Section 47 provides for time limit for passing the penalty order as under:

(i) No penalty order can be passed after the expiry of one year from the end of the financial year in which penalty notice is issued u/s 46.

(ii) The penalty order can be revised within 6 months from the end of the month in which any appellate order is passed by CIT(A), ITA Tribunal, High Court or Supreme Court or Revision order is passed by CIT.

7. Prosecution:

7.1 On the lines of the penalty provisions, stringent provisions are made in sections 48 to 58 for launching prosecution for offences under the legislation. In brief, these provisions are as under.

(i) If a resident assessee wilfully fails to disclose details about any foreign income or asset in the return filed u/s. 139 of the Income-tax Act or fails to file return of income u/s. 139 before the end of the year he will be punishable with rigorous imprisonment for a term which shall not be less than 6 months but which may extend to 7 years and with fine.

(ii) If a resident assessee or any other person wilfully attempts in any manner to evade any tax, interest or penalty chargeable under this legislation, he will be punishable with rigorous imprisonment for a term which shall not be less than 3 years and but which may extend up to 10 years and with fine.

(iii) If a person makes a statement in any verification which is false, he will be punishable with rigorous imprisonment which shall not be less than 6 months but which may extend to 7 years and with fine.

(iv) If a person abets or induces any person to deliver an account, statement or declaration relating to tax payable under this legislation which is untrue or false or to commit any offence punishable u/s. 51(1), he shall be punishable with rigorous imprisonment for a term which shall not be less than 6 months but which may extend up to 7 years and with fine. It may be noted that this punishment for abetment can also apply to a Chartered Accountant, Advocate or a Tax Consultant on whose advise the resident assessee has filed his return of income and not declared his foreign income or asset on his advice.

(v) If any offence, as stated above, has been committed by a company, every person, who at the time the offence was committed, was in charge of and was responsible for the conduct of the business of the company, together with the company, can be prosecuted for the offence. Persons who can be prosecuted are the concerned Directors, Manager, Secretary or other concerned officer. It is provided that the punishment in the form of fine can be levied on the company and punishment in the nature of imprisonment can be awarded to the concerned Directors, Manager, Secretary or other Officers. For this purpose a “Company” is defined to mean a body corporate, or a Firm, A.O.P., B.O.I. or HUF. Further, a “Director” will include a partner of firm or member of A.O.P., B.O.I. or adult member of HUF.

(vi) Section 58 provides that a person convicted for the above offence for the second time or subsequent time, punishment for every such offence shall be rigorous imprisonment for a term which shall not be less than 3 years but which may extend to 10 years. Further, fine for each such subsequent offence shall not be less than
Rs. 5 lakhs which may extend to Rs. 1 crore.

7.2 The procedure for launching prosecution is on the same lines as provided in the Income -tax Act.

8. Amnesty Scheme

8.1 Sections 59 to 72 provide for one time voluntary declaration to avoid any penal action under this legislation. Briefly stated, these provisions are as under.

(i) After the commencement of this legislation, but on or before the date notified by the Central Government, the concerned assessee can make a voluntary declaration in respect of the undisclosed asset located outside India and acquired from income chargeable to tax under the Income-tax Act for assessment year 2015-16 or any prior year which has escaped assessment for the following reasons.

(a) He has failed to furnish a return of income u/s. 139.

(b) He has failed to disclose in a return of income furnished by him under the Income-tax Act before the commencement of this legislation.

(c) It has escaped assessment by reason of the omission or failure on the part of the assessee to file the return of income or to disclose fully and truly all material facts necessary for assessment or otherwise.

(ii) The person making such voluntary disclosure will have to pay

(a) Tax at 30% of the value of the undisclosed foreign asset

(b) Penalty at 100% of the above tax.

(iii) The payment of the above tax and penalty shall be made on or before the date notified by the Government.

(iv) The above declaration is to be made to the CIT in the form to be prescribed. This declaration is to be signed by the authorised person as stated in section 62(2).

(v) If the above tax is not paid before the due date, the declaration filed will be deemed never to have been made.

(vi) Any amount of tax and penalty paid by the person making the declaration shall not be refundable.

(vii) The amount of undisclosed investment in an asset located outside India declared in accordance this voluntary disclosure scheme shall not be included in the computation of total income under the Income-tax Act.

(viii) If the above voluntary declaration has been made by misrepresentation or suppression of facts, such declaration shall be void and shall be deemed never to have been made.

8.2 Section 69 provides that no wealth tax shall be payable in respect of the assets declared under the voluntary declaration scheme. Further, section 70 provides that provisions of Chapter XV and 189 of the Income-tax Act and chapter V of the Wealth Tax Act will apply in relation to foreign assets declared under the above provisions.

8.3 Section 71 provides that the following persons shall not be entitled to make voluntary declaration under the above scheme.

(i) A person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974. This is subject to certain exception stated in the Proviso to section 71 (a).

(ii) A person in respect of whom a prosecution has been launched for any offence punishable under Chapter IX or XVII of the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967 or the Prevention of Corruption Act, 1988.

(iii) Any person notified u/s. 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

(iv) Any person in whose case, in respect of any undisclosed asset (including any foreign bank account in which there is any balance or not) located out of India, any proceedings u/ss. 142, 143(2), 148, 153A or 153C of the Income-tax Act are pending for A.Y. 2015-16 or earlier years. Further, in the case of a person, if the search u/s. 132 is conducted or requisition u/s. 132A has been issued or survey u/s. 133A has been conducted prior to 1-4-2015 and notices u/ss. 143(2), 153A or 153C of the Income-tax Act have been issued or the time limit for issue of such notices have not expired, the declaration under the Scheme cannot be made.

