On the occasion of the “Foundation Day” of the Tribunal, the author ponders over what can be done to improve the functioning of the Tribunal. Using his vast experience, he makes a check-list of the known problem areas which invariably result in adjournments & delays. The author implores professionals to be proactive in ensuring that speedy justice is delivered to the assessees. The author also gently reminds the Hon’ble Members of the immense power vested in them to do justice to the parties

The 25th January, 2012 will be the foundation day of the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal which was established on 25th January, 1941 will be completing the 71st year. When we enter 72nd year it is the time to look back and learn which are the areas which requires to be debated and implemented for better administration of justice, so that this mother Institution retain its glory as one of the finest institution of country. In the year 1988-89, the pendency before the Appellate Tribunal was 3,00,597 cases where as on 1-1-2012 the pendency before the Appellate Tribunal is only 60,241, out of which 18,193 appeals are pending before the Income-tax Appellate Tribunal Mumbai. (Refer page56) One must give deserved credit to the institution for making all efforts to reduce the pendency of cases. This is the only institution where the pendency has reduced where as all other courts and institutions the pendency of cases have been increasing every year. For better administration of justice delivery system before the Appellate Tribunal we make an appeal to professionals to consider the following check lists, which will help the Appellate Tribunal to deliver speedy justice:-

(1) Grounds of appeal : As per Rule 8 of the Income-tax (Appellate Tribunal) Rules, 1963, every memorandum of appeal shall set forth, concisely and under distinct heads, the grounds appeal without any argument or narrative, and such grounds shall be numbered consecutively. However, many times it has been observed that the grounds are argumentative, referring case laws. This trend is observed even in departmental appeal also. Professionals are advised to prepare the grounds as per Rule 8. In cases where the appeals are already filed the representatives of the assessee are requested to file the revised grounds, this will save the precious time of the Court and will avoid unnecessary adjournments.

(2) Signing of appeal memo and grounds of appeal : As per Rule 47 read with Rule 46 of Income-tax Rules, 1962 the appeal memo and grounds of appeal has to be signed by the person who is competent to sign the return as provided in section 140. i.e. the Managing Director, Managing Partner, Karta of HUF, etc. In case if there is no Managing Director or Managing Partner the same may be stated in a covering letter stating that as there is no managing director or partner the same is signed by the director or partner. However, in practice it is observed that the mandate of the sections are not followed, hence, the matters are adjourned from time to time. It is desired that the Rule may be followed and wherever appeals are filed without following the mandate of section and rules the professional are advised to file the revised form and grounds of appeal.

(3) Application for condonation of delay : Many a times the application for condonation of delay was not filed along with the appeal. If it is filed along with appeal with proper affidavit, the same will avoid the unnecessary adjournment.

(4) Paper book. As per rule 18 of the Income-tax (Appellate Tribunal) Rules, 1963, the paper book must be filed at least a week before the date of hearing. Each paper must be initialed and proper certificate requires to be furnished. Paper book must be serially numbered. Filing of paper book is not a simple formality it has to be authenticated. If some of the documents are in regional language it has to be translated in to English.

(5) Additional evidence- As per Rule 29, of the Income-tax (Appellate Tribunal) Rules, 1963, the parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, without the permission of Court. When ever additional evidences are produced it has to be accompanied with application for production of additional evidence stating the reasons for not producing the said evidences before the lower authorities. If desired it may have to be supported with affidavit.

(6) Bringing the legal heirs on record : It is duty of the assessee to bring to the notice of the Tribunal to bring legal heirs on record by filing the affidavit and necessary documents. It may be desirable to file the revised form of appeal by bringing the legal heir. This will help the institution and unnecessary adjournments can be avoided.

(7) Authority letter and adjournments : Only the authorized representative as per section 288 of the Income-tax Act, 1961 is competent to appear before the Tribunal with proper authorization which is affixed by prescribed stamp. Many times the adjournments applications are filed by the professionals without filing proper authorization. It has been observed that many of the assessees send the clerk or jamadar to take adjournments. W e must bear in mind that the Tribunal is a Court and we cannot send the clerk to take an adjournment. It will be disrespect to the Institution. It is desired that only the persons competent to appear before the Tribunal may be sent even for an adjournment, with proper authorization. An authorized representative who appears before the Tribunal has to follow the Dress regulations as per Rule 17A of the Income-tax (Appellate Tribunal) Rules, 1963.

(8) Clubbing of appeals : When the same year appeal of department and assessee is pending it is the duty of the assessee to inform the registry to fix the appeals together. If the application is made in advance it will help the Tribunal and unnecessary adjournments can be avoided. In cases where earlier years appeals are pending if the issues are common it may be desirable that earlier appeal may be taken up first and latter years will follow. In case the latter years appeals are fixed and earlier years are not fixed for hearing letter may be filed to the Registry to fix the hearing of earlier years along with other appeals.

(9) Change of address or name : Whenever change in address, or change in name, whether it is assessee’s appeal or department the same may be informed to the Registry by filing an application or if it is of the appeal of assessee it may be desirable to file the letter with revised form. This will avoid the ex-parte decision of appeal and unnecessary adjournments.

(10) Figures in million : Most of us have studied in India, while writing the date we follow the pattern of , day/month/year and the numbers in thousands, lakh, crores and not in millions, by putting the comas in appropriate places will help the courts and Income-Tax Appellate Tribunal to understand the figures in a better way.

(11) Citations : Whenever the case laws are cited before the Bench it is always desirable to keep the citation and refer the case laws. If we are referring the case laws reported in reporters other than ITR and ITD we have to file the copies as the members may not have the facility of accessing of case laws reported in other journals.

Each adjournment costs the nation and it has to be paid from the tax collected from the citizens, by following the rules and procedure and by minimizing the adjournments, we will be helping the process of nation building in a small way, let us make an honest beginning.

We should bear in mind that the Income -tax Appellate Tribunal is the final fact finding authority. Assessee can file an appeal under section 260A only on substantial question of law. Therefore, professionals who represent the matters before the Appellate Tribunal has to put forward all the facts so that the Appellate Tribunal will be in a position to decide the issue in a very judicious way.

Members of the Appellate Tribunal also have the greater responsibility, in deciding appeals, they are not merely adjudicating on the issues, before them but they are in variably deciding on the fortunes of the assesses. Where as one wrong decision against an assessee may ruin his life and relegate him to the position of a pauper. On the other hand, if the decision is against the Government, it may affect the coffers of the Government to an extent of a drop in an ocean. Honourable Members also have a greater responsibility to the citizens of this country, because their decision also became a precedent to follow in other cases.

Hon’ble President of the Income-tax Appellate Tribunal Mr. G. E. Veerabadrappa, is making all his sincere efforts to maintain the institution as one of the finest institution of our country. He desires to have objective suggestions from all stake holders before the Income-tax Appellate Tribunal let us make an humble beginning with in our ability and capacity. Readers may send their suggestions to the All India Federation of Tax Practitioners (E-mail: aiftp@vsnl.com) or Income -tax Appellate Tribunal Bar Association (E-mail: manager@itatonline.org).

The role of the Bar in the administration of justice is no less than that of the Bench. It has been therefore, rightly said that only a good Bar makes for a good Bench. We have a great responsibility, let us work together hand in hand and see that the Tribunal should retain its glory as one of the finest institution of our country and a model for other institutions to follow.

We wish all good luck to the Income-tax Appellate Tribunal for rendering a quick efficient and speedy justice to the tax payers as done for 71 years, we hope all the stake holders who are concerned with Income-tax Appellate Tribunal will make their sincere efforts to maintain its purity, qualitative justice delivery system and achieve its motto of “Sulab Nyay and Satvar Nyay”.

Jai hind

Editor-in-Chief

Reproduced with permission from the AIFTP Journal, January 2012

The author goes ballistic over the Rolls Royce Plc vs. DDIT case and claims that Rolls Royce’s “timid surrender” against the damning findings of the AO proves that even marquee companies like Rolls Royce are not averse to pinching a few dollars from the exchequer of third world countries if they think nobody’s looking. Rolls-Royce must be prosecuted for tax fraud demands the author

The recent report in the Economic Times about how multinational companies were using their subsidiaries and affiliates to avoid taxes in India made for shocking reading even as a lot of readers reacted with disbelief and a sense that the author was exaggerating the issue.

However, the case of Rolls Royce Plc, UK vs. DDIT which ended in a whimper in the Delhi High Court, exposes the myth that marquee companies like Rolls Royce, with supposedly high governance standards, are supposed to above board when it comes to compliance with the laws of the foreign countries that they do business in.

Rolls Royce did a lot of business in India, selling aero-engines and spare parts to big-ticket Indian Customers like Hindustan Aeronautics Limited (HAL), Indian Navy and Indian Air force. These were not simple off-shore sales that you can just ship on a FOB basis and claim you had nothing to do with India. Instead, these were multi-million dollar defense deals for supply of sophisticated products requiring protracted negotiations spread over several months, if not years. Also, these were not products that you can just supply on an off-the-shelf basis and wash your hands off. Instead, it required prolonged hand-holding, training, warranty, supply of spare parts etc. Rolls-Royce had in fact up a subsidiary in UK known as Rolls Royce India Limited which had offices in India and marketed and sold Rolls Royce’s products in India.

