Taxpayers’ Charter – Implement It in Letter and Spirit (Respect Begets Respect)

One would like to visit a place often where one gets respect. More than what we are treated with, “how” we are treated is important. And therefore, one would shudder to go to a Police Station. However, some people have a similar feeling while visiting the Income tax office. The trust deficit between the Income-tax department and the taxpayer is so high that both suspect and disrespect each other. Respect for the fellow human being is the cardinal principle of a civilized society. However, it is not to be found while dealing with some government agencies.

In this connection, the first two declarations of the Taxpayers’ Charter by the Income-tax Department¹, which was issued on 13th August, 2020, deserve our attention.

1. https://incometaxindia.gov.in/Documents/taxpayer-charter.pdf

They are as follows:

“The Income Tax Department is committed to:

1. Provide fair, courteous, and reasonable treatment

The Department shall provide prompt, courteous, and professional assistance in all dealings with the taxpayer.

2. Treat taxpayer as honest

The Department shall treat every taxpayer as honest unless there is a reason to believe otherwise.”

In all, there are 14 declarations in the Taxpayers’ Charter. However, even if the first two declarations cited above are implemented in letter and spirit, they can help to reduce the trust deficit to a great extent.

When one looks at the language of the notices or summons issued by the Income-tax department, one feels that much needs to be done to implement these two declarations in the Charter. Of late, summons are sent by the Investigation Wing of the Income-tax department even to non-residents who have been living abroad for ages, seeking details of their worldwide affairs without jurisdiction. Moreover, the notices threaten to levy a penalty for non-attendance and contain a direction not to leave the officer’s chamber until permitted to do so. Such an attitude creates fear and causes reluctance in nonresidents in even venturing into obtaining a PAN in India. Notices from the Income-tax department use unfriendly language and end with a threat to levy a penalty for noncompliance. The tone of the communication from the Income-tax department is that taxpayers are suspected tax evaders. These attitudes need to be changed with soft skills training for officers on the approach to taxpayers.

It is worth noting the remarks made by the Prime Minister while launching the Taxpayers’ Charter – “it is a significant step where the taxpayer is now assured of fair, courteous and rational behaviour.” He said the charter takes care of maintaining the dignity and sensitivity of the taxpayer and that is based on a trust factor and that the assessee cannot be merely doubted without a basis. Many steps have been taken by the Government to improve taxpayers’ services, such as the use of technology, faceless assessments, faceless appeals, etc.; however, much more remains to be done.

The experience of the taxpayer is quite dismal when it comes to fair and reasonable treatment by the Incometax department. High-pitched assessments, withholding of refunds, denial of exemptions/deductions, reopening of assessments without making base papers available to taxpayers, adjustment of refunds against unverified past demands, past incorrect demands reappearing time and again, and the absence of accountability on the part of tax officials remain painful experiences of taxpayers, even today. The levy of a high penalty (Rs. Ten Lakh) under the Black Money Act for mere failure to disclose (in respect of a legitimate transaction) a foreign asset or signatory of a foreign bank account, etc., by an Indian resident cannot be justified as fair and reasonable on any count. Some overzealous Assessing Officers want to tax anything and everything, as there is no accountability if they are found to have gone overboard.

The powers given by the recent insertions in section 245 of the Income-tax Act are prone to misuse and harmful to taxpayers. The amended provisions allow tax authorities to withhold refunds on the basis that they are anticipating some demand to arise in future upon the conclusion of pending assessment proceedings. In any case, refunds of higher amounts are invariably delayed or withheld without any valid reason; the amended provision will legitimatise the right of tax officials to delay refunds.

Backdoor assumption of powers by the CBDT?

Many sections, e.g., section 115BAB, sections 206C(1G/H), 194-O, 194Q, 194R, 194S, etc., are amended to assume powers by the CBDT to issue binding guidelines on the taxpayers and tax officials. So far, guidelines issued by the Income-tax department were biding only on the officers. However, under the new provisions, guidelines issued by the CBDT shall be binding on both taxpayers and IT officials. Even though these guidelines need to be approved by the Parliament, it hardly makes a difference. There is a fear that officials will assume powers to amend the law in the name of clarifications, etc. The glaring example is FAQ 4 of Circular 12/2022 issued in the context of S.194R, which states that the cost of a free medicine sample given by a pharma company to a doctor with the narration ‘Not for Sale’ can be considered as a ‘benefit’/‘perquisite’ provided to the doctor and hence the pharma company providing free samples needs to deduct TDS under section 194R. This interpretation of the tax department may not stand the test of judicial scrutiny. However, till such time, the taxpayer will be bound by it, as it is a part of the binding guideline. Such provisions are clearly against the spirit of the Taxpayers’ Charter, which aims to be people-centric and public-friendly.

Unfortunately, one can still see the grip of bureaucracy over law-making. The laws are framed for outliers/exceptions. In the name of plugging loopholes, court rulings in favour of taxpayers are nullified by legislative amendments, citing legislative intent, which may not be true. This calls for a complete change of mindset in policymaking and advising.

Two other important declarations in the Taxpayers’ Charter are (i) Providing a Just and Fair Tax System and (ii) Reducing the Cost of Compliance. When one looks at both of these declarations, one cannot help but feel that the ground-level reality is far from the promises in the Charters.

Let us hope that the Income-tax officials will implement the Taxpayers’ Charter in the spirit of “Transparent Taxation — Honouring the Honest”, the underlying theme announced by the PM while launching the structural reforms platform of Faceless Assessment, Faceless Appeal and Taxpayers’ Charter. Needless to add, every rule, law, and policy has to be people-centric and publicfriendly, rather than process and power-centric.

New Criminal Laws in the New Year

One major development on the judicial front is the enactment of three new criminal laws, to replace the colonial-era criminal laws. The focus of the earlier laws was to levy penalties, whereas the focus of the new laws is to give justice to the victim. The three New Laws are: (1) The Bharatiya Nyaya Sanhita, 2023 (replacing the “Indian Penal Code, 1860”) (2) The Bharatiya Nagarik Suraksha Sanhita, 2023 [ replacing The Code of Criminal Procedure, (CrPC) 1973] and (3) The Bharatiya Sakshya Adhiniyam, 2023 (replacing the “Indian Evidence Act, 1872”).

The laws are not only named in Bharatiya style but claimed to be Bharatiya in spirit to keep pace with the current times and get rid of the colonial mindset. The new laws provide penalties for crimes such as terrorism, mob lynching, and offences jeopardising national security. The new laws will have a far-reaching impact on internal security and law and order situation in India. However, to make these laws more effective, judicial reforms need to be undertaken at the earliest.

Let us hope that Bharat ushers in the New Year with a progressive, positive, and pragmatic mindset, leaving behind a colonial legacy!

Wish you a happy and prosperous 2024!