The Hindu Business Line : An un`settling' decision

The powers and functioning of the Settlement Commission have been considerably curtailed despite the Duggal Committee's eloquent references to its work and functioning.

The Settlement Commission for Income Tax and Wealth Tax assessees was constituted on the recommendation of the Wanchoo Committee in 1976, which felt that "a rigid attitude would not only inhibit a one time tax evader or an unintending defaulter from making a clean breast of his affairs, but would also unnecessarily strain the investigational resources of the Department in cases of doubtful benefit to revenue while needlessly proliferating litigation and holding up collection. Hence, the Committee felt that there should be a provision in law for settlement with the taxpayer" at any stage of the proceedings.

After two decades of functioning, the Commission's working was reviewed by a Committee headed by Mrs Justice S. Duggal to find out whether (i) the Commission has served the purpose for which it was set up; and (ii) whether there can be alternative arrangements for achieving the objective, for which the Commission was set up. On these aspects, the Committee's observations were:

First aspect

Para 3.1.11 of the Review Group's Report gave an eloquent response to this aspect. The paragraph read: "After considering all aspects of the functioning of the Commission, we are of the view that it has been very substantially successful in achieving the objects for which it was set up. To our mind, the main achievements have been building up a sense of confidence in the mind of the taxpayer that if he decides to turn over a new leaf, his affairs will be settled reasonably, quickly and fairly; collecting substantial amounts of tax, which would not have been otherwise recovered by the Department; reasonably quick disposal of cases; finality of proceedings, thereby reducing litigation; low cost of collection; and easing the demands on departmental resources."

Second aspect

The Commission said: "The question of looking for `alternative arrangements' can arise only if the existing mechanism has failed. It is our considered opinion that the existing organisation has substantially justified its creation. The figures of performance speak eloquently. In our judgement, it would be a retrograde step if the Commission is sought to be substituted by any alternative arrangement. We sincerely hope and trust that the Government. will ensure that the Commission's powers are not restricted or diluted in any manner."

Regretfully, the Finance Minister has done exactly the opposite of what the Committee has recommended. It has become a common practice in the country to constitute high-power bodies and ignore their recommendations without giving any reasons. The Finance Act, 2007 severely cut the powers and functions of the Commission providing that instead of cases coming to it "at any stage of proceedings," the Commission can be approached only in respect of cases that are pending before the Assessing Officer and that too excluding those where,

Proceedings are pending for assessment/re-assessment consequent to a notice under Section 148 of the Income-Tax Act;

Search and seizure operations were carried on;

Fresh assessments have become necessary consequent to orders under Sections 254, 263 or 264.

Thus, the powers and functioning of the Commission have been considerably curtailed despite the Duggal Committee's eloquent references to its work and functioning and ignoring one-time reprieve to an "errant taxpayer" at any stage of proceedings under the I-T. Act recommended by the Wanchoo Committee. And this has been done without giving any reasons. Sadly, there was not a word about it in the Budget speech.

A criticism often voiced by the Finance Ministry regarding the Commission's working has been that it takes a long time to dispose of the petitions before it, but for it the Finance Ministry itself has to be responsible. After the Fifth Pay Commission, the retirement age of Central Government employees was raised to 60 years, but in the case of the Commission members, it remained at 62 which was fixed when other government servants' age of retirement was 58 years. This led to greater mobility (just after two years) of Commission's members and the vacant posts remained unfilled for long without any ostensible reasons. In such situations, expeditious disposal from the Commission could not have been possible. If similar position continues, it may be difficult for the members to meet the deadlines fixed for their functioning by the 2007 amendments.

It take years to build an institution. But it can be demolished in no time. A building is not pulled down for some cracks here and there. These are cemented to make the building stronger. However, in the case of the Commission, the changes made are intended to ensure that more cracks may develop so that the building may be pulled down or fall by itself. How far such a policy can be good needs to be pondered upon and deliberated.

The way changes have been made do not indicate that proper thought has been given to the changes made.

(The author is a former Chairman of the CBDT.)

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