Dear Sir,

Re: Tax Laws & Ease of Doing Business in India

The Income-tax Act, 1961 has undergone thousands of Amendments since its inception. The Finance Act, 2023 has carried out more than 125 amendments. This has been the general trend for the last several decades. As a result of frequent amendments, many tax provisions have become too difficult to comprehend, understand, interpret and implement/ administer.

Also, the tax provisions have become very complex and unfathomable even to the best brains in the Legal Profession. This is evident from the fact that the judicial verdicts by various High Courts do not interpret the provisions in the same manner as the other High Courts have done. Consequently, decisions rendered even by the High Courts are distinguished or just reversed/overruled by a larger Bench or by the Apex Court. The taxpayers and their tax advisors are often at their wit’s end as to which judicial pronouncement represents the correct interpretation of the law to be relied upon as a guide for future course of action more so when the decision of the jurisdictional court is against the assessee and the decision of the non-jurisdictional court is in favour.

Many times, an amendment, instead of simplifying the existing complexity unintentionally adds to the complexities/ambiguities. Section 10(23C) is one of many such lengthy and very complex tax provisions.

Widespread litigation is evidence of the fact that many of the Tax Officials in the field are not able to understand the true meaning and purport of the tax provisions they are expected to administer and their interplay with the other provisions of the law and other ancillary laws. The tendency to play safe and disallow the taxpayer’s claims for various Deductions/ Allowances/ Exemptions and Incentives results in huge additions / high-pitched assessments, unjustified and unwarranted assessments /reassessments being made, and huge penalties are being levied, leaving the issues to be settled by the Judiciary, which is a very time consuming and costly process for the assessee.

The situation under other similar /related laws such as GST Customs Duty, PMLA etc., is not much different. The GST law is no longer the “Good & Simple Tax” as hailed by the Prime Minister.

It is probably a misconception that the Tax Laws are framed by the Parliament/ Legislatures. The reality is that many tax proposals are drafted by a handful of officials in the Finance Ministry and the CBDT. One also finds that such tax proposals are not adequately discussed and debated in Parliament. One finds that for many years, there is so much acrimony and pandemonium in both Houses of Parliament that the tax proposals drafted by the bureaucrats are quite often passed by a voice vote or by a show of hands without any/much debate and discussion, amidst the ongoing pandemonium/hungama.

Earlier, the Taxation Laws Amendment Bills were referred to the Select Committee of the Parliament which used to discuss the Proposals thread-bare and the suggestions of the Select Committee were considered while finalising the tax proposals. The Reports of the Committee’s deliberations were published and quite often referred to by the Judiciary to understand and interpret the amended provisions.

Unfortunately, now most of the amendments have been brought in through the Finance Bills which do not go through the Select Committee.

Sir, the existing situation is not very conducive for enhancing “Ease of Doing Business in India”, and the Tax Policy and Administration is a very important element in this regard.

There is a need to have a comprehensive relook/redraft of the entire Income-tax Act to simplify and rationalize the tax provisions with the help of highly respected Senior Tax Jurists, Counsels, Revenue Officials, etc. But redrafting the Tax Laws alone will not do. There is also an urgent need for a change in the mindset and attitude of the Tax Officials/ Administration who should stop viewing and treating the taxpayers with suspicious eyes and instead, treat them as honourable citizens. I wholeheartedly support strong and stern action against tax evaders, habitual offenders, and gross violators of tax laws, but not at the cost of punishing honest taxpayers even for technical infringements.

There is also an urgent need to change the mindset of the tax administration to have a trust-based relationship with taxpayers. A higher threshold needs to be prescribed to exclude minor lapses from levying of penalties and initiation of prosecution which in any case should be an exception and not a rule as it is practiced today.

Yours Sincerely,
CA. Tarunkumar Singhal