Given the substantial income that Rolls-Royce earned from India from its substantial presence in India, one would have expected Rolls Royce to lead by example and file a return of income even if it argued there that not all of the income was chargeable to tax in India. Instead, shockingly, Rolls-Royce did not file any return of India probably hoping that nobody would notice and it could sneak out unnoticed.

Here, the AO must be complimented for the dogged perseverance that he showed in exposing Rolls-Royce’s dealings in India. The AO dug deep and flushed out a lot of evidence to show that Rolls-Royce’s argument that its transactions were “mere off-shore sales” was false. The AO found that the activities undertaken by Rolls Royce India Ltd on behalf of the assessee were much more than what were agreed to in the agreement. The activities of RRIL included marketing services, liaison services, market analysis, technical support, customer relationship/interface, strategic planning etc. on behalf of the assessee. The AO grilled Rolls-Royce’s top brass Tim Jones and discovered that (a) Rolls-Royce PLC’s personnel frequently and continuously came to India, (b) Tim Jones’ salary was paid by Rolls Royce Plc, (c) Rolls Royce (India) Ltd’s operations were confined to India, (d) Rolls-Royce had employees in India etc. The AO also found documents titled ‘Rolls Royce and Indian Air Force relationship’ and ‘RR-IAF relationship – key players’ which exposed facts on the actions to be undertaken by the assessee through Rolls-Royce India Ltd and the names of the personnel designated for this purpose.

Despite the damning evidence against it, Rolls-Royce argued with all fire and brimstone before the Tribunal that it had no “business connection” in India and that Rolls-Royce India’s Indian offices were not a “permanent establishment” because the said office was “merely engaged in preparatory and auxiliary” activities.

Well, there is a limit to how much one can argue in theoretical terms by disregarding the facts on record. The Tribunal (Rolls Royce Plc vs. DDIT 113 TTJ (Del) 446) made short shrift of the arguments by extensively referring to the correspondence which had been brought on record by the AO and observing:

“The material existed for all the time to come and it is unfortunate that the assessee never disclosed its true relationship vis-a-vis RRIL. Only after the survey was conducted, the true face has come out. Prima facie these papers itself show the extent of work being handled by RRIL for appellant in India. RRIL is not only 100% subsidiary of the appellant but also maintains a permanent office in India to undertake all such activities. Thus, it can be concluded that the appellant has a business connection in India within the meaning of Section 9(1)(i) of the Act and under the Income-tax act, its income is chargeable to tax in India arising out of such business connections”.

The Tribunal also found the argument that the Indian office was only engaged in “preparatory and auxiliary” activities to be not acceptable by meticulously examining the evidence on record and held that:

“This negates the contention that the activities of RRIL are solely of a preparatory or auxiliary character or like a conduit or postman” and “All such activities cannot be merely held as solely of preparatory or auxiliary character but are in the form of marketing the product manufactured by appellant in India. Therefore, the exclusion granted under Article 5(3) is not available to the appellant”.

The Tribunal also found that Rolls-Royce Plc had a “dependent agent” in India in the form of Rolls-Royce India Ltd. It recorded that “The fact that RRIL is totally dependent upon the appellant is not denied” and went on to hold that Rolls-Royce India “habitually secured orders in India” for the assessee and that “It is a set practice that no customers in India are directly to send orders to the appellant in UK. Such orders are required to be routed only through RRIL”.

Before the High Court, Rolls-Royce, perhaps not surprisingly, lost the stomach to carry on the fight. The point on the validity on the reopening, which had been contested with great gusto before the Tribunal, was meekly conceded before the High Court. On the point of whether there was a “permanent establishment” and whether the activities were merely “preparatory and auxiliary”, the High Court noted that “there was no serious contest”. Even the point on whether the Tribunal could differ from the view of a co-ordinate Bench, which was raised by way of an additional ground, was conceded without any ceremony. Instead, probably, as a face-saving measure, Rolls-Royce argued that the matter should be remanded to the Tribunal on the ground that certain objections that had been raised pursuant to a remand report of the AO had not been “properly considered” by the Tribunal.

Well, one has to only read the judgement of the Tribunal to realize that Rolls-Royce’s submission was frivolous. The High Court said as much when it thundered:

“We are thus convinced that there is a detailed discussion after taking into consideration all the relevant aspects while holding that RRIL constituted PE of the assessee in India. While undertaking critical analysis of the material on record, the Tribunal kept in mind the objections filed by the assessee as well as the documents on which it wanted to rely upon. Those objections were duly met and answered. We thus, do not find any need to remand the case back to the Tribunal for this purpose which was the plea raised by the learned Counsel for the appellant/assessee”.

Hopefully, this will bring an end to Rolls-Royce’s futile litigation in India and it will own up to its mistakes.

Now, I have three questions. First, when the AO behaves in an irresponsible manner and makes all sorts of unwarranted additions, people (rightly) bay for his blood and want him to pay the price for harassing the assessee. When the AO behaves in a diligent manner and exposes deep secrets that multi-national corporations hide under the carpet, is he going to be rewarded or will it be brushed aside by saying “Oh, but he was just doing his duty”.

Second, what is it that makes marquee companies like Rolls Royce, which are supposed to be the torch-bearers of “good governance” for the Industry, behave like petty tax thieves? Drafting agreements that don’t show the reality? Trying to camouflage the facts? Is it only because India is a third-world country? Would they have dared to do this in a first-world country where its top brass could stand the risk of being prosecuted for tax-fraud and sent to Jail?

Third, what is the price that Rolls-Royce will pay for trying to evade taxes? Will Rolls-Royce be asked to pay penalty? Can Rolls-Royce still maintain that it had an “arguable” and “reasonable” case for not paying up due taxes even when it conceded and surrendered before the High Court. What about prosecution for failure to file tax returns? Are we going to make an example out of Rolls-Royce so other multi-nationals can be wary? After all, lets not forget that the Tribunal did record the finding of fact (which has now become final) that it was “unfortunate that the assessee never disclosed its true relationship vis-a-vis RRI” and that the “true face” emerged only after the survey.

These are questions which bother me for which I would like to hear from my brethren.

CA Vellalapatti Swaminathan Iyer
Hyderabad

This week, the author suggests that a Anna Hazare style crusader is needed to explain to the CBDT the irrationality of its stand that the monetary limits for filing appeals will apply only to fresh appeals and not to pending appeals. Also, on the issue whether software income is assesable as “royalty”, the CBDT should abandon its ostrich-like stance and take a firm stand one way or the other like its Australian counterpart says the author

Legislature Proposes; Judiciary Disposes

Old timers will recollect the excitement that the judgement of the Tribunal in Pranav Constructions 61 TTJ (Mum) 145 had created. The Tribunal had done the unthinkabale. It held that the hafta or protection money paid by the assessee to local politicians and goons could be claimed as “business expenditure” on the footing that without such payments, business could not be conducted. Till then, unsavoury issues like hafta were meant to be confined to a fiction writer’s imagination without official cognizance.

The judgement obviously upset somebody high up in the department because in the very next Budget a retrospective amendment “for the removal of doubts” was inserted in the form of Explanation to s. 37(1) to provide that a payment for a purpose which is an offence or which is prohibited by law was not incurred for business purposes. In the Memorandum as well in the Explanatory Circular it was made clear that “The amendment will result in disallowance of the claim made by certain tax payers of payments on account of protection money, extortion, hafta, bribes, etc. as business expenditure“. The amendment was made effective from the date of commencement of the Act, 1.4.1962 to ensure that all traces of Pranav Construction was removed.

Well, Pranav Construction may not be dead after all. The Madhya Pradesh High Court has in CIT vs. M/s Khemchand Motilal Jain held that what one has to ask is not whether an offence was committed but whether the payment is in itself an offence or prohibited by law. Kidnapping is an offence, said the Court, u/s 364A of the IPC, but the payment of ransom is not an offence nor is it prohibited by law. So, the payment of ransom was an allowable deduction, uninhibited by Explanation 1 to s. 37(1).

Applying this logic, while extortion is an offence, paying the extortion money is not. So, why is Pranav Construction not still good law?

The Perils of the AAR

While litigation is rightly said to be a game of chance, the AAR plays its part by being an unpredictable body. Unlike other judicial bodies which are bound to some extent to follow their own judgements, the AAR is under no such compulsion and can merrily take one view in the case of one applicant and an opposite one in the case of another applicant without any fear of being hauled up for inconsistency. Add to that the fact that the rulings of the AAR are final and binding on the applicant and the AAR becomes a body to be wary of.

The assessee learnt this the hard way In Re Cairn U.K. Holdings Ltd on the question whether the benefit of s. 112 applies to non-residents. Faced with an adverse ruling of the Tribunal in BASF AG 293 ITR (AT) 1 and a favourable ruling of the AAR in Timken 294 ITR 513 (AAR), the assessee put in an application hoping that the AAR would follow its own ruling and the assessee could sneak out with a favourable ruling.

To the assessee’s dismay, the AAR did the opposite. It dissented from its own judgement and followed the judgement of the Tribunal. By laborious reasoning, the assessee was held not entitled to the benefit of s. 112.

‘Royal’ty treatment!

