The Hindu Business Line : Burdened by more than just tax

The Government has notified the establishment of the National Tax Tribunal (NTT), aimed at addressing the demand for faster settlement of tax-related cases in the various high courts. Even as the Finance Minister, Mr P. Chidambaram, is expatiating on the need for collecting tax arrears, he should instruct his officers to use the powers vested in them more humanely, and not to harass late compliers, says G. Srinivasan

WITH barely a couple of weeks to go for the UPA Government to present its third Budget, attention and activity appears to revolve around fiscal issues, even as different industry associations are presenting their wish-lists for the Finance Ministry.

On its part, the Government too has signalled its seriousness by notifying the establishment of the National Tax Tribunal (NTT), aimed at addressing the demand for faster settlement of pending tax-related cases in the country's various high courts.

The NTT Act 2005, notified in the third week of December 2005, also provides for the Tribunal to hear cases on substantial questions of law from the decisions of the Income-Tax Appellate Tribunal and the Customs, Excise and Service Tax Appellate Tribunal, over and above its adjudication function in tax disputes.

Even though the NTT is now a reality, the rules governing its functioning, the appointment of the presiding officer of the NTT (it is stated that he should have served as a Supreme Court judge or the Chief Justice of a High Court) and the number of benches to be set up to hear the cases under the direct tax and indirect tax laws, all have to be in place before it begins to function as a trouble-shooter and a welcome relief to the agonies of people who have tax disputes.

It is interesting to note that the Minister of State for Finance, Mr S. S. Palanimanickam, said in the winter session of Parliament, that the total amount of income tax dues outstanding as on November 1, 2005 is a hefty Rs 93,801 crore.

It is stated that all the persons against whom tax dues are outstanding are not defaulters as the dues in their cases might be under litigation, or stayed by courts, or pending before the Settlement Commission, or not payable for other reasons.

A Finance Ministry note circulated during the Economic Editors Conference, held in New Delhi in November, posed the pertinent query why any tax demand remains outstanding for want of sufficient attachable assets and why tax is not recovered out of income that is brought to tax. It goes on to provide the answer that the law requires the escaped income to be assessed whenever it is detected within the statutory period of up to 10 years.

Second, assessed income is not always the real income because in most concealment cases disallowance of unexplained credits, cash expenditure and illegal expenditure as per the law adds a component of deemed or unreal income to the assessed income. Third, it is clear that all income does not translate into assets in the hands of the assessee and might be wholly or partly consumed or transferred before it is detected and assessed.

Even as the tax authorities deploy statutory steps for recovery of outstanding tax dues, as prescribed under the Income-Tax Act, including attachment of bank account, debtors, attachment and sale of immovable property, it is stated that they also monitor recovery of arrears in large cases through a Task Force and identify cases involving substantial amount of arrears pending before Commissioners (Appeals) and Income-Tax Appellate Tribunal (ITAT) and request these authorities to dispose of such appeals early so that the arrears could be recovered in the current financial year.

Be that as it may, tax authorities, despite their efforts to recover tax arrears, go about spoiling the credibility of the system by not acting on cases using the discretionary powers vested in them, and in the process harass high-income-tax clientele by show of state power!

A chartered accountant recounts how his client is at the receiving end for having complied with the law after paying taxes when an earlier non-compliance was brought to his notice.

His client was an aged professional doing business since the late 1960s. He had been an assessee for more than three decades.

There was no search or survey conducted by the Income-Tax Department all through his business years; in the mid-1990s he had to retire from active service. So he had put his earlier incomes into a Charitable Trust, which was raided by the I-T Department in 2002-03, and he was summoned to give details of his investment in the Trust. The Department was of the view that the subject had not properly recorded investments amounting to close to Rs 2 crore in the books.

On being informed of this lapse and the attendant tax liability on this investment, the subject verified the records and found for himself that the disputed amount was slightly more than Rs 2 crore. He owned up to the lapse and disbursed the huge tax liability of more than Rs 50 lakh by borrowing from others and marshalling his own sparse resources.

He did this purely to get the goodwill of the Department for a fair treatment, but the Department attached all his deposits vested with the Charitable Trust even as far back as November 2004.

The interesting part is that he has paid his tax arrears, admitting the entire deposits as income in one year (which is permitted under Section 69 of the I-T Act). But the Department wanted to assess this over a span of six years and if this is done the assessee will only get a refund of a substantial sum.

His auditor opines that the Department is unjustified in prolonging the attachment, particularly when his client paid the tax entirely. All officers with the authority to lift the ban on his deposits were passing the buck as any solution to his agony might be construed as abetting an omission.

For an old man complying with tax laws on being informed of his mistake, the comport of the officials confirmed his worst fears about the I-T Department.

The question now is: How does one absolve oneself of the original lapse of not disclosing the deposits? Considering, in the case of the elderly assessee, that he had paid his tax arrears in full, justice demands that the freeze on his deposit, which is his only source of income, be lifted.

If under the voluntary disclosure scheme (VDS) taxes could be collected, as the current Finance Minister did during 1997-98, it is sad that the tax authorities resorted to such a treatment of a senior citizen who has ceased to be active in his business and who paid the tax arrears only to redeem his honour and also help the I-T Department in its quest for recovery of arrears.

Even as the Finance Minister, Mr P. Chidambaram, is expatiating on the need for collecting tax arrears, he should send instructions down the line to his band of officers not to harass late compliers with tax laws, for, after all, they had paid their dues in full.

The Government should instruct officers in the Revenue Department to use the powers vested in them more humanely.

Moreover, Regional Commissioners tasked with the recovery of dues should not shy away from disposing of the cases brought to their notice, lest somebody above them should attribute ulterior or nefarious motives to their measures of relief and waiver. If this is not done, more such erring taxpayers would dread to comply.

If only the departmental functionaries display a measure of maturity and understanding, perhaps the proposed NTT's job would be rendered easier and it could focus on substantial issues of tax laws and arbitration of tax altercations in a user-friendly way