9. Some suggestions

9.1 The provisions proposed to be made in this legislation are very harsh and stringent. In order to prevent misuse of these provisions in the cases of small assessees, it is necessary to provide that no action under the legislation for any year will be initiated where the value of undisclosed foreign income or assets does not exceed
Rs. 1 crore. In such cases, such undisclosed income or asset, can be assessed under the relevant provisions of the Income- tax Act.

9.2 It is necessary to specifically provide that if a person has earned income in a foreign country or acquired any asset outside India out of income earned when he was a non-resident or a resident but not ordinarily resident in any prior year or years, the said foreign income or asset will not be made subject to tax under this legislation. Such situation will arise in following cases.

(i) A person of Indian Origin has settled down in U.K. His status in A.Ys. 2001-02 to 2015-16 is Non-Resident. He has earned income in U.K. and acquired some assets there. If he returns to India on 1-4-2015 and decides to retain his foreign assets, in the absence of specific provision the A.O. may try to levy tax and penalty under this legislation on the ground that such foreign income or asset was not declared in the return of income filed by such person u/s. 139 in respect of his Indian income when he was a non-resident.

(ii) Similar question may arise in the case of foreigner who comes to India as an employee and due to his residence in India becomes a Resident in India. He cannot be made liable to tax and penalty under this legislation in respect of assets acquired by him in foreign country out of his income when he was non-resident.

(iii) Finance Bill, 2015, proposes to amend section 6(3) of the Income-tax Act. If this amendment comes into force from 1-4-2015, certain foreign companies will become Resident in India on the basis of effective management situated in India. In such cases it should be specifically provided that this legislation will not apply to such foreign companies. In any event, no tax or penalty should be levied under this legislation in respect of income or assets of such companies situated outside India.

9.3 If a Resident Individual is a beneficiary of a Discretionary Trust established by a non-resident, it should be specifically provided in this legislation that no tax or penalty should be levied in respect of the assets located out of India and held by the Trustees of the Trust. This is because he cannot be considered as owner of these assets. He may be liable to tax only if he receives any income from the Trust.

9.4 It is necessary to provide in the new legislation that if the assesssee is able to establish that a particular foreign income or asset located out of India was not disclosed due to reasonable cause, penalty should not be levied. This will enable persons who have Indian and foreign income below the taxable limit to show that the return u/s. 139 of the Income-tax Act was not filed for this reason.

9.5 Under this legislation the assessee is not required to file any return of income. The proceedings will start in the year in which it has come to the notice of A.O. that the person has earned income in a foreign country or he is owner of assets outside India which he has not disclosed. A.O. is given power to collect information about this foreign income or assets located outside India and compute the value of such assets. The A.O. can make assessment u/s. 10 on the basis of the material gathered by him. It is necessary to specifically provide in section 10 that the A.O. should give opportunity to the assessee to make his submission about the material, documents or other evidence collected by the A.O. before he completes the assessment. A procedure similar to section 144C of the Income-tax Act can be provided so that the A.O. should send a draft assessment order which can be finalised if the assessee does not object or can be referred to Dispute Resolution Panel if the assessee objects to the draft order. Direct appeal to ITA Tribunal can be then made after DRP decides the matter.

9.6 There is a provision in section 43 that penalty of Rs. 10 lakhs can be levied if the foreign income or foreign asset is not declared in the return of income filed u/s. 139 of the Income-tax Act or such return is not filed. It may be noted that if any such penalty is to be levied, the provision should be made in the Income-tax Act. Again it is not clear whether such penalty will be levied only if the default is made in the year in which it comes to the notice of A.O. about existence of such foreign income or foreign asset or in respect of each of the earlier years when the assessee has failed to disclose the details in returns of earlier years. Further, fixed penalty of
Rs. 10 lakhs has no relationship with the amount of undisclosed foreign income or asset. If penalty is to be levied, it should be levied only if in the return of income for the year in which A.O. comes to know about such foreign income or asset is not disclosed and the penalty amount should be equal to tax on such foreign income and value of the foreign asset subject to a maximum of
Rs. 10 lakhs.

CA. P. N. Shah

The global life and business is now governed by the use of internet. E-tailer, telco faced criticism for decision to join hands for zero-ratings offering. Start-up entrepreneurs erupted in joy after the country’s largest online retailer Flip-kart retreated from a program that critics said could have resulted in an unequal Internet and thus stifled competition. By turning its back on India’s largest mobile phone company Airtel, Flipkart is responding to the pressure from within and without after severe criticism of its intention to use its substantial financial muscle to subsidised users of its app, analyst reacted. In the circumstances, due to change of heart, Flipkart’s Commerce Head, Mr. Mukesh Bansal said – “Some zero rating scenarios could have laid to some discrimination in future.” Therefore, decision to pull out took place in the last 24 hours (this was the position on 15-4-2015) after long debate with Flip-kart top leadership. Zero rating tie-up could have resulted in a two speed internet for consumers and stifled competition, say critics. The good part of this is that this move will also put pressure on other corporates too not sign zero-rating agreements. If this happens and it should happen, which will bring net neutrality to fostering innovation.

The battle for net neutrality is based on the principle that all traffic travelling across internet should be treated equally at all stages and the price rate and speed should be the same. In this regard, entrepreneurs and experts tell us why a free internet is an absolute condition for innovation and consumer choice to thrive in India.

Incidentally, it appears that India in all likelihood may go net neutrality following the US way with internet being taken as essential service and provided without any discrimination.

Internet users in India sent an unprecedented 3 lakh e-mail submissions over the last 3 days to the telecom regulator TRAI asking it to protect net neutrality. This movement, which began in response to a TRAI
“Consultation Paper”, was galvanised by the potential alliance between the country’s top line retailer and the biggest phone company.
Flipkart and Airtel faced heavy criticism on social media and even the Telecom Minister threw his weight in favour of net neutrality.

