Finance Bill, 2016 – (2016) 381 ITR (St.) 9 – Amnesty scheme to tax defaulters – A premium for dishonesty – Honest tax payers pay tax every year whereas dishonest tax-payers pay tax once in five years

In the history of taxation in India from 1951 to 2016, various Governments have introduced more than 15 Amnesty Schemes in direct taxes. Honest tax-payers believe that they pay the taxes every year whereas tax evaders pay taxes once in five years. If an honest tax payer commits a simple error he is made liable to pay interest, penalty and in some cases, even prosecution has been initiated, whereas dishonest tax-payers are immune from prosecutions by paying simply 45%. The Govt collects more than 90% of taxes by way of advance taxes and tax deducted at source. When the tax deduction at source provision was introduced, only three sections were covered, whereas now, the assessee has to deduct tax at source under more than 26 sections. Income-tax law being very complicated, there is no clarity in a number of provisions including the rate of tax to be applied. If there is a mistake, even though bona fide, all consequences follow, including the disallowance of expenses. This is the reward that honest tax-payers are getting for doing the work of the Government by collecting the taxes and depositing to Government Treasury.

The Amnesty Scheme rechristened as Compliance Window providing an opportunity to defaulting tax-payers to come clean and pay taxes is another such example. In my view, this scheme will prove to be a disincentive to honest tax-payers who have paid taxes honestly. Constitutional validity of Voluntary Disclosure of Income, Scheme, 1997 was challenged by the Federation. However, the Apex Court has upheld the Constitutional validity of the scheme [All India
Federation of Tax Practitioners v. UOI (1998) 231 ITR 24 (SC)]. It is worth considering whether the Federation should knock the doors of the Judiciary once again in the interest of honest taxpayers.

Another budget proposal to levy tax on senior advocates may result in practical difficulties. Firstly, the issue of levy of service tax on advocates is sub judice before the Hon’ble Supreme Court. The Supreme Court (SLA No. 13944/2015 dated 10-8- 2015) has stayed the operation of the Bombay High Court order upholding the levy of service tax on advocates. Therefore, in my view, the introduction of this provision is ill-timed and may result in further challenge to the provision before various High Courts. National President of the AIFTP Dr. M.V.K. Moorthy on behalf of the AIFTP is proposing to file the PIL before AP High Court and there is move to file petition by eminent senior Advocates from Ahmedabad.

Another provision which could see challenge before higher Courts is the taxability of dividends in excess of
Rs. 10 lakh. This would not only result in double taxation (since the company declaring dividend would be liable to pay DDT) but could also be held to be violative of Article 14 of the Constitution of India.

The total overhauling of the penalty provisions may result in increased litigation in the years to come.

Some of the amendments which require to be appreciated are

– Presumptive scheme of taxation for professionals;

– Interests on delayed refunds @ 9%;

– Stay of recovery by paying 15% of the disputed tax;

– Amendment to one of the most litigious provision of Rule 8D;

– Tax exemptions for eligible start-ups;

– Introduction of Direct Tax Dispute Resolution Scheme, 2016.

– Increasing the limit of single member from
Rs. 15 lakh to Rs. 50 lakh.

As tax practitioners, whenever good provisions are introduced, we must appreciate them and when there are retrograde provisions, we must make representations and even move the judiciary, if need be.

In this publication various authors have analysed the important provisions of the Finance Bill 2016, which will help the readers to understand the various complicated issues.

One must also appreciate that this year the Chamber of Tax Consultants, Mumbai has brought out an e-publication on Finance Bill, 2016. Readers may visit and share their views. One can also listen to the speech of eminent Sr. Advocate, Shri S. E. Dastur on the Finance Bill, 2016 on

Dr. K. Shivaram

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