1. Introduction

The Central Government brought out a comprehensive legislation named “The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015” (Black Money Law-BML) as part of its abiding commitment of tracking down and bringing back the black money stashed out of India. BML contains 88 sections and has become operative from 1st July, 2015
vide Notification no. 56/2015. The Government has notified (Notification No. G.S.R. 529 (E) dated 2nd July, 2015) the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015 (the Black Money Taxation Rules) containing the timelines and procedures of the disclosure in relation to the undisclosed foreign assets.

A one-time compliance scheme which is part of the Act was explained vide Circular No. 12 of 2015 dated 2nd July, 2015, to facilitate voluntary declaration of undisclosed foreign assets on or before 30th September, 2015 and providing time for payment of tax up to 31st December, 2015. In this regard, two circular Nos. 13 of 2015 dated 6th July, 2015 and No. 15 of 2015 dated 3rd September, 2015 have been released in question and answer format to clarify various issues relating to this one-time compliance scheme.

1.1 It is extremely important to understand the nuances of this legislation to analyse whether the avowed objective would be achieved without any unintended consequences. G-20 summit of 2008 and the subsequent meetings identified the tax leakages in large proportions and all economies in Europe, US and other countries gave a clarion call to conduct multilateral attack on unearthing black money and taxing the same with requisite penal consequences. In this backdrop exchange of information became very critical and India spearheaded with Tax Information Exchange Agreements (TIEA) with various countries with whom already Double Taxation Avoidance Agreements (DTAA) exist. The existing articles dealing with Exchange of Information (EOI) in DTAAs have been replaced with more elaborate and effective procedure of EOI. In this direction Government of India brought in Prevention of Money Laundering Act, 2002 (PMLA). India signed the Multilateral Competent Authority Agreement (MCAA) to facilitate automatic exchange of information. This pact is signed by as many as 60 countries as of now and the number is likely to increase in the years to come. In order to step up and accelerate this mission, Government has come up with Black Money Law. In this article, I propose to deal with this topic of Black Money Law in the following modules:

a. Scope of the Legislation

b. Assessee, Undisclosed Asset located outside India and Basis of charge

c. Tax Management including Appeals

d. Penalties and prosecution

e. One-time Compliance scheme

f. Amendment in Prevention of Money Laundering Act, 2002 (PMLA) & Amendment in Foreign Exchange Management Act, 1999 (FEMA)

g. Issues

2. Scope of the legislation

BML applies to all persons who are resident and ordinarily resident as per sec. 6(6) of the Income-tax Act, 1961. Hence, it does not apply to non-residents and not ordinarily residents. As per section 1, this Act maybe called The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. It extends to whole of India and shall come into force on the 1st of April, 2016. However, the Central Government through a notification preponed the effective date to 1st of July, 2015.

3. Assessee, Undisclosed Asset located outside India and Basis of charge

• “Undisclosed asset located outside India” means an asset (including 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

and

– he has no explanation of the source of investment in such asset

or

– the explanation given by him, is in the opinion of the Assessing Officer unsatisfactory.

• “Undisclosed foreign income and asset” means a total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India, as referred to in section 4 of this Act.

• “Assessee” means a person being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, by whom tax in respect of undisclosed foreign income and assets, or any other sum of money, is payable under this Act and includes every person who is deemed to be an assessee in default under this Act.

• 2(15) of this Act says “all other words and expressions used herein but not defined and defined in Income-tax Act shall have the meanings respectively assigned to them in that Act”.

Hence, any word not defined in this Act, shall have the meaning assigned to such word in Income-tax Act, 1961 (ITA).

• The term “person” is not defined in this Act and accordingly the definition of term “person” under the ITA is to be adopted and so it will include individual, HUF, company, firm, AOP, BOI, Local Authority and every Artificial Judicial Person.

3.1 Section 3 is the charging section which provides that every assessee for every assessment year commencing on or after 1st of April, 2016 (AY 2016-17 onwards) shall be charged a tax at the rate of 30 per cent against total undisclosed foreign income and asset of that previous year. An undisclosed foreign asset located outside India shall be charged to tax in the previous year in which such asset comes to the notice of the Assessing Officer.

It is to be noted that an undisclosed foreign asset is brought to taxation in the year in which it is noticed by the Assessing Officer. Whereas, undisclosed foreign income can be brought to tax only when it is converted into an asset and not otherwise. In other words, if undisclosed foreign income is spent by the assessee which pertains to an earlier year prior to this Act coming into force, the same cannot be brought to tax as per Section 3. Only when such undisclosed foreign income of the earlier years which is available in the form of an asset such as deposits or bank balance, the same would be treated as undisclosed foreign asset and taxed in the year in which it is noticed by the AO.

3.2 Section 4 of this Act defines the scope of total undisclosed foreign income and asset to be aggregate of

a) the income from source located outside India which has not been disclosed in the return of income within the time specified in Explanation to sub-section (1), or under sub-section (4) or sub-section (5) of Section 139 of the ITA or no return has been filed in respect of such source.

b) the value of an undisclosed asset located outside India

It is to be examined whether a tax authority under this Act can consider a source of foreign income as undisclosed only after the expiry of time limits for filing return of income as per Section 139(1) or belated return under Section 139(4) or revised return under Section 139(5).

Section 4 which defines the scope provides that an income from source located outside India will become undisclosed only after the time limits of returns as mentioned above have been exhausted. Can it be understood that till such time limits of returns have not been exhausted such source of income cannot be classified as undisclosed for the purpose of this Act?

It is provided that any variations made to income from a source outside India in the assessment or re-assessment of an assessee in accordance with provisions of the head Profits and Gains of Business or Profession or Income from Other Sources or a transfer pricing adjustment under Section 92C shall not be included in the total undisclosed foreign income under this Act.

3.3 As per Section 5 of this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee, whether or not the same is allowed under the provisions of the ITA. The value of undisclosed asset located outside India shall be reduced by income which has been assessed in the period prior to the assessment year to which this Act applies or such income which is already assessed under this Act (BML). While reducing the value of undisclosed foreign asset, the amount of deduction shall be inflated in the same proportion as the assessable/assessed income bears to the total cost of the asset.

The value of undisclosed foreign asset shall be taken at “Fair Market Value” determined as per Valuation Rules in the previous year in which such asset comes to the notice of the officer or the cost whichever is higher.

4. Tax Management

There is no requirement to file a separate return under BML. The Assessing Officer shall serve a notice on the assessee on obtaining any information regarding undisclosed foreign income or asset from an Income tax authority under ITA or any authority under any law or on coming of any information to his notice, requiring the assessee to produce accounts documents or other evidence as per Section 10 of this Act. As per Section 11, a time limit for completion of assessment or re-assessment is set as two years from the end of financial year in which the notice under sub-section (1) of Section 10 was issued by the Assessing Officer.

It is obvious that there will be two assessment orders in respect of single previous year, one under Section 143(3) of ITA and another under Section 10(3) of BML.

All the appellate mechanisms like CIT (Appeals), ITAT, High Court and Supreme Court is put in place similar to what we have under the ITA. Rectification of mistakes, revision of orders and recovery mechanism is also put in place in the same manner what is available under the ITA.

5. Penalties and prosecution

Chapter IV (Sections 41 to 47) deals with penalties and Chapter V (Sections 48 to 58) deals with offences and prosecutions. Penalties and prosecution prescribed under this Act are summarised as under:

Nature

Penalty

Prosecution (if any)

Attempt to evade tax, interest and penalty

300% of the Tax Payable

3 years – 10 years

Failure to disclose foreign asset or income in the return of income **

Rs. 10 Lakh

6 months – 7 years

Attempt to evade payment of tax, interest and penalty

Amount of Tax arrear

3 months – 3 years

Subsequent offences under this Act — where a person commits the second (or subsequent) offence

3 years – 10 years Plus Fine Rs. 5 lakh to
Rs. 1 crore

Person makes false statement or delivers false evidences

6 months – 7 years

Abetment to make and deliver false return, account, statement or declaration relating to tax payable

6 months – 7 years

If assessee fails to answer any question, sign a statement he is legally bound to or fails to produce books and supporting evidences

Rs. 50,000 to Rs. 2,00,000

**Failure to report bank accounts with a maximum balance of up to
Rs. 5 lakh at any time during the year will not entail penalty or prosecution.

5.1 In respect of prosecution proceedings Section 54 of this Act prescribes that a culpable mental state on the part of the accused shall exist. The onus is on the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution.

Explanation provides that “culpable mental state” includes intention, motive or knowledge of a fact or belief in, or reason to believe, a fact.

Section 54(2) of the Act provides that a fact is said to be proved only when the Court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.

6. One-time Compliance scheme – Chapter VI (Sections 59 to 72)

Circular No. 12 of 2015 dated 2nd July, 2015 was issued by CBDT to explain the substance of One-time Compliance scheme. A declaration under Chapter VI can be made in respect of undisclosed foreign assets of a person who is a resident other than not ordinarily resident as per Section 6(6) of the ITA. The salient features of the compliance scheme are as under:

• A declaration may be made by a person in respect of any undisclosed asset located outside India and acquired from income chargeable to tax under the ITA in respect of which he failed to furnish a return under Section 139 of the ITA or failed to disclose such income in the return filed or such income escaped assessment by reason of omission or failure on the part of such person to make a return or to disclose fully and truly all material facts necessary for the assessment.

• Person making a declaration shall pay tax at the rate of 30 per cent of the value of such undisclosed asset. In addition, he has to pay another 30 per cent to the value of asset towards penalty. This special rate of tax and penalty specified under the compliance provisions will override any rates specified under the ITA or annual Finance Acts.

• BML shall come into force on 1st April, 2016. However, in exercise of its power to remove difficulties under Section 86 of the Act, the Central Government by an order has clarified that that Act shall come into force on 1st July, 2015 and accordingly compliance provisions under Chapter VI also come into effect from 1st July, 2015.

• Central Government has notified 30th September, 2015 as the last date for making the declaration before the designated Principal Commissioner or Commissioner of Income-tax. It is also notified that 31st December, 2015 as the last date by which the tax and penalty amounting to 60 per cent of the value of the undisclosed asset shall be paid.

• Form 6 has been prescribed as form for declaration under Chapter VI of the Act.