Let us understand clearly what is
‘zero ratings’? Right now, mobile users in India can access any website and applet for the same charges. What telecom companies were proposing was against this principle. Airtel Zero is an example of it. Airtel was planning to tie-up with Flipkart, under which Airtel subscribers would have been able to shop from Flipkart for free. But if you were to shop from a rival online retailer, Airtel would have charged you. This is what netizens were strongly against.
Neutrality means you can access any website, app and social media site from any telco or ISP, with no discrimination in cost or speed. It is widely pursued as a violation of the principle of net working neutrality, where all data is treated equally regardless of its origin. Against this backdrop, for many starts-up that feared larger incumbents could use their financial muscle to subsidised users, zero rating platforms presented a dilemma. Therefore, the choice would be to break net neutrality by joining such platforms or lose out to competition.

“By rejecting net neutrality, we will be closing the door on the entrepreneurial aspirations of millions and leave telecom companies to play gate keeper,” said Sumit Jain, co-founder of Commonfloor.com.

In the above circumstances, the telecom regulator had asked for separately stakeholders to submit their comments on the consultation paper titled –
“Regulatory Framework for over-the Top Services”, or services like Skype by April 24. In December last year, Airtel tried to introduce a plan to charge Internet Telephony Firms like Skype and WhatsApp a higher tariff. However, the telecom operator withdrew the plan after widespread public protest.

Meantime, online marketing trend is not restricted only to expensive goods. The demand is from clothes to cosmetics, grocery and sports goods etc. According to Internet and Mobile Association of India and Indian Market Research Bureau international report, in India online marketing turnover up to end of calendar year 2015 will be over
Rs. 1 lakh crore. The said report further says that 45% customers took the delivery of goods by paying cash, 21% pay for the goods by debit card, 16% pay by credit card and 10% make payment through internet banking. And 8% pay by prepaid cash card and mobile wallet. The said report further throws light on certain interesting findings. Financial services, matrimonial and classifieds advertisements earnings have increased online by 5.5% and further online food delivery orders have crossed earnings by 40%.

All in all, the matter is coming to a head, with the looming April 24 deadline TRAI’s ‘Consultation Paper’. If you want to keep the whole internet accessible to all, and OTTs unregulated in the interest of innovation, the time to speak up is now ! So, rise up and protect your right to net neutrality !!

D.H. Joshi
Advocate

Emerging New Avenues and Trend in Noble Profession of Law

1. Law education

Law education is the prerogative, privilege and obligation of the Bar Council of India. The duty has been casted on the Bar Council with an object that it may produce lawyers of the expectations, enshrined in the Advocates’ Act. Unlike the Institute of Chartered Accountants, the Bar Council of India is not teaching / coaching the Law Students, but has entrusted the herculian task to the Universities in India. Law Colleges are approved and it is for the Universities to conduct law examination, to allot degree and to make the law students fit for joining the profession. However, Law education continues to suffer from uncontrolled growth of law colleges, poor quality of teaching, poor organisation and management, lack of continuing legal education, old and traditional methods, stereotype question papers lacking imagination, faulty examination, lack of infrastructure, lack of adequate library facilities, poor attendance in class rooms, mass copying in examination, absence of practical training, lack of finance, lack of uniform marking pattern etc. Time has come to set right goals, revamp and modernise legal education, prepare students to adopt modern technologies and intricacies arising out of cyber laws, forensic sciences, medical sciences, international trade, patents-registrations intellectual property rights etc.

It is heartening to find that lately the Bar Council is alive of the malady and is making serious and strenuous efforts to improve imparting of quality education. It has tightened the Universities. The Directorate of Legal Education has been established. It is good sign. State Bar Councils be entrusted duties to play vital role in implementation and regulation. I humbly suggest that we should adopt common syllabus for compulsory subjects all over the country with optional subjects, which may be in accord with the requirement of each State. Secondly, there should be common examination on a scheduled date with question paper to be compiled by the Committee of Senior Advocates and manner of marking be rigid to make it of uniform pattern. I am of the firm opinion that the colleges be directed to conduct mock trials, Inter University and National Moot Court Competitions. System of internship and learning with the Senior Advocates be made compulsory.

Legal education is an investment which if wisely made will produce most beneficial results for the nation and accelerate the pace of development. Of late, the role of a lawyer is more than a skilled legal mechanic; he acts as a harmoniser and a reconciler. The legal education granted at the law school should be aligned to the conventional and contemporary needs of the legal profession. The need for a continuing and well-organised legal education is absolutely essential reckoning the new trends in the world order, to meet every growing challenge. The legal education should be well equipped to cater to the complexities of the different situations and new trends.

2. Law Colleges

Since 1985 concept of Five Year Law Degree has developed and it provides unique opportunity to join after higher secondary (12th Standard). It attracts such students, who want to excel in law profession and have no mind to divert towards other profession. Such schools are bringing out students with indepth study and practical knowledge. Semester system has been adopted. Weekly tests are taken and marks allotted. Education for more than 7 hours is imparted. Student has to learn and read for 12 hours and for six days a week. Inter Semester Moot Courts are conducted. Students are required to appear and argue as well as attend conferences, seminars, workshops, lectures and addresses from legal illuminaries, scholars, academicians, senior Advocates, Jurists and experts. Administration is strict as to attendance. However, large number of Five Year students prefer to be in Corporates and do not opt for litigation field for want of infrastructure, congenial atmosphere, delays, long years waiting to earn as high packages.

Large number which join in the litigation field is the students passing three year degree course. It is noticed and is a notorious fact that students of these colleges are not very much serious towards reading the text, attending the class rooms, attentively hearing the faculties, doing home work, attending Moot Court Competitions, mock trials, visiting courts, watching Advocates arguing in order to learn Court craft conventions and traditions etc. Immediately after qualifying get enrolled and without restriction and toiling with grounding in subordinate Courts, appear and argue before the High Court. It disrupts the congenial functioning and some times becomes an obstruction in dispensation of justice. Some of them bring bad name to the noble profession and the grace, glamour and respect for others is affected. It is for the Bar Council to take appropriate remedial measures. I most humbly and respectfully appeal the Senior Advocates, Bar Councillors and other advocates to associate with government law colleges and guide them to impart value based education.

