Miscellanea

7.  Re-promulgation of ordinances is ‘fraud’ on
Constitution, says Supreme Court

The Supreme Court on
Monday held that re-promulgation of ordinances by government was
constitutionally impermissible as it amounted to bypass the legislative body
which was a primary source of law making authority in a parliamentary
democracy.

A seven judge constitution
bench held by majority that government’s decision to bring ordinance can be
reviewed by judiciary and said that it was obligatory for the government to
place the ordinance before the legislative body for its approval and
non-placement of ordinances before the Parliament and the State legislature
would itself constitute a fraud on the constitution.

The majority verdict by
Justices A. K. Goel, U. U. Lalit, D. Y. Chandrachud and L. Nageswara Rao held
that “Re-promulgation defeats the constitutional scheme under which a
limited power to frame ordinances has been conferred upon the President and the
Governors.”

“The danger of
re-promulgation lies in the threat it poses to the sovereignty of Parliament
and the state legislatures which have been constituted as primary law givers
under the Constitution. Open legislative debate and discussion provides
sunshine which separates secrecy of ordinance making from transparent and
accountable governance through law making,” it said.

Chief Justice T. S.
Thakur, who was heading the bench, also agreed with majority verdict on the
issue but differed on other aspect. “I am in complete agreement with the
view expressed by my esteemed brother Chandrachud, J. that repeated
re-promulgation of the ordinances was a fraud on the Constitution especially
when the Government of the time appears to have persistently avoided the
placement of the ordinances before the legislature.”

Justice Madan B. Lokur,
however, differed sating “There could be situations, though very rare,
when re-promulgation is necessary”.

The majority verdict,
delivered by Justice Chandrachud said, “The failure to place an ordinance
before the legislature constitutes a serious infraction of a constitutional
obligation which the executive has to discharge by placing the ordinance before
the legislature”

“The laying of an
ordinance facilitates the constitutional process by which the legislature is
enabled to exercise its control. Failure to lay an ordinance before the
legislature amounts to an abuse of the constitutional process and is a serious
dereliction of the constitutional obligation,”it said. 

The court said that apex
court’s ‘hope and trust’ that law making through re-promulgated ordinances
would not become the norm had been belied by the governments through succession
of re-promulgated ordinances.

It also ruled the
satisfaction of the President under Article 123 and of the Governor under
Article 213 is not immune from judicial review.

“The test is whether
the satisfaction is based on some relevant material. The court in the exercise
of its power of judicial review will not determine the sufficiency or adequacy
of the material. The court will scrutinise whether the satisfaction in a
particular case constitutes a fraud on power or was actuated by an oblique
motive. Judicial review in other words would enquire into whether there was no
satisfaction at all,” it said.

(Source: The Times of
India dated 03.01.2017)

8.  Here’s how to rationalise capital gains tax

A major spin-off a
significantly lower rate of tax on income hinted at by the finance minister
would be the possibility to reorganise the taxation of savings and capital
gains on a rational basis. That basis is to treat as current income liable to
bear tax at the rate appropriate for the relevant income bracket that part of
any capital gain, after indexation in the case of non-financial assets, which
does not get redeployed in new assets. Such a method of taxation would not
penalise portfolio churning across assets, essential for intelligent savings.
Such a reform was proposed in the original Direct Taxes Code of 2009, which had
sought to scrap the distinction between longterm and short-term capital gains
on shares based on the holding period, scrap the securities transaction tax,
and include only that slice of capital gains which is not deployed in any other
capital asset, as part of taxable income.

Indexation benefits, meant
mainly to compute capital gains, are fine. Simply put, there would be no tax on
the gains, say, from the sale of a house if the money is reinvested in shares
and vice versa. The basic principle — to spare the saving asset from tax and
charge a tax only on the income from the asset — is perfect and will make
savings efficient. The government should adopt the so-called exempt-exempt-tax
system wherein all savings will be exempt from taxation at the time of
contribution and accumulation, and taxed at maturity, if not ploughed into
another asset.

For example, the
income-tax law allows investors who make capital gains to invest in NHAI and
REC bonds. The entire gain is exempt if the equivalent amount is invested in
these bonds, subject to an upper limit of Rs. 50 lakh every financial year.
This principle is sound. The EET method is beneficial to investors, given that
it does away with artificial distortions, and raises efficiency and equity in
the tax system. It would also help the government garner more revenues. But for
this to work, the rate of tax has to be low. Taxation should be uniform across
savings products, to prevent inefficient distortions that could lead to say,
housing bubbles.

