1. Tax – Laws
Taxation is a power of political Governments and realisation of taxes is essential for meeting with the cost of governance. The needs of governance in a “Police State” are limited but in a “Welfare State” are far more and, therefore, the occasion for greater taxation in a “Welfare State” is understandable. After Independence, to meet with the cost of governance, defence, internal security, social welfare; to provide water, food, cloth, housing, electricity and basic necessities of life to the have-nots; to pay debts, interest; to bear with scams, scandals, wasteful expenditure, leakages, pilferages and share of dishonest politicians and bureaucrats, India has been compelled to enact large number of tax legislations. There has been rat race with the Union and the States, to invent new tax legislations. We achieved the status of a highly taxed country.
1.1 In early sixtees a humble citizen was required to pay tax on income – maximum rate being 97.5%; rate of tax on wealth being 2 – 3 %; tax on expenditure, tax on gift, tax on death by way of estate-duty – as direct taxes apart from sales-tax, central sales-tax, excise duty, customs duty, and other indirect taxes and state levies. With passage of time, we realised our mistake and now exists only income-tax a direct tax. In indirect tax regime, there was sales-tax, replaced by VAT, Central Sales-tax, Octroi, entry tax, excise duty, service-tax and other levy, cess and taxes. From 1-7-2017 only Goods and Services Tax (GST).
1.2 Tax laws are complicated, complex, highly technical and beyond understanding of a commoner. Interpretation of tax laws is very much painful and difficult. Lately, there has developed a tendency to amend tax laws frequently and retrospectively. It is not a healthy sign. It is immoral and unethical. It does not very much affect the national exchequer, but puts a greater injury to a citizen of this great democracy. It shakes faith of the taxpayers in tax laws and prompt them to resort to unethical practices.
1.3 Tax, corporate and regulatory laws are strict. Frequent amendments of the Acts and the Rules and plethora of decisions of the Honourable Supreme Court, High Courts and Tribunals apart from instructions, directions and circulars of the competent authorities have been noticed. Conflicting views are expressed by various High Courts and it takes long years to have an authoritative interpretation. Retrospective amendment is made to nullify the effect of the interpretation of the Supreme Court. There appears a tug-of-war between the legislators and the judiciary, crushing honest tax payers.
1.4 Language is not simple and understandable. There are “Explanations”, “Provisos”, “Subject to”, “Notwithstanding anything contained in”, “deeming fictions”, provisions / phrases which lead to litigation. Such provisions are impacting the ease of doing business and cause impediments in free trade. Predictability and certainty is absent. Discretionary power vests with the tax administrators. There are apparent and patent conflicts, overlapping, different interpretations and convergence in tax laws, inviting long drawn litigation at all levels, with waste of time, energy, money and uncertainties.
1.5 For the economic growth and development, taxation policy has been regressive, uncertain, discretionary, breeding corruption, delays, disputes and discrimination. The department is the largest litigant. High pitched assessments are framed with mala fides and bad motives. Appeals if allowed, successive appeals are preferred till finality by the Apex Court; causing waste of time, energy and money – a ‘National Waste’.
2. Changes
“The Indian Income-tax Act, 1922” a simple, short and easy to understand, was replaced by highly complex, complicated and bulky “The Income-tax Act, 1961” with 298 sections, sub-sections, clauses, sub-clauses, provisos, explanations, 14 schedules, rules, regulations, circulars, instructions, etc. That apart, frequent massive amendments, insertions, alterations, deletions by the amending Acts and annual Finance Act, many with retrospective effect from 1962. Chapter XXI has been inserted conferring power to impose 35 type of penalties on non-compliance and technical defaults. Taxpayer has been loaded with a burden to submit statements and informations. However, with passage of time rate of tax has been made moderate to 30% and with deductions, allowances, etc. net rate may reach to 22% only. Now remains only income-tax with interest, surcharge and power to levy penalty, fees, collection and recovery and prosecution. Provisions relating to Tax Deductions at Source have been widened with liability to collect treating as “assessee-in-default” with interest, penalty and disallowance of the expenditure u/s. 40a(ia). Sections 285 and 285A have been inserted and expanded requiring furnishing of information or statement or documents, with an intention to cross-check. Section 44AB for compulsory audit has been made stricter requiring extensive scrutiny, examination, information, verification, certification etc. Efforts have been made to stream line, but compliances and obligations have increased tremendously. Returns, appeals etc. are on-line. Refunds for smaller amount is automatic and with expedition. But records are in a mess and rectifications are not automatic and smooth. One has to rush before battery of officers and human face could not be eliminated.