3. The three wings of the Constitution

To legislate is the duty of the Parliament and State Legislatures. To govern is the duty of the Executive. It is for the judiciary to keep a watch, vigil and see that the freedom enshrined in the Constitution reach to every citizen and is not jeopardised or tinkered with or obstructed by the executive or any person in authority or otherwise. Function of the judiciary is to vouch safe that any law enacted by the Parliament or State legislature is intra-vires the Constitution and not ultra-vires, making the mockery of law and denying the freedom of life and liberty, with equality and dignity. The third wing has been created in order to secure justice and in order to let reach every citizen the freedom, the peace, the prosperity spiritual and economic, so as to achieve the objectives contained in the preamble of the Constitution. All citizens of this largest democracy of the world are entitled to access to justice and seek justice expeditiously and cheapest.

4. P. I. L.

Public interest litigation matters have been in abundance for public good and to preserve the culture, tradition, peace and to promote prosperity. Even complaint contained in a post card or a news in newspaper is considered as a writ and attracts immediate attention of the Hon’ble Judges. A person acting bona fide and having sufficient interest in the proceeding of Public Interest Litigation alone has a locus standi and can approach the Hon’ble Court to wipe out violation of fundamental rights and genuine infraction of statutory provisions, but not for personal gain or private profit or political motive or any oblique consideration. It is heartening to find legal profession is taking up causes of public interest with sense of duty, devotion and without fee. The Bar Council should inspire, encourage and motivate its members to serve for common good.

5. Distributive Justice

The concept ‘distributive justice’ connotes the removal of economic inequalities and rectifying the injustice resulting from dealings or transactions between unequals in society. It comprehends more than lessening of inequalities by differential taxation, giving debt relief or regulation of contractual relations; it also means the restoration of properties to those who have been deprived of them by unconscionable bargains; it may also take the form of forced redistribution of wealth as a means of achieving a fair division of material resources among the members of society. The ideal of economic justice is to make equality of status meaningful and life worth living at its best, removing inequality of opportunity and of status–social, economic and political. Social justice and equality are complementary. Rule of law is a potent instrument of social justice and we should extend a helping hand to be needy and distressed.

6. Jungle of laws

Innumerable laws are enacted and amended without understanding its ill-effects with drafting errors. We should see that unnecessary laws and delays are avoided. “Justice delayed is – Justice denied”. “Judgment hurried is –Justice buried”. Non-enforcement or delayed enforcement would be disastrous to democracy. With globalisation, liberalisation, increase of crime, jungle of laws, and money power, people have prospered and are flourishing. Innumerable laws are enacted and amendments are made in haste, without discussions and deliberations, at the whims of the Parliamentarians. Old, obsolete laws still remain though identified as useless. People are flooded with laws and every minute one is violating one or the other unknowingly.

New laws are enacted; existing laws are amended; plethora of decisions of Supreme Court and High Courts of binding nature and of tribunals are pouring in, every day. It is difficult to keep a track in spite of net and other facilities. It is highly desirable for the State Bar Councils to organise conferences, seminars, workshops earmarking “CPE” hours and making mandatory to attend for specified hours and make it a condition for renewal of ‘Sanad’. I hope it would be discussed, deliberated and appropriate decision taken.

7. Fundamental Duties – Fundamental rights

Rights and Fundamental duties incorporated in our Constitution, are two sides of the same coin and must co-exist, else would go out of democratic set up. The citizen, it is expected, should be his own monitor while exercising and enforcing his fundamental rights, remembering that he owes the duties specified in Article 51A to the State and that if he does not care for the duties he should not deserve the rights. It is a fallacy to think that under our Constitution there are only rights and no duties.
Mahatma Gandhi said : “The true source of rights is duty. If we all discharge our duties, rights will not be far to seek, if leaving duties unperformed we run after rights, they will escape us like will o’ the wisp, the more we pursue them, the farther they will fly”.

The mandate of our Constitution is to build a welfare society and that object may be achieved to the extent the directive principles are implemented by legislation. The Courts may also look at the duties while interpreting equivocal statutes which admit of two construction, and also uphold the constitutionality of a statute the object of which is in consonance with a provision in Article 51A. It is his personal obligation and price for enjoying the rights. One who does not care for duties, is not entitled for the rights provided in the Constitution. Article 51-A can ordinarily be called as the duty of the citizens, but in fact it is the right of the citizens as it creates the right in favour of the citizen to move to the court to see that the State performs its duties faithfully and the obligatory and primary duties are performed in accordance with the law of the land. It is for we the lawyers, to spread awareness amongst citizens to perform their duties and prove as good citizens.

8. New avenues

With globalisation, liberalisation, rationalisation, influx of multinationals, growth of industrial houses, boom in realty market, crime and corruption cases, patent rights, cyber crimes, amalgamation and mergers, arbitration, intellectual property rights, proliferation of black money uninterruptedly and flowing of outside India, involvement of substantial stakes and tendency to break the laws, unprecedented expansion is apparent in litigation field at all levels. Number of laws in civil, criminal, revenue, corporate, taxation, economic, constitutional, banking, insurance and service sector have been enacted, amended, altered, modified and strengthened. It is desirable that all services are made available to a litigant under one roof, hence, it is advisable to form law firm under the Partnership Act, 1932 or Limited Liability Partnership Act, 2008 where there is no restriction as to the number of partners, with benefit of limited liability. It is easy to form and easy to dissolve/wind up without much problems. Larger the number, the better pooling of funds and human resources. It is an era of Big-Big-Big. One should avail of facilities of mass communication and information technology including inter-net, C.D. Rom and other facilities for information and communications and updating of knowledge. However
‘Man has made machines, Machines cannot make Man’. Keep your human computer above all.