(Source: The Economic
Times dated 28.12.2016)

9.  Tax dividends in the shareholders’ hands

Taxation of dividends has
become a vexatious issue, needlessly. It should be taxed in the hands of the
investor at the rate applicable to the investor’s income bracket. The finance
minister has indicated that the rate would be lowered in the interest of
economic efficiency and that is welcome. The dividend distribution tax should
be scrapped. To make sure that dividend income does not go under-reported,
companies can be mandated to deduct tax at source at the highest marginal rate
of 30%, leaving it to individuals whose incomes warrant a lower rate of tax to
claim a refund while filing returns. The government has to make the processing
of claims and refunds fast and efficient, that is all.

At present, companies pay
a dividend distribution tax at the rate of 15%. Individuals who receive
dividend income in excess of Rs.10 lakh pay a dividend tax of 10%. So dividends
bear a tax of 25% at most. This is not an equitable way of taxing people.
Company promoters who get the bulk of their income as dividends pay a lower
proportion of their income as tax as compared to employees who receive the bulk
of their income as salaries taxable at the highest marginal rate. Taxing
dividends in the hands of the shareholder would both be fairer and more
revenue-efficient than the current arrangement.

The debate that should
begin on taxing dividends is whether to allow the cost of equity capital the
same deductible expense status as interest, the cost of debt capital. This
would do away with artificial demand for debt — borrowing is tax-efficient,
even if you do not really need that loan — and encourage companies to retain
only as much earnings as they have use for. Uninvested cash surpluses on
company books are a drag on the economy. This, of course, is a global debate..

(Source: The Economic
Times dated 28.12.2016)

10.  Supreme Court lens on funds of over 30 lakh
NGOs

The Supreme Court ordered
the Centre and state governments to scrutinise the accounts of lakhs of NGOs
and voluntary organisations, which together received thousands of crores of
rupees of public funds, and take civil and criminal action against all
organisations misusing the grants.

Taking umbrage at years of
inaction on the part of governments in seeking accountability from NGOs on fund
utilisation, a bench comprising Chief Justice J. S. Khehar, Justice N. V.
Ramana and Justice D. Y. Chandrachud said: “The governments are not aware
of their responsibility to audit the NGOs as provided under the General Finance
Rules, 2005.

We direct the respondents
to complete the exercise of audit and submit a report to the court by March 31
under all circumstances.” The bench authorised the governments to take
punitive action against NGOs and voluntary organisations which failed to provide
proper accounts of public funds received by them.

“In case an NGO is
found to be non-compliant after auditing, it is imperative for the authorities
to initiate civil and criminal action so as to enable the government to recover
the money, apart from punishing those who misappropriated the funds,” the
bench said.

CBI, through additional
solicitor general Tushar Mehta, informed the court that it had so far detected
32.97 lakh registered NGOs and voluntary organisations but less than 10% of
them (3.07 lakh) filed their audited accounts with the Registrar of Cooperative
Societies. CBI was directed to undertake the NGO fund monitoring exercise on a
PIL filed by advocate M. L. Sharma who had accused Anna Hazare’s NGO of
misappropriating funds allotted by Council for Advancement of People’s Action
and Rural Technology (Capart). But the court said the problem of NGOs with no
accountability seemed to be a much larger issue than the Rs. 5 crore grant
given to Hazare’s NGO.

Amicus curiae Rakesh
Dwivedi, with advocate Sansriti Pathak, startled the court by quoting an
independent study by Asian Centre for Human Rights (ACHR). Dwivedi said RTI
replies collated by ACHR revealed that various departments of the Centre had
released Rs 4,756.71 crore as grants to NGOs during 2002-09 and during the same
period, states and Union territories had released   Rs. 1,897.64 crore.

This meant that a total of
Rs. 6,654.35 crore was released to NGOs and voluntary organisations during
2002-09, or an average of Rs. 950.62 crore a year. This figure was worked out
despite key states like Madhya Pradesh, Uttar Pradesh, Odisha, Jammu &
Kashmir, Arunchal Pradesh, Mizoram and Union territories not providing any
information. Dwivedi said it indicated that the actual amount released to NGOs
would be higher. Surprisingly, the Centre did not provide any statistics on the
amount of money it had given to NGOs from the public exchequer.

The bench wanted to put an
end to this lack of financial accountability by NGOs. It ordered the Centre to
frame and submit for the court’s scrutiny a guideline on the procedure for
accreditation of NGOs and voluntary organisations, the manner in which they
should maintain regular accounts and the mechanism to recover misused or unused
funds.

The petition by advocate
M. L. Sharma had been pending in the court for the last five years, a major
part of which was taken by the CBI to gather data on registered NGOs and those
which had complied with the statutory requirement of furnishing audited
accounts. The bench took a decisive action saying: “We cannot allow the
matter to remain in a flux. We must take the case forward as it has remained
stagnant for years”.