• Designated Principal CIT/CIT will issue an intimation in the proforma annexed to the circular to the declarant by 31-10-2015, whether any information in respect of the declared asset has been received by the competent authority on or before 30th June, 2015 as per Exchange of Information Article of a DTAA.

• In case of any such information being received on or before 30th June, 2015 as mentioned above, the declarant shall file revised declaration in Form 6 excluding such asset against which the information was already received by the Revenue. However, it is clarified that the declarant shall not be liable to any consequences under the Act in respect of any asset which has been duly declared but has been found ineligible for declaration as Central Government had prior information on such asset. However, such information will be used under the provisions of the Income-tax Act.

• Revised declaration shall be filed within 15 days from the date of receipt of intimation from the designated Principal Commissioner/Commissioner

• However, in all cases declarant is required to pay the requisite tax and penalty on the assets eligible for declaration latest by 31st December, 2015.

• After the intimation of payment by the declarant, the designated Principal CIT/ CIT will issue an acknowledgement in Form 7 within 15 days of such intimation of payment by the declarant against the accepted declaration.

6.1 Declaration not eligible in certain cases

No declaration under Compliance window can be made in respect of any undisclosed foreign asset which has been acquired from income chargeable to tax under the ITA for assessment year 2015-16 or any earlier year in the following cases:

a) Where a notice under Sections 142/ 143(2)/148/153A or 153C in respect of such assessment years and proceedings are pending before the AO and such notice has been served upon the person on or before 30th June, 2015.

b) Where a search has been conducted under Section 132 or requisition has been made under Section 132A or a survey has been carried out under Section 133A of the ITA in a previous year and the time for issuance of notice under Section 143(2) or Section 153A or Section 153C for the relevant assessment year has not expired.

c) Where any information has been received by the competent authority under a DTAA on or before 30th June, 2015 in respect of such undisclosed foreign asset.

d) A person in respect of whom proceeding for prosecution of any offence punishable under Chapter IX (Offences relating to Public Servants) or Chapter XVII (Offences against property) of the Indian Penal Code or under Unlawful Activities (Prevention) Act or the Prevention of Corruption Act are pending, shall not be eligible to make declaration under Chapter VI.

6.2 Instances where declaration shall be invalid

In the following situations, a declaration shall be void and shall be deemed never to have been made:

a) If a declarant fails to pay the entire amount of tax and penalty within the specified date i.e. 31-12-2015.

b) Where the declaration has been made by misrepresentation or suppression of facts or information.

If the declaration is held to be void and is deemed to have been never made then, all penalties and prosecution provisions shall apply. Any tax or penalty paid against such invalid declaration shall not be refundable under any circumstances. This would be the most dangerous situation for a declarant of having lost money in the form of tax and penalty; he would be susceptible to all penalty and prosecution provisions.

6.3 Valid declaration — benefits to the declarant

In respect of a valid declaration, the following consequences will be there:

a) The amount of undisclosed asset in the asset declared shall not be included in the total income of the declarant in any of the income tax assessments.

b) The contents of the declaration shall not be admissible in evidence in any penalty or prosecution proceedings under the ITA, Wealth Tax Act, FEMA, Companies Act or Customs Act.

c) The value of the asset shall not be chargeable to wealth tax in any assessment years.

d) A declarant will not be entitled to affect the finality of the completed assessments on account of declaration of undisclosed foreign asset.

7. Amendment in Prevention of Money Laundering Act, 2002 (PMLA)

The PMLA has been amended to include tax evasion and non-payment of interest and penalties as determined under the BML as ‘scheduled offences’.

7.1 Amendment in Foreign Exchange Management Act, 1999 (FEMA)

The Finance Act, 2015 has amended FEMA by inserting section 37A to provide for seizure of Indian assets equivalent to value of foreign exchange, foreign securities or immovable properties situated outside India and held in contravention of section 4 of FEMA.

8. Issues

BML though brought in with a very laudable objective there are issues and concerns that are coming up from law abiding genuine tax payers. Some of these need urgent attention of the law makers and deserve redressal at the earliest opportunity. Some of the vital issues are as under:

a) Returning Indians

b) Valuation rules – whether it is wealth tax or income tax?

c) Compliance window – too short a period

d) Overlapping Claims- BML vs. ITA

The above issues are dealt with at length as under:

8.1 Returning Indians

It is commonly known that many IT professionals who worked in USA and opened 401K pension accounts have never reported them to Indian tax authorities after they became residents on returning back. Such individuals have to face the rigours of BML as such undisclosed foreign pension accounts are undisclosed assets under BML. Plans where contributions vest immediately and subscribers are certain to get their money will have to make disclosure of such balances under BML. Even future benefit plans would be covered under BML. In US there are also schemes known as Individual Retirement Accounts (IRA). Even these accounts come under the scanner of BML, if not declared by the account holders on turning residents in India. Question No. 3 in clarifications issued by CBDT on 3rd September vide Circular no. 15 clarifies that such pensions received abroad after a person becoming a resident are taxable in India and the same may be declared under Chapter VI of the Act (one-time compliance) if not declared in the returns filed in India earlier.
It was further clarified that the person is not entitled to any credit of taxes paid, if any, in the foreign country.

If such pension amounts which are taxable in India were spent out, what would be the course of action for such person? In other words, the income pertaining to the period prior to commencement of BML earned abroad and spent is not available in the form of any asset today. In such case there is no undisclosed asset available as on today for declaration. Clarification is required for such cases.

8.2 Valuation rules – is it wealth tax or income-tax?

In respect of an undisclosed foreign asset the valuation is prescribed to be higher of Fair Market Value (FMV) or cost of acquisition of the asset. In respect of FMV the declarant must obtain a report from a valuer recognized by the foreign Government. In most of the foreign countries there is no system of empanelling valuers by the respective Governments similar to the system what we have in India. In this scenario it would be a challenge for the declarant to get his undisclosed foreign assets valued by a recognized Government valuer, failing which his declaration would become invalid. This would lead to totally undesirable consequences of getting exposed to penalties and prosecution. A clarification is urgently required to sort out this impractical restriction.

In respect of a foreign bank account the valuation rules prescribe that the sum of all the deposits made in the account with the bank since the date of opening of the account after removing such deposits made out of withdrawals from the same account. In case any declaration is already made in respect of such bank account, the sum of all deposits made in the account since the date of such declaration. It is a challenge for the declarant to get the bank statements for all the years since opening of the bank account. Generally foreign banks do not keep data beyond ten years of the past period.

In respect of unquoted equity shares, the formula prescribed by the valuation rules is the net asset value on the basis of FMV of all the assets of the investee company. It is a practical difficulty in obtaining FMV of all the assets of the investee company.

In the category of any other asset whether an intangible asset is covered is to be clarified. If so, valuation report of an intangible asset is a subjective issue.

It is a debatable issue whether the levy of tax under BML is an income tax or wealth tax. Considering FMV of an asset and applying an income tax rate is a legally questionable issue. If such asset which is declared at its FMV and taxes were paid, is sold, such FMV would become the cost of acquisition and the period of holding shall start from the date of declaration of such asset under Chapter VI of the BML. (Question No. 5 of Circular 13)

8.3 Compliance window- too short a period

It is widely thought that the timelines given for the compliance window is too short, especially when a declarant has to cull out details of the past beyond ten years (as there is no time limit under BML) and ensure that his declaration is properly filed and treated as valid. The time limit of three months given from 1st July to 30th September is too short for a person to prepare the documents and come clean. Any hurried approach of compiling data could prove out to be disastrous in case the declaration is filed with incorrect details unknowingly, as the very declaration will become invalid.

In view of paramount significance that BML commands in the present scenario, it is highly appropriate to extend the deadline by at least another three months.

8.4 Overlapping claims — BML vs. ITA

In case a declaration is found to be void under Section 68 of the Act then the tax and penalty paid would not be refunded. As the declaration is held to be void in such a case the Assessing Officer may issue notice under the normal provisions of the Act. As of now the tax would be collected again under the normal provisions in respect of undisclosed assets and there is no mechanism under the BML to claim refund or set-off of taxes paid in respect of a wrong declaration. This is a severe hardship a declarant has to face which requires redressal from CBDT.

9. Conclusion

This piece of legislation is extremely important in view of severe penalties and prosecution for those assessees who want to come clean through the compliance window. This article is meant to initiate brainstorming on this important topic.

[Source: Article published in Souvenir of 18th National Convention held on 26th and 27th December, 2015 at Hyderabad]

The taxpaying public expects the officers and staff of the Income-tax Department to be courteous, fair and reasonable in performing their duties while administering the Income-tax Law.

2. The present Government appears to be seriously concerned with the image of the Department. It is keen to develop a non-adversarial tax regime, that is easy, effective and efficient, where the tax officers and the taxpayers discharge their respective functions and perform their duties in harmony with and mutual respect of each other. To develop a non-adversarial tax regime, the Central Board of Direct Taxes (CBDT) has recently been highly proactive. Nearly thirty instructions have been issued from time-to-time since July, 2014. Some of the old instructions have been revised, consolidated and issued vide office memorandum No. 279/Misc/52/2014-15 dated 7-11-2014. The following aspects of developing a tax friendly and non-adversarial tax regime have been specifically highlighted therein:

(i) Observing punctuality and cleanliness as the basic requirements of an efficient and taxpayer centric organisation.

(ii) Honouring appointments given to the taxpaying public which should not be cancelled or postponed without any unavoidable reason.

(iii) High-pitched assessments should be avoided. It is the responsibility of the supervisor of the tax officer to ensure improvement in quality assessment by issuing directions u/s 144A of the Income-tax Act. The Principal Commissioners of Income-tax (CsIT) and the CsIT are required to supervise the work of their subordinates to ensure due discharge of their functions.

(iv) The Board’s Instruction Nos. 15 and 16 of 2008 dated 4-11-2008 provides for the inspection of the scrutiny assessment orders by the supervisor of the tax officer on a quarterly basis and lays down the procedure. The supervisory authorities are required to ensure that these instructions are followed both in letter and spirit.

(v) The scope of enquiry in cases selected for examination through CASS system should be limited to the verification of the pre-determined issues only. For making a comprehensive examination of the accounts, prior approval of the Principal CIT/DIT is necessary.

(vi) Refunds of excess tax may be granted notwithstanding a mismatch of data pertaining to tax deducted at source, and based on evidentiary documentation submitted by the taxpayer in accordance with CBDT’s Instruction No. 5 of 2013 dated 8-7-2013.