Section 47 of the Advocates Act provides for reciprocity of foreign lawyers. If an Indian lawyer is forbidden to practice in U.S.A. and he is discriminated in U.S.A. – U.S. Lawyer cannot practice in India and in Indian Courts. Much debate is going on in India, as to whether to permit the foreign lawyer firms to establish and practice in India ? Hon’ble Mr. Justice Chandra Sekhar Dharmadhikari, former Judge of Bombay High Court, a Gandhian, has warned against invasion and influx of foreign lawyers in India. He has suggested to think “globally” but to act “locally”. He criticised the attitudes of foreign lawyers and stated that one should distinguish between “Need” and “Greed” and fee should commensurate the labour and not the outcome. In my view the Bar Council of India should take requisite precautions and enter in MOUs on reciprocity basis as the Institute of Chartered Accountants have entered into.

9. New trends

Since litigants have a fundamental right to speedy justice. It is essential that cases must proceed when they appear on board and should not ordinarily got adjourned, unless there are cogent reasons to seek an adjournment. Of late, it is being noticed that some members of the profession have been adopting perceptibly casual approach to the practice of the profession, as is evident from their absence when the matters are called out, the filing of incomplete and inaccurate pleadings – many a times even illegible and without personal check and verification; the non-payment of Court fees and process fees; the failure to remove office objections and to take speedy steps to serve the parties. It is disservice to the litigants and create embarrassing situation in the Court leading to avoidable unpleasantness and delay in the disposal of matters. This augurs ill for the health of our judicial system.

Both the Bench and the Bar are the two inextricable wings of the judicial forum and, therefore, the mutual respect is the sine qua non for the efficient functioning of the solemn work carried on in Courts of law. But that does not mean that any advocate or a group of them can boycott the Courts or any particular Court and ask the Court to desist from discharging judicial functions without any substantial collective grievance. Mahatma Gandhi stated: “Civil disobedience becomes a sacred duty when State becomes lawless and corrupt”. But after independence only solution is to have a direct dialogue with open mind and patience with the Bar on equal footing, after shedding ego, both by the Bar and the Bench.
Both should be receptive to hear, understand and appreciate each other’s view point. Bar and the Bench being two sides of the same coin must have mutual respect brotherhood, fraternity to co-exist. Should live like a joint Hindu Family for larger benefit of all with no malice or bias or mistrust for anyone.

To solicit client, to engage touts and to advertise for attracting clients are prohibited. However, it is noticed that wide publicity is given of the achievements and offices held in order to gain popularity. It is noticed that on letter-pad or/and visiting card holding of post is got printed and used for circulating to prospective clients and even in arguments, the presiding officer is made conscious of it. It makes an impression on the mind of litigants and inheres suspicion. It should be prohibited.

Before emergency, a Senior Advocate used to charge a fee of Rs. 1,680/- per day, to avoid direct dialogue with a litigant and to deal only with the Advocate-on-record/other advocate; who used to collect the fee and transmit to the Senior Advocate against receipt. Cash collection used to be avoided. However, lately it is a talk of the town, that many Senior Advocates charge above 1–10 lakhs per day;
Rs. 5 lakhs and above for admission, which normally takes 5 to 10 minutes and on miscellaneous day appearances are more than 5 to 7 in different courts. The Income-tax Department carries a suspicion that many understate their income and few have been caught and levied penalty. Unprecedented rise in the fee scale, casual approach and making one available only for minimal percentage of the multinationals and affluent litigants, is bringing bad name to the noble profession. It is high time for the Bar Council of India, the Supreme Court Bar Association and State Bar Associations to regulate fee structure and administer strictly.

10. Code of Compulsory Costs

Over years it is apparent that a fairly large number of litigants tell a lie, do not believe in truth, mutilate facts and drag litigation from Court to Court, to higher Court and the highest. Appellant/Respondents move frivolous infructuous applications/petitions to prolong the proceedings, to harass the other side and litigation goes on from generation to generation. The Courts, High Courts and Supreme Court are flooded with such malacious litigations, whereby dispensation of justice is not only delayed but is denied. To quote an eminent jurist Nani A. Palkhivala : ‘This is why we are called counsel and not merely advocates. In fact, it is the duty of all professional men not only to tell the client what the law is, but to advise him correctly as to what he has to do in a given set of circumstances’. But it is not followed.

Recent case is of Sahara Group where the Hon’ble Supreme Court made an order on 4-3-2014 after sufficient opportunities, for detention of all the contemners except a woman director. The 4 directors remained in judicial custody for long. No review or curative petition was filed and the order dated 4-3-2014 remain unchallenged/attained finality. Strange enough a criminal writ petition without mention of any section or Article(s) of the Constitution was filed to declare the said order as void, nullity and non-est in the eyes of law and directions for release from the illegal custody. The petition was signed and approved by 5 (five) eminent Senior Advocates of national repute. The original appeals and the applications were listed for hearing on 81 dates from 28-11-2011 to 21-4-2014. A lot of these hearings consumed the Court’s full working day. Hearing of the main case, consumed one full part, of the entire summer vacation (of the Supreme Court) of the year 2012. For the various orders passed by the Hon’ble judges, including the order dated 31-8-2012 (running into 269 printed pages) and the second order (running into 205 printed pages), substantial Judge hours were consumed. In my rough estimate, an expenditure of more than 250 crores was incurred by Sahara Group, out of hard earned money of depositors/shareholders – a national waste.

