The author expresses concern over the rampant use of rough-neck techniques by the Department for recovery of tax dues. Despite severe reprimand by Courts, there is no improvement in the Department’s behaviour due to lack of accountability muses the author. The author advises the department to adopt Chanakya’s techniques for recovery and assures that this will benefit the department in the long run

1. Sections 222 to 232 of the Income Tax Act, 1961 and schedules II and III, thereto and the Income Tax (Certificate Proceedings) Rules, 1962, together constitute a self contained code prescribing the various modes for the recovery and arrears of tax under the Act. These provisions are also applicable to Wealth Tax Act.

2. The Tax Practitioners have the duty to advice the assessees to pay the tax what is rightfully due to Government, neither less nor more. The law of recovery is based on Civil Procedure Code, 1908. In Krishna Prasad Singh vs. TRO (1996) 221 ITR 720 (Cal.), it has been held that the provisions of Schedule II to the Income tax Act are analogous and similar to those in Civil procedure Code and therefore, the decisions relating to the CPC would be applicable for interpreting similar provisions in Schedule II to the Act.

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The DTC 2010 has had its fair share of criticism. Before DTC 2010 is steam-rolled into Law, its detractors have a last chance to voice their grievances before a Select Committee which promises to look into all issues objectively. The author urges all tax payers to make the most of this opportunity and starts off by listing his litany of woes

1. Direct Taxes Code Bill 2010 which was introduced in the Parliament on 30th August 2010, has been referred to Parliament “Standing Committee on Finance” headed by Shri Yashwant Sinha Former Finance Minister. The code will come into force on the 1st day of April 2012. As per the advertisement published in DNA DT 13-11-2010, the Government of India has invited the suggestions from various individuals/experts /institutions etc and the suggestions are required to be forwarded to the committee within 20 days of the publication of the advertisement. My past experience with the parliament standing committee is very much encouraging because they consider the suggestions objectively without any political bias hence, I am of the considered opinion that the professionals and organizations must put forward their views without any fear or favour taking into consideration, the interest of nation and honest tax payers of our country. I have made an attempt to discuss certain conceptual issues which may be considered and if found fit may be forwarded to the committee along with other important issues which you may feel requires consideration.

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The Author rues that the Direct Tax Code 2010 is a golden opportunity gone waste. What could have been a revolutionary exercise in tax reforms has been reduced to a pedestrian re-numbering of sections, agonizes the author. But, eternal optimist that he is, all is not lost, says the author and sets out an 11-point agenda to salvage the DTC 2010. Is the draftsman listening?

The discussion paper on Direct Taxes Code Chapter 1, reads as under “The Code is not an attempt to amend the Income-tax Act, 1961, nor is an attempt to “Improve” upon the present Act. In drafting the Code, The Central Board of Direct Taxes (The Board) has to the extent possible started on a clean drafting slate. Some assumptions which have held the ground for many years have been discarded. Principles that have gained international acceptance have been adopted. The best practices in the world have been studied and incorporated. The tax policies that would promote growth with equity have been reflected in the new provisions. Hence while reading the Code it would be advisable to do so without any preconceived notions, and as far as possible without comparing the provisions with the corresponding provisions of the Income-tax Act, 1961”. I have made an attempt to discuss certain conceptual issues which may be considered as we are proposing to bring new Income Tax to our country which will be in statute for at least for another 50 years.

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The author argues that non-residents dread the ‘Force of Attraction’ rule in Double Taxation Avoidance Agreements because it permits the taxation of income arising outside the Contracting State. The ‘Force of Attraction’ rule can also create an anomalous situation where an assessee may be better off under the domestic law than under the tax-treaty law, says the author

The recent judgement of the Tribunal in ITO vs. Linklaters LLP has put the spotlight on the dreaded “Force of Attraction” principle.

In an earlier judgement in DCIT vs. Roxon OY 106 ITD 489 (Mum), the Tribunal explained that the basic philosophy underlying the ‘Force of Attraction’ rule is that when an enterprise sets up a PE in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can properly tax all profits that the enterprise derives from that country – whether through the PE or not. Therefore, under the ‘Force of Attraction’ rule, the mere existence of a PE in another country leads all profits which can be said to be derived from that another country being taxable in that another country.