(vii) Recovery of tax demand, its stay of collection or permitting payments in installments should be done in accordance with CBDT’s earlier Instruction No. 1914 of 1993 dated 2-12-1993.

(viii) The CIT (Appeals), while remanding the case to the tax officer should specify the aspects which need to be verified.

(ix) Even where the tax effect is above the threshold limits set by the CBDT (above ` 10 lakhs now), the second appeal by the Department to the Income-tax Appellate Tribunal should be filed only if there is a good chance of winning on the merits of the case.

(x) Decision to file an appeal by the Department to the High Court on a substantial question of law will be taken by a collegium of two Chief Commissioners of Income-tax (CCsIT) including the jurisdictional CCIT.

(xi) Taxpayers’ grievances should be disposed off within the time period specified under the Citizens Charter.

(xii) Issuance of summons by the tax officers for gathering information should be issued only in critical cases, specifying in the summons the matter in issue and whether the taxpayer is called as a witness or in connection with his own case.

3. The CBDT has also advised the officers to follow the above instructions scrupulously. Disciplinary action will be initiated if they are not adhered to.

4. The latest instructions as summarised above were issued on 7-11-2014. Unfortunately, even after more than one year, very little change in the overall conduct of the officers is discernible by the taxpayers in the discharge of their duties and responsibilities. We, therefore, need to look into the basic causes which are responsible for the inadequate response to the emphasis being given towards developing a non-adversarial tax regime.

Ten action points for 2016-17

5. In order to improve implementation of the goal of a non-adversarial tax regime and make the overall conduct of the offices more taxpayer friendly, ten points are identified for action by the CBDT during the F.Y. 2016-17 and for public debate and discussion. Each of them also provides its own justification.

(i) Fix realistic revenue collection targets

6. The fixation of unrealistic annual revenue collection targets is the main cause of the present adversarial system of tax administration and comparatively ineffective supervision and control by the senior officers. The targets should not be fixed with reference to the expenditure requirements of the Government or with a view to reduce fiscal deficit to a pre-targeted level but they should be fixed on the basis of scientific forecasting techniques. In the past, the revenue targets used to be prepared by CBDT keeping in view the past trend of tax collections and the expected increase in national income during the year. The estimates prepared by the CBDT used to be reviewed by the Department of Economic Affairs in the Central Government’s Ministry of Finance. No other consideration weighed in fixing the targets. If the expenditure requirements were larger than the expected revenues, additional levies were imposed through the annual Finance Act.

7. With the artificial high revenue targets allocated down the line up to the level of each tax officer, unfair and unauthorised means become necessary by making unrealistic assessments, enforcing recovery of disputed taxes by coercive methods, non-issue of tax refunds for indefinite periods and by several other undesirable means. The supervisory officers are not able to exercise effective control over their subordinate officers as they become equally responsible for collecting the unrealistic targets. The Computer Processing Centre does not process returns involving large tax refunds. They are processed after a long interval and refunds issued with the prior approval of the CIT or the CCIT depending upon the quantum of the refund involved. The recent instruction issued in 2015 to issue all refunds up to ` 50,000/- is also symptomatic. Why should even a single refund, irrespective of its size, be withheld and not issued to the taxpayer? It is his right. How can the mandatory and legally binding requirement of issuing every refund within a reasonable time of say three months, contained in section 240 of the Act, be enforced except by the taxpayers filing writ petitions in the High Courts and thereby incurring avoidable litigation, expense and spoiling relations with the Department?

(ii) Amend Prevention of Corruption Act

8. The Prevention of Corruption Act needs to be immediately amended to clarify the difference between graft and a genuine error in decision making. The fear of bona fide quasi-judicial decisions being criticized and action taken under the Prevention of Corruption Act is one of the principal demoralising factors preventing the fair exercise of judicial discretion by the officers.

(iii) Preventing legal disputes in assessments

9. The tax disputes on questions of law have been raised by filing appeals by the Income-tax Department. This is despite CBDT’s instructions and the fact that the Supreme Court and various High Courts have held that where an appeal on a question of law has not been filed to the High Court or an SLP (Special Leave Petition) to the Supreme Court by the Income-tax Department, it cannot be filed in a subsequent case. But even then the appeals/SLPs are filed in several subsequent cases.

10. The remedy lies in the Legal and Research Wing of the Income-tax Department, which is responsible for authorising departmental SLPs to the Supreme Court, after consulting the Ministry of Law to circulate Board’s decision on a legal issue decided by the High Court in the form of a quarterly bulletin for the use of officers and the taxpayers alike. This practice used to be followed in the past by the issue of quarterly Tax Bulletins by the CBDT but for inexplicable reasons, discontinued in about the 1970’s. Apart from reducing tax litigation, the revenue collections will also improve because about 99% taxpayers, who are not selected for scrutiny assessment, will, by and large, follow Board’s view on the questions of law in filing their tax returns to avoid their subsequent selection for detailed examination. The recent decision of the Board to make two Chief Commissioner in multi Chief Commissioners’ charges to agree to the filing of the appeal to the High Court will also become more effective and serve the purpose of reducing tax litigation if they are made aware of the CBDT’s views on the earlier cases decided by the High Courts/Supreme Court. Where a judgment of the Apex Court is not acceptable to the CBDT, it should be so stated and the tax payers informed that the law will be amended on that issue in due course.

11. Fortunately, the CBDT has recently set up a separate Unit at New Delhi to apprise the officers of the decision of the Government on every substantial question of law decided by a High Court and the Supreme Court of India. The communications of this unit should also be made available to the public as was the practice in the past.

12. In every appeal/SLP filed by the Department to the High Court/Supreme Court, every earlier adverse judgment quoted therein should be commented as to whether any SLP against it was filed to the Supreme Court or not. In fact, the High Courts and the Supreme Court should not admit a departmental appeal unless the proposed action is taken by the Department.

(iv) Encourage settlement of cases through Income-tax Settlement Commission

13. There are seven Benches of the Income tax Settlement Commission, each consisting of three senior CCsIT, who, u/s. 245B(3) of the Act, are appointed by the Central Government amongst persons of integrity and outstanding ability, having special knowledge of, and, experience in, problems relating to direct taxes and business accounts. The Commission passes orders of assessments by agreement with the applicant-taxpayer within 18 months of the end of the month in which the settlement application is filed. The applicant has to make a true and full disclosure of his income and pay the entire tax and interest before filing the settlement application. The orders of settlement are final and conclusive as provided in section 245-I of the Act. This optional route of avoiding tax litigation and improving tax collections is very promising and should be encouraged.

14. At present, the intake of settlement applications is inadequate. It will substantially increase if the following four steps are taken:-

(a) Immediate withdrawal of the departmental instructions by the CBDT, requiring the CsIT to evaluate each order of settlement passed by the Commission and file writ petitions to the High Court wherever the orders are not considered acceptable. There are instances where even the jurisdiction of the Commission to admit a settlement application has been challenged in a writ petition and the matters are pending in the High Courts/Supreme Court for years on end. Such instructions tantamount to the Department expressing lack of faith and confidence in the judgments of its own senior officers of the Department. This is particularly so when they compute the income in accordance with the provisions of the Income-tax Act and the Department is represented by a very senior departmental representative of the rank of a Commissioner of Income-tax at every stage of the case before the Commission right from the admission of the application to the passing of the final order of settlement. Apart from withdrawing the aforementioned instruction, the pending writ petitions particularly on jurisdictional issues need to be withdrawn forthwith.

(b) Issue of clarifications on contentious issues of procedure.

To avoid litigation and ensure certainty and predictability with regard to the admission and disposal of settlement applications, there is an urgent need to issue clarifications on contentious issues in consultation with the Ministry of Law.

(c) Encouraging taxpayers to settle their tax liabilities.

Recently, the Central Board of Excise and Customs, under the same Department of Revenue as the CBDT, has issued Instruction vide letter F.No. 275/72/2014-CX.8A dated 19-6-2015 requiring all Chief Commissioners of Central Excise, Customs and Service-tax to issue, in every case, immediately after the issuance of a show cause notice, a separate letter to the noticee taxpayer informing him about the scheme of the settlement of cases so that he may avail of the same if he so desires and does not indulge in avoidable tax litigation with the Department. The format of the letter has also been attached with the said instruction. It is a very important step to prevent tax ligation. In order to create similar awareness about settling the tax liabilities on the income tax side by the Income tax Settlement Commission, the CBDT should also require the tax officers to issue similar letters in search cases after notices u/ss. 153A/153C of the Income-tax Act are issued. Other potential tax litigation cases involving contentious issues of doubtful benefit to the Revenue e g., bogus cash credits, bogus investments in company shares etc. should also be covered for encouraging settlements by the Commission.

(d) Encouraging taxpayers with undisclosed foreign bank accounts to file settlement applications.

There are several hundred cases, which became known to the Government before 1st July, 2015, of the taxpayers having undisclosed foreign bank accounts or assets. They were not eligible to file declarations u/s. 59 of the Black Money (Undisclosed Foreign Income Assets) And Imposition of Tax Act, 2015. But they were eligible to file settlement applications where detection had taken place before the coming into force of the said Act to assess the said income was taken or could be taken under the Income- tax Act, 1961 in which the legal provisions for settlement existed in Chapter XIX-A of the Act. In several cases criminal prosecutions have been launched and the Commission cannot grant them the immunity. Since such persons could not avail of the benefit of the declarations u/s. 59 of the said Act, it is only fair that they should not be denied the benefit of paying their due tax and interest before the Commission. On filing of settlement application and payment of tax and interest, the prosecution complaint, if filed, should be withdrawn. The Government may give such an assurance in the interest of revenue and to avoid prolonged criminal litigation.

(v) Time bound redressal of grievances through digital control

15. The Government is seriously concerned with the redressal of grievances within a time-bound programme. For this purpose, instructions are being issued from time to time, the latest being the immediate issue of refunds of up to ` 50,000/-. Non-issue of refund is not the only grievance. There are many others. To name a few, they are:-

(a) Not giving the correct credit for prepaid taxes.

(b) Delays in giving effect to appellate orders.

(c) Ignoring issue of refunds for years together.

(d) Issue of refunds without inclusion of interest payable thereon.