2.1 “ONE NATION – ONE TAX” – namely “GOODS & SERVICES TAX” has been introduced from 1st July, 2017, along with GST rules. In the GST regime, the Union and the States including Union Territory with legislature will concurrently levy Central GST (CGST) and State GST (SGST), Union Territory (UTGST) on inter-state supply of goods or services while Union will have exclusive power to levy Integrated GST (IGST) on inter-state supply and also on supply in the course of import into the territory of India. GST subsumes all existing taxes and duties on goods and services like Central Excise Duty, additional excise duty, excise duty levied under the Medicinal and Toiletries’ Preparation Act, service tax, additional customs duty, special additional duty of customs, union surcharge and cesses, Central Sales Tax, VAT / Sales-tax / purchase tax, entertainment tax (unless it is levied by the local bodies), luxury tax, taxes on lottery, betting and gambling, state cesses and surcharges in so far as they relate to supply of goods and services and entry tax are the taxes and duties, into a comprehensive GST and applicable uniformly on the supply of goods or services in the course of business with a seamless ‘Input Tax Credit’ (ITC) mechanism across the board. Liquor (alcohol for human consumption), petroleum products and natural gas etc., have been excluded from GST. Certain essential goods have been exempted. Five multi-taxed basic rates @ 0%, 5%, 12%, 18% and 28% have been made applicable. Power to reduce vests with the States.
2.2 Law is simple but compliances are cumbersome and on-line, within specified period. One may have to obtain several registrations with obligation to file returns monthly / annually and payment of taxes, assessments, audit etc. Some returns are to be filed within 10-15 days of next month. Sales invoices have to be in the prescribed format. There would be phenomenal rise in the cost of compliance. Small traders would suffer the pinch. However, if efficiently administered would cut-down prices by 1 to 2%. Anti-profiteering provision would take care of the consumers. In my view it should have been levied and collected by Union, as income-tax and distributed between the various States. That would have been better for the tax administrators and the stake-holders. Its wings are expanding.
2.3 The Modi Government gave golden opportunity to declare under “Income Declaration Scheme, 2016” on payment of 45% by way of tax, interest and penalty and bring 55% in the normal channel with all immunities, even from Benami Transaction Prohibition Act, apart from facility of making payment by instalments, with net tax effect of 41% and odd. Taxpayers had become daredevil and very few sensible persons availed of it. It proved as an utter failure and was an ‘illusion’. The taxpayers were under the bona fide belief that as and when they want to convert black to white, would pay advance-tax, deposit in bank, declare in the regular return and tax liability would be only 30% with no penalty. The taxpayers were under ‘delusion / confusion’.
2.4 The Taxation Laws (Second Amendment) Act, 2016 with effect from 1-4-2017 substituted existing Section 115BBE providing tax on incomes referred to in section 68 or sections 69, 69A, 69B or 69C or 69D of the Act from 30% to 60%, with no setoff of any loss. In view of the declaration that bank notes of denomination of ₹ 500 and ₹ 1,000 ceased to be legal tender with effect from November 9, 2016, it gave an opportunity to pay tax with heavy penalty so that the remaining part of the declared income legitimately comes into the formal economy. The amendments to section 271AAB and the introduction of sub-section (1A) provide to that end that in a case where search has been initiated under section 132 on or after December 15, 2016, the assessee shall pay by way of penalty of 30 per cent of the undisclosed income of the specified previous year, if the assessee in a statement under section 132(4), admits the undisclosed income and specified the manner in which such income has been derived and on or before the specified dates pays the tax, together with interest, if any, and furnishes the return of income for the specified previous year declaring such undisclosed income therein. In other cases the penalty shall be at 60 per cent. Thus in search cases the liability for tax, interest, surcharge and penalty may be 143.25% of undisclosed income (Tax 60% + Surcharge 15% + Cess 2.25% = 77.25% + Penalty u/s. 271AAC – 6% + Penalty u/s. 271AAB(1A) – 60%), which may be ‘confiscatory’, but valid and legal as evasion of tax is a social crime. Evaders have sympathy. It is terrorism. Taxpayers must come to senses.