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The Finance Minister publicly expressed his anguish at the mounting number of frivolous cases filed by the department which are choking the Courts. The author, a public-spirited citizen ever eager to help the FM in such matters, puts on his thinking cap and formulates a 12-point agenda to cure the malaise. If implemented in real earnest, the mindless filing of departmental appeals will cease, assures the author. Is the FM listening?

The Hon’ble Finance Minister while addressing the Chief Commissioner’s Conference asked the CBDT to come out with a comprehensive proposal to address the issue of unwanted litigation with the tax payers. Federation has suggested proposals to reduce the tax litigation from time to time. “Kar Vivad Samadhan Scheme, 1998” (1998) 233 ITR 36 (St.), which was successfully implemented by the Government was the suggestion of the Federation. Hon’ble Justice Mr. V. C. Daga, Judge, Bombay High Court in Commissioner of Central Excise vs. Techno Economic Services Pvt. Ltd. (2010) 255 E.L.T. 526 (Bom.) has taken judicial notice and directed the Chairman, Central Board of Excise and Revenue, Ministry of Finance to frame guide lines similar to Income tax matters. The Hon’ble Justice observed that “Let the Court to decide, attitude needs to be given go bye”. The Comptroller & Auditor General of India (CAG), in its recent report has revealed that a whopping sum of Rs 2.2 lakh crores has got locked up in appeals at various levels. The report stated that “absence of centralized database on appeals, non production of records during audit was a major constraint and concern”. Even the Federation in spite of making a sincere attempt could not succeed to get the number of tax appeals, references and Writ petitions pending before the various High courts.

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The “curse of Lord Curzon” haunts the wheels of the tax administration. This vile system has caused colossal losses to the exchequer. Despite severe strictures by the Courts, it is impossible to get rid of it. The only way to cure the malady is to make the concerned officer personally liable to pay “costs” for his negligence and irresponsibility.

It was an unnecessary controversy and the delay in resolving it may have cost the exchequer several hundreds of crores in taxes.

The question whether courts have the power to condone delay in filing of appeals under section 260A of the Income-tax Act arose because of careless drafting. While all other provisions of the Act provide that the authority therein can condone a delay in filing an application/appeal, the draftsman forgot to add a similar provision in s. 260A. This bit of careless drafting lead to a spate of litigation.

The Full Bench of the Bombay High Court took the view in Velingkar Brothers 289 ITR 382 that the Court had inherent power to condone delay. However, the Supreme Court took a different view in Singh Enterprises 221 ELT 163 and Punjab Fibres 223 ELT 337 in the context of the pari-materia provisions of the Excise and Customs Act and held that the power of the Court to condone delay flows from the provisions of the relevant law and the inherent powers of Court to condone delay under the Limitation Act does not apply. Following this, the Bombay High Court in Arun Asher and Shruti Colorants held that the Full Bench judgement in Velingkar Brothers was not good law.

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In Ishikawajima-Harima Heavy Industries 288 ITR 408 the Supreme Court held {on a misreading of s. 9 (1) (vii)} that in order to be chargeable to tax in the hands of the non-resident, fees for technical services had to be rendered in India as well as utilized in India. It held that if both conditions were not fulfilled, the fees for technical services was not chargeable to tax in India.

That the judgement was wrong was said so by the AAR in Worley Parsons Services Pty. Ltd (AAR) 312 ITR 273. It observed that Ishikawajima had wrongly referred to s. 9(1) (vii) (c) instead of s. 9 (1) (vii) (b) even though the two dealt with different situations. It also noted that the Supreme Court had stated that s. 9 (1)(vii) (c) requires that the services have to be rendered as well as utilized in India in order to be taxable in India even though the word “rendered” was not to be found even in the inapplicable clause (c). It also noted that the law was that “a decision not expressed and accompanied by reasons and not proceeded on a conscious consideration of issue cannot be deemed to be a law having binding effect as is contemplated under Art.141 of the Constitution. That which has escaped in the judgment is not the ratio decidendi” though it finally found a way to “distinguish” Ishikawajima.