Hon’ble Mr. Justice Jagdish Singh Khehar observed : “The Indian judicial system is grossly afflicted, with frivolous litigation. Ways and means need to be evolved, to deter litigants from their compulsive obsession, towards senseless and ill-considered claims. This abuse of the judicial process is not limited to any particular class of litigants. The State and its agencies litigate endlessly up to the highest Court, just because of the lack of responsibility, to take decisions. So much so, that we have started to entertain the impression, that all administrative and executive decision making, are being left to Courts, just for that reason. In private litigation as well, the concerned litigant would continue to approach the higher Court, despite the fact that he had lost in every Court hitherto before. The effort is not to discourage a litigant, in whose perception, his cause is fair and legitimate. The effort is only to introduce consequences, if the litigant’s perception was incorrect, and if his cause is found to be, not fair and legitimate, he must pay for the same. In the present setting of the adjudicatory process, a litigant, no matter how irresponsible he is, suffers no consequences. Every litigant, therefore likes to take a chance, even when counsel’s advise is otherwise”.

Presently also provisions exist for awarding cost/exemplary costs to the winner but the Courts only in extraordinary cases award paltry amount by way of costs, which is insufficient and not deterrent. Apart from frivolous litigants, false evidence is tendered, on oath, without any fear of ‘God’. Perversity has increased. False declarations are made. On detection no serious action is taken and wrong doer is let go, encouraging others to follow the wrong path. Provisions exist to convict the accused but the courts shirk their responsibility. Number of orders, directions, instructions remain uncomplied with, unless and until contempt proceedings commence. Contemnor is let to go on one or the other reason or retires on superannuation. Majesty of Law is not upheld. It would be in the interest of all concerned to make a code of compulsory costs.

11. Our needs: We need

(i) to put utmost emphasis on the creation of a transparent and non-discriminatory judicial functioning to eliminate scope for corruption and delay in dispensation of justice; (ii) To learn lessons of duty, discipline, trust, mutual respect, time management, efficiency and punctuality; (ii) not to indulge in malpractices and to maintain ‘ETHICS’; (iii) To strengthen investigation and speedy fair trial of cases with exemplary deterrent punishment, without fear or favour and with speed; (iv) Increase of brotherhood, fraternity, co-operation, unity and nationality; (v) Fear, none-except one – the God almighty/own conscience; (vi) To serve with education, excellence and ethics, treating it a service to God and not as a commerce or business.

We must translate Gandhian ideals into real life. Let us have an “Inner Revolution” and transform ourselves, feeling ‘Social Professional Responsibility’. Let each one of us, evolve ways and means whereby to change the work culture and mindset for public good and in public interest. What is required is :
Unity of thoughts, unity of understanding and unity of action to achieve the goal as envisaged in the Constitution. Future is bright. Maintain its dignity, honour and reputation. Serve the Humanity. JOIN IN SACRED CAUSE. BE CLEAN HUMAN BEING – “INSAAN”.

Pledge

Life is a success. Not by prosperity, not by pleasure of the flesh, but by a clean soul, when death itself would be deliverance. Soul is immortal. Keep it pure. Let us pledge to act in furtherance of securing our citizens justice with liberty, fraternity, brotherhood equality, corruption free and to eliminate extortion and exploitation. We should have self introspection and correct oneself. We should do our duty and Build the Nation. Then alone we can claim to be a true Indian. Bring back the past and lost glory.

N. M. Ranka
Sr. Advocate

My beloved Members,

TRUTH OF SATYAM – LAW IS AN ASS

Badly drafted laws can have unintended consequences, which make them counterproductive despite noble intention. In this context, PM Narendra Modi should pay greater attention to the cry of senior civil servants that has repeatedly asked for changes in a law governing corruption of public servants. This law drafted at a time when India was more of a command and control economy, has been in need of change.

The most draconian provision of the Prevention of Corruption Act is, a Clause that if a bureaucrat’s decision benefits someone or adversely impacts others, the onus is on the bureaucrat to prove that he acted in the public interest even if there is no evidence that he derived any pecuniary advantage from the decision. This hinders decision making, as most decisions will benefit someone and hurt some others to. To avoid this situation, most bureaucrats will put off decision making, even if this means governance comes to a complete halt. The unintended consequence of sloppy legislative work has been a long history of missed economic opportunities and mounting litigation. Among the questionable laws are labour laws which are aimed at providing a fair working environment for labour but ended up transferring business decisions to the bureaucracy. As a consequence companies switch to machines or abroad in a country with abundant labour, and, young people entering the job market lose out.

To compound matters, judicial verdicts take a long-long time in our country. It has taken more than six years for a special court to find B. Ramalinga Raju, founder of erstwhile Satyam Computers, guilty of accounting fraud after he confessed to the crime. So the truth of Satyam was off the lid. Notwithstanding Raju’s conviction, the levels of vigilance are still not adequate to prevent more such frauds – as the 2013 NSEL scam proves. Thus, the NDA Government must find a way to cut this ice. It can start by amending the Prevention of Corruption Act, so that public servants are presumed innocent until proven guilty. Anyway, “Satyameva Jayate” has exposed the nexus between the promoters of the company, statutory auditors involving a big five global accountancy firm and the toothless company law. The good part is that the new Company Law has taken a cognisance of the Satyam’s scam and taken measures to prevent such scams in future.

COLLEGIUM SYSTEM FOR APPOINTING JUDGES HISTORY NOW

The Modi Government on 13th April, 2015 notified the National Judicial Appointments Commission (NJAC) Act with immediate effect, replacing the collegium system for appointing judges to the superior courts with a more broad based process in which the executive will have a say. This move comes ahead of a crucial SC hearing scheduled on 15th April, 2015 on the legality of new system and whether it would erode judicial independence. The notification came after a three-judge SC Bench referred the matter of legality of the new system to a Larger Bench on 7th April, 2015, without restraining the Government from going ahead and formalising the rule. The twin laws, NJAC Act and a Constitution Amendment facilitating it, had both been assented to by the President on December 31. The latest news in this behalf is, Justice A.R. Dave, who was heading the five judge Constitution Bench, withdrew from the case after the SC Advocates on Record Association and other petitioners said that since he had become a member of the NJAC.