The raging controversy over whether income from software is assessable as “royalty” or as good ol’ business income continued unabated. While the Delhi Bench of the Tribunal took the view in Gracemac Corp 42 SOT 550 (Del) that the income was assessable as “royalty“, the Bombay Bench took the view in TII Team Telecom International that the income was assessable as “business profits“. Why the classification of the receipt is a big deal is because if it is assessable as business income and the assessee does not have a PE in India, no part of the receipt is assessable to tax in India.

At the heart of the dispute is whether the software can be said to be a “copyright” or a mere “copyrighted article“. The proponents of the “copyrighted article” theory cite the judgement of the Supreme Court in TCS vs. AP 271 ITR 401 where it was held that the sale of software CDs is a “sale” exigible to sales-tax by taking the value of the software into account. The detractors of the theory ask how a judgement in the context of sales-tax can apply to the definition of “royalty” in income-tax law.

The only way to speedily solve the imbroglio is for the CBDT to do what its Australian counterpart did – issue a series of comprehensive instructions on the subject. Of course, this is just wishful thinking. It has been years, nay decades, since the CBDT assumed a leadership position in any matter. The CBDT prefers to be an ostrich and bury its head in the stand, leaving the Courts to sort out the brawling parties.

Monetary Limits

The CBDT’s stance on fixing monetary limits for filing appeals reflects the thinking of a body which which wants to show itself to be progressive but is still stuck in a time-warp. If monetary limits are imposed on the filing of fresh appeals, should they not logically apply to pending appeals? After all the thinking is that for matters with low tax effect, it is not worth the department’s while to incur costs on court fees, counsel fees etc to pursue the appeal. Also, small assessees must have the satisfaction that there is an end to the litigation. This logic applies to pending appeals as much as they apply to fresh appeals.

This was the logic which impelled the Bombay High Court to take the view in CIT v. Pithwa Engg. Works 276 ITR 519 (Bom) that the monetary limits imposed by the CBDT will apply to pending appeals as well. In a sagacious ruling, the Court held as follows:

“This Court can very well take judicial notice of the fact that by passage of time money value has gone down, the cost of litigation expenses has gone up, the assesses on the file of the Departments have been increased consequently, the burden on the Department has also increased to a tremendous extent. The corridors of the superior courts are chocked with huge pendency of cases. In this view of the matter, the Board has rightly taken a decision not to file references if the tax effect less than Rs. 2 lakhs. The same policy for old matters need to be adopted by the Department. In our view, the Board’s circular dated March 27, 2000 is very much applicable even to the old references which are still undecided. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with decades old references having negligible tax effect“

This view has been accepted by the Madhya Pradesh High Court in Ashok Kumar Manibhai Patel and Co 317 ITR 386 and the Delhi High Court in Delhi Race Club.

The Board should have graciously accepted this view-point and directed that a refund of court fees should be taken by withdrawing pending appeals. This itself would have led to an inflow of several crores of rupees given that each appeal costs Rs. 10,000 in court fees and there are literally hundreds of low-tax-effect appeals pending. Instead, in its letter dated 2.9.2011, it has persisted in taking the indefensible stand that its latest Circular dated 9.2.2011 should not apply to pending appeals. And, by a sleight of hand, the CBDT has suggested that the Supreme Court ruling in CIT vs. Surya Herbal supports its stand.

It is really high time that some Anna Hazare type of crusader drills some sense into the heads of the mandarins!

CA Vellalapatti Swaminathan Iyer
Hyderabad

On the occasion of the Bombay High Court’s 150th Anniversary, the author pays rich tribute to the judicial independence and integrity of the Bombay High Court and recollects the stellar contribution of the tax professionals in bringing glory to the High Court. This is the time for all professionals to re-dedicate themselves to the cause of the Judiciary exhorts the author

The Bombay High Court, which was established on August 14, 1862 & entered into the 150th year on 14th August 2011. On this auspicious day a memorable function was held at Bombay High Court to mark the beginning of the sesquicentennial celebration of the Bombay High Court.

Bombay High Court as an institution has produced what can be described as galaxy of legal luminaries. The publication titled “The Bombay High Court -The story of building – 1878-2003”. In the foreword written by then Hon’ble Chief Justice of Bombay High Court Mr. C. K. Thakker reads as under “There are, too men who became legends in their own life times, perhaps most of all M. C. Chagla. The Lawyers from this Court have shone bright and long in the legal firmament: Sir Dinshaw Mulla, the doyen of Indian jurisprudence, Sir Jamshedji Kanga, Nani Palkhivala, H. M. Seervai, C. K. Daphtary, Sir Chimanlal Setalvad, Motilal Setalwad and others” – “As much as the Judges, it is the Bombay Bar that has given the Bombay High Court its unique culture and reputation. This is a Bar that is fiercely – even frighteningly – independent. It is unforgiving of moral and legal transgressions amongst itself and its judges and yet, strangely, is gentle Bar that adopts as its own every judge who sits here”.

Speaking on the occasion, Hon’ble Chief Justice of India, Mr. S. H. Kapadia stated that “Judicial integrity will always be above judicial independence”. His Lordship also stated that “Judges of integrity need not fear the National Judicial Commission or a Judicial Accountability Bill”. Hon’ble Chief Justice of India also launched a facility for online filing of petitions. It would do away with the need to stand in long queues during fixed hours for filing petition.

Hon’ble Chief Justice of Bombay High Court Mr. Mohit Shah speaking on the occasion pointed out that the Bombay High Court has given eight Chief Justices to the Country.

Hon’ble Law Minister Mr. Salman Khurshid speaking on the occasion stated that “Best of the lot” among the students was neither coming to the Bar nor the Bench. Hon’ble Minister stated that “The gain of India’s corporate is the loss of India’s Bar”. He stated that younger lot should focus on contesting litigations than working for corporate house.

Hon’ble Chief Minister of Maharashtra Mr. Pritviraj Chavan stated that “Country’s legal system was one of the important factors in giving India an edge over China.”

Hon’ble Attorney General of India Mr. Goolam E. Vahanvati, speaking on the occasion took the gathering to the Court’s history. He stated that “I have seen this court at best … Once you have practiced here, you will fall in love. It is one love affair which is forever”

On proposing vote of thanks Hon’ble Additional Solicitor General Mr. Darius Khambatta stated that “What is needed is a system of checks and balances to affirm the positive values”.

In the 150th year of Bombay High Court and 65th year of Independence one cannot forget the contribution of Tax Bar of Mumbai. On the occasion of release of Commemorative Postage Stamp of Shri N. A. Palkhivala on 16-1-2004, then Prime Minister of India Hon’ble Atal Behari Vajpayee stated as under:-

“In those dark days, the battle for democracy was fought by many people in many different ways. Many of us in politics under the leadership of Jayaprakash Narayanan fought it in prisons. But I have no doubt that one of the finest battles was fought in the court rooms and that fighter was Nani Palkhivala”.

Citizens of this country cannot forget the contribution of Shri Palkhivala to preserving the basic structure of Constitution of India. We are very fortunate that one of the greatest lawyers of our country Shri Palkhivala was President of Income Tax Appellate Tribunal Bar Association from 1967 to 2002. As a remembrance to him the Income Tax Appellate Tribunal Bar Association, in association with All India Federation of Tax Practitioners and Government Law College, Mumbai is organizing yearly National Tax Moot Court Competition since 2003, and this year’s Palkhivala Memorial National Tax Moot Court Competition will be dedicated to the 150 years of Bombay High Court, so that the law students across the country will have the benefit of knowing the Contribution of Bombay High Court to the Nation.

We are also proposing to bring out few publications dedicated to 150 Years of Bombay High Court.

Hon’ble Chief Justice of India Mr. S. H. Kapadia, then as Judge of Bombay High Court in a Message dated June 9, 2003. My Tribute to stalwarts of Tax Bar wrote as under:- (AIFTP Journal – August, 2003 P. 4)

“In the field of Income Tax Law, out of few Luminaries, three legends; i.e., Late Shri R. J. Kolah, Late Shri S. P. Mehta and Late Shri Nani Palkhivala, who devoted their professional practice to the field of Direct Tax Laws. I deem it a great privilege to have been requested by All India Federation of Tax Practitioners to forward to them my tribute to the above stalwarts in the form of a message for their publication.

 

All the three stalwarts led the Tax Bar in intellect, clarity and integrity. They have provided a valuable legacy in the form of their juniors who today, have emulated these three stalwarts in the above virtues and who, in turn, today are the leaders of the Tax Bar.

 

I was lucky to have seen the three stalwarts in action when they were not so young and yet, after hearing them for few moments, I came out of the Court with the following words which flashed across my mind.

 

“The spirit knows no youth or age, no fatigue or death.”

 

These are the qualities and virtues which should inspire our young professional lawyers and I am happy to state that, even today, in the Tax Bar practicing in the High Court, there are young professional lawyers who are following in the footsteps of these three legends.”

On the occasion of 150th year of Bombay High Court, all three stalwarts of Tax Bar deserves a special remembrance and Tribute from the Tax Bar and Bench.

