The 21st National Convention of the All India Federation of Tax Practitioners will be held at Guwahati on the 22nd and 23rd of December 2018. The theme of the Conference is “SAARTHI”and the convention is set to be inaugurated by the Honourable Chief Justice of India Mr. Ranjan Gogoi. This is a great opportunity for tax professionals of the country to contribute to the vision of the Honourable Chief Justice of India who is trying to evolve a system which can produce better results
The 21st National Convention of the All India Federation of Tax Practitioners (AIFTP) will be held at Guwahati on 22nd and 23rd of December 2018. The theme of the mega event is “SAARTHI”. The Honourable Chief Justice of India Mr. Ranjan Gogoi will be inaugurating the convention and also releasing a Publication of the AIFTP dedicated to late Justice Dr. B. P. Saraf, the former Chief Justice of India. More than 1,000 delegates from across the country are expected to attend the convention which will prove to be a memorable day for the members of the AIFTP.
One of the major challenges faced by the Judiciary is the large pendency of cases before it. The Honourable Chief Justice of India is trying to evolve a system which can produce better results. Tax Practitioners may have to play a proactive role to fulfil the objective of the Honourable Chief Justice of India to reduce the pendency of litigation. The AIFTP has made various suggestions from time-to-time and immediately after the convention, it desires to forward a discussion paper on direct and indirect taxes to reduce the pendency of tax matters to the Honourable Chief Justice of India, honourable Finance Minister and Honourable Law Minister. Few thoughts are discussed hereunder and we desire that members of the AIFTP and all concerned interested persons may send their valuable suggestions to the AIFTP on or before 30th November 2018 which may help in preparing a discussion paper on the subject mentioned above.
We propose to draft the discussion paper into three parts (1) Conceptual (2) Administrative, and (3) Amendment in law.
1. Conceptual Reforms
The setting up of an e-Bench of the Supreme Court can be an effective alternative for having four Regional Benches of Apex Court. The e-Bench of Apex Court will help render speedy justice to the litigants thereby saving huge cost incurred on travelling back and forth to New Delhi.
The Apex Court can have an e-Bench of the Supreme Court. The hearings of the matters before the e-Bench of the Apex Court can be done by linking various High Courts and affording facilities for arguing the matter before the Apex Court from the respective High Courts atleast at the Special Leave Petition (SLP) admission stage. An e-Bench of the Supreme Court can take up the matters High Court wise e.g., One day could be for matters from the High Court of Bombay while another day could be matter from the High Court of Madras, Calcutta or other states. Initially, on a trial basis an option may be given to the parties to hear the matters through either the e-Bench or the regular Bench.
The Income-tax Appellate Tribunal has started an e-Court at Mumbai through which the matters of Nagpur are heard by members sitting in Mumbai at the Mumbai Bench. The experience has been found to be very satisfactory and both the tax payers and the Department have found the functioning of this Bench beneficial. As per the concept, the litigants will be given an option to ‘opt in’ or ‘opt out’ of the e-Bench facility. If the litigants desire not to be heard by the e-Bench and would like to approach the Apex Court in person, they may have an option to opt out. This option would be given to them even at the time of hearing of matter by the e-Bench of the Apex Court. One Court room each of the various High Courts across the country may be converted into an e-Bench.
Increase in age limit of judges and members of the Appellate Tribunal from 62 to 65 years.
Parliament has constituted a committee headed by Smt. Jayanti Natrajan as Chairperson for considering the increase in age limit of Judges of High Courts from 62 to 65. The Committee observed as under:
“Taking into account the justifications given by the secretary, Department of Justice, and the statement of objects and reasons appended to the bill, the committee supports the proposal for increase in the retirement age of judges of the High Courts from sixty two years to sixty five years and to be at par with the retirement age of the judges of the Supreme Court. The Committee also acknowledges that the Bill has been brought forth in pursuance of the recommendation made by the Committee in its earlier reports”
Though the committee has made the above recommendation on 7th December, 2010, the recommendation has not been followed till date.
The then Hon’ble Law Minster, Mr. H. R. Bhardwaj, while addressing the Member’s conference at Mumbai on 4th November, 2006, stated that the Government will increase the age limit of all Members from the present age of 62 years to 65 years. A similar representation has also been made by the AIFTP for increasing the retirement ages of High Court judges. We are of the opinion that the knowledge and experience of a Judge/Member is an intangible asset of a precious nature, and therefore it should be used for justice delivery efficaciously. We are of the considered opinion that increasing the age limit will help in reducing the pendency of cases substantially.
Institutionalisation of the process of elevation of Members to the High Court
Very few Members of the ITAT have been elevated to the High Courts. This process may be institutionalised. Deserving Members of the ITAT due to their specialised knowledge and experience in ‘taxation’ and ‘commercial transactions’, would be able to understand and decide the issues involving both the subjects in a better manner. This will also attract young bright lawyers to join the Income Tax Tribunal.
