The Hindu Business Line : Taxes Code curtails CBDT powers

The Direct Taxes Code robs the independence of the CBDT with regard to its functions and powers in carrying out the policy initiatives under the I-T Act.

T. C. A. Ramanujam

The International Monetary Fund has brought out several papers on the question of improving tax reform in developing countries. A paper released in 1992 made the famous declaration, “The tax administration is tax policy.” However good the design of the tax structure might be in a developing country, it is the interpretation and implementation of the law that counts.

The Kelkar Task Force pointed out that a particular tax administration mechanism could alter the original intention of tax policy and structure. In case of non-compliance, it will have to play the role of a policeman. It must provide sufficient deterrence to induce voluntary compliance.

Code proposals

The Discussion Paper on the Direct Taxes Code emphasises how the effectiveness of tax administration depends on the perceived ability of the tax authorities to detect non-compliance and penalise such non-compliance effectively, efficiently and equitably.

Having said that, the Code goes on to lay down a new law hitting at the very core of an independent tax administration which will be free from political and other interferences in the discharge of administrative and legal functions.

Chapter X of the Code lays down that the Central Government shall, for the purposes of the Code, establish the Central Board of Direct Taxes (CBDT) with head-office at New Delhi.

Various Sections lay down rules to be followed in the management of the Board, delegation of powers, terms of office and conditions of service of the Chairman and Members, procedures for holding meetings of the Board, etc.

Section 124 lays down that it shall be the duty of the Board to collect revenues in a fair and transparent manner. The Board shall formulate strategies for detecting and penalising non-compliance. It shall supervise and regulate the functions of the income-tax department.

There are sections prescribing how grants will be made by Central Government and how proper accounts will have to be maintained by the Board. All this looks totally unnecessary.

But the crowning piece of the proposed new enactment is to be found in Section 127. It is now proposed that in exercise of its powers or the performance of its functions, the Board shall be bound by such directions on questions of policy as the Central Government may give in writing to it from time to time.

As far as practicable, the Board shall be given an opportunity to express its views before any direction is given. Who will decide whether a question is one of policy or not? It is the Central Government that will decide. The Board shall furnish the Central Government such returns, statements and particulars in regard to its functions and duties as may be required by the Government from time to time.

Section 133 enables the Board to issue orders and instructions or circulars for the proper and efficient management of the Code. This power is circumscribed by Section 133(2). Its powers are restricted in a needless manner.

IRS aggrieved

Hitherto, the CBDT has been considered the highest executive authority. It was constituted under the Central Boards of Revenue Act, 1963. It has overall powers to make rules and issue orders or instructions to all its officers.

It cannot interfere with the discretion of appellate authorities. It cannot direct the assessing officer (AO) to make a particular assessment in a particular manner. Section 119 makes it clear that the Board has powers to issue general circulars which are binding on the department.

There is nothing in the Act of 1961 about any higher power interfering with the functions of the Board under the guise of laying down policy. Section 127 of the Code robs the independence of the Board with regard to its functions and powers in carrying out the policy initiatives under the Act. The Indian Revenue Service is naturally upset. It finds that the Code is attempting to curtail the powers of the IRS officials. They will be reduced to a mere tax collecting machinery. Even the power to issue guidelines and circulars is sought to be curtailed.

Subordinate to govt

The intention seems to be to convert the CBDT into a mere government department with no independence of its own. It will be beholden to the bureaucrats in the Central Government who can lord it over the Board under the guise of issuing or laying down policy.

The Discussion Paper is silent on the deficiencies, if any, that the Government has observed in the CBDT’s present role and functions. In what way will the explicit supervision by the Central Government and subordination of the Board to the whims and fancies of the political and bureaucratic bosses help in a more efficient and honest tax administration? Will the Central Board of Excise and Customs also suffer a similar fate?

Politics and tax administration can never go together.

(The author is a former Chief Commissioner of Income-Tax.)

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