Faceless, Fair and Friendly
The Finance Minister, Smt. Nirmala Sitharaman, in her address on the occasion of the 165th Anniversary of the Income Tax Day celebrations in New Delhi, emphasised on a “Faceless, Fair and Friendly” Tax Administration — something taxpayers have been yearning for ages.
Every year, 24th July is celebrated as Income Tax Day in India. This day commemorates the introduction of Income Tax in India by Sir James Wilson in 1860. While this initial implementation laid the groundwork, it was the comprehensive Income-tax Act of 1922 that truly established a structured tax system in the country. This Act not only formalised various income tax authorities but also laid the foundation for a systematic administration framework1. In 2010, for the first time, the Income Tax Department decided to celebrate 24th July to mark 150 years of the levy of the tax in India.
1. https://pib.gov.in/PressReleasePage - posted on 21st August, 2024
However, the Ministry of Finance celebrated the 165th anniversary of Income Tax Day in New Delhi on 21st August, 2024 and released a “My Stamp” dedicated to Income Tax Day. The Finance Minister hailed both taxpayers, for contributing to nation-building, and tax officials, for raising revenues for the country. She urged tax officials to write notices in simple and courteous language and use enforcement only in exceptional cases. She emphasised making income-tax filing seamless and painless. Her message was loud and clear to make the tax administration transparent, taxpayer-friendly and trustworthy. Such a request and exhortation coming from the Finance Minister raises a great deal of hope.
Most of us have experienced the pains and agony of our clients due to high-pitched assessments, unfriendly notices, unjustified penalties, threatening prosecution even for a venial breach, adjustment of old unverified demands against current refunds and whatnot. And therefore, the FM’s assurance matters. She has also informed about the plans to introduce simplifications to the Income Tax Act in six months.
The buoyancy in tax revenues and increase in voluntary tax compliances (with 58.57 lakhs first-time ITR filers for A.Y. 2024–25) are testimony of the growing economy and taxpayers’ faith and participation in national development2. A fair and just treatment from the tax department is the least a taxpayer can expect in return.
2. A growth of 17.7 per cent achieved in net collections and an increase of 7.5% in the number of ITRs filed over the previous year (till 31st July,2024) [Source: https://pib.gov.in/PressReleasePage - posted on 21st August 2024]
The expectations of fair treatment and reasonable tax laws are not just in respect of direct taxes, but indirect taxes as well, especially Goods and Service Tax (GST).
GST was introduced just seven years ago as a panacea for the complex indirect tax regime in the country. It was expected to be ‘faceless’, with the GSTN portal being the ‘face’ of the administration. The law also provides for the issuance of notices and orders only on the GSTN Portal. Despite such a clear mandate and frequent Court interventions, it is common to receive a notice or an order offline. Clearly, what is legislated is not administered. As far as hearings are concerned, the GST law mandates that a hearing is a must before adjudication but does not specifically mention about an online / faceless hearing. At times, the authority proceeds to pass orders without granting even a hearing in person. Is this the interpretation of faceless hearing? Strange!
A fair attempt to resolve controversies (which are inevitable in tax laws) by the legislators and the policy makers, is visible with the issuance of a barrage of circulars providing relief to various sectors where controversies were brewing. However, within this apparent ‘fairness’ lies the ‘gross unfairness’. How could it be ‘fair’ when a retrospective amendment permits a belated claim of input tax credit in cases which are being litigated but denies refunds to a genuine taxpayer who paid up tax, interest and penalties immediately on demand in similar situations? When the resolution of controversies is regularly sought to be achieved on the principle of ‘as is where is’ basis, this inequity, as well as inequality, is clearly ‘unfair’, especially in cases where the taxpayer coughs up the tax, interest and penalties based on a ‘friendly’ advise from a tax authority, whose actual conduct portrays everything other than ‘friendliness’, just to later on realise that another taxpayer who did not act on such ‘friendly’ advise and withstood the pressures is ultimately exonerated.
In indirect taxation, there is a concept of ‘unjust enrichment’. The dictionary meaning is “a benefit gained at another’s expense without legally justifiable grounds, such as one gained by mistake”. In other words, a taxpayer cannot get a refund of taxes paid by him to the government unless the same are borne by him. If the taxpayer has collected taxes from others and paid to the government, the refunds arising for any reason cannot be granted unless those taxes are restituted to the payer (customer).
The majority judges in the case of Mafatlal Industries Ltd. vs. UOI3 held that “the doctrine of unjust enrichment is, however, inapplicable to the State. The State represents the people of the country. No one can speak of the people being unjustly enriched.”
3. SUPREME COURT REPORTS [1996] SUPP. 10 S.C.R.
Is it fair on the part of the government to be unjustly enriched at the cost of the taxpayers?
There are umpteen instances where one can question the ‘faceless nature’, ‘fairness’ and ‘friendliness’ of the indirect tax administration. In fact, such instances have become a far too familiar pattern. An overzealous tax authority would attempt far-fetched interpretations (e.g., Securities held by a holding company in a subsidiary company, Share Premiums, ESOPs, etc., would amount to rendition of services) to garner more revenue even without authority of law. Despite the interpretation being far-fetched, it sky-balls into a nationwide investigation, with virtually all significant taxpayers being issued ‘not so friendly’ notices or summons. The taxpayers and associations run helter-skelter and reach out to the policy-makers, with the entire issue receiving a disproportionate media coverage and, ultimately the policy-makers clarify the situation to resolve the issue. While all’s well that ends well, the process does leave significant scars on the impacted taxpayers, with the ‘as is where is’ principle adding further salt to the wounds. It is in this background that the significant words of relief of the Finance Minister need to percolate to the tax administrators.
All in all, the way GST law is administered is against the spirit of ease of doing business in India. There is a strong demand to reduce the peak rate of GST and rationalise other slabs to reduce the tax burden. With the sizable increase in GST revenue, there is a scope for some relief to people at large, as indirect tax is regressive and results in inflationary pressure in the economy.
Turning to the important amendments by the Finance (No. 2) Act, 2024 (FA Act), this issue carries a series of articles giving an in-depth analysis of the old and new provisions. Restoration of the indexation benefits by the FA Act, at the option of the assessee, in case of immovable property acquired before 23rd July, 2024, with 20 per cent tax rates for individuals and HUFs is a welcome step; however, a number of issues may arise due to change of taxation in case of buy-back of shares. Readers may refer to the detailed discussion in the separate article in this issue.
Recently, we lost a dedicated contributor to the BCAJ, CA Jayant Thakur. His contribution to the Journal will be remembered for a long time. We pray for the departed soul.
To conclude, let’s hope that both the Direct and Indirect Tax Administrations become ‘Faceless, Fair and Taxpayer-Friendly’ in letter and in spirit. A mechanism of constant monitoring is required to ensure fair, equitable and friendly treatment to taxpayers. Needless to add that unless tax officials are made accountable, the fair and friendly tax administration may remain a utopian dream.