(e) Where refund with interest is given, tax deducted at source is rarely included in Form 26AS of the taxpayer who does not get the credit in his assessment of the relevant year.

(f) Non-adjustment of moneys seized during the course of search that remain deposited in the personal deposit account of the CIT indefinitely.

16. Most of the taxpayers consider them as kneejerk reactions, expressed through occasional instructions of the CBDT. They are not complied with as a matter of routine in every case in the absence of an effective and functional system of accountability. The redressal of grievances of every type should be controlled through a computer. Every grievance could be filed on line and registered in the computer system of the Department. A number for every grievance should be immediately generated by the computer that should be communicated to the taxpayer. He should also be informed of the likely time for the redressal of his grievance with the name of the person and his e-mail particulars to whom he should contact if the grievance is not redressed. Normally, the control over the redressal of the grievance should be exercised by the immediate superior officer of the tax officer as also by the CIT or the CCIT. Non-redressal, without a reasonable cause, should be a black mark, both in the career growth of the tax officer as well as of his superior, besides exposing them to other consequences.

(vi) Copy of order sheet entry to be attached with each assessment order

17. Despite instructions that the scrutiny in CASS selected cases should be confined to the items identified by the computer, scrutiny is made, in most of such cases in a routine manner and seeking large amount of information from the taxpayer. Assessments are made in most of the cases towards the fag end of the limitation period for making the assessments. A lot of time is spent in appeal proceedings on the issue of whether or not a reasonable opportunity was given to the assessee to produce the required material or not and whether additional evidence under Rule-46A of the Income-tax Rules, 1962 should be admitted at the appeal stage or not. by the tax officer. Remand reports are routinely called for by the CsIT resulting in avoidable delays in the disposal of appeals. It is suggested that the tax officer should be made to attach an attested photo copy of the order sheet along with the assessment order which will, inter alia, state the issues that were thrown up by CASS and were required to be verified. This will considerably reduce the scope for making unrealistic assessments and avoid the consequent tax litigation.

(vii) Encouraging the filing of voluntary returns

18. There are lakhs of taxpayers who do not file tax returns and pay their taxes voluntarily. The main fear is harassment at the hands of the tax officers. Once the prospective taxpayer comes on the record of the Department, the harassment consists not only of making unrealistic assessments but also involve levy of penalty and criminal prosecution. Even the foreign companies, who file their returns of income voluntarily are being proceeded against for prosecution. The fear of criminal prosecution is the biggest discouragement for the prospective taxpayers to file their tax returns voluntarily and pay their due taxes. It is suggested that through a public notification, the Government should make it clear that persons filing their tax returns voluntarily will not be criminally prosecuted. Where prosecution proceedings are under contemplation, they should be dropped and where such proceedings have been launched, they should be withdrawn with the permission of the Courts.

(viii) Make one year’s time limit for disposal of First Appeal subject to administrative control u/s 250(6A) of the Act

19. Sub-section (6A) of section 250 of the Act provides time limit “for disposal of appeal within a period of one year from the end of the financial year in which the appeal is filed, wherever it is possible”. The expression “wherever it is possible” has made the provision virtually meaningless with regard to the time limit for disposal of appeals. Most countries regard the First Appeal (normally called “objection against assessment”) as an extension of the process of determination of tax liability by the tax officer and the process is completed within a few months. In our neighbouring country- Bangladesh, which had the same income-tax law as in our country till 1947, the First Appeal is deemed to be allowed if not disposed of within 150 days of the end of the month in which the appeal is filed. No disputed tax is required to be paid. [Please refer to section 156(6) of the Income-tax Ordinance, 1984 of Bangladesh].

20. Unfortunately, in our country, in many cases, it takes several years as much as 10 years or more, for the First Appeal to be disposed of. We, in India should, like in other countries, take effective steps towards recognising the right of every taxpayer to know his final income-tax liability within a reasonable time since income tax is an annual tax. It is suggested that the period of one year should be made mandatory and wherever the appeal is not disposed of, it should be deemed to have been allowed unless the Chief Commissioner of Income-tax, for reasons to be recorded in writing, specifies that the appeal, though fixed for hearing, could not be disposed of within the stipulated period for reasons beyond the control of the CIT(A). Similar recommendation has also been made by the Tax Administration Reforms Commission to the Government.

(ix) Provide specific appeal to the Tribunal against refusal to grant stay of disputed tax by the CIT(A) even without the pendency of the quantum appeal – section 253

21. Coercive action to effect recovery of the disputed tax by such draconian methods like attachment of bank accounts without prior notice, even while the appeal is pending before the CIT(A), has been a source of major tax litigation. This is also perhaps the biggest source of harassment and spoiler of the fair name of the Income-tax Department. Following the judgement of the Hon’ble Supreme Court in the case of ITO v. M.K. Mohammed Kunhi (1969) 71 ITR 815 (SC), several High Courts have held that the CIT(A) has also the inherent and implied powers to grant stay/instalments arising out of the assessment order in appeal before him, till the disposal of appeal by him, though it is not specifically mentioned in the statute. Some of the judgments are as under:-

(i) V. N. Purushothaman v. Agricultural ITO (1984) 149 ITR 120 (Ker.)

(ii) Prem Prakash Tripathi v. CIT (1994) 208 ITR 461 (All.)

(iii) Debashis Maulik v. CIT (1998) 231 ITR 737 (Cal.)

(iv) Smita Agarwal v. CIT (2010) 321 ITR 491 (All.)

(v) Jagdish N. Hinduja v. CIT (2011) 59 DTR 333 (Karn.)

(vi) UTI Mutual Fund v. ITO (2012) 345 ITR 71 (Bom.)

(vii) Maheswari Agro Industries v. UOI (2012) 346 ITR 375 (Raj.)

22. Unfortunately, the CsIT(A) are routinely rejecting the stay applications leaving the assessees totally at the mercy of the tax officers or forcing them to take a highly expensive route of filing writ petitions before the High Court. Recently, the Hon’ble Delhi Bench of the Income Tax Appellate Tribunal, in the case of Employees Provident Fund Organization, ITA No. 1766 dated 10-4-2015 (2015) 153 ITD 642 (Del.), has held that an assessee can file an appeal to the Tribunal against the refusal of the CIT(A) to grant stay even though quantum appeal has not been filed before it.

It should be provided, in law, that there shall be no collection of disputed tax till the disposal of the First Appeal by the CIT(A). Section 281B providing for provisional attachment to protect the interest of revenue is adequate against the alienation of interest in the assets of the tax payers during the pendency of the appeal. This will also ensure that high demand appeals are disposed of expeditiously.

23. Alternatively, to place the matter beyond any doubt, the law should be amended to give specific power to the CIT(A) and the administrative CIT to decide the stay application of the assessee pending disposal of appeal before him. This will require consequential amendment to section 220(1) withdrawing the power of granting stay/instalment where the assessee has filed an appeal before the CIT(A). The Assessing Officer will of course continue to exercise the power to grant stay/instalment in cases where no appeal has been filed before the CIT(A).

24 Section 253 of the Act may be suitably amended to provide for an appeal before the Tribunal against the CIT(A)’s order refusing to grant stay of demand even if the quantum appeal has not been filed before the Tribunal and is pending with the CIT(A).

25. Pending amendment of law, stay of recovery of disputed tax demand should be granted by the Assessing Officer till the disposal of the First Appeal where the assessed income is say more than twice the returned income. This is in accordance with Board’s own Instruction No. 96 dated 21-8-1969. It has been held by several High Courts that this Instruction is not superseded by Board’s subsequent Instruction No. 1914 of 1993 dated 2-12-1993. Following are some of the judgments where it has been so held.

(i) N. Rajan Nair v. ITO (1989) 165 ITR 650 (Ker.);

(ii) Mrs. R. Mani Goyal v. CIT (1996) 217 ITR 641 (Del.);

(iii) I.V.R. Constructions Ltd v. ACIT (1998) 231 ITR 519 (AP);

(iv) Volvoline Cumins Ltd. v. DCIT (2008) 307 ITR 103 (Del.);

(v) Soul v. DCIT (2010) 323 ITR 315 (Del.) and

(vi) Taneja Developers and Infrastructure Ltd v. ACIT (2010) 324 ITR 247 (Del.)

None of the judgments appears to have been appealed against to the Supreme Court by the Income Tax Department and, therefore, they represent the law of land. In order to avoid needless litigation, Board may issue Instructions to the tax officers stating that Board’s Instruction No. 96 of 21-8-1969 should be followed and where stay has been granted, the CsIT (A) must dispose of the appeal within a year of its having been filed.

(x) Write off and scaling down of tax arrears

26. More than ` 8 lakh crores of income tax arrears are outstanding. This figure is increasing by 15 to 20% every year. With the enlarged scope of computerisation and taking over of several functions by the computers, the officers can devote some time on a regular basis to attend to the scaling down and writing off of irrecoverable tax arrears. It will also bring in the much needed revenue to the Government. Most of the tax arrears are the consequence of high pitched assessments which the defaulters may pay, in part, as full and final settlement of the tax arrears due from them. This is referred to as the scaling down of the outstanding demand. Then there are the cases where taxpayers have suffered losses or otherwise the tax arrears are irrecoverable in the absence of any assets out of which, recovery can be effected. There is no provision in the Income-tax Act for write off or sealing down of tax arrears. However, In 1956, the then Union Cabinet under the Prime Ministership of Late Shri Jawahar Lal Nehru had approved the writing off of irrecoverable tax arrears and scaling down of unrealistic demands to a reduced figure depending upon the value of the assets of the defaulters. The scaling down is subject to a true and complete statement of assets of the defaulter and if some more assets are found later on, the order of scaling down becomes inoperative. In respect of write off of irrecoverable demand, the Department does not lose its legal right up to the period of limitation provided in the Limitation Act to recover the demand if some assets are found. The CBDT used to write off the irrecoverable demand and scale down the arrears where part recovery of tax was possible. With the vast increase in the number of defaulters and the size of tax arrears, the writing off/scaling down work has practically stopped. The recoverable content of the tax arrears is also being ignored. It is suggested that the Principal CCsIT being of the rank similar to that of the members of the CBDT, this work can be delegated to them after getting approval of the present Union Cabinet. Only cases, say with tax arrears of ` 50 crores and above, may come to the Board for being written off/scaling down. This will ensure improvement in collections and more importantly, cleaning up of the accounting records of the Income-tax Department.

