SUGGESTIONS FOR BUDGET 2020

The AIFTP every year submits Pre-Budget Memorandum to Government. The Memorandum contains suggestions for consideration of Government while formulating tax proposals for the year under consideration.

Dr. K. Shivaram, Senior Advocate and Past President of AIFTP has offered several valuable suggestions, inter-alia, on what reforms in tax laws and tax administration have to be implemented so as to achieve the noble objective of improving the ease of doing business. He has opined that if these suggestions are followed, there will be a proper recovery of taxes as well as a drastic reduction in litigation, which will benefit the Government as well as the citizens.

• Mind set of tax officials in the field must be changed from tax collection to tax services.

• Introduce accountability provision under the tax laws as per the recommendation of Dr. Raja Chelliah Committee.

• All orders of Assessing Officers may be made appealable to Commissioner (Appeals) and all orders of the Commissioners / Chief Commissioners may be made appealable to Tribunal.

• Transparency is needed in appointment of members of the Settlement Commission and also be debated whether the power to settle the matter may be given to the ITAT. Professionals should be appointed on Settlement Commission.

• In respect of domestic taxation issues, power to grant advance ruling may be given to ITAT.

• Prosecution matters relating to direct taxes may be decided by two judicial Members of the ITAT.

• Where substantial questions of law are involved and where different High Courts have taken different views, Tribunals should be able to refer the matter directly to the Supreme Court.

• CBDT may publish the information where the Department has accepted the orders of High Court or Tribunal;

• CBDT may publish the list of matters admitted by various High Courts on various issues.

• Statement recorded in the course of search and survey may be directed to be furnished to the assessee within seven days of search or survey, as the case may be.

• Huge litigation is on the issue of whether profit on sale of investments in shares and securities or mutual fund is assessable as business income or capital gains. It may be clarified that if the investment is held at least for more than 30 days it may be treated as investment and those held for less than 30 days may be treated as stock-in-trade; this may bring clarify and help to reduce the litigation;

• One of major sources of litigation is disallowance under section 14A. The said provision may be deleted, or alternatively the disallowance of expenditure may be restricted to 2% of dividend income or actual expenditure or as per rule 8D whichever is less.

• Strict implementation of time limit for passing orders by CIT(A) must be done.

• Remand report must be furnished within one month of direction. In case the Assessing Officer is not able to send, he has to take extension from the CIT(A) stating reasons, however, maximum time limit should not exceed six months.

• Delay in passing orders by AAR within six months should be strictly followed.

• One time settlement of prosecution matters before various Magistrate Courts.

• Setting up of special courts to deal with prosecution in relation to Direct and Indirect taxes

• Tax deducted at source should have only one section instead of 25 sections and should have concept of passbook and only one return for all tax deducted at source.

• E-Bench of Supreme Court can be an effective alternative for having 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 Government may consider the proposal for constituting a committee of representatives from legal and accountancy profession as well as from the Tax Department of the rank to Principal Chief Commissioner of Income tax for arbitration.

• The concept of income tax ombudsman was introduced to redress public grievances and improve tax payer service. Income tax ombudsman guidelines were issued in 2010. Though it has been around 10 years for the concept, the outcome has hardly been satisfactory. Most of the times, the chair is vacant as no appointments are made. As per the guidelines an ombudsman should have been serving officer preferably from IRS (Income Tax). According to us, ombudsman should be an independent person and could be retired ITAT member.

• Separate allocation of funds for judiciary.

• National Tax Court of Direct and Indirect taxes.

• Time lines for passing orders by CIT(A)

• There needs to be a continuous research on the taxation for increasing the tax base, and to understand the types of litigation. If one analyses the reported judgments of High Courts and Tribunals one will be in a position to analyze the issues and reasons.

• Taxability of the Non-Compete Fee in the hands of recipient needs clarification since some HC Judgments treated it as capital expenditure eligible for depreciation while others treated it as revenue expenditure.

• As per FA 2018, conversion of capital assets into stock-in-trade is taxable as Business Income (FMV-Cost of Inventory on date of conversion). It is suggested to provide deferment of payment of tax on business income from conversion of stock in-trade to capital asset till the final disposal of such capital asset to avoid hardship of payment of tax on unrealized gain and bring parity with the method adopted on conversion of capital asset into stock-in-trade.

• It is suggested that the due date defined under Explanation to Section 36(1)(va) should be amended and accordingly the due date shall mean the due date for filing return of income under section 139(1), thereby bringing it at par with the due date specified for the employer’s contribution under Section 43B of the Act.

• It is suggested that limit for allowable remuneration for each of the working partner be changed at the rate of ₹ 1,80,000 per annum per partner or 90 per cent of book profits whichever is more for first ₹ 10,00,000 of book profits and 75 per cent of the remaining book profits.

• Section 44AD relating to presumptive taxation applies only to businesses run by residents individuals, HUF and firms excluding LLP. The benefit of section 44AD should also be made available to LLP.

• It has been suggested to raise the threshold limit for presumptive taxation in case of profession to at least ₹ 1 cr from present ₹ 50 lakh and rate of income to be reduce to 30% from present 50%

• Section 54EC: Time limit for investment in specified bonds is presently 6 months from the date of transfer. It is suggested to amend section 54EC so that time limit for investment in specified bonds may be allowed up to the due date of filing of ITR. Further, considering the inflationary conditions in the economy, it is further suggested that the said limit of ₹ 50 lakh may be raised to ₹ 1 crore.

• We all know one of the major amendments by FA 2018 in Capital Gains Chapter i.e. 55(2)(ac) (Grandfathering of Cost). It is suggested to bring clarity in determining the cost of acquisition in case of merger/demerger etc. (If X Ltd. is merged with Y Ltd., then whose FMV we have to take on 31st January 2018 u/s. 55(2)(ac) by amending the said section or by issue of a clarification.

• The annual limit for contribution u/s. 80C be increased to ₹ 3 lakh from the present ceiling of ₹ 1.5 lakh.

• The limit for deduction under section 80DDB for expenses incurred on treatment of certain chronic diseases may be increased.

• Amendments required in Section 80EEA (Tax Incentive for Affordable Housing). It is suggested that section 80EEA (1) may be amended as follows (by inserting the words ‘or construction’ akin to provisions of section 54 and 54F). It is suggested that limit of ₹ 45 lakh as the value of residential house property may be raised appropriately.

• Section 80TTA was inserted by the Finance Act, 2012 to provide deduction of up to ₹ 10,000 in the hands of individuals and HUFs in respect of interest on savings account with banks, post offices and cooperative societies carrying on business of banking. Interest on all types of deposits (eg. FDRs) may also be included within the scope of section 80TTA.

• The Finance Act 2018 inserted a new Section 80TTB so as to allow a deduction up to ₹ 50,000/- in respect of interest income on deposits made by senior citizens. It is suggested that income by way of interest on National Savings Certificate also be included within the ambit of provisions of Section 80TTB, so that senior citizens who have purchased NSCs from post offices are also able to avail the benefit of enhanced deduction under Section 80TTB.

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H. N. Motiwalla
Editor