Setting up of Special Courts to deal with prosecution in relation to Direct and Indirect taxes
Under the present system, it takes more than 20 years to decide prosecution matters relating to Direct Taxes. Therefore the deterrent provisions fail to achieve the desired object due to delay in disposal of cases by the lower courts. Income-tax being a specialised subject, may be heard by a Special Court of two judges, similar to the Tribunal and thereafter an appeal may lie to the High Court. It may be considered whether the jurisdiction to deal with prosecution matters relating to the respective taxes can be delegated to the Tribunal i.e., prosecution relating to Central Excise and Customs to the CESTAT and prosecution relating to VAT and Central Sales Tax before the Sales Tax Tribunal. A Bench of two Judicial Members may be constituted to hear the prosecution matters. An appeal against the said orders of the Tribunal, before the High Court, may be provided to the aggrieved. The Government need not create separate infrastructure for setting up of Courts. The present set up of the various Tribunals may be sufficient to handle prosecution matters. This will help in the speedy disposal of matters.
2. Administrative Reforms
Regular Tax Bench in various High Courts
In all High Courts, there has to be at least one Tax Bench to decide the issues relating to direct and indirect tax matters. The Tax Bench may function throughout the year. If required based on the pendency of tax matters more than one Tax Bench may be constituted.
A Responsive system to be established in every Ministry to discuss and take action on suggestions made by the Apex Court, High Courts and other Judicial authorities
It has been observed that various High Courts make several recommendations to Ministries in the Government of India to look into certain matters and take appropriate measures. However, there is no mechanism to find out whether the issue was brought to the notice of the concerned Ministry and whether the directions have been complied with. It is therefore, advisable to put up such orders on the website of the concerned Government department in public domain and after considering the various suggestions, appropriate action can be taken. This will bring transparency and accountability in the functioning of the Ministry.
Acceptance of orders of High Courts
In the earlier days, whenever the Department would accept a decision of a particular High Court on interpretation of law, the Central Board of Direct taxes used to issue a circular stating that a particular interpretation of law has been accepted. Such a practice is discontinued now which causes a multiplicity of litigation. If this process is readopted and published on regular basis on the website of the CBDT, it will bring transparency and will benefit the revenue as well as assessees.
Monitoring tax appeals
Though the Department is the single largest litigant in the higher Judiciary across India, the Income-tax Department does not have a centralised wing to effectively monitor its appeals from the stage of inception until the final disposal. It is advisable for the Department to have an independent National Tax Litigation Cell to monitor tax appeals before various High Courts and Apex Court. In tax matters, department is always either the appellant or the respondent. With the help of technology, CBDT can find out which are the issues pending before the Apex Court, High Courts and also the Appellate Tribunal. This will help in quick disposal of matters where common issues are involved. At present there is no mechanism to find out which appeals are pending before the High Courts or the Apex Court. As per the 1946 Rules of ITAT Manual, the Tribunal keeps the records only for six years after disposal of the matters and old records are weeded out being more than six years old. If the High Court desires to look into the original records while final hearing of the matters, the record may not be available. It is desired that all records of the ITAT may be digitalised and preserved. It is desired that an amendment may be introduced in the Act or Rules wherein an intimation may be sent to the ITAT as soon as the appeal is filed so that the concerned file may be preserved. There is no mechanism to find out whether appropriate effect is given of the orders passed by Apex Court, High Courts and Appellate Tribunal. System may have to be developed wherein the AO may be able to find out the status of appeal, effect given, refunds to be
Settlement Commission – Professionals may also be considered as eligible candidates for the appointment as members of the Settlement Commission
The Income-tax Settlement Commission was established in the year 1976 for the purpose of expeditious settling of disputes between the assessees and the Revenue. The Income-tax Settlement Commission (the “Commission”) is one of the most powerful commissions under Direct Tax laws. Section 245B(3) of the Income-tax Act (the “Act”), in express terms, requires the Central Government to appoint the Chairman, Vice-Chairman and its other members “from amongst persons of integrity and outstanding ability, having special knowledge of, and, experience, in problems relating to direct taxes and business accounts”.
Unfortunately, at present, there is no transparency in the appointment of the Members of Settlement Commission. In the case of appointment of Members of the Income-tax Appellate Tribunal (the “ITAT”), applications for the posts of Members of the ITAT are invited from professionals and Commissioners of Income-tax who are selected by the committee headed by the senior most Judge of the Supreme Court, the Law Secretary and independent professionals (Additional Advocate General or member of the Law Commission) and the President of the ITAT.