27. We have mentioned the 10 action points above which, if implemented in the F.Y. 2016-17, will go a long way in improving the conduct of the officers towards the taxpayers and in promoting the non-adversarial tax regime in the Department which is the top most priority of the present Government.

[Source: Article printed in Souvenir of one day seminar organised by ITAT Bar Association, New Delhi on 16th January, 2016]

The European Court of Justice has very recently ruled that “Bitcoin” has to be treated on par with traditional currencies for the purposes of exemptions enjoyed by transactions involving traditional money or currency under the European VAT laws.
[See Skatteverket v. David Hedqvist (Judgment dated 22nd October, 2015 in Case C-264/14)]. That judgment effectively silences a long debate throughout the European Union on the subject and brings some much-needed clarity.

A word about Bitcoin: Bitcoin is an unregulated virtual currency, which is used for payments between individuals who are willing to use it as a means of payment. Bitcoin is properly described as an “Internet phenomenon” with no single issuer and no Central Bank or Government or inter-Government organisation issues or controls it.

Half-way accross the world, the Internal Revenue Service of the United States has characterised Bitcoin as “property”. It is submitted that there is nothing new in this: the common law has always recognised all sorts of money – rather all sorts of things – as “property”. The Internal Revenue Service however did not go so far as to describe Bitcoin as “money” itself.

On the other hand, the American Courts do not seem to have made up their minds on what is the real nature of Bitcoin. Caselaw relating to Bitcoin is still sparse and the authors were not able to lay their hands on any judgments apart from those of the Trial Courts in the US discussing whether Bitcoin is money or not.

In United States v. Ulbricht [31 F. Supp. 3d 540], the defendant was charged with the offence of money-laundering. The defendant then relied on the IRS Notice to argue that since Bitcoin is merely property and not “currency” (which forms the basis of the money-laundering offence) he could not be called upon to answer that statute. The Federal District Court, SD New York noted that the money-laundering statute used the word “funds” and not “money”. Noting the close relationship between the words “funds” and “money”, the Court finally concluded that the sole reason for the existence of Bitcoin is to “pay for things” and that “it is digital and has no earthly form; it cannot be put on a shelf and looked at or collected in a nice display case”. The Court finally held that one can launder money using Bitcoin.

The Federal District Court for Texas went one step further and characterised Bitcoin as a “currency or a form of money” and investment in Bitcoin as “investment in money”
[Securities and Exchange Commission v. Shavers Fed. Sec. L. Rep. P.97, 596]. The Federal District Court, S.D. New York which avoided ruling outright that Bitcoin is money, subsequently recognised the principle by relying on the Shavers case.

In the Indian context, particularly in the indirect taxes, the question of whether Bitcoin is money or not will come up under the Sales Tax law as well as the Service Tax law. Section 2(7) of the The Sale of Goods Act, 1930 excludes “money” from the definition of “goods”. However, the term “money” itself is not defined. Darling J gives the most classic definition of “money” in Moss v. Hancock [(1889) 2 QB 111] :

“Money as currency, and not as medals, seems to me to have been well-defined by Mr. Walker in “Money, Trade and Industry” as “that which passess freely from hand-to-hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities.”

The Service Tax law defines “money”. However, it lays some stress on legal tender and other enumerated forms of instruments which Parliament considers as “money” for the purposes of the Service tax law. The definition ends with an “any other instrument” clause. The authors submit that it may be possible to include Bitcoin in this part of the definition. The Tax authorities will however contest this classification tooth and nail, and hence clarity from the Legislature or the Executive is required.

To conclude, while the world marches towards clarifying rules for the taxation of Bitcoin, India remains hopelessly behind. Canada and Australia have also issued guidelines on the taxation of Bitcoin. We hope that both the State and the Central Governments issue appropriate guidelines to clarify the rules for taxation of this new kind of currency.

Certain provisions of the Income-tax Act have given rise to substantial controversies and litigation. These provisions are being discussed herein. It is very much necessary and desirable that the Govt. should pay its immediate attention to suitably modify or clarify these provisions so as to avoid or reduce litigation in respect thereof.

1. Disallowance u/s. 14A r/w. Rule 8D of Income-tax Rules

Provisions u/s. 14A read with Rule 8D of Income-tax Rules have given rise to substantial controversies. Issues are whether Rule 8D is applicable retrospectively or prospectively from AY 2008-09, how dissatisfaction is to be recorded before invoking Rule 8D by the Assessing Officer, whether provisions are applicable even in case of stock-in-trade, whether disallowance can be made even more than the actual expenditure incurred, whether in a case where Assessing Officer is not satisfied with the amount of disallowance made by the assessee, mandatorily Rule 8D(2) is to be invoked or disallowance needs to be made on a reasonable or rationale basis, whether interest disallowance can be made even when the assessee has substantial funds of his own, whether disallowance can be made on account of interest even if the assessee has proved that all the loans have been taken only for the purpose of business, whether disallowance on account of administrative expenses at 0.5% is to be determined irrespective of facts of the case and the quantum of exempt income, whether in case of corporate assessees expenditure incurred on statutory compliances can also be considered for the purpose of disallowance or same should in any case be allowed, whether disallowance can be made even in the case where investments have been made for the purpose of commercial expediency in subsidiary or group companies, etc. The above controversy has arisen for the reason that Rule 8D provides for determination of disallowable of expenditure on ad hoc basis and no consideration for facts of the case are made by the AO. As a result, in many cases amount of disallowance determined by the AO, on the face of it, appears to be unreasonable and unjustified.

2. Reopening or revision of assessment

Section 147 of the Act empowers the Assessing Officer to reopen the finalised assessment. Similarly Section 263 of the Act empowers the Commissioner to order for revision of the Assessment Order. There are lot of controversies in regard to scope of above sections. In spite of the fact that provisions of Section 147 of the Act, requires specific reasons to be recorded by the Assessing Officer for his reasons to believe that income has escaped assessment, reasons are recorded by the Assessing Officer without proper application of mind and even without reference to specific material on the basis of which he has formed his belief that income has escaped assessment. Even in cases where proviso is applicable and assessment is reopened after the expiry of four years, no specific averment is made to the effect that there has been escapement of income on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Non-compliance of the requirement of provisions of Section 147 of the Act by the Assessing Officer for the purpose of issuing notice for reopening of the assessment has given rise to lot of controversies and the issue regarding reopening of assessment is a major cause of litigation. The casual approach adopted by the Assessing Officers is resulting in loss to the revenue as well as harassment to the assessees. It is very much necessary that the officers should be properly trained and guidance should be issued so as to check the menace for unwarranted reopening of the assessments by the Assessing Officers. Similarly, provisions of Section 263 of the Act are resorted to even in the cases where the issue has already been considered by the Assessing Officer in the course of assessment proceedings. Provisions of Section 263 have also been amended vide the Finance Act, 2015, w.e.f. 1-6-2015 by inserting Explanation 2 providing that in certain cases the orders passed by the Assessing Officer will be deemed to be prejudicial to the interest of revenue. This amendment is also likely to raise controversies and litigation as same are against the scope and purpose of main section. It is stated in this regard that provisions of Section 147 or Section 263 are being invoked in disregard to the factual position that the issue had already been examined and assessment order had been passed after scrutiny of the case. On account of internal instructions of the department, these provisions are being invoked in cases where audit objections have been raised by the Internal Audit or AGCR Audit irrespective of the fact whether such audit objections are valid in law or not. As a result lot of controversy and harassment is being caused. The observations of the Hon’ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. vs. Income-Tax Officer, (1977) 106 ITR 1 (SC) are not being honoured. The Hon’ble Supreme Court in above case had observed that: “It has been said that the taxes are the price that we pay for civilisation. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remission on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue at the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings.”

