By Tarunkumar G. Singhal
Anil D. Doshi
Chartered Accountants
IS IT FAIR
Heads I win and tails you lose ! ! ! This seems to be the
policy of our Tax Administration. There are 16 direct tax amendments in
the Finance Act, 2010 with retrospective effect, some of them coming into effect
from as far back as 1976. These amendments are aimed at overriding the judicial
pronouncements and undermining the judicial process in at least the taxation
matters. What’s worse is that this has been a disturbing trend for past many
years.
These are 150-odd retroactive amendments in direct taxes in
the past five years. With one stroke of the pen, they are reversing court
rulings. It gives tax authorities the powers to re-open cases that have been
concluded in favour of the taxpayer after long-drawn and costly litigation. Such
amendments are very unsettling. A taxpayer may have acted according to the
prevailing law, based on the language of the Act, Rules, etc. and his
interpretation of the same (which is ultimately upheld by the court) and has
made expansions or drawn up business plans. Such amendments only go to show that
the intention of the Government (in particular, of the tax policy-makers as well
as the tax administrators) is neither clearly spelt out in the Memorandum
explaining the provisions of the Finance Bills or in the Circulars explaining
the provisions of the various Finance Acts, nor proper and adequate care is
taken at the time of drafting the relevant Sections, Rules, and Circulars, etc.
This attitude is against the legitimate expectations of taxpayers regarding the
professed certainty, stability and predictability in the tax regime.
Retrospective amendments raise the following issues for
debate and discussion :
1. Are our Revenue Officials and policy-makers ‘accountable’ to anyone ?
2. Does anyone in the CBDT or the Finance Ministry or the Law Ministry track judicial decisions in tax matters right from the Appellate Tribunal stage ? Why do they wake up only when the Supreme Court/High Courts deliver favourable judgments in favour of the assessee.
3. According to press reports, our legislators hardly discuss amendments to the Tax laws. Do these amendments represent the ‘Will’ of the administrators or the ‘Will’ of the people ? Do we have rule of Law or rule of Babus ?
4. Do retrospective amendments represent disregard for judicial pronouncements ?
Retrospective amendments send a clear message to the tax officials — do not worry about the courts; frame the tax assessments in accordance with your interpretation of the law and we will take care of judicial pronouncements by way of retrospective amendment.
5. At times Circulars issued after the passing of Finance Bills, etc. are at variance with the language of the Section. This leads to avoidable litigation as the Tax officer is bound to follow the Circular.
In the circumstances, it is suggested as follows :
1. Adequate care should be taken at the time of drafting laws.
2. Immediate action should be taken to amend the law when it is discovered that there is a possible interpretation, which is against the intention behind the enactment.
3. If there are omissions/errors in drafting or if the intention of the Government is not clearly brought out in the laws drafted by the Government, which has led to prolonged litigation before the High Courts or the Supreme Court, law should be amended only ‘prospectively’. The power of the Parliament to make retrospective amendments should be used in the ‘rarest of the rare’ cases.
Courts might uphold the constitutional validity of a
retrospective amendment, but as late Shri N. A. Palkhivala said, time and again,
that what is legal is not necessarily ethical, just and fair.
