The Hindu Business Line : Why bond with the bad

THE UPA Government appears keen on formulating schemes to tap black money, in compliance with the mandate of the National Common Minimum Programme (NCMP). In this direction, two schemes were announced in Budget 2005 — namely, a tax on withdrawals from banks over prescribed limits; and asking banks to report about all deposits whose interest is exempt from TDS.

About the tax on withdrawals, the Finance Minister's speeches in Parliament seem to indicate that it may be withdrawn if not successful. The second measure is merely cosmetic and is only likely to generate more paperwork for banks and the I-T Department.

There are reports now that the Government is toying with the idea of a disclosure scheme of floating bonds for a fixed period — maybe of 5-7 years — for being subscribed to by tax-evaders and black money hoarders, with no explanation needed about the source of the money invested. The only drawback would be that no interest will be paid on the bonds for the period for which the money remains with the Government. The disadvantage of not paying interest would, according to the Government, remove the stigma attached to Voluntary Disclosure Schemes.

Following VDIS 1997, the Government had committed to the Supreme Court that it would not introduce any more disclosure schemes.

But such a scheme, if floated, may still stand judicial scrutiny because of the the Supreme Court decisions in R. K. Garg vs UOI & Ors. (1982 133 ITR 239) concerning Special Bearer Bonds Act, 1981 and All India Federation of Tax Practitioners & Ors. vs UOI & Ors. (1998 231 ITR 24) relating to VDIS 1997.

In these decisions, the constitutional validity of voluntary disclosures with immunity from penal provisions was upheld. However, a democratically elected government has to assess the overall moral and social impact of such decisions. The proposal of floating interest-free bearer bonds is objectionable for the following reasons:

It gives immunity and exemption to dishonest taxpayers vis-à-vis those who have discharged their tax obligations honestly. In this context, it may be useful to quote from the dissenting observations of Justice A.C. Gupta in the R. K. Garg decision (supra) on special bearer bonds:

"It has been held by this court in Royappa (AIR 1974 SC 555) and Maneka Gandhi (AIR 1978 SC 597) that the principle of reasonableness does not exclude notions of morality and ethics..."

Resorting to issue of bonds is clear acceptance by the Government that it has no means to check tax evasion and black money.

It is time tax evasion was considered a crime against society — not merely a civil offence — and dealt with on that basis. On this reasoning, no one would approve immunity to a thief who steals money and makes it available to Government for its use for some time and get it back without any punishment.

Fair-minded persons, not swayed by emotion or prejudice, cannot regard such scheme with equanimity.

Such a scheme would have deleterious effect on the level of compliance and on the morale of the tax administration.

The operation of such schemes shows that they only help generate more black money, wherein the bonds get traded at a premium by unscrupulous taxpayers.

Expert committees on taxes have not favoured the issue of such bonds.

Considering the history of amnesty schemes, the proposed scheme is unlikely to bring big money to the Government.

Thus, issue of bonds for getting tax evaded money for use by the Government for some time would be most unwise. Besides going back on the assurance to the Supreme Court that there would be no tax amnesty schemes in future, it would have a demoralising effect on law-abiding taxpayers.

(The author is a former Chairman of CBDT.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Opening the gates wider

Advantage, FTAs

May this not be limited only to discussion

Forest walks are wide and spacious

Appellate Tribunal `taxed'

Who are `employees based in India'?

Why bond with the bad

Driven by a need for cheap financing