3. Provisions regarding taxability of capital gains

Section 45 of the Income-tax Act provides for taxability of capital gain in case of transfer of capital asset subject to other provisions relevant to the determination of capital gain i.e., Sections 45 to 55 of the Act. Lot of controversies have arisen in regard to taxability of capital gain with reference to meaning of “transfer”, “capital asset” and the year in which the transfer has taken place and with regard to other provisions related to exemption of capital gains in certain cases. Controversies have also arisen for the reason that specific provision has been made for determination of capital gains in a particular situation whereas there is no provision for the reverse situation. As regard to the meaning of term “capital asset”, though it has been held by the courts that the term has very wide scope and will include all rights and assets of the assessee, still controversies have arisen in the situation such as whether right to obtain the conveyance of the property is a capital asset, whether mortgage is a capital asset, whether an undertaking or running business is a capital asset or a fixed deposit held by an assessee is in the nature of capital asset. The issue had also arisen in the case of Vodafone International Holdings B.V. vs. Union of India (2012) 341 ITR 1 (SC), whether controlling interest in a company or control of the Holding Company over the subsidiary company is in the nature of capital asset or not u/s. 2(14), which defines the term capital asset. The term “transfer” has also remained a matter of controversy and particularly, the issue whether transfer is in one year or another year is continuously a controversial issue and in many circumstances litigation is going on in this regard, particularly, in the context of Real Estate Development Agreements. Section 45(2) provides that profit or gain arising from conversion of a capital asset into stock-in-trade is taxable as capital gain in the year in which such stock-in-trade is sold or otherwise transferred, though same is to be determined on fair market value of the asset on the date of such conversion. There is, however, no specific provision in regard to the situation where stock-in-trade is converted in capital asset by the assessee. Similarly, section 45(3) provides for determination of capital gain in case of transfer of capital asset by a partner to the firm on the basis of value of the asset recorded in the books of account of the firm, but there is no specific provision covering the reverse situation except case of dissolution of firm, which is covered in section 45(4) of the Act. Similarly, section 50 of the Act provides that in a case where depreciable asset is transferred at a value more than the written down value of the block of the asset, such excess amount will be chargeable to tax as short term capital gain. There is, however, no provision for allowability of loss either as a capital loss or as a business loss in the situation where total block of asset is transferred at a value which is lower than the written down value. In such a case there is also a doubt whether depreciation can be claimed u/s. 32 on the remaining value of the block in subsequent years, since there is no asset with the assessee which can be used in the business. Section 50B of the Act which provides for taxability of capital gain in case of slump sale is also a source of litigation so far as issue is whether transfer is on slump sale basis or on item wise basis for the reason that transferee in any case has to record entries in his books on the basis of item wise value for the purpose of claiming of depreciation and to record cost of acquisition. There is also controversy in regard to the expenditure which can be considered to be cost of improvement, particularly the interest cost incurred by the assessee on loan taken for the purpose of acquisition of the asset. There are many controversies in terms of sections 47 and 49 of the Act also which provides that the transactions will not be regarded as transfer and cost of previous owner will be taken as cost of acquisition by the assessee. As regards determination of indexed value in term of section 48 of the Act when asset has been inherited or received in succession by the assessee, whether in view of the language of Explanation defining the term “Indexed Cost of acquisition”, same is to be calculated from the year in which the asset was acquired by the assessee or from the year in which the asset was acquired by the original owner from whom it has been inherited to the assessee. Provisions of sections 54 and 54F of the Income-tax Act which provide for exemption in the cases where residential house has been purchased or constructed within the specified period, have also resulted in lot of controversies. In a case where a new house has been booked by the assessee with a builder and possession of which has been received after the expiry of specific period, it is an issue of controversy whether the condition will be deemed to have been complied with or not since possession has been received after the expiry of the specific period. In case of acquisition of flat from a builder, the issue has also been in controversy as regards the period of holding for the purpose of computation of capital gain at the time of sale, whether the period during which there was booking and payments had been made to the builder is to be counted as period of holding or only the period after getting the possession from the builder is to be considered for determination whether it is a long term asset or short term asset. Lastly the provisions of section 50C of the Act have opened a pandora box of controversies and number of issues have arisen in the context of applicability of section 50C of the Act determining the deemed sale consideration based on notification by the respective State Govt. for the purpose of levy of stamp duty. Applicability of deemed sale consideration is resulting in many situations in a harsh and unjustified tax liability. In many cases, actual sale consideration as on date is substantially lower than the notified rates and the assessees are facing serious problem in this regard, particularly for the reasons that for the purpose of payment of stamp duty, which is normally the liability of the purchaser, parties are not interested in litigating the same for the reason that the registration of documents will be delayed and accordingly, transaction will not be completed between the parties. Disputing the valuation in Income-tax proceedings is quite difficult and particularly when the returns are now being filed on-line and in the returns the notified rate as well as actual consideration are required to be given. The liability of additional tax will be automatically determined by the computer system and there will be a substantial dispute in regard to the matter. It is also a disputed issue whether value determined by a Departmental Valuation Officer on making reference by the Assessing Officer needs to be accepted by the Assessing Officer and by the assessee. It is also not clear whether provisions of section 50C will be applicable in the situation when asset is converted into stock-in-trade, asset is transferred to firm or asset is taken over by the Govt. in compulsory acquisition or in case of transfer of block of asset u/s. 50 or in the case of sale of undertaking u/s. 50B or for the purpose of making the investment in new residential house u/s. 54 or 54F of the Income-tax Act. The controversy has also arisen with reference to applicability of decision of the Hon’ble Supreme Court in the case of CIT vs. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) that capital gain is not chargeable in the situation when computation provision fails or cost of acquisition is nil, except in the cases which have been specifically provided for by way of amendments in Section 55 of the Act. Notwithstanding the decision of the Hon’ble Supreme Court in the case of K. P. Verghese vs. ITO (1981) 131 ITR 597 (SC) that sale consideration cannot exceed the actual value received by the assessee, in many circumstances dispute is raised by the Assessing Officers on the basis of vague or unreliable information and capital gain is determined on the basis of notional sale consideration which has not been received by the assessee. Last but not the least, there is a big controversy in the context of share transactions, whether the income is chargeable under the head “capital gain” or as “business income”. This controversy has taken a serious turn after amendment in Income-tax Act w.e.f. 1-10-2004 pursuant to levy of Securities Transaction Tax providing for exemption of long term capital gain in case of shares and for lower rate of tax for short term capital gain.

4. Taxability of deemed dividend u/s. 2(22)(e) of Income Tax Act.

Provisions of Section 2(22)(e) of the Act, were inserted in the Income Tax Act w.e.f. 31-5-1987 pursuant to omission of provisions of section 104 of the Income-tax Act, to check the tax evasion by closely held companies by not declaring the dividend but passing on the funds to the shareholders by way of loans or advances. These provisions have led to lot of controversies as regards determination of accumulated profits, taxability of the amount when loan is given to the concern, taxability of the amount, which is given as loan in earlier years and also the date on which the shareholding is to be determined, particularly in case of issue of shares on demerger or amalgamation of companies. The provisions have also proved to be very harsh where loans are given only for a short duration and same had been repaid by the shareholder. The Hon’ble Supreme Court has taken a view in case of Taru Lata Shyam vs. CIT 108 ITR 345 (SC) and Ms. P. Sarda vs. CIT 229 ITR 444 (SC) that notwithstanding the amount has been refunded, same is chargeable to tax as deemed dividend for the reason that repayment of loan is not excluded from the provisions of section 2(22)(e) of the Act. In many situation loan or advance is given to Group Companies in the normal course with a view to assist the Group Companies, but assessees are unintentionally caught under the provisions of section 2(22)(e) of the Act and have to litigate the taxability of the amount.

5. Levy of penalty u/s. 271(1)(c) of the Income-tax Act

Section 271(1)(c) of the Income-tax Act provides for levy of penalty in case the assessee has furnished inaccurate particulars or has concealed the income. The Assessing Officer as a matter of routine are initiating penalty proceedings and penalties are also being levied without proper consideration of facts and circumstances of the case and the scope of provisions for levy of penalty. Accordingly, the litigation is going on before appellate authorities in each case where penalty is levied. The issues for controversy in this regard are for scope and meaning of term “concealment” or “furnishing of inaccurate particulars”, whether concealment or furnishing of inaccurate particulars is intentional or for any other reason which may be a genuine mistake, whether the penalty is leviable where due disclosure has been made in the return by way of notes, whether penalty is leviable where issue is debatable, whether penalty is leviable where disallowance or addition is based on estimate made by the Assessing Officer or on a ad hoc basis. Penalty is also levied by Assessing Officer when income is assessed under different head or in a different year or in a case where claim had been made in the original return but same was surrendered suo motu in the revised return before initiation of assessment proceedings. Controversy is also for levy of penalty when disallowance is accepted by the assessee or where disallowance has been upheld in appeal by the appellate authorities. The issue for levy of penalty also arises in the cases where there are losses either under business head or capital gain and tax is payable on book profit and the tax liability of the assessee as per the return and as per assessment remains the same and no benefit for carry over of loss is available even in subsequent years.

6. Computation of book profit for levy of tax u/s. 115JB of the Act

Determination of Book Profit for the purpose of levy of tax under section 115JB (earlier sections 115J and 115JA) had been in controversy on number of issues and still controversies are going on with regard to the adjustment of amount of expenditure incurred in relation to exempt income excluded in computation of book profit, adjustment on account of “Provisions” made for liabilities by debited to Profit & Loss Account following the Mercantile System of accounting, adjustment on account of prior period expenses, adjustment in respect of bad debts written off against provisions which have been added back in earlier years and adjustment of loss on actual sale of securities adjusted against provision made for diminution in value of investments made and added in earlier years. Controversy is also in regard to adjustment on account of income or expense not credited or debited to Profit & Loss Account but specific note in respect thereof is given in the Accounts and such income or expense is directly taken or adjusted in Reserve in Balance Sheet. Normally a question arises where depreciation for earlier years is provided for by making adjustment in Reserve or capital gain on sale of asset is directly taken to Reserve, whether deduction is allowable in respect of such deprecation or capital gain is to be added in book profit. The issue also arises in regard to determination of “amount of loss brought forward or unabsorbed depreciation, whichever is less” to be adjusted in computation of book profit, whether to be determined on year-to-year basis or on the basis of cumulative figures.

7. Deemed speculation loss in respect of share transactions

Explanation to Section 73 of the Act provides that where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads “Interest on securities”, “Income from house property”, “Capital gains”, and “Income from other sources” or a company the principal business of which is the business of trading in shares or banking or granting of loans and advances) consists the business of purchase and sale of shares of other companies, in such a case loss on sale and purchase of shares is to be deemed as speculative loss. The aforesaid Explanation has created controversy in certain cases and the provisions are applied by the Assessing Officers even beyond the intention behind inserting the Explanation. Accordingly, in many cases of genuine transactions for purchase and sale of shares also the Assessing Officers take a view that loss is in the nature of speculative loss. Controversy also arises in regard to the criteria to determine the scope of terms “mainly of income” or “principal business” Issue also arises whether granting of loans and advances in case of NBFC companies can be deemed to be main business or not. The issue has also arisen whether a transaction which is not of speculative nature in terms of section 43(5) of the Act being based on actual delivery of shares, can still be deemed to be speculative in view of this Explanation.