Hon’ble Law Minister desired that there has to be speedy and affordable justice. In this regard at the Tribunal Members’ Conference at Mumbai on 30-7-2011, the ITAT Bar Association has suggested various measures. If the same are accepted and implemented the desire of the Hon’ble Law Minister can be achieved and citizens of our country will get speedy and affordable Justice. As regards the encouragement to young lawyers to join the litigation practice, Palkhivala Memorial National Tax Moot Court Competition conducted yearly is an honest attempt of the tax Bar to encourage young lawyers to join the litigation practice.

Common citizens of the country believe that it is only because of independent, vibrant judicial activism; the Government machinery is made to work hence let us pledge and dedicate to the judiciary by making an honest attempt to bring in speedy justice delivery system by constructive suggestions and representations. For Judges, Judicial integrity will always be above judicial independence similarly for professionals, values, ethics and integrity are important qualities of good professional which will be admired by the professional colleagues and respected by the Bench.

In my 34 years of practice, I found especially in the branch of taxation, judges have always encouraged and motivated the Junior members of the Bar hence, on the occasion of 150th year of Bombay High Court on behalf of the Tax Bar I salute the Bombay High Court, stalwarts and leaders of Tax Bar.

Readers may send their view to the office of Federation for making a representation in an appropriate forum.

Jai hind

Editor-in-Chief

Reproduced with permission from the AIFTP Journal, August 2011

Get up to speed with the latest developments in the World of Tax. This week, the author wonders whether it is time to write an obituary for the DRP. Also another body-blow on the reopening front should shake the Babus of Aaykar Bhavan out of their reverie. And yes, don’t forget to tighten your seat belt because the CBDT Chairman’s missive on recovery might just prompt the AO to demand that you pay up that long outstanding arrear

Fasten Your Seat Belts – Its’ Recovery Time

The CBDT normally goes into “recovery & collection” mode in March when they have to report the figures of tax collection to the mandarins of South Block. So, the Chairman’s letter of 25th July telling his juniors that “focus” on “concerted efforts in certain categories may expedite cash collection” came as a bit of a surprise. However, it seems just to be more a case of saber-rattling rather than anything serious. The Chairman’s tone seemed quite casual. There was no sense of urgency in it. No words to shake the Babus of Aaykar Bhavan out of their reverie. His use of the words “I suggest” was significant. Also, the suggestions appear to have been casually made. The Chairman said “more than 20,000 crores have been stayed by courts/ITAT” and that “counsels should be advised to get the stay vacated” by bringing “the direction of the Supreme Court in the Vodafone case” to the notice of the concerned authority. Well, all that one can say politely and with humility is that a tutorial on the working of the Tribunal and the Courts may be in order! Meanwhile the ground reality is that assessees continue to enjoy unlimited stay from the Tribunal despite the clear legislative intent to the contrary. This is thanks to the blunders of the department (see Dear Department, Thank You For Giving Us Infinite Stay Of Demand). Mr. Chairman, can you do something to rectify this please?

Another thing that should engage the attention of the Learned Chairman is the directive by the Supreme Court in CCE vs. Doaba Steel Rolling Mills that a uniform policy should be formulated to regulate appeal-filing. If appeals are filed in the case of one assessee and not in the case of another, there is a case for allegations of mala fides on the part of the concerned officers observed the Court.

To its credit, the department has put together some sort of comprehensive guidelines to cure the malaise of delayed filing of appeals. The Guidelines, ambitiously called “Zero Delay Regime” is a step in the right direction to bring some order to the unholy mess that the department has now become. Of course, the top brass have to show that their contribution is not restricted to framing guidelines but effort is also taken to monitor compliance by the filed officers.

Mr. AO Sir, When did you post that s. 148 notice?

Did you know that the question whether a s. 148 notice has been issued within time or not has to be determined – not by the date when the AO signed the notice – but on the date on which he gave it to the Post Office for dispatch to the assessee?

Well, a common tendency amongst the AOs is to sign the s. 148 notice on the very last or penultimate day of the limitation period. Having signed it, the notice leisurely makes its way to the dispatch department where the Chaprassi will take it one fine day to the Post Office for onward dispatch to the assessee.

Well, this will be fatal to the department. The Gujarat High Court has taken the view in Kanubhai M. Patel HUF vs. Hiren Bhatt that the requirement in s. 149 that the notice must be “issued” within the limitation period means that the notice must have left the hands of the AO for onward dispatch to the assessee. And this means that the AO should have delivered the notice to the Post Office on or before the last date of limitation. A day late and the AO totally loses jurisdiction to assess the escaped income!

Of course, there is a well known distinction between “issue” and “service” of the notice. If the AO delivers the notice to the Post Office, he has “issued” the notice even though the assessee may never receive the notice. Still, the AO will have jurisdiction because s. 149 requires only the “issue” of the notice and not its “service”. This was laid down by the Supreme Court in R. K. Upadhyaya 166 ITR 163 (SC).

DRP … Time To Say Good Riddance?

The Dispute Resolution Panel (DRP) is a peculiar creature. Set up with the top brass of the department but cursed to be never able to give relief to the assessees. Why? Because the decisions of the DRP, if favourable to the assessee, are final and binding on the department. Which panel of departmental officers will have the courage or the temperament or the attitude or the whatever to bind the department forever with their decisions?

Another aspect that is quite evident at the hearings of the DRP is the clear sense of resentment that the members of the Panel demonstrate at having to perform “double-duty”. One can’t blame the members of the Panel for this. After all, they are top-brass of the department with regular administrative responsibilities of running the department. To have to forcibly sit on a Panel that everybody knows is futile must be quite frustrating!

This frustration shows in their orders. The orders show that the DRP is in a hurry to get rid of the matter. No discussion, no deliberation but a simple confirmation of the stand proposed by the AO puts an end to the ritual of the proceedings.

This has got the DRP into trouble on a number of occasions. The DRP suffered the ignominy of being told by the Tribunal in GAP International Sourcing India Pvt. Ltd vs. DCIT 9 ITR 129 (Trib)(Delhi) that it should not pass “laconic” orders.

In Vodafone Essar, the Delhi High Court could barely hide its irritation and it used exaggerated  politeness to “remind” the DRP that it was a statutory body and had to live upto expectations and could not pass “perfunctory” orders.

The unkindest cut came from the Uttaranchal High Court in Hyundai Heavy Industries Ltd vs. UOI which held that including the jurisdictional CIT or DIT as a part of the panel was likely to lead to a “likelihood of bias”. “Justice must not only be done but it must also be seen to be done” declared the Court solemnly even as it directed the CBDT not to include jurisdictional CITs and DITs as a part of the DRP.

Of course, as always the assessees are one-up on the department. Knowing the futility of going before the DRP, why do the assessees still throng the DRP? Because it gives them an additional 9 months of breathing time to worry about the demand that will inevitably result from the assessment order. And if the order of the DRP is “laconic”, it becomes that much easier to get a stay on recovery of the demand from the Tribunal. And "laconic" orders invariably get remanded to the DRP for passing fresh orders and all this is a welcome respite from the likelihood of having to pay the demand.

All this raises is the inevitable question: Why continue the charade of the DRP?

CA Vellalapatti Swaminathan Iyer
Hyderabad

The author trains his guns again on the proposed National Tax Tribunal and makes out a compelling case on why it should never be implemented. Instead, a different approach is required to solve the problems of delay and cost in justice delivery says the author. The ten-point agenda formulated by the author will, if implemented in true earnest, deliver us the Nirvana of “Sulabh Nyay Satvar Nyay” (Simple justice, Speedy justice) assures the author

The Constitution of India is the Supreme Law of the Land. One of the most important provisions of the Constitution of India is Article 265, which provides that “No tax shall be levied or collected except by authority of law”.

In the year 1998-99, the total pendency of tax appeals before the Income Tax Appellate Tribunal were 3,00,597 it took six to seven years to hear the appeal before the Tribunal, and in High Courts the matters were heard after 10 to 15 years. Shri Palkhivala in his article “The Maddening Instability of Income Tax Law” (Income Tax Review – August-Sept, 1996 P. 57 has stated as under “A telling example of the total absence of a sense of time in our tax administration is afforded by Supreme Court’s decision rendered last November in the case of Sutlej Cotton Mills Ltd. vs. CIT (1990) 2 SCALE 931. It was a case under Business Profits Tax, 1947. The accounting period was 1946-47. The amount involved was paltry sum of a few lakhs of rupees. The High Court’s order was rendered in 1965. The Supreme Court sent the matter back to the Income Tax Appellate Tribunal to re- hear the appeal 44 years after the close of the accounting period. Is there any other civilized country where a tax payer would not know the quantum of his liability for 44 years?”.

There is no mechanism even today in the tax administration to find out whether effects to the orders of Supreme Court or High Courts are given if the matter is decided in favour of the Department. It is heartening to note that as on 1-5-2011 there are only 55,564 appeals are pending before the Income Tax Appellate Tribunal, in some of the places the matters are heard within six months of filing of an appeal. Even in Mumbai, the Income Tax Appellate Tribunal, which has pendency of only 16,984 appeals, the matters are heard now within one year of filing of an appeal. For rendering the quick justice the efforts of Hon’ble Members of the Income Tax Appellate Tribunal and the contribution of the President of Income Tax Appellate Tribunal deserves to be appreciated, because, this is the only institution of our Country where pendency has reduced, whereas in all other institutions the pendency of litigation has increased.