‘MAKE IN INDIA’ INITIATIVE

Hon’ble Prime Minister Mr. Narendra Modi is working day and night towards his dream project ‘Make in India’, despite variety of problems including natural calamities affecting our farmers, which will usher prosperity to the people of India. To alleviate the sufferings of the farmers following policy objectives have been set:

• Norms for input subsidies to farmers liberalised.

• Now even at 30% crop loss, farmers to be provided assistance (earlier the criterion was 50% loss or more).

• As per new norms, Govt. to help those farmers whose crops were affected in February and March this year.

• Assistance for agricultural crops, horticulture crops, annual plantation crops, perennial crops and sericulture increased by 50%.

• Monetary assistance to change every year on the basis of inflation rates.

• Banks to re-structure crop loans.

• Speedy settlement of farmers’ claim by insurance companies.

2. At the time of writing this message, Hon’ble PM was in France and Germany, attending Indo-German Summit in Hannover and marketing them ably ‘Make In India’
story. In his address to the “Hannover Messe”, he invited their attention to the fact that investor sentiments has increased and foreign investment inflows have gone up 36% during April 2014 and January 2015, compared with a year earlier. Our growth rate is 7% – plus. Most of the International Financial Institutions including the World Bank, IMF, UNCTAD, OECD and others are predicting even faster growth in the coming years. He also highlighted ratings firm Moodys’ decision to upgrade the rating outlook of India as
‘Positive’. IMF also confirmed that gradually GDP rate will increase to 8% till 2017. Also, 12% increase in investment will take place domestically and, therefore, GDP rate will go up to 8% surely.

3. Mr. Suresh Prabhu, Hon’ble Union Railway Minister, hand-in-hand with Hon’ble PM too is working hard to take forward the mission ‘Make in India’ by reviving railways. According to him, every budget announcement has been made into actionable points and the Ministry has already reviewed the points 3 times. He further said,
“each and every idea in the Budget Speech is under implementation and through the system of Railway Board only. In the last ten days, I have had meetings with five zones which account for 70% of the freight traffic. In the last ten days, I visited 10 States and met Genaral Managers, Divisional Managers, etc. They are extremely excited to work on these ideas. I do not see any issue for the implementation of my vision and, in fact, Railway Board Chairman is monitoring the working of the change that I desired.”

4. Hon’ble Nirmala Sitharaman, Minister of State for Commerce and Industry (independent charge) is also striving hard to deliver exceedingly good results and
taking forward ‘Make in India’ initiative. According to her an average share of 29.8% in GDP in 1950s increased to 57% in 2013, it has led India on the progression path from an agrarian economy to a service based one by passing the industrial phase. India is a huge reservoir of intellectual resources with a demographic dividend quotient. Given these factors, the services sector has the potential to cater to demand emanating from developed economies besides satisfying the domestic demand. Further, the employment and manufacturing linkages of services sector make it an important driver of inclusive growth. We have an opportunity to acquire soft skills to meet global standards. Subsequently, our skilled workforce should pick-up foreign languages to supply services abroad. To spur India’s services export, the Govt. will be unveiling the new foreign trade policy for 2015-2020. India, being the
‘Office to the World’, is competent enough to serve as the ‘Factory to the World’.

5. So, the things are moving very fast towards ‘Make in India’ story and we should have sufficient patience towards achieving our objective as set out by our Hon’ble PM Narendra Modi.

With best wishes and regards,

J.D. Nankani
National President

“2016 – Platinum Jubilee of the Income Tax Appellate Tribunal & Golden Jubilee of the Income Tax Appellate Tribunal Bar Association, Mumbai”

The Income Tax Appellate Tribunal which is considered as mother Tribunal of all the Tribunals was established on 25th January, 1941. It will be celebrating its landmark 75th year on 26th January, 2016. It is seriously felt in all quarters that an honest attempt should be made by the Bar and the Bench and the authorities concerned with it, to retain its glory as one of the finest Institutions of Our Country

While addressing the Chief Justices and Chief Ministers Conference, the Hon’ble Prime Minister of India has expressed great anguish at the interminable delay in disposal of appeals by Tribunals. With great respect it is submitted that ITAT is an exception to the rule and cannot be subjected to the same criticism as the other Tribunals may be lacking in certain respects, surely. In fact ITAT has largely lived up to the promise of ”Sulabh Nyay! Satwar Nyay!” (Easy Justice! Speedy Justice!). ITAT pendency of appeals is about 1,04,281 cases as on 1-4-2015 (Refer page No. 49 of this Journal). It is mainly because the Govt. has not appointed the members within a reasonable time. The sanctioned strength of the members of the ITAT is 126 whereas only 67 members are available discharging the statutory duties. If the vacancy is filled up within reasonable time the pendency can be reduced to at least 50,000 within a reasonable time of two years. Ideally, the taxpayers should get the finality to the assessment at least within two years of the assessment order. Due to certain unfortunate incidents few years back, the confidence of the taxpayers has shaken. Hence it is the Bar and the Bench which may have to play a positive and effective role to bring back the status of the mother Tribunal as one of the finest institutions of our country. It is the ITAT Bar Association Mumbai with the help of other associations and support of the then President of the ITAT, Hon’ble Mr. T.V. Raja Gopala Rao, the independence of the Institution was saved by filing of a PIL. Then Law Secretary was held liable for contempt for interfering with justice delivery system. According to me that was the golden period of the ITAT. The Tribunal will be celebrating 75 years in the year 2016 and the ITAT Bar Association Mumbai will be celebrating its 50 years. On this 75th milestone occasion, introspection will be required. We have many professionals who are practicing before this institution for more than 50 years by analysing the issues where we failed, how we failed, what remedial measures can be taken, etc. We have to make the celebration as a memorable one so that the taxpayers will gain the confidence that there is one institution, which renders the justice without any favour or fear within a reasonable time. Therefore, some of the suggestions are submitted for debate as below:

1. Reducing the pendency

i. When Finance Bill, 2015 becomes an Act, the SMC bench can dispose the matters where the assessed income is
Rs. 15 lakhs or less. Out of total pendency at least 20% of the cases where the assessed income will be less than
Rs. 15 lakhs, this will help to quick disposal of matters.

ii. Revenue’s appeal less than Rs. 4 lakhs may be taken out of turn for hearing.

iii. Covered matters by Supreme Court, jurisdictional High Court or in assessees own case, if an application is made can be taken out of turn for hearing.

