India prides itself on being a country where the rule of law prevails.
Mr. Pranab Mukherjee presented before Parliament on March 16 the Budget for the ensuing year and the Finance Bill, 2012. The Finance Bill proposed to amend retrospectively provisions of the Income Tax Act so as to make the transaction between Vodafone and Hutchison for transfer of business in India taxable in India and make Vodafone liable to deduct tax at source. Neither the Finance Bill nor the Budget speech of the Finance Minister makes a reference to the judgment of the Supreme Court, but the provisions are apparently to overturn the decision of the Apex Court in the case of Vodafone.
In effect what has happened is that the Government, having failed at the highest Court of the land in its attempt to tax the transaction, has changed the rule and the law. Can we call this the rule of law?
One is reminded of the decision of the Allahabad High Court setting aside the election of Mrs. Indira Gandhi on account of use of government machinery for her election campaign. The Government then changed the Constitution and validated the election overturning the judgement of the Allahabad High Court.
Many agree that where the whole business is in India and such business is transferred by sale of shares in a company incorporated outside India, by one non-resident to another non-resident, the transaction ought to be taxed in India. But this can be done only when there is such a provision in the Income Tax Act. When you try to tax by making retrospective changes in the law, the faith of taxpayers in India as well as foreign investors is shaken. The question asked is, `Is this the rule of law?’
This is even more pertinent so far as the amendment to section 195 proposing to make Vodafone liable to deduct tax at source is concerned. Vodafone has already acquired the shares and made the payment. The event when tax could have been deducted has already happened. The Supreme Court held that Vodafone was not required to deduct tax at source on the basis of law as it stood then. It is beyond logic to make amendment retrospectively and hold that Vodafone was liable to deduct tax. Is this the rule of law?
While the amendments dealing with Vodafone hogged the limelight, one must not forget that there are about 30 amendments proposing to change the law retrospectively. This is our rule of law!
Recent judgements of the Bombay High Court brought into focus the attempts of the Income Tax Department to recover the tax by coercive measures, throwing out all norms for considering application for stay of demand. All of us are aware of the letter written by the Chairman of the Central Board of Direct Taxes, which openly said that collection of revenue was the single most important criterion for judging the performance of the tax officers and for deciding their postings. Is this the rule of law?
The Finance Bill has proposed General Anti Avoidance Rule (GAAR). Many other countries have GAAR. Apart from the form in which it is coming, there is a genuine fear amongst taxpayers how these provisions will be implemented in the Indian context. The fear is not unfounded considering the transfer pricing assessments and the performance of the Dispute Resolution Panel in that arena. One wonders if the GAAR regime will completely override the rule of law.
It is not only in the field of taxation that the rule of law is given a go-by. Consider the case of terrorist Balwant Singh Rajoana who assassinated Mr. Beant Singh, the former Chief Minister of Punjab. Rajoana has been convicted and sentenced to death. He has not filed any petition for clemency before the President of India. The State of Punjab, which was the prosecutor, is today refusing to carry out the sentence purportedly in the interest of peace and communal harmony. No doubt, there are two views about the death penalty itself. But so long as capital punishment is on the statute book and a person is convicted and awarded the death penalty, the same needs to be implemented. The Government cannot refuse to carry out the sentence. That is not the rule of law. It does not send the right signal to terrorists.
In Uttar Pradesh, Akhilesh Yadav has taken over the reins as the Chief Minister. He won the elections on the promise of good governance. Ironically, he has inducted Raghuraj Pratap Singh alias Raja Bhaiya, a person who has been accused of many serious offences, as a minister – Minister of Jails! One wonders if this augers well for the rule of law?
While we talk about the Tax Department and politicians, we cannot ignore ethics in our own profession. We propose to bring to you articles on ethics and the Code of Ethics by which we are governed. The series will explore the subject and bring to you the nuances of the Code of Ethics and disciplinary proceedings. At least we professionals should follow the rule of law – in letter and spirit.
Sanjeev Pandit
Editor
“I must be cruel only to be kind.” – Shakespeare in Hamlet quoted by Pranab
Mukherjee in the Budget speech.