2.5 In order to achieve the object of ‘less cash transactions, section 40A(3) was amended reducing the amount payable to ₹ 10,000/- instead of ₹ 20,000/- in a single day to a person. A new section 269ST has been inserted by the Finance Act, 2017 with effect from April 1, 2017, i.e. applicable for assessment year 2017-18 and subsequent years, whereby no person shall receive an amount of ₹ 2 lakh or more, in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. This restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank, any receipt from sale of agricultural produce by any person being an individual or Hindu Undivided family in whose hands such receipts constitute agricultural income and in respect of transactions of the nature referred to in section 269SS, and such other persons or class of persons or receipts, as may be specified by the Central Government by notification in the Official Gazette. To make this section effective, penalty for failure to comply with the provision has been provided u/s. 271DA, in a sum equal to the amount of such receipt.
2.6 A fourth proviso to sub-section (1) of section 153A was inserted by the Finance Act, 2017 with effect from April 1, 2017, i.e., applicable for Assessment Year 2017-18 and subsequent years, to provide that notice under the section can be issued for an assessment year or years beyond the sixth assessment year already provided up to the tenth assessment year if (i) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income which has escaped assessment amounts to or is likely to amount to ₹ 50 lakh or more in one year or in aggregate in the relevant four assessment years (falling beyond the sixth year); (ii) such income escaping assessment is represented in the form of asset; (iii) the income escaping assessment or part thereof relates to such year or years. The amended provisions of section 153A shall, however, apply where search under section 132 is initiated or requisition under section 132A is made on or after April 1, 2017.
2.7 To stop circulation of black / corrupt money, to eliminate fake currency and to check its use in terrorism activities, strong man – Shri Narendra Modi – declared demonetisation at 8.00 P.M. on 8th November, 2016, declaring existing 500 and 1000 rupee currency notes as illegal tender from 9th November except for specified purposes. The old currency to be converted into new currency by banking channels up to December 30, 2016. The Specified Bank Notes Cessation of Liabilities Ordinance, 2016 was promulgated on December 30, 2016. Many traders accepted old currency from 8th night and onwards showing invoices for sale in earlier dates and deposited in the Banks with convenience of bank officials. Notices have been issued and the assessees have been required to disclose cash amount deposited from 9th November and onwards. The income-tax officials are well-equipped to make scrutiny, examination, verification and if unsatisfied would deem as income u/ss. 68, 69 etc. with liabilities as above stated. It has caused ‘threats’ and ‘turmoil’.
2.8 It is strange and amazing that on the sacred and pious land of Lords Rama, Krishna, Mahavir, Buddha and Mahatma Gandhi, menace of corruption spread as a cancerous chronic disease, in all fields of life. Larger section of the politicians, persons-in-power, civil servants, and services indulge deeply in corruption, with no fear of the Government or even God. Tons of money has been acquired illegally and is held not in own name but in the name of spouse, children, relatives, friends, trusted persons or ghosts and non-existent persons. Many exposures have been made. Prevention of Corruption Act failed to book and prosecute successfully. Modi Government amended “Prohibition of Benami Property Transactions Act, 1988” w.e.f. 1-11-2016. It is very wide and meaning of benami transactions have been expanded. It may be stated that the term “property” for the purpose of benami transaction has been defined very widely and it includes assets of any kind whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes any right or interest of legal documents or instruments evidencing title to or interest in the property. It also provides, in case property has been converted in any other form then the property in converted form or sale proceeds of the same will also be deemed to be benami property. It shall cover all “benami transactions” which are not bona fide transactions. Income-tax Department has been entrusted with the job of initiation and adjudication. Right to confiscate vests in the Central Government apart from prosecution. Special Courts shall try and conclude trial within 6 months. Laloo Yadav’s family and his daughter Misa have been proceeded. Necessity would be its efficient and expeditious implementation. Many searches have been conducted by the Enforcement Directorate and prosecutions launched. It is a ‘tragedy’.
2.9 In 1961 Act, Section 271(1)(c) was inserted with an objective to impose penalty on concealment of income or on furnishing of inaccurate particulars of income at 100% of the tax evaded up to 300% of such tax. With passage of time swven Explanations were added to make the provisions more rigorous and effective, after shifting onus to prove bona fides on the tax payer. Penalty was sustained in few cases only. Exercise use to be in futility with harassment to the tax payers, with heavy cost for both and not sizable revenue for the exchequer. Hence by the Finance Act, 2016, the provisions have been made inoperative from 1-4-2017. New concept of penalty in cases of “under-reporting” and “misreporting” of income have been introduced from 1-4-2017 with insertion of Section 270A. On “under-reported income” and “misreported income” penalty would be 50% and 200% of such income respectively. Many illustrations and exceptions have been inserted. Immunity from penalty and prosecution in case of “unreporting” would be available u/s. 270AA on fulfilment of specified conditions. It is advisable for the Authorised Representatives / Return preparers / Chartered Accountants / Tax Advocates to be vigilant, cautious, careful and not casual, while auditing, examination of accounts, supporting vouchers, bank statements, other transactions, etc., and to report carefully and make all possible additions, disallowances while computing true and correct income. Requisite information, disclosure of primary and relevant facts for computing income without concealment or misrepresentation be furnished along with the return or by a separate letter immediately after filing of the return, to avoid penal provisions u/s. 270A of the Act. If for any reason non-reporting is noticed, make application to AO, pay the due tax, do not prefer appeal and seek immunity from penalty and prosecution. Purchase peace.