8. Exemption in respect of income of Charitable Trusts and Societies

Section 2(15) of the Income-tax Act, which defines the term “charitable purpose” was substituted vide Finance Act, 2008 w.e.f. AY 2009-10 to provide that advancement of object of general public utility shall not be a charitable purpose if it involves the carrying on of any activity in the nature of trade, commerce or business. The aforesaid amendment had given rise to lot of litigation for the reason that in many cases in order to carry on the charitable object it is necessary to charge a small fee or consideration for the services rendered. Such an activity cannot be said to be in the nature of trade, commerce or business just for the reason that fee or charges are being recovered. Dispute had even arisen in case of Institute of Chartered Accountants of India in respect of rendering of various services for charge of the fee. The Courts have held that if the activities are being carried on as part of charitable object, it cannot be said to be in the nature of trade, commerce or business. Vide Finance Act, 2015 w.e.f 1-4-2016 by way of proviso to section 2(15) it is being provided that such activities will not be deemed to be trade, commerce or business, if same are undertaken in the course of carrying on the objects of general public utility, provided the aggregate receipts from such activities do not exceed 20% of total receipts of Trust or Institution. The proviso will also not resolve the issue as controversy is in regard to the nature of the activities as such, whether in the nature of trade, commerce or business, if some fee is charged would continue. Further, condition of 20% will also not resolve the issue as in many cases, the activities of charitable nature have to be carried on by the Trusts or Societies on the basis of recovery of charges from general public and it is not always possible to run the activities if charges not made. Condition that receipt for these activities should not exceed 20% of total receipts would mean that at least 80% of total receipt should come from donations or from any other source, which may not be possible. Controversy in cases of Trusts are also being raised by the Department on account of various other reasons such as that whether section 11(1) exemption is available in respect of income derived from the property only and not in respect of income received as a result of activities or even donations, whether accumulated funds have been applied for particular purpose, whether there was violation in investment pattern, whether loans given to any other charitable institutions is application of income, whether shortfall in income over expenditure can be met out of corpus funds, etc. Controversies have also arisen in the cases of educational institutions and hospitals, which institutions claim exemption under section 10(23C) of the Act. Many time approvals to such educational institutions and hospitals are not being granted or renewed by Commissioners on the ground that their activities are resulting in surplus. In regard to this issue recently the Hon’ble Supreme Court in the case of Queen’s Educational Society vs. CIT (2015) 372 ITR 699 (SC) has held that a surplus arising from activities would not mean that institution is being carried on “for profit”. It can now be expected that this issue will not be raised by the department. The controversy also arises in cases of charitable trusts or institutions in regard to certain activities which the Department considers to be of business nature. Exemption in respect of receipts from such activities is not allowable on the ground that separate accounts have not been maintained in terms of section 11(4A) of the Income-tax Act. On this ground the Department has raised issue even in respect of income from chemist shop and lab charges recovered in a hospital or a canteen or stationery shop run in a school. Even in respect of transportation facilities provided to students in a school this issue has been raised. Issue has also been raised in certain cases, where auditorium has been given on normal hire charges by a charitable institution as a part of carrying on its charitable activities.

9. Deduction of tax at source under various provisions

The Income-tax Act requires deduction of tax at source under provisions of sections 192 to 195 of the Act. Controversies have arisen in respect of nature of transactions, whether tax is deductible therefrom or not and the rate at which tax is deductible. Though CBDT has issued certain circulars with regard to scope of provisions but controversies are there. In various circumstances alleging non-deduction of tax at source demands are raised on account of tax, penalty and interest. Expenses are also disallowed u/s. 40(a)(i) or 40(a)(ia) of the Act. These demands or disallowance of expenses give rise to litigation. The controversy also arises in regard to liability for deduction of tax at source in the cases where provisions for expenses are made in accounts at the year end. It is also a controversial issue whether tax is deductible u/s. 194I of the Act from payments made to hotels for stay of employees or for holding any seminar, conference etc., considering the same as rent. Controversy also arises in certain cases whether tax is deductible on gross amount or on the amount of income and also whether tax is deductible from reimbursement of expenses. In the context of section 195 of the Act, which is applicable to remittances made to non-residents or to foreign parties, there have been substantial litigation as regards the liability of an assessee under above section and also as regards the scope of payments which are subject to TDS under section 195 of the Act. Scope and meaning of terms “fee for technical services” and “royalty” in terms of DTAAs and provisions of section 9(1)(vi) and (vii) are source of big controversy and litigation. Even payments of commission for import or export to foreign parties rendering services in their countries are being contended by the department to be in the nature of “fee for technical services”. Irrespective of provisions of section 5(2) of the Act which provides for taxability of income of a foreign party which has accrue or arises in India, all the payments which can be said to be in the nature of “fee for technical services” are being claimed subject to taxability in India and, therefore, subject to TDS u/s. 195 of the Act irrespective of the fact that the foreign party has no existence in India and no services are rendered in India and by no stretch of imagination by a common sense it can be said that income of the foreign party should be chargeable to tax in India. The difficulty has further been aggravated by the provisions of section 206AA of the Act which requires the foreign party to obtain PAN. Any foreign party which is not having a regular dealing in India would not obtain PAN in India and would obviously not file return of income also. In such a case, undue tax liability is levied by the department on the payers and even proceedings are taken for not deduction of tax at source. Controversy also arises in the cases where the Indian party has taken a reasonable and bona fide view that tax is not deductible and has made remittance without deduction of tax at source after filing necessary forms i.e. Form 15CA and 15CB whereas subsequently the department contends that tax should have been deducted. The controversy for deduction of tax at source which had arisen in the case of Vodafone International Holdings B.V. vs. Union of India (2012) 341 ITR 1 (SC), is a glaring example to the level of dispute or the liability, which an Indian party may suffer on account of subsequent allegation for non-deduction of tax at source by the department.

10. Transfer Pricing issues

Substantial litigation is presently going on in regard to determination of ALP under section 92C of the Income-tax Act in relation to “international transactions”. Adjustment in ALP is made almost in every case of substantial amount and demand is raised. Reference to Dispute Resolution Panel does not prove to be effective in resolving the issues. Various Benches of ITAT are burdened with large number of cases of transfer pricing adjustments. Controversies are in regard to a particular method to be applied, selection of comparables, determination of average, whether adjustment is to be made only with reference to international translations or is to be made in total profit on TNMM basis, whether adjustment is also to be made on notional basis on account of interest, share premium etc. More controversies and litigation are going to arise in the coming time for the reason that domestic transactions have also been included in the scope of provisions of section 92C of the Act.

Conclusion

In conclusion, it is stated that efforts have been made herein to list major controversies presently going on under the provisions of Income-tax Act. Apart from controversies listed hereinabove, there are many more issues which are subject matter of controversies and litigation. The issue for consideration by the Govt. authorities is that why so many controversies are there in the provisions of Income-tax Act. Any new section added in the Act or even any amendment made, results in controversy and litigation. It can be submitted that the controversies are broadly arising for two reasons, firstly, drafting of relevant provisions are not being made after full consideration of necessary circumstances. Language is not finalised and after due deliberation with the stakeholder. Most of the amendments are made through Finance Bill in a secretively manner. As a result, language is not perfect so as to lay down the clear legal proposition. Amendments are also not made in consonance with the business requirements. Therefore, same leads to litigation being unreasonable and unjustified. Secondly, main issue of litigation is lack of proper guidelines for implementation and the applicability of legal provisions in the facts and circumstances of the assessees. Attitude of the Assessing Officers invariably is to impose the liability on the assessees even though he at his heart may not be convinced with the legal interpretation being adopted by him. The Assessing Officers, most of the times, are working for fear of audit objections and allegation of not acting in the interest of the department. In order to resolve the controversies, it is very much necessary that there should be a proper and effective mechanism at CBDT level to clarify the issues from time-to-time and issue necessary guidelines for the Assessing Officers so as to bring uniformity in the approach of the Assessing Officer. The Committee which may be entrusted this important job at CBDT level should also have representation from profession and industry and any clarification or guidelines should be issued after thorough and careful consideration adopting reasonable and justified approach and not only the approach as a tax gatherer. Long back there used to be Direct Taxes Advisory Committee having similar composition. The Committee should also consider the judgments of High Courts or even of Tribunal and after a reasonable thought position of the Govt. should be clarified and all the litigation, if it is not in consonance with the stand of the department, should be withdrawn. It may also be stated in this context that the adjudication process provided in the Act with a view to avoid controversies and litigation such as provisions of section 264 for revision by CIT, provisions of section 144C regarding reference to Dispute Resolution Panel and provisions of sections 245 and 245R for reference to Authority for Advance Ruling are also not serving the effective purpose as on date for the reason that the authorities referred above are primarily looking at the point of the department. Reasonable and justified approach is not being adopted keeping in view the purpose and object of the provisions under which the authorities were constituted. It may be stated in the past that certain effective measures are necessary on the part of the Govt. to avoid the controversies and to reduce the litigation which is very much necessary and desirable in the interest of the department and also the assessees and to make the business like environment to boost even foreign investments in order to make the policy of the Govt. “Make in India” successful and also to “ease of doing business”.

I end with sincere request, become RTI friendly; provide some percentage of your time and money in service of the nation through spread of RTI.

[Editorial Note: CA Narayan Varma expired on 24-12-2015. May his soul rest in peace.]

The Right to Information Act, 2005 is a potent piece of legislation under the Constitution. One can say that the Constitution is made effective through the legislation such as the RTI. The maxim POWER to EVERY CITIZEN is actualised through this one law more than any other or for that matter even all other laws put together.

Mahatma Gandhi once said:

“The true source of right is duty”

How true, our law is named “The Right to Information” but really it is duty to information.

RTI Act became effective on 12-10-2005. In this year, it completes 10 glorious years.

When one treats RTI as something basic to the democracy, one way of looking is that decade is not a long period and it has further to become more effective but other way of looking is that to survey and find out how much it has achieved and progressed and how much it has failed.

Nani Palkhivala in one of his talks said:

“One of the main reasons for India’s backwardness and stunted development is that we as a nation have no sense of time at all. We are individually intelligent and collectively foolish. It is characteristic of us that in our national language the word ‘KAL’ is used to denote yesterday and tomorrow. I attribute this absence of time sense to two factors. We were the first country in the world to evolve the concepts of eternity and infinity: against the backdrop of eternity what does the waste of even several decades matter? Secondly, we were the first to evolve the doctrine of reincarnation: if you waste this life you will have several more in which to make good.”

The word ‘KAL’ is unique. To me it seems the word was coined to understand philosophically life as a whole – beginning (yesterday) and ending (tomorrow) – from birth to death. It could go even beyond birth and death – i.e. of previous life before birth and future life beyond death.

You can’t change the past but the future will always be there for you to make what you want out of it. Let us all join in making RTI movement universal in this country especially because we have just crossed ten years of its operation. It is said: A car’s WINDSHIELD is so large and the Rear view Mirror so small because our PAST is not as important as our FUTURE. Let us march making RTI all pervasive.

As said above, India celebrates 10 years of the practice of the right to information. In this decade, this law, one critical to Indian democracy, has established the citizen’s right to make informed choices, not just once every five years, but every single day. Governments at the Central and state levels have been forced to concede to the democratic principle of sharing power. An estimated five to eight million applications are filed every year, making it clear how popular the law is. The more than 50 RTI users who have been killed bear testimony to just how much the act threatens vested interests. In posterity, those studying governance in independent India will be able to mark the patterns of a pre- and post-RTI era. It is, therefore, important to understand the immense contribution of the ordinary Indians who battled for years to get the entitlement and, since 2005, to implement the law.