Dr. Vijay Kelkar’s Committee recommended instituting transparent procedures for the appointment of Members and Chairman of the Central Board of Direct Taxes [(2012) 258 ITR (Journal) 1 (45)]. We are of the opinion that the appointment of Members of the Commission, being a quasi-judicial body, must be done in the most transparent manner possible. The Federation conducted a survey on various issues – including the appointment of Members of the Commission – relating to tax administration, the findings of which were released at the 12th National Convention at Mumbai on 24-12-2012 (Souvenir, P. No. 149). About 97% of the professionals who were surveyed, opined that the Government should appoint at least few Members from the profession. In order to achieve the desired end in settlement proceedings, it is imperative that the Benches of the Commission consist of persons of diverse backgrounds. The ideal combination of a Bench would be the constitution of a Member each from the Department, the legal profession and the accountancy profession. The Members should ideally have a tenure of at least five years and the Chairman, of at least two years, so that she or he can take important decisions relating to the regulation of its procedures.
3. Amendments to the tax law
Appeals to the Tribunal
One of the suggestions made by professional organisations is that all the orders passed must be made appealable. This will save time and amount spent only in deciding whether an order is appealable or not. There are a number of orders of the Commissioners of Income-tax against which no appeal can be filed. E.g. orders under section 264, 273A, waiver of interest charged under sections 234A, 234B, and 234C, orders under section 179, denial of approval u/s. 10(23C) and other approvals by Chief Commissioner, etc. The only remedy available to the taxpayer is to approach the High Court in its writ jurisdiction. A simple amendment in the Income-tax Act may be made stating that all orders of the Chief Commissioner, Commissioner and Commissioner (Appeals) are appealable to the Tribunal. This would save substantial amount of time of the higher judiciary and the taxpayers would get speedy justice from the Tribunal.
Amendment to section 255(3) of the Income-tax Act, 1961 to the jurisdiction of the Single Member Bench
As per section 255(3) a single Member can hear the appeal if the assessed income does not exceed ₹ 50 lakh. It is desired that instead of the assessed income being the threshold for the matter to be heard by a single member, the tax in dispute may be made the threshold. A threshold amount of ₹ 35 lakh for tax in dispute, ₹ 15 lakh for penalty and another appropriate amount for the interest amount may be made. This will trigger an increase in disposal of matters where the penalty amount is less or the interest amount is less without causing much burden on the Division Bench.
Direct appeal to the Supreme Court to attain finality on important issues
Section 257 of the Income-tax Act provided for direct reference to Supreme Court under old provision of reference. No such provision is incorporated after the insertion of section 260A. The Income-tax Appellate Tribunal refers the matters to Special Bench when there are conflicting decisions of various Benches. In the meantime, one of the High Courts may have taken a contrary view. In such a case the decision of High Court will be binding upon the various Tribunals. Though the Income–tax Act is an all India statute, the Tribunal sitting in a particular State is bound by the decision of respective High Court of the particular State. This brings uncertainty in tax law. To avoid all these controversies, the Tribunal may be given power to refer the matter to Supreme Court either of its own, or upon an application made by the assessee or department. If this process is followed, a certain degree of certainty will be introduced in tax law which will also help in reducing the pendency of cases before various High Courts and finality shall be attained on some of the important issues within a reasonable time.
Mechanism for effective consultation before legislation is introduced.
It may be desirable that, before introduction of new legislation, consultations may be held with various State Bar associations. Such a practice in respect of all Central tax laws would help in bringing stability and transparency in tax laws. Proper and timely consultations may also help in avoiding subsequent challenges to the viruses of the legislation.
Accountability in tax administration
Due to lack of accountability on the part of Assessing Officers, it is common to find additions being made for namesake, knowing well that they may not withstand judicial scrutiny.
In order to keep a check on such frivolous additions, Dr. Raja J. Chelliah, in his report [(1992) 197 ITR 177 (St) (257) Para 5.9] suggested that ways must be found to hold the Assessing Officers accountable for kinds of assessments they make. He suggested as follows:
“The Assessing Officers should be made accountable for their actions by being blamed for raising demands which are not upheld by a reasonable figure, say 50 per cent, the officer should be given a black mark and reprimanded. On the other hand an Assessing Officer should be protected and defended if he has observed instructions of the Board and followed the Court rulings even though audit might raise objections about his actions.”
Bringing in accountability in the tax administration is the first step in reducing avertable litigation and would benefit the honest tax payers of the country.
Thought for Consideration: The problem of pendency in tax appeals that is plaguing the High Courts and the Supreme court can be reduced considerably if the Judiciary, Ministry of Finance, Ministry of Law and Justice, the Tax Bar and Tax Administration can come together and draft the short term plan and a road map for the long term. By the time we celebrate 75 years of Independence, at least in tax matters, the aim should be that assessees can get finality within two years of the assessment. Readers are requested to send their objective suggestions which can help the AIFTP to prepare the discussion paper for presenting to the Government for their consideration.
Dr. K. Shivaram