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The author is full of appreciation at the stellar roles played by the ITAT and the Bombay High Court in reducing arrears. He argues that the dwindling pendency of matters has rendered the concept of the NTT redundant. He makes out a strong case for increasing the role of the ITAT in judging income-tax disputes by making all non-appealable orders appealable to the ITAT

In the 61st year of Republic of India, the tax-payers of India will be getting speedy justice from the Income Tax Appellate Tribunal, which is considered as Mother Tribunal, within six months of the filing of an Appeal. As on 1-1-2010 the pendency before the Income Tax Appellate Tribunal is only 45,730 Appeals; sanctioned strength of Members is 102; hence, per member there are only 444 matters. In the year 1999, pendency was 3,00,597. In Mumbai, the pendency is only 14021 appeals and the sanctioned strength of 24 members which gives only 584 appeals per member (Source AIFTP Journal January, 2010 P. 53). The reduction in pendency is due to innovative procedure of the Income Tax Tribunal and the active support of the Tax Bar.

2. It is also heartening to know that pendency of tax appeals for final hearing before the Bombay High Court is only 1500. At present there is a permanent tax bench of the Bombay High Court to hear the tax matters. Bombay High Court is making a sincere attempt to group the matters and dispose of the same. Some of the matters, disposed of through this method, are dividend stripping, power of Settlement Commission, taxability of co-operative societies, depreciation on stock exchange card, option to claim depreciation, etc. This has helped to dispose of more than 3,000 appeals. One matters similarly clubbed and listed for disposal relates to disallowance of expenses incurred under section 14A of the Income Tax Act to earn exempted income under section 14A of the Act.

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“Higher wisdom has to prevail over better wisdom” is the mantra judges mumble when they are forced to follow a precedent that they don’t quite agree with. However, judges do find ways of getting out of having to follow a judgement of a higher court. The latest salvo on this front is the Third Member judgement in Kanel Oil which shows that a High Court judgement, though superior in status to the Tribunal, may have to yield to the latter. In this case, the Bench was faced with a piquant situation. It had to decide whether an assessee liable to pay Minimum Alternate Tax (“MAT”) under section 115JA of the Act was also liable to pay advance tax under sections 234B and 234C for default in paying advance tax. The issue as such was covered against the assessee by the decision of the Special Bench in Ashima Syntex 117 ITD 1 but the assessee must have been very smug during the hearing because there was a subsequent judgement of the Bombay High Court in Snowcem India 313 ITR 170 which held, following the judgement of the Supreme Court in Kwality Biscuits 284 ITR 434, that assessees paying tax on book profits u/s 115JA were not liable to pay advance tax. The Judicial Member did oblige and decided in favour of the assessee by following the judgement of the Bombay High Court. However, the Accountant Member wrote a detailed dissenting judgement and followed the judgement of the Special Bench. This is how the matter landed up before the Third Member.

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Circular No. 23 dated 23rd July 1969 held the fort valiantly for 40 years but in the end met an unceremonious death.

The Circular, issued in an era where fair play was still respected, was a masterful analysis of section 9 which provided a tax liability on non-residents from income accruing or arising through or from business connection in India.

The Circular was essentially a series of illustrative instances and guidelines designed to guide befuddled taxpayers from the labyrinth of tax laws. Written in a simple and easy-to-understand style, it told you in clear terms whether your transaction was taxable or not and the reasons for the same.

The Circular had its share of admirers. Picked up for scrutiny … minutely examined … dissected … on a number of occasions …. by the finest legal brains … it still held up and came up on top! There is a long list of judgements which endorsed the correctness of the interpretation of section 9 made in the Circular … Morgan Stanley 292 ITR 416 (SC), SET Satellite (Singapore) 11 DTR 313 (Bom) / 173 TM 475, Gulf Oil (Great Britain) Ltd. 108 ITR 874 (Bom.) and Amadeus Global 113 TTJ 767 (Del.) … the list goes on.

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