Powerful and relevant local struggles can organically grow into national movements that enrich democratic practice. The demand for information was brilliant in its simplicity. People honed it locally on the nerve centres of unaccountable power. These demands for details of expenditures on roads, of life-saving medicines in hospitals, of disappearing rations, sent shockwaves through the establishment and shook the foundation of bureaucratic governance. The RTI has proved its efficacy from the panchayat to Parliament. Cutting through red tape and bureaucratic prevarication, it has exposed entrenched vested interests in policymaking and implementation, and undermined officials’ impunity in perpetuating both grand and mass corruption.

The RTI has been India’s most powerful “weapon of the weak”, enabling citizens everywhere to question and hold to account the legislature, executive and judiciary.

They have exposed misdeeds by governments across the board, in the delivery of basic services, in land and mining, as well as grand corruption in arbitrary contracts, like in the allocations of 2G spectrum and coal blocks.

In October 2015, PM Narendra Modi addressed the 10th annual convention of the Central Information Commission. He said:

“It is the common man’s right to question Government and this is the foundation of democracy,” Modi said, asserting that the Right to Information (RTI) could only be effective if it brought policy change. Adding that there is no place for secrecy in this day and age, Modi said, “The process of accessing information should be transparent, timely and trouble-free. Delayed information does not help solve the problem but increases it. Timely information can halt a wrong decision. We will emphasise this,” he said. Modi’s remark comes at a time when activists have criticised the Government’s implementation of the RTI Act. The transparency watchdog CIC has over 35,000 pending complaints and a waiting period of over a year.

Former PM Manmohan Singh had used the convention to highlight the drain on public exchequer due to “vexatious and frivolous” complaints. However, PM Modi chose to strike a positive note exhorting Government officials to analyse the RTIs being filed in their departments and effect policy changes to ensure good governance.

“If a question is asked by a citizen, there must be some issue in Government that the need for question arose. A small RTI question can force you to change policy,” Modi said.

We are the professionals – minimal less than 1% of total population of India. We are intellectual, we are prosperous individuals. I believe on us lies the responsibility of strengthening the democracy. While we devote our time to the profession and earn money, it is our duty to give some time and some money to the needy and deprived citizens. You may provide money to them but more important is to guide them to get their rights to achieve through RTI. They must become empowered citizens which RTI leads to.

Bill Gates said:

With affluence comes responsibility — why I give

He further writes:

“At the headquarters of our foundation in Seattle, each floor has a quotation etched in glass. On one of the floors is a saying attributed to Mohandas Karamchand Gandhi: “the best way to find yourself is to lose yourself in the service of others.”

These words of the Mahatma have a featured place in our building because they get at something very basic about philanthropy. They remind us that any search for real purpose in life must take us outside of ourselves.

Perhaps this statement resonates with me because I grew up hearing versions of it at home. My mother and father spoke often about the importance of giving back to the community, whether through volunteer work or financial contributions. They never let us forget that our relative affluence came with a deep responsibility to assist those who had not been born so lucky.

What’s more, I could tell from a very early age that even as my parents gave, they received. It was clear that they derived real satisfaction and a sense of belonging from their advocacy work and their donations to various causes”.

Before I end, I quote Justice V. R. Krishna Iyer “Ignorance is not bliss but bondage and knowledge is not folly but duty, if government by the people is to possess the semblance of reality, the battle for information swaraj needs awareness missiles”.

I end with sincere request, become RTI friendly; provide some percentage of your time and money in service of the nation through spread of RTI.

All my affectionate fellow members, brothers and sisters at Bar.

It is a fortnight ago, I have assumed the reigns of a great premier professional organisation as its National President and my predecessor Shri J. D. Nankani must feel happy to have been relieved of the enormous responsibility and duties that the Post would inherently carry. Not unknowing of the feelings of my predecessor when he was elected and assumed the charge of National President, but my sincere sense of feeling and experience having already witnessed the great sacred duty as also the responsibility of the National President while officiating during the absence of my predecessor, one thing I can definitely say is that it is a seat of thorns but not of roses. Nevertheless, I am a person of strong Will, with no shy of taking up the responsibility and leading the great organisation.

I have projected my thoughts, ideologies and such of the programmes during my tenure as the President, first and foremost programme, I have advocated is mankind is our business to say and mean that everyone should strive hard for inclusion of more and more new members into the fold and also to organise many more educative and informative seminars even in nook and corner of the country, as it is imminent that the time for start of GST era is very nearer to us when every learned member of the Federation shall be in a position to feel that he is well prepared and equipped with necessary technical knowhow to meet the challenges. It is our prime motto that the Federation is known for achieving, excellence, education and ethics in profession which will be in our belief possible only through more and more learning.

It is a matter of great privileged pride that the periodical journals of the Federation for the benefit of the members for updating their knowledge are very much praised and commended by the judges of the Supreme Court also as to the manner in which the judgments rendered by the judiciary in the country on tax laws of both direct and indirect are being digested in a more efficacious and lucid form.

It is also very much gratifying to notice that more than 90 invitees from our Federation are attending the Income Tax Appellate Tribunal Platinum Jubilee Celebrations being organised by Government of India through Ministry of Law and Justice on 24th & 25th of January, 2016 and the way in which the invitation is extended to large number of invitees from Federation is really a feather in the cap of the Federation and it is all hopeful that the same trend would continue in times to come. Efforts in all sincerety and honesty would be employed to achieve more subscriptions from the members to the journal and simultaneously necessary corrective steps would be initiated to assure that every subscriber to receive the journal.

We also take this opportunity to appeal to the learned members of the Federation to contribute mindboggling articles for being published in the journals. Appeal is also being made to the members in every State and in every zone to hold Study Circle meetings every month to provide necessary infrastructural training to them/members especially in urban and semi urban places to enable them to gear up to practice the new laws. Some other beneficial programmes/schemes are in offing which I would place before the members in my next addition o presidential communiqué. Here I would like to salute the Chief Editor and all the learned members of the Journal Committee for their dedicated service to the Federation and society, for, but for their selfless and dedicated service, the journal would not be successful.

I once again convey my regards and respects to one and all for reposing hilarious confidence in me to head and lead the institution.

Dr. M. V. K. Moorthy
National President

 

Tribute to Hon’ble Mr. Justice S. H. Kapadia, former Chief Justice of India – Patriotic son of the Nation – As long as we live, Justice Kapadia will live with us

We received the sombre news of the passing of the former Chief Justice of India, Mr. S. H. Kapadia. He served the nation with great distinction as a judge. He was a patriotic son of the nation and served the country with honesty and integrity.

The Federation has had a long association with Late Mr. Justice S. H. Kapadia. When the Federation organised the National Convention at Mumbai in the year 2010, he was the Chief Guest. The programme started in the evening when Justice Kapadia came directly from the Court. The theme of his speech was “Tax evolution to economic revolution”. He spoke from his heart, he touched various issues and closed his speech with the following words “I recommend strongly that for the next 10 years, India should pursue only one point programme viz. Economic Development. Our Country is rich in resources. However, we fritter away those resources by going into non-issues”. He also stated that “your Federation has prescribed a Code of Conduct in which they have laid down the duties of tax lawyers to their clients, to their opponents and to the Court. I recommend one more clause –“Duty to the Country”.

Those who have not read his heart-warming and inspiring speech may do so from the AIFTP Journal, May, 2010 or from the www.itatonline.org. I have preserved his personal congratulatory letter which he wrote to me when I became the National President of the AIFTP.

He was an avid reader of the AIFTP Journal. When he was elevated as the Chief Justice of the Uttaranchal High Court, he requested that the Journal be sent to him in Uttaranchal. He even offered to pay the subscription fees. His fondness of the Journal continued even after his elevation to the Supreme Court and even after his retirement. When the AIFTP and the ITAT Bar Association published the “2003-11 – Digest of Case Laws – Direct taxes– A Tax Companion”, in the year 2012, he purchased one copy for his personal reference, and thereafter every year he requested us to send a copy to him for his reference.

In earlier days, when the budget used to be presented, copies thereof were made available to the public only on next day. As an association, some of our members used to get the copy on the same day. He used to sit in the High Court up to 8.30 in the night and only after receiving the copy from us would he leave for his home. Next day, if any tax matter was to be argued before him, he used to refer to the Finance Bill and told the counsel to look into the Bill. Whenever any taxation matter was argued before him, he was not carried away with judgments; he used to read the sections, apply the law, general law and thereafter case laws. Many of his landmark judgments in taxation will make him immortal in the history of taxation.

In his court, a counsel’s seniority or otherwise made no difference. I have witnessed that he never used to get carried away even by former Union Ministers appearing before him. He was a great admirer of Shri Nani Palkhivala. He encouraged students to participate in the Nani Palkhivala Moot Court competition, which was the first moot court competition in the country on taxation law.

He was one of the Guests of Honour when the new benches of the ITAT were inaugurated by the then Law Minister Hon’ble Shri Arun Jaitley. He always appreciated the quality of orders passed by the ITAT. In one of the seminars in New Delhi, he stated that when an appeal came before the High Court against the order of the Tribunal, only in very few cases was challenged on grounds of perversity. He had great respect for the tax bar. In his lectures, he used to acknowledge that his elevation to Apex Court was due to tax background.

His enormous contribution to the development of law and especially tax jurisprudence is known and appreciated worldwide.

Justice Kapadia battled acute poverty and hardship to rise from a clerk to the highest post in the Judiciary. He did this through his hard work and perseverance. His attitude towards work: his humility, integrity and compassion made him a symbol of inspiration and role model for every citizen of our country.

He will be a role model to any student of law who desire to work hard and come up in life without any godfather or any political backing. It is only his hard work, sincerity and integrity that made him the Chief Justice of India. He will be remembered by every Indian as an inspiration.

Late Justice Mr. S. H. Kapadia will be missed for his wisdom, humility, passion for taxation and judicial independence. He will be remembered as a great human being, for his determined character, for his patriotism, for being someone who could ignite our minds. His death is a great loss to the nation. I must acknowledge that for many of us, as long as we live, Justice Kapadia will live with us. A tribute to him in true sense will be adopting his desire that – we should always remember “Duty to the Country”. As a tribute to him we desire to come out with a publication in association with the ITAT Bar Association.

On behalf of the tax bar, I take this opportunity to express our deepest condolences to his family.

Dr. K. Shivaram
Editor-in-Chief