It may be appreciated that litigants before the Tribunal and Courts are of two categories; the aggrieved assessee and the Tax Department. But the objective in filing appeal is different for both categories.

An assessee rings the bell of justice in the Tribunal and Court only when the Assessing Officer levies taxes or makes additions which are not in accordance with law. As appeals involve time and money, both of which he can ill afford to squander, therefore, before doing so, he makes a careful cost benefit analysis and elects to appeal only when the stakes are high and there are chances of success. He is no academician and he does not derive any pleasure in obtaining a judgment for the sake of publicity or for laying down a legal precedent.

Whereas the tax official on the other hand, files an appeal, in most of the cases not because he needs to do so, but mainly because of fear of being questioned by superior or fear of audit and vigilance, hence, he prefers to file an appeal though only question of fact is involved and same would be dismissed. As there is no accountability, nobody will question him why appeal was filed. This tendency was there in the past, it is there now and it will continue also in future unless some provision of accountability is introduced in the Income-tax Act.

One of the reasons stated for introduction of National Tax Tribunal in the year 2003 was huge pendency of references in various High Courts, without making an attempt to find out what was the reasons for huge pendency, though the 80% references were pending before various High Courts were of the Tax Department. The constitutional validity of the National Tax Tribunal was challenged and the matter is now pending before the Apex Court. As the pendency has reduced before the Income Tax Appellate Tribunal, there will be less number of appeals before various High Courts. The Department has also come out with the Circular No. 3/2011 dt. 9th February, 2011 (2011) 332 ITR 1 (St) revising the monetary limit of filing appeals, as per the Circular Department will not file an appeal to the High Court if the tax effects are less than Rs.10,00,000/-. Some of the Courts have taken the view that the instruction will be applicable to all pending appeals and references, therefore more than 50% of revenues appeals which are pending before various High Courts will be dismissed only due to lesser tax effect. Now this is the trend of tax litigation before the various Courts, it is for the Government to decide whether they intend to pursue the establishing of National Tax Tribunal by spending crores of tax payers money for establishing and experimenting a new institution which may not serve any purpose?

I have made an attempt to put forward my vision and road map for the tax litigation in India; which are as under:

1. Accountability in Tax Administration

It has been found that on many occasions the additions are made for name sake, knowing well that the additions will be deleted by the Tribunal, because there is no accountability on the part of Assessing Officer to explain such additions Dr. Raja J. Chelliah in his report suggested as under (1992) 197 ITR 177 (St) (257) Para 5.9. “Ways must be found to hold the officer accountable for kinds of assessments he makes under present procedure”. He suggested that “The Assessing Officers should be made accountable for their actions by being blamed for raising demands which are not upheld by a reasonable figure, say 50 per cent, the officer should be given a black mark and reprimanded. On the other hand an Assessing Officer should be protected and defended if he has observed instructions of the Board and followed the Court rulings even though audit might raise objections about his actions”.

It is very unfortunate that the Government has accepted most of the recommendations of Dr. Raja Chelliah which are favourable to department and not implemented the recommendations which are favourable to the assessee. Even the proposed Direct Taxes Code, 2010 does not contain any provision on accountability on the part of the tax administration. I am of the opinion that if provision of accountability is introduced it may reduce unintended litigation and will benefit the honest tax payers of the country.

2. Income Tax Department should have an independent National Tax Litigation Cell to monitor the tax appeals before various High Courts and Apex Court

Though the 60% of Tax appeals before the Income Tax Appellate Tribunal and 75% tax appeals before the High Courts are of the Income Tax Department, the Income Tax Department does not have a centralized legal department to monitor the cases pending before the Courts. There has to be independent departmental legal cell which can decide which the appeals to be filed are and can monitor various issues pending before various Courts. Collegiums of legal cell can decide whether it is a fit case for filing an appeal to High Court or Apex Court.

3. Research Team to monitor tax matters before various High Courts

The City like Mumbai should have a well equipped library to assist the counsels who represent the matters before the Court, and there has to be continuous research to monitor the tax litigation before various Courts and Tribunal.

4. Age limit of members of ITAT may be increased from 62 to 65

Parliament Committee has recommended to the Government to increase the age limit of Judges of High Courts from 62 to 65 years, it is desired that the law may be passed at the earliest. According to me, speedy justice is the need of hour for the development of the nation. Experience of a Judge and his knowledge is an asset of the nation. It is desired that the age limit of members of the ITAT may be increased to 65 and their knowledge and experience may be utilized for speedy disposal of tax matters.

5. Permanent Tax Bench in all High Courts

There has to be a dedicated tax bench in all the High Courts for speedy disposal of tax matters. In Mumbai there is a permanent tax bench to decide only tax matters, which has helped to reduce the pendency of tax litigation. There are always shortage of tax judges it is desired that some of the deserving members of the Income Tax Appellate Tribunal may be elevated to the High Court, which will help to have a dedicated tax bench at all the High Courts.

6. Supreme Court Benches in three Zones

In the year 2000, the Parliament Committee has made an appeal to Union Government to pursue the Supreme Court to set up Benches in three distant regions however there seems to be no political will to set up the Benches of the Supreme Court. More than 50% of tax litigations which are pending before the Supreme Court is from State of Maharashtra considering the cost of litigation, it is desired that Supreme Court may constitute benches at least in three distant regions. It is beyond reach of common citizens to approach the Apex Court. Till such time regional benches are set up the admission before Apex Court may be heard by e-Court, by linking to various High Courts and one may argue the before Apex Court sitting at Mumbai High Court.

This can be tried as optional at the beginning and if it is successful it can be extended to other courts as well. This will benefit the nation and will help to reduce substantial the cost of litigation before the Apex Court.

7. Amendment in Tax Law – Appeal to Income Tax Appellate Tribunal

One of the suggestions made by the Professional organizations is all the orders must be made appealable. This will save time and amount to be spent only to decide whether orders are appealable or not. There are number of orders passed by the Commissioner of Income Tax for which no appeal is provided. The only remedy available to the assessee is to approach High Court in its writ jurisdiction. A simple amendment in the Income-tax Act may be made stating that all orders of Commissioner of Income Tax are made appealable to Tribunal for example, Order under sections 264, 273A, waiver of interests charged under sections 234A, 234B, and 234C, order under section 179, etc. This will save substantial time of Court and the assessee will get the justice from the Tribunal within six months of filing an appeal. Income Tax being Central Act there may be certain issues which may be affecting large number of assessees. If an application is made by the assessee and the department, a direct appeal can be made by the Income Tax Appellate Tribunal in appropriate case. Section 257 of the Income Tax may be suitably amended to enable the assessees as well as the department to approach directly to the Apex Court. This will help to reduce the pendency of tax litigation in all Courts and the finality may be attained on some of the important issues within one year of the order of the Tribunal. Similar provision may be introduced in the proposed Direct Taxes Code, 2010 as well.

8. Development of Tax Bar

Income-tax Act, 1961, refers to 98 Central Acts and many State legislations, however, in law colleges the tax is an optional subject. It is desired that the Direct and Indirect Taxation may be made compulsory subjects in all law colleges. This will help to develop the future tax bar of our country. At present, not even 2% of lawyers are practising on taxation. To develop the Tax Bar the ITAT Bar Association in association with AIFTP and Government Law College has started National Tax Moot Court Competition and Research paper in the taxation in the year 2003; where in every year more than 100 young professionals are participating in the competition. It is desired that all professional organizations must organize some educational programme for development of Tax Bar. Earlier tax litigations were on cash credits, low withdrawal, GP addition, penalty, etc. and tax involved was very less whereas, now the emerging tax litigations are on International Taxation and Corporate Law, tax issues on restructuring, joint venture, TDS, etc., and stakes are very high, India needs better equipped Legal tax Practitioners to make better representation before the Tribunal and Courts. It is only possible by continuous education and training. To develop the tax litigation practice one needs to attend the Courts and Tribunal sitting at office, one cannot get the deserved training which one may need when arguing the matter. It is the duty and responsibility of the senior members of the Tax Bar to train the young practitioners to develop the tax Bar.

9. Separate Court for Economic Offences

The Hon’ble Finance Minister in the Finance Bill, 2010 has proposed “National Mission for Delivery of Justice and Legal Reforms”. According to the Hon’ble Finance Minister the object of mission is to help to reduce the legal backlog in courts from an average of 15 years at present to 3 years by 2012. As regards the prosecution in tax matters are tried before the Magistrate Court and it takes more than 25 years to decide. It is desired that there has to be a separate Court which deals with economic offences and person who has knowledge on tax and accounts may be appointed as the judge to decide the matter, relating to prosecution. Unless the matters are decided within a reasonable time the purpose of launching the prosecution will not have any impact of tax evaders.

10.Technology in Tax Administration

Use of technology in tax litigation can help to reduce the litigation. The Central Board of Direct taxes can get the information from all the Zones, specifying what type of litigation is filed before various High Courts. Unlike in Civil matters the tax department is always as petitioner or respondent. The Board can get the information as soon as the appeal is filed in various high Courts the issue involved in appeal. Whenever the common issues are involved the grouping can be done. The Honourable Bombay High Court in last three years has disposed large number of matters by grouping the matters. If the issue involved which affects large number of matters the CBDT may request the Apex court to decide the matter out of turn hearing which will help to reduce the pendency in all the courts.