Members of the ITAT on their own or with the help of the Bar and revenue, the matters can be sorted out and can be kept for direction. If it is fully covered, the matters can be disposed of straightaway. In case it requires detailed hearing a specific hearing may be given.

2. Quality of orders

The Tribunal being the final fact finding authority, it has greater responsibility to render highly qualitative order. One will have to appreciate that hearing the appeals before Tribunal, the Hon’ble members are not merely adjudicating on the issues before them but they are invariably deciding on the fortunes of the assessees. On facts the Order of the Tribunal is final. One wrong decision against an assessee may ruin his life and relegate him to the position of a pauper. At the same time, if against the Government, it may affect the coffers of the Government to an extent of a drop in an ocean. Thus, imagine the Tribunal’s responsibility towards the taxpayers and with the Government.

3. Use of technology

By use of technology the entire filing process of the ITAT may be digitalised. One may be able to find out which are the issues pending before various benches of the Tribunal. If common issues are involved in different benches, the matters can be tagged together and kept for hearing. This will help to reduce the pendency in large number of cases.

4. Role of the Bar

If the representation is good, of course, the quality of the orders will greatly improve in the mutual interest of both. Good Bar makes a Good Bench. It has been observed that many of the professionals send the clerks and staff members to take an adjournment before the Tribunal. Indeed, it is a sorry state of affairs not befitting to the profession ! Here, it may be noted that only the persons authorised under section 288 who can appear. Lot of time of the Tribunal is lost due to not complying with the procedural norms. Hence, it is necessary that the check list may be followed which is published in the www.itatonline.org.

5. Knowledge of General law and Refresher Course to Honourable members

Income-tax Act, 1961 refers to 98 other Central Acts and various State Laws. Therefore, to decide important issues before the Tribunal, it is very essential to know for the Tribunal what the General law is. The tax practitioners must make sincere attempts to be up-to-date on general law so that the representation can be made effectively as per general law. Similarly, there has to be annual refresher course for Honourable members wherein the senior members and Judges who decide the tax matters may guide the Honourable new members about the general law and International taxation issues. This practice will go a long way to render and deliver qualitatively superb judgments.

6. Institutionalisation of the process of elevation of Members to the High Courts

Till now very few members of the ITAT have been elevated to the High Courts. There are good number of Members who deserve to be elevated to the High Court, however, there is no mechanism to find out the potential members. As the National Judicial Appointments Commission Act is notified, there has to be an institutional mechanism to elevate the deserving members to the High Court. If such a system is not developed, then, the young and talented professionals may not join the Bench at all. Thus, it will be a great loss to the institution. Now the President himself being a retired judge of High Court, he can interact with the NJAC for elevation to High Court or he may propose the deserved members for the consideration as elevation to High Court.

7. Increase in the age limit of the retirement of members from 62 to 65

The President of the ITAT retires at the age of 65 whereas the members at the age of 62. The then Law Minister, Mr. H. R. Bhardwaj, while addressing the members Conference at Mumbai on 4th November, 2006 stated that the Government will increase the age limit of all the members from the present 62 to 65. In a PIL filed by the Sales Tax Bar Association to increase the age limit of members of the Sales tax Tribunal, the Bombay High Court directed the Government for such increase in the age limit of all the members. This guideline of the Bombay High Court can equally be followed for the age limit of ITAT members.

8. Infrastructure and allocation of funds

Tribunal is functioning under the Ministry of Law and it is always short of sanctioned funds. The ITAT has Benches in 26 centres. It is desired that unless the proper infrastructure is provided to all the Benches, the institution may not be able to render the justice at the speed at which it is required to be delivered.

9. Code of conduct for the professionals who practice before the ITAT

The code of conduct adopted by the Judges has been recommended by the Federation has been adopted by the members of the ITAT. Refer itatonline.org. Similarly the AIFTP and ITAT Bar Association adopted the code of ethics to its members. It is desired that all of us must follow the code of ethics. If any of our members are not following the same may be brought to the notice of the respective Association to which he/she belongs.

10. In-house mechanism

There has to be in-house mechanism to evaluate the quality of order and the overall functioning of the Tribunal. Federation and ITAT Bar Association at Mumbai has a high powered ethics committee headed by eminent professionals. Any members of the Bar, members of the ITAT or departmental representative can bring to their notice any unethical practice by the tax professionals who are representing before the Tribunal. However, neither the assessees nor the professionals have come forward to take advantage of this Forum. We are deeply concerned with unpolluted justice system in the Income Tax Appellate Tribunal all over India. We are also having ITAT Bar Association’s Co-ordination Committees. We, therefore desire that the members should sent objective suggestions for better law and better justice delivery system before the ITAT.

11. Honouring professionals who are practising before the Tribunal for more than 50 years

When Tribunal celebrate 75 years of its existence, it is worth considering whether the ITAT should honour professionals who are men of integrity and contributed for development of the ITAT and who are practising more than 50 years before the ITAT. In doing so, we will be paying the debt of the noble profession which we are practising.

Above are the few thoughts, there could be many more other valuable suggestions about which the readers may write to us, the ITAT Bar Association’s Co–ordination Committee will certainly take up the issues / suggestions with the concerned authority for its consideration.

Dr. K. Shivaram
Editor-in-Chief