Reform not Change is the constant in the world in flux
The Hon’ble Prime Minister, in an addresses to the nation during the COVID-19 induced lockdown, mentioned that every crisis comes with an opportunity to transform ourselves. Hence, an effort was made by initiating reforms in different sectors. When the entire nation was still under lock down, a series of five restructuring phases were announced, providing stimulus package for economic relief to industries affected by COVID-19 pandemic. On 16th May 2020, the fourth announcement initiated reform measures in coal mining, mineral mining, power distribution, atomic energy, defense, civil aviation, space and social infrastructure sectors.
The Hon’ble Finance Minister has kept up the steam of reforms going on, in her budget proposals also. She has been appreciated by economists and fiscal policy experts for resisting the temptation to introduce new cess or levy to offset the strain caused on the exchequer due to the slide, in the global economy, caused by the pandemic and the halting of domestic economic activity. Her frank confession of not being able to contain the deficit and putting the same at 9.5% in a transparent manner is described as a courageous move. The stimulus, to trigger demand, as proposed through asset creation, is a very bold step in the right direction. The stress for health and infra, if implemented in right earnest, with in 3 or 4 years, down the line, lo and behold the face of the country may change.
Now, turning to the Finance Bill, 2021, I regret to say, it does not inspire similar positive vibes that the proposals of Budget 2021 do. Proposals of the Finance Bill, 2021 do carry the reform process to the direct and indirect tax legislations, but certain proposals disappoint us, professionals, as they may not be in the right spirit.
The Temptation to unsettle law of the land, laid down by the Apex Court.
Through Clause 7, 18 and 20 of the Finance Bill, 2021 the decision of the Supreme Court in the case of Smiff Securities Limited (2012) 348 ITR 302 (SC) is neutralized. The goodwill is not a depreciable asset. Again Clause 5 and 6 of the Finance Bill, 2021 reverse the law which had reached finality with the decision of the Apex Court in the case of CIT(E) v. Subros Educational Society (2018) 303 CTR 1 (SC).
Not in the spirit to rationalization.
The Clauses 8 and 9 of the Finance Bill, 2021 deal with the provisions of payment by employer of an employee’s contribution to a fund on or before the due date. There are contrary decisions of the High Courts. Bombay High Court in the cases CIT v. Hindustan Organics Chemicals Ltd (2014) 366 ITR 1 (Bom) and CIT v. Ghatge Patil Transports Ltd (2014) 368 ITR 749 (Bom) has taken view in favour of the assessee, whereas Gujarat High Court in the case of Gujarat State Road Transport Corporation (2014) 366 ITR 170 (Guj) decided this issue in favour of the department. This issue is sub judice before the Apex Court. The proposed amendment is in the nature of a clarification; thus, it would be deemed to be construed as it has always existed. The disallowance in the hands of the employer assesse is permanent as the same is not covered by the provisions of section 43B of the Income tax Act,1961. The default may be due to reasons beyond the control of the assesse. The permanent nature of the disallowance, to say the least, is regressive.
Faceless is Opaque – It won’t bring Transparency, Efficiency and Accountability.
The Appellate Tribunal, being a court, inspires confidence among the citizens as it operates beyond the control of the Income tax department and the department is also a litigant, before it, like the assesse. From the inception of ITAT, i.e., since January, 1941, it was manned by persons of integrity and caliber to acquire the status of a nonpartisan judicial body, in which citizens of this country reposed faith. The Bench has produced many High Court and Supreme Court judges. It may not be out of place to mention that the Bar consisted of professionals, who appeared before it, with persons like the legendary Jurist N.A. Palkhivala in the yesteryears and now, the present stalwarts like Dr. Y.P. Trivedi, Mr. S.E. Dastoor, Mr. V.H. Patil, the list is long. The Income Tax Appellate Tribunal, whose orders are final with respect to the facts, is proposed to be made faceless vide Clause 78 of the Finance Bill, 2021 to ensure efficiency, transparency and accountability. The proposed amendment is not in the right direction because law pertaining to taxation is not Predictive Justice; also, facelessness does not always lead to transparency and accountability. Transparency and accountability cannot be sacrificed at the altar of the so called efficiency. Questions also arise as to the constitutional validity as these provisions are violative of the Fundamental Rights, enshrined in the Constitution. However, the bureaucracy may achieve what it wanted to do since long i.e., kill an independent judicial body called the Income Tax Appellate Tribunal.
In the introductory chapter of the book “The Post-American World”, published in the year 2008, the well-known author Mr. Fareed Zakaria , at page 2 observed “We are living through the third great power shift of the modern era. It could be called “the rise of the rest”. Over the past few decades, countries all over the world have been experiencing rates of economic growth that were once, unthinkable. While they had booms and bursts, the overall trend has been unambiguously upward. This growth has been most visible in Asia but is no longer confined to it.” In these lines, the reference to ‘Asia’ was China-centric in specific and in general, was a reference to the Far East countries; we as a nation, were part of the bandwagon by default and not by design. Now our leadership is conscious of the emerging new world order, post the covid-19 pandemic. The opportunity is before us; we should reform ourselves to grab it and be at the forefront of the fourth power shift. The word Reform should be substituted in the phrase “Change is the only constant in this world in flux.”
This issue of the journal carries articles of experts, in the field direct and indirect taxes, who have commented on the important provisions of the Finance Bill, 2021. I thank all the esteemed professionals for taking out time for the journal out of their busy schedule.