The World Bank Report 2007 on the subject of “Doing business in South Asia” observed that Commercial disputes before various Courts in India are among the most lengthy, costly and complex in South Asia and globally- resulting in a rank of 173rd.

Proposed Direct Taxes Code if it becomes Act in the present form, will make the settled law unsettled hence there will be new litigation in the Direct Taxes for another 50 Years.

It is also very unfortunate that the assessees are also not very serious about the tax litigation; they send only the accountant and junior staff to assist in the matter. It is desired that the directors and partners must attend the proceedings, and then only they will be able to understand the importance of tax litigation and better tax management. Whenever any assessee adventures in to tax planning and business restructuring, it is desired that the assessee should consult the tax litigation practitioner, because he will be able to guide the assessee by his experience whether such an adventurous tax planning will be accepted by the Courts or Tribunal under the present scenario.

Today, Tax Bar is considered as one of the best Bars of our country, this is mainly because of continuous education, value and ethics followed by the stalwarts of the Tax Bar, like Shri R. J. Kolah, Shri N. A. Palkhivala, Shri S. P. Mehta and many more. I hope the members of the Tax Bar will make a sincere attempt to preserve the value and ethics followed by the stalwarts and senior members of the Tax Bar. Every professional must play a proactive role and help the Government to prepare the Road map for better tax law and tax administration for achieving the goal of speedy justice, by sending suggestions objectively.

Jai hind

Editor-in-Chief

Reproduced with permission from the AIFTP Journal, July 2011

The author argues that the adverse outcome of the Aditya Birla Nuvo matter was the result of shoddy drafting of the JV agreements by AT&T’s lawyers which the department’s lawyers exploited to the hilt. But its too early to write an obituary for the India-Mauritius DTAA says the author.

The judgement of the Bombay High Court in Aditya Birla Nuvo vs. DDIT must have sent a chill down the spine of foreign investors hoping to escape tax in India by routing their investments through Mauritius.

On paper, Aditya Birla Nuvo had a seemingly cast-iron case. Like hundreds of foreign investors before it, AT&T USA set up a 100% subsidiary in Mauritius, funded it with enough capital and got it to invest in the shares of Idea Cellular.

So what if AT&T Mauritius was a dummy company with no operations worth its name. It had the ‘precious’ Tax Residency Certificate from the Mauritius tax authorities and that is all that was required to wish away all tax headaches as per the CBDT’s Circular Nos 682 & 789 dated 30.3.1994 and 30.4.2000 and the judgement of the Supreme Court in UOI vs. Azadi Bachao Andolan 263 ITR 706.

Aditya Birla Nuvo, well known for its conservatism, was not content with the paper work that AT&T Mauritius produced and so it went to the AO dutifully asking whether it needed to deduct income-tax at source while buying the shares from AT&T Mauritius.

Once the AO replied on the negative and said that the remittance could be made without deduction of tax at source, there was nothing for Aditya Birla Nuvo or AT&T to worry, or was there?

But, truly it is said by the wise folk that when you play with fire, you must not complain of burnt fingers. AT&T’s lawyers made several mistakes in the joint venture agreement that they caused AT&T to enter into with Aditya Birla Nuvo. For one, the lawyers forgot to make AT&T Mauritius a party to the agreement. Instead, they provided that AT&T USA would “nominate” AT&T Mauritius as its “permitted transferee” to hold the shares of Idea Cellular. More surprising, AT&T’s lawyers provided that despite the shares being held by AT&T Mauritius, the voting and all other rights like rights of management, right of sale or alienation etc absolutely vested in AT&T USA.

Now, such fatal drafting blunders can never go unpunished for long.

Mohan Parasaran, the soft-spoken but wily Additional Solicitor General, is a battle scarred veteran of many tax skirmishes including the celebrated Vodafone International Holdings vs. UOI 329 ITR 126 (Bom) where he single-handed brought glory to the department. He spotted this achilles heal in Aditya Birla Nuvo’s defence and carefully planned his strategy around it. Mohan Parasaran knew that arguing against Azadi Bachao Andolan would meet with a deaf ear from the judges. So, while Aditya Birla Nuvo’s counsel went hoarse reading pages and pages of Azadi Bachao Andolan, Mohan Parasaran gently goaded the Court “But MiLord, AT&T Mauritius is not the beneficial owner of the shares of Idea Cellular. It is a mere nominee of AT&T USA. So, how will Azadi Bachao Andolan at all apply?”

This sealed Aditya Birla Nuvo’s fate and the judges had no option but to solemnly hold “it is evident that the payments made by AT&T Mauritius to the JVC was obviously for and on behalf of AT&T USA, because, under the JVA, the obligation to subscribe and own the shares of the JVC was on AT&T USA”.

Aditya Birla Nuvo’s second line of defense was the s. 195(2) order passed by the AO permitting it to remit the sale proceeds without deduction of tax at source. “How can the AO permit us to remit without deduction and then demand that we pay up the taxes?” Aditya Birla Nuvo argued with righteous indignation.

But the department outwitted Aditya Birla Nuvo here as well. Mohan Parasaran, with his years of experience, would have instinctively known that if he argued that the AO was entitled to change his mind, the Judges would throw him out. Instead, he had to find ways to discredit Aditya Birla Nuvo and show that it had obtained the 195(2) certificate through unfair means. So, Mohan Parasaran dug deep and pulled out a letter dated 8.9.2005 written by Aditya Birla Nuvo to the AO in which it stated that “We would like to submit as these shares were directly allotted by the Idea Cellular Limited to the AT&T Cellular Pvt. Limited, Mauritius, there is no specific agreement relating to purchase of shares”. This was a fatal mistake because the shares had been allotted pursuant to the Joint Venture Agreement between AT&T USA and the Birlas. To say that “there was no specific agreement relating to purchase of shares” is a suppression of material facts argued Mohan Parasaran.

With that, Aditya Birla Nuvo’s ‘righteous indignation’ came a cropper and did not impress the Court. Instead, the Judges came down quite heavily on Aditya Birla Nuvo stating that “it could not claim to be an innocent purchaser unaware of the circumstances in which the shares were issued in the name of AT&T Mauritius”. Aditya Birla Nuvo also suffered the ignominy of being told that it had “knowingly made incorrect representations” to the AO to obtain the s. 195(2) certificate. The Court thundered that Aditya Birla Nuvo had not only “failed to disclose the material facts” but had also “wrongly represented the facts” to the AO. “Having wrongly represented to the AO, it is not open to Indian Rayon to contend that the AO is precluded from taking corrective steps as is permissible in law” the Court added.

Tata International was also done in by poor drafting and shoddy planning. On paper, Tata International structured the agreement as a purchase of shares of a Mauritius company (AT&T Mauritius) instead of buying the shares of Idea Cellular that were held by AT&T Mauritius and propounded the seemingly irresistible argument that the gains arising from the sale of the shares of a Mauritius Company was never taxable in India.

However, Tata International lost sight of the fact that it had, in exercise of its right of first refusal in the Shareholders Agreement, agreed to purchase the shares of Idea Cellular for $150 Million and that instead of that it had purchased the entire shareholding of AT&T Mauritius for the same price. The department pounced on this and argued that the Mauritius company was merely an indirect way of acquiring the Idea Cellular shares given that the Mauritius company had no other assets. What compounded the problem for Tata International was that it provided in the shareholders’ agreement that the sale of the shares of the Mauritius Company would take place only after the Mauritius company had sold 50% of the shares of Idea Cellular to Aditya Birla Nuvo.

After that, there was not much left for the Court to do but to discard Tata International’s defense that it had “merely” bought the shares of a Mauritius company as a “colourable transaction” and to hold that the scheme was in fact one for the sale and purchase of the shares of Idea Cellular.

Of course, all may not yet be lost for Aditya Birla Nuvo & Tata International. The argument that the gains on Idea Cellular’s shares are exempt u/s 10(23G) is still open for it to argue. If it does succeed on that ground, everything else becomes academic because Mauritius or no Mauritius, the gains are exempt.

From a larger perspective, while the judgement has sent shock waves in the international community, it may be too early to write an obituary for the India-Mauritius DTAA. The Court was careful to formulate its judgement on the basis of the agreement between the parties and emphasized that AT&T Mauritius was acting “for and on behalf” of AT&T USA and was not the “beneficial owner” of the Idea Cellular shares. I dare say that if the joint venture and shareholders’ agreements had been drafted differently, Azadi Bachao Andolan would have prevailed and the outcome of the litigation might have been entirely different.

CA Vellalapatti Swaminathan Iyer
Hyderabad

The author adds his voice of reason to the strident debate on the pros and cons of the Lokpal bill. The author argues that while the proposal to bring the judiciary under the scrutiny of the Lokpal is well-intentioned, it will adversely affect the fearlessness and independence of the judiciary and have disastrous consequences. Instead, the author suggests measures to curb corruption in the judiciary.