2.10 Taking undue advantage of Section 10(38) a fairly large number of unscrupulous assessees indulged in shady deals through shell companies, understated purchase price, over-stated sale consideration (unreal) and sought and got exemption from long term capital gain. More than two lakh such companies were detected, resulting in assessment / reassessment with tax, penalty, interest and some prosecutions. To curb this menace and to put a stop to such abusive act, to check revenue loss, to discourage diversion of investment in financial assets, the Finance Act, 2018 withdrew the exemption on transfers on and after the 1st day of April, 2018. A new section 112A in the Act has been inserted from 1-4-2018 to provide that long term capital gains arising from transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust, shall be taxed at 10 per cent of such capital gains exceeding one lakh rupees. It will be applicable to such long term capital gains, if (i) in a case where long term capital asset is in the nature of an equity share in a company, securities transaction tax has been paid on both acquisition and transfer of such capital asset; and (ii) in a case where long term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, securities transaction tax has been paid on transfer of such capital asset.
2.11 To regulate housing sector Real Estate Regulation Act has been enacted to curb misuse of funds received on booking of apartments, strict audit by Chartered Accountants, for registration, maintenance of accounts, bank accounts, and heavy interest on delay or default. Prevention of Money Laundering Act was activated and enforced with full vigour and many persons have been roped in, resulting in confiscation of ill-earned tax evaded money and assets.
3. Challenges
The last two years have been years of fear, illusion, delusion, confusion, threats, turmoil, tragedy and terrorism, to weed out black money and corruption, which are anti-social acts. It is advisable for the Authorised Representatives / Return preparers / Chartered Accountants / Tax Advocates / Corporate Advisors to be vigilant cautious, careful and not casual, while auditing, examination of accounts, supporting vouchers, bank statements, other transactions, etc., and to report carefully and make all possible additions, disallowances while computing true and correct income. Requisite information, disclosure of primary and relevant facts for computing income without concealment or misrepresentation be furnished along with the return or by a separate letter immediately after filing of the return, to avoid penal provisions. If for any reason “non-reporting” is noticed, to purchase peace, pay the due tax and seek immunity from penalty and prosecution. Compliance requirements under GST, Income-tax, Companies Act, SEBI, etc., are fairly large to be complied in very short time and all over the year. Professionals would have to be more attentive, alert and active.
3.1 The assessment is civil liability. Penalty is quasi-criminal in nature and prosecution is criminal. Provisions of search, seizure, rate of tax on undisclosed income, prosecutions etc., have been made more strict and stricter from year-to-year. It has become an annual phenomena. It is advisable to follow the law, comply the procedure and discharge liability in accordance with law. Forget to find out leakages, loop holes and evade due and correct taxes. Create tax culture. Be law abider and not breaker. Tax advisors must function as torch-bearers and encourage, inspire, instigate and advise tax payers to be on the right side. One should be peaceful not hounded by tax collectors. Take caution from provision contained in Section 271J for imposition of penalty and prosecution u/s. 278 for abatement.
4. Compliances
It is solemn duty of taxpayers as also tax administrators to understand intricacies of law, to comply with its provisions and procedure and to act in accordance with law. It is two way traffic. Taxpayer alone is not to be singled out or inflicted with penalty on non-compliance. Tax administration is expected to be respectful and sympathetic towards taxpayers. They should be also transparent and accountable and should not abuse or misuse the powers conferred under the Act. To maintain discipline, decorum and to avoid chaos and arbitrariness ‘Judicial Discipline’ has been built-up by the judicial precedents, judge made law. The basic object is to bring in consistency; to avoid unwanted litigation, which is costly and full of uncertainties; to avoid harassment of taxpayers; to eliminate denial of justice and to put a closure to the controversy.
