When the Modi Government came to power there were huge expectations that significant tax reforms would be initiated. However, the first one and a half year belied these expectations. While the Prime Minister talked about ease of doing business, adopting a liberal tax regime, the situation on the ground has been totally different.
Possibly the disappointment of the business community, coupled with electoral reverses has spurred the government into action. The first indications of this change came in the form of the recent circulars issued by the CBDT. The circular raising the monetary limits in regard to litigation pursued by the Income tax department, before the Tribunal and High Courts, and that too with retrospective effect, reduced the pendency before these two forums. The instructions in regard to the manner in which scrutiny assessments were to be completed, when the selection was under CASS, also reflected a refreshing change in attitude.
In this light, the first recommendations of the Justice Easwar Committee are commendable and deserve to be substantially accepted by the Finance Ministry. The Committee was formed on 27th October 2015, to suggest amendments to the Income-tax Act 1961 (the Act), and the procedures thereunder. The terms of reference of the Committee were:
(a) identifying provisions that gave rise to litigation on account of difference in interpretation,
(b) studying provisions that hampered ease of doing business,
(c) identifying provisions of the act for simplification, and
(d) suggesting alternatives and modifications to ensure certainty and predictability of tax laws.
The Committee has a term of one year from the date of its constitution and was to issue its first recommendations by 31st January 2016. The Committee adhered to the timeline and its suggestions are indeed laudable. A perusal of the first batch of suggestions in the draft report indicates that, they are fair, recognise the problems faced by taxpayers on the ground and are capable of immediate implementation. The recommendations have been divided into two parts – one constituting amendments to the Act itself which could be incorporated in the Finance Bill and the other being directions to be issued by the CBDT in the form of circulars or instructions.
The Committee has addressed a number of provisions which have resulted in substantial litigation. The treatment of transaction in shares and securities as business income instead of capital gains, the irrational disallowances under section 14A, the problems caused by the invoking of section 50C at the time of registering of the conveyance when the transaction of transfer had taken place earlier, the notional income arising in the hands of the purchaser of property on account of difference between the purchase price and the stamp duty valuation have all been dealt with.
The problems faced by assessees on account of overzealous bureaucrats have also been mentioned. Audit objections, which are often the result of either an erroneous interpretation of the law or non-appreciation of the ambit of provisions, resulting in reopening and revision of assessments, even though the department really does not agree with the objections. This results in a spate of litigations and with the assessee succeeding in a majority of cases, there is no real ultimate collection of revenue. The amendments suggested to section 147 and 263 of the Act will effectively reduce this menace.
While the implementation of the above suggestions will reduce litigation, other recommendations reflect a fair mind. It is proposed that if an assessee has bona fide, relied on a decision of the Tribunal, a High Court or the Supreme Court and an addition is made to his income, no penalty should be levied. One really wonders whether the department would be in a position to accept this proposal, but it certainly establishes the principles of justice and equity have been recognised. It has also been recommended that even if penalty is levied, the collection should be kept in abeyance if the appeal on merits is pending adjudication before the Tribunal.
For more than a decade, high-pitched assessments and the consequential coercive collection of taxes has made the life of tax payers miserable. The pressure of unreasonable collection targets often forced even wellmeaning officers to resort to irrational assessments. A rethink about the stay provisions which have been recommended by the Committee would go a long way in reducing if not solving the problem.
Though the principle that a tax proceeding is not adversarial is well established, it is rarely adhered to on the ground. A specific provision enabling a taxpayer to make a fresh claim for an exemption, deduction or relief after he has filed the return of income, during the course of an assessment is welcome. If this suggestion is accepted it may reduce unnecessary litigation.
On the equity front the Committee has suggested substantial changes in regard to issue of refunds, interest thereon and adjustment of refunds against tax dues which are really not collectible. Obtaining tax credit is another area which was a headache for both, the assessees and the professionals. The Committee has also dealt with this area and the recommendations are pragmatic.
Finally, the proposal to postpone, the implementation of the Income Computation Disclosure Standards (ICDS), will be welcomed by both, taxpayers and professionals. In fact, the Committee has aptly indicated reservations of tax payers concerning ICDS in their present form.
In all, the first batch of suggestions are worthy of an applause. However, much more needs to be done on the front of accountability of the tax administration. There are suggestions in regard to time limits for disposal of petitions under sections 273A, 220(2A) etc., but a lot more is expected from the Committee. Structural changes, reform in tax policy may possibly be done in the second instalment of the report.
One hopes that the Finance Minister accepts the recommendations of the Committee and proposes appropriate amendments through the Finance Bill while presenting the forthcoming budget. Coupled with this, if there is a change in the mindset of the tax officers and reduction in corruption, a healthy atmosphere where doing business is really easy will have been created. It is said that taxes are the price one pays for civilisation. If taxes are administered fairly and humanely, citizens of this country will be more than willing to pay this price.