In India common citizens have full faith in the Judiciary, but their objection is against the Judiciary is delay in justice delivery system. Therefore, one need to take remedial measures to reduce the pendency of cases before various Courts. Mere introduction of Lokpal Bill may not have much impact on the present system. According to me, the legislature alone is responsible for delay in justice delivery system, because they have not increased the strength of judges and have also not been filling up the vacancy of Judges.

Hon’ble Mr. Justice F. M. Kalifulla, Acting Chief Justice of Jammu and Kashmir, while addressing the seminar on mediation orientation programme on 5th June 2011 said “There is need for 1500, High Court Judges and 20,000 judges in the subordinate Courts to clear the rising pendency of cases in various courts of the country”. Our Country needs as on today at least 6750 more judges to clear the pendency of cases, however, nobody is addressing this issue. If these two factors are taken care of, automatically the pendency will reduce and the citizens will get speedy justice. In revenue matters 70% litigations are at the instance of Government, mainly because, nobody would like to take the responsibility. Today, the judges are able to take the decision without any fear or favour mainly because they are protected under the Constitution of India. If their action is questioned due to some allegations made by people having some vested interest, it will affect justice delivery system. When certain allegations are made against judicial officers they cannot rush to the press, they cannot give any statement in their defense, where as the Government officials and ministers and Prime Minister can give press release and public statement etc. In M. R. Parashar vs. Dr. Farooq Abdullah AIR 1984 SC 615 while dealing with contempt proceedings the then Chief Justice of India Mr. Y. V. Chandrachud stated as under:-

We would like to remind those who criticise the Judiciary that it has no forum from which to defend itself. The legislature can act in defence of itself from the floor of the House. It enjoys privileges which are beyond reach of law. The executive is all powerful and ample resources and media at its command to explain its actions and, if need be, to counter attack. Those, who attack the judiciary, must remember that they are attacking an institution which is indispensable for the survival of the rule of law but which has no means of defending itself. In the very nature of things it cannot engage itself in an open war, nor indulge in releasing contradictions. The sword of Justice is in the hands of Goddess of Justice, not in the hands of mortal judges. Therefore, Judges must receive the due protection of law from unfounded attacks on their character

Judicial independence is back bone to preserve the mandate of Constitution of India. If there is any interference, it will have greater impact on the democracy. Bringing Judiciary within the scope of Lokpal Bill may be against basic structure of Constitution of India and it will be a black day in the Indian history, because it will affect the independence of the entire judicial process. I am of the firm opinion that Judiciary should be outside the purview of the Lokpal Bill.

I make an appeal to the professionals and professional organizations who are in favour of Judicial independence to make an appeal to the drafting committee not to include the Judiciary in the proposed Lokpal Bill. There can be more transparency in the selection process of Judges within the present system itself.

As regards corruption, Hon’ble Mr. Justice R. C. Lahoti, Former Chief Justice of India while addressing a conference on 7th September 2002 at Jaipur on the issue of Corruption, stated as under:-

Kautilya says in Arthashastra — “To know if government officials handling the treasury are stealing public money or not is as difficult to detect as whether a fish is drinking water or not. The collection of’ incidents of corruption from several news reports highlights features of corruption in revenue: (i) there is a sudden spurt in instances of corruption (ii) the corruption is showing its origin at the top and percolating downwards (iii) there is a tendency to protect the corrupt and hound the honest (iv) excepting highlighting the issue in media there is no revolt nor remedial steps taken against corruption; people are getting used to corruption as a necessary evil of the system or a ‘part of life’. I am amazed at the patience of Indian people who endure injustice and unfairness with servility and resignation. We bear the torture of the laws and fatality of corruption and endure ourselves in such circumstances which would lead to bloody revolution in any other polity. Corruption is a cancer eating into the roots of the society. It is difficult to fight against corruption because the chances of success are bleak but this is no reason for despondency. Nobody is born corrupt; it is the vitiated atmosphere in the society and the system of governance which converts the clean into the corrupt. An honest person resists corruption but allurements and temptations at times prevail upon him and once corrupt, even an honest person prefers and finds it convenient to stay corrupt. The seeds of corruption are sown in the mind of the man and the cure, if any, lies in eradicating the seeds of corruption from his mind. An honest revenue official says “The honest are hounded; they are humiliated; they are ignored; they are manipulated: they are used, they are punished; they become the laughing stock in society and in their families: even their very honesty is suspected. In spite of that, there are many honest officers in the department who remain honest against all adversities. They are a special species; they have to be preserved and protected

Hon’ble Justice Lahoti gave more than 25 instances of corruption based on the paper reports which was published in a span of six months. Though more than 10 years have passed, nobody knows the fate of all these cases. If the Government had taken some remedial measures on the basis of speech delivered by the then Chief Justice of India, possibly we could have avoided all the present episodes which have   taken place in the last few months. As there is no speedy disposal of cases there is no impact on the corrupt people. Even the media has not played any role to find out what is the fate of all these cases. Therefore, the proposed Lokpal Bill must provide that all the cases relating to corruption must be heard and disposed of within one year. This is possible if there is increase in the number of Judges constituting the Courts. Unless the Government appoints the required number of judges, it is impossible for the judiciary to dispose off the pending cases. I am of the opinion that before bringing the Act, appoint new judges and create infrastructure and environment which will enable the courts to quickly dispose off the matters pending in Courts. If the assessees are able to get the finality to the assessment at least within two years of assessment, I am sure many assessees will not indulge in unethical practice and will prefer to fight the matter in Courts.

Former President of India Dr. A.P.J. Abdul Kalam said “Establishing a corruption-free India is a major challenge. I propose a youth brigade as the solution. ‘I can do it…We can do it; India will do it, should be the spirit,” 

War is fought against enemy country, where as in corruption one has to fight against own people. It is not so easy, however, let us make an honest attempt to have corruption free India.

I am of the opinion that the intellectuals and professional organizations must study the Lokpal Bill and should send their suggestions objectively, so that the Bill can serve the desired objectives. My suggestions are as under:-

(1) Judiciary should be outside the purview of Lokpal Bill.

(2) As per Clause 12, any person other than a public servant can make a memorandum of complaint to the Lokpal. I am of the opinion even public servants should also be given liberty to make a memorandum of complaint e.g. Some body may approach the public servant with the favour, the public servant in an appropriate case may refer the matter to Lokpal.

(3) On making enquiry if the memorandum is held to be without any basis and with the intention to bring discredit to the reputation of particular person or institution the person who makes the memorandum must be held guilty and must be made punishable.

(4) There has to be specific provision to deal with contempt proceedings with the Lok Pal.

I do appreciate the concern of Civil liberty but merely bringing law is not the solution, rather providing required infrastructure and facilities so that there can be effective justice delivery system, is what is required.

We are having finest judges whose integrity is beyond reasonable doubt and they are following the mandate of Constitution of India and deciding the matters without any fear or favour. I, therefore, appeal to the professionals to send suggestions to the proposed Committee urging them not to include judiciary in the proposed Bill.     

Jai hind

Editor-in-Chief

Reproduced with permission from the AIFTP Journal, June 2011

The author lashes out at the proposal of the Government to enact a new law to regulate lawyers, claiming that it will be an immense waste of public money. Instead, if the Government is really serious of protecting the interests of the public, then there is a series of steps it can take under the existing legislation to promote the rule of law and enhance standards in the profession, says the author. The author identifies 10 such steps which he claims will reform the legal sector.

The Government of India is proposing to introduce “Legal Practitioners (Regulations and Maintenance of Standards in Profession, Protecting the Interest of Clients and Promoting the Rule of law) Act, 2010“, and has requested for suggestions from the stake holders i.e., Public in General, Legal Fraternity, Educationalist, etc. Under Clause 35 of the proposed Act, until competent regulatory bodies are established by the Central Government or State Government as the case may be. The Legal Services Board shall function as the regulator for the regulatory objectives under this act for legal professionals other than those covered by the Advocates Act, 1961 as enumerated in Schedule I i.e.

1. Qualified Lawyers, who are not practicing advocates, doing legal services in their Chambers.

2. Qualified Lawyers engaged in drafting and conveyancing.

3. Income Tax Practitioners.

4. Sales Tax Practitioners.

5. Practitioners in Revenue Courts.

6. Customs Clearance Agents.

7. Customs and Immigration Law Practitioners.

8. Trade Mark Attorneys / Lawyers.

9. Patent Attorneys / Lawyers.

One may have to debate when a legal profession is controlled by the Bar council of India and respective Bar Association of States, do we require one more body to regulate the Legal Practitioners. According to me there need not be one more body to regulate the Legal Practitioners. If the proposed law becomes an Act it may result as threat to independence of legal profession. By introducing the proposed law the Government is recognizing that the persons, other than the Legal Practitioners, can also render the legal services, without prescribing any minimum qualifications for rendering legal services.