4.1 In Bhopal Industries Ltd. v. I.T.O. (1960) 40-ITR-618 (S.C.), the Supreme Court observed : If a subordinate Tribunal refuses to carry out directions given to it by a superior tribunal in the exercise of its appellate powers, the result will be chaos to the administration of justice. Such refusal is in effect a denial of justice, and is further more destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts. The Supreme Court in Union of India v. Kamlakshi Finance Corporation Ltd. – AIR 1992 S.C. 711 at 712 emphasised: It cannot be too vehemently emphasised that it is of utmost importance that in disposing of the quasi-judicial issues before them revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax Laws”. In Assistant Collector of Central Excise v. Dunlop India Ltd. (1985) 154-ITR-172 at 173 (SC). “In the hierarchical system of Courts which exists in our country, it is necessary for each lower tier, including the High Court, to accept loyally the decisions of the higher tiers. It is inevitable in a hierarchical system of Courts that there are decisions of the supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary. But the judicial system works only if someone is allowed to have the last word and that last word, once spoken, is loyally accepted. The better wisdom of the Court below must yield to the higher wisdom of the Court above.”
4.2 “Judicial Discipline” deserves to be followed religiously and its sanctity must be understood. It is painful that despite a plethora of decisions commencing with Bhopal Industries, the AO and CIT(A) and few of the members of the Tribunal are flouting judicial discipline and committing contempt. It is high time that appellate authorities correct the errant authorities with heavy hand. It is being noticed that the Supreme Court and High Courts are taking indiscipline seriously. Recently on 24-4-2018 the Hon’ble Supreme Court in UOI v. Prithvi Singh dismissed the appeal with cost of ₹ 1 lakh. However there remains non-compliance by tax administration.
4.3 The Central Board of Direct Taxes must keep a watch and vigil and take serious disciplinary action against the wrong doers. Malady must go. Law is Supreme – Not the Tax Authorities. Taxpayer and tax authority are on equal footing. Compliance should be on both sides. Non-compliant officers should also be dealt seriously and severely. There should be no discrimination. Alas, politeness and normal courtesy upkeep of standards, talent and judicial acumen are becoming things of the past. Unhealthy ego is increasing. One is prone to misuse. One has to be honest to oneself to the greatest possible degree and maintain absolute total integrity, morality and ethics. The phenomena has intensified by continual interference of multiple higher authorities and fixation of target. Taxpayers are fastened with “Responsibility”, “Obligation” and “Duties” – not “Rights”, which has become a dream. It is apparent that artificial assessments are framed to create huge unrecoverable paper demand with coercive recovery. Challenges & lack of compliances are on the part of taxpayers as well as tax administrators. Tax-payers / Tax Consultants and Tax administrators are two sides of the same coin, if any part is deficient / non-compliant, economy would suffer.
4.4 Such being tax litigation scenario on large number of representations and directions of Commission, section 254(2B) was inserted by Finance Act, 1999 w.e.f. 1-6-1999, which provides : ‘The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal”. Statistics show that over 19 years, in negligible few cases cost commensurate with the expenditure, damages, compensation has been awarded by the Tribunal. Even if specific ground is raised and forcefully argued, discretion is not judiciously and judicially exercised. Even High Courts are slow in awarding cost / exemplary costs. However, it is heartening to note that some benches of the Tribunal, High Courts and Supreme Court finding uncurable malady have started awarding token cost.
4.5 Very recently a Division Bench of Rajasthan High Court in GVK Jaipur – Kishangarh Express way Ltd. v. Addl. C.I.T. in D.B.I.T.A. No. 622/2009 on 16-11-2017 observed.” The Officer not only acted arbitrarily but has exceeded is jurisdiction and which has put an agony on assessee’s account where daily turnover or toll is required to be operated through bank therefore, the agony which has been made on 6th February, 2009 and narrated in issue no 5 of the written submission which we have reproduced with a view to show agony which has been suffered and the conduct of the officer in spite of the High Court interference he has acted arbitrarily. In that view of the matter, the issue nos. 7 & 8 are required to be viewed very seriously and the Tribunal ought to have granted cost under 254(2)(b).The Hon’ble Court imposed cost. It is high time to realise “Professional Social Responsibility”. Be an active partner in building the nation. Serve the Taxpayers faithfully and carry them to the right path. Be prepared for it.
[Source: Article printed in Souvenir of 21st National Convention 2018 held from 22nd to 23rd December, 2018 at Guwahati]