Mohan Padmanabhan

Kolkata, March 17

The much slammed Banking Cash Transaction Tax (BCTT) seems to have thrown up a whole new dimension, which questions the efficacy of the existing Government machinery to check black money transactions.

Direct tax experts feel that the Finance Minister, through the insertion of a new clause in the definition of a "person" (withdrawing such cash) in the relevant chapter of the Finance Bill 2005, has attempted to cast the net wide within Government's own establishments to catch a whiff of the black money trail. Does it not sound like scoring one's own goal?

According to Mr Narayan P. Jain, tax practitioner and lawyer, the cash withdrawal tax provisions, through the above insertion , will now apply to both Union and State Government offices, which, in effect, questions the time-tested internal checks and balances put in place, like internal audits, to prevent dubious cash transactions in Government offices.

Citing the proposed move to make the tax applicable to Union and State Governments as totally misconceived, Mr Jain asked: Is the Government trying to cast a tax burden on itself in its desperation to catch the black money peddler? Is it the Finance Minister's idea that even Union or State Government offices can be used as a conduit for black money operations?

In Chapter seven of the Bill, after introducing the tax proposal, under No 94, definitions are given for each of the contextual items as per the Income-tax Act, like Appellate Tribunal, Assessing Office and Prescribed. Under item No (5), a `person' (whoever enters into the cash transaction with the bank), is defined as one having the same meaning "as in Clause (31) of Section 2 of the Income-tax Act, 1961 and includes an office or establishment of the Central Government or the Government of a State."

In other words, the tax has to be paid by even State or Central Government offices when they withdraw more than Rs 10,000 from their banks on any single day. According to Mr Jain, the Government is trying to impose a new tax burden on itself, when its tax collections are reluctant to move northward.

As per the already existing Clause (31) in Section 2 of the I-T Act, a person includes, "an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not, local authority and any artificial juridical person not falling within any of the preceding sub-clauses." The new definition has now been added to bring Government offices within the BCTT's ambit.

(This article was published in the Business Line print edition dated March 18, 2005)
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