We do appreciate that there has to be a Body to regulate the Tax Practitioners (Income Tax and Sales Tax), who are neither members of Legal Profession nor the members of Accountancy Profession. As there are neither any guidelines nor any statutory regulation for monitoring the Income Tax and Sales Tax Practitioners, the proposed body can bring discipline amongst the Tax Practitioners. It may be worth appreciating that the ITAT Bar Association, Mumbai and All India Federation of Tax Practitioners have adopted Code of Ethics which is binding on their members including the Tax Practitioners. However, only few Tax Practitioners are members of these Associations and most of the Tax Practitioners are not members of any professional organizations. Hence, there has to be a body to regulate the tax Practitioners. Today, in our country anybody can, prints his card and letter head and start practice as a Tax Practitioner. Assessees are not in a position to verify the Tax Practitioner’s professional qualification and registration and if there is any professional misconduct, they are left with no remedy. If Government really desires to protect the interest of clients and maintain the standards in the profession, we suggest as under.

1. All Tax Practitioners should get registration from a competent forum. Government may nominate All India Federation of Tax Practitioners as designated authority to grant certificate of registration by verifying the educational qualification and competency to render the service. As the Federation has Five Zones it can monitor the tax Practitioners of respective zone.

2. There has to be compulsory renewal of registration every year.

3. The Tax Practitioners must attend a minimum number of educational program me to update on the development of law.

4. The Tax Practitioners must quote his or her registration number in his or her letter head, Letter of Authority, etc.

5. The assessee can verify the genuineness of the Tax Practitioners by visiting the website of the registering authority.

6. For customs clearance agents there has to be a separate organization which can monitor the functioning of customs clearance agents.

7. If Government really desires to protect the interest of legal profession and maintain the honour of profession the Government must provide sufficient infrastructure to the legal profession by providing facility of library, etc. in various Court premises. Conditions in sub-urban Courts of Mumbai is very bad, the Lawyers have to stand outside the Courts.

8. The Hon’ble Law Minister and Hon’ble Chief Justice of India may make a surprise visit to some of the Courts, without informing the people concerned and satisfy themselves as to the facilities provided to the Courts and functioning of Courts. The first hand information will help them to decide the future course of action and we can have better justice delivery system in our country.

9. As regards the taxation is concerned there is always continuous educational programmes for members where as in other branches of law very few educational programs for the development and education of members of Bar. There has to be continuous educational program me in various branches of law which will enable the legal profession to render better service to the clients and Courts.

10. In the era of specialization it is the time to debate whether the legal and Accountancy profession can have partnership, which will enable the professionals to render better service to clients.

According to me, the proposed Act will not serve the desired objectives. By introducing the Act and constituting a separate forum, the Government will be spending the tax payer’s money to unproductive purposes. We are very good at framing the law, but, very poor at administering the same. At this juncture, we require a good monitoring agency. Framing new law is not the solution.

I appeal to all the members of legal fraternity to send their suggestions to the concerned authority which will enable the Government to decide whether we require the proposed law.

Dr. K. Shivaram

Editor-in-Chief

Note: – Readers can read the full text of Bill at http://lawmin.nic.in/la/NALSA.doc and can send their view to following address:-

Mr. M. A. Khan Yusufi,
Joint Secretary & Legal Adviser,
Room No 406, ‘A’ Wing, Shastri Bhawan,
New Delhi – 110001
Tel. No. 2338 5383

Reproduced with permission from the AIFTP Journal, May 2011

The author raises the seminal question as to why, while the Tribunal has all the trappings of a Court, does it not have the power to punish for contempt. He cautions lower authorities that the lack of contempt power is no reason for not following the binding judgements of the Tribunal. He also makes a fervent plea to all practitioners to uphold the honour & dignity of the great Institution.

Under the Income tax Act, the Income Tax Appellate Tribunal is a final fact finding authority.  In Ajay Gandhi v B. Singh (2004) 265 ITR 451 Apex Court observed that “The Income tax Appellate Tribunal exercises judicial functions and has the trapping of a Court”. Apex Court in ITAT v V.K. Agrawal (1999) 235 ITR 175 has held that interfering with administration of justice of the Income Tax Appellate Tribunal will amount to contempt of Court. In an historic judgment then law secretary was held for contempt. It is now beyond doubt that the Income tax Appellate Tribunal has all the powers of Court. It can issue summons and  exercise all the powers vested in the Income tax authorities under section 131 of the income Tax  Act, hence any proceedings before the Income tax Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 for the purpose of section 196 of the Indian Penal code. The Tribunal shall be deemed to be a Civil Court for all the purposes of section 195 and Chapter XXXV of the Code of Criminal Procedure 1898.

Under the Contempt Courts Act 1971 “Civil contempt” is defined in section 2 (b) “Civil contempt” means willful disobedience to any judgment, direction, orders writ, process of a Court”. The Court is not defined under the Contempt Courts Act 1971. The Income tax Appellate Tribunal therefore is also competent to initiate contempt proceedings, however, it has no power to punish for its contempt. Judicial discipline demands that authorities subordinate to the Income tax Appellate Tribunal must accept as binding decisions of the Tribunal. In Khalid Automobiles v UOI (1995) 4 SCC (Suppl) 652, the Court held that an order of Tribunal was binding on the assessing Officer and the first Appellate authority and the failure to follow the same may constitute contempt of Tribunal’s order (Refer Rajendra Mills Ltd v Jt CIT (1971) 28 STC 483 (Mad), Senthil Raj Metal v GTO (1990) 79 STC 38 (Mad) and UOI   v Kamalakshi Finance Corporation Ltd AIR 1992 SCC 711 (712). It is desired that in an appropriate case the Income tax Appellate Tribunal may take an appropriate step for contempt for not following the binding nature of the order of Income Tax Appellate Tribunal by lower authorities so that judicial discipline is maintained.

In a land mark decision the Apex Court in Re: Vinay Chandra Mishra (1995) 2 Supreme Court cases 584, a senior Advocate held to be guilty of contempt for making certain allegation and threatening to transfer a presiding judge. In a letter to Chief justice the Judge concerned wrote as under (594) “It is not the question of insulting of a judge of this institution but it is a matter of institution as a whole. In case dignity of Judiciary is not being maintained then where this institution will stand. In case a Senior advocate, President of Bar and Chairman of Bar Council of India behaves in Court in such manner what will happen to other advocates”. While dealing with the issues the Apex Court has made certain important observations which deserves to remembered by all the concerned who represent before the Income Tax Appellate Tribunal or Court, to maintain dignity and honour of the Institution.  The Apex Court observed that at 614. “No one expects a lawyer to be subservient to the Court while presenting his case and not to put forward his arguments merely because the Court is against him.  In fact, that is the movement when he is expected to put forth his best effort to persuade the Court.  However, if, in spite of it, the lawyer finds that the Court is against him, he is not expected to be discourteous to the Court or to fling hot words or epithets or use disrespectful, derogatory or threatening language or exhibit temper which has the effect of  overbearing the Court. Cases are won and lost in the Court daily. One or other side is bound to lose. The remedy of the losing lawyer or the litigant is to prefer an appeal against the decision and not to indulge in a running battle of words with the Court. That is the least that is expected of a lawyer. Silence on some occasions is also an argument. The lawyer is not entitled to indulge in unbecoming conduct either by showing his temper or using unbecoming language”.

The Apex Court at P 616 also made following Observations “To resent the questions asked by a judge, to be disrespectful to him, to question his authority to ask questions, to shout at him, to threaten him with transfer and impeachment, to use insulting language and abuse him, to dictate the order that he should pass, to create scenes in the Court, to address him by losing temper area all acts calculated to interfere with and obstruct the course of justice. Such acts tend to overawe the Court and to prevent it from performing its duty to administer justice”.

The Court also observed that “Brazenness is not outspokenness and arrogance is not fearlessness. Use of intemperate language is not   assertion of right nor is a threat an argument. Humility is not servility and Courtesy and politeness are not lack of dignity. Self–restraint and respectful attitude towards the Court, presentation of correct facts and law with a balanced mind and without overstatement, suppression, distortion, or embellishment are requisites of good advocacy. A lawyer has to be a gentleman first. His most valuable asset is respect and goodwill he enjoys among his colleagues and in the Court”.

Role expected of a lawyer representing the interests of his client and as an officer of the Court. All who represent before the Income tax Appellate Tribunal whether they are lawyers, Chartered accountants or departmental representatives must follow the principle laid down by the Apex Court to maintain the dignity and honour of the institution. It may so happen that too much aggressiveness and disrespect to the bench and institution may lead to Contempt Proceedings. If the judiciary is to perform its duties and functions effectively and remain true to the spirit with which they are sacredly entrusted to it, the dignity and the authority of the Courts have to be respected and protected at all costs. Otherwise, the very cornerstone of our constitutional scheme will give way and with it will disappear the rule of law and the civilized life in the society.  As per the Contempt of Courts Act 1971 a reference can be made by the subordinate Court to the High Court in respect any contempt. The Tribunal being subordinate to the High Court can make a reference to the High Court in an appropriate case following due process of law. In this regard the CAT has specific rules i.e. The Contempt of Court (C.A.T.) Rules 1992 whereby the CAT exercise the powers conferred by the Contempt of Courts Act, 1971, similar power is also conferred on the proposed National Tax Tribunal,  however such powers are not conferred to the ITAT.  Let us make an honest attempt to preserve the Honour and dignity of the Institution while making representation before the Income Tax Appellate Tribunal and Court.

Dr. K. Shivaram

Editor in Chief, AIFTP & President, ITAT Bar Association

Reproduced with permission from the AIFTP Journal, April 2011