BOOK REVIEW. A headache called tax disputes

A smooth and effective mechanism for resolving disputes is essential for effective administration of the tax system. The efficacy of such a mechanism lies in the minimising disputes.The Indian tax system has an inbuilt system for dispute resolution.

The need for a comprehensive analysis of the working of this dispute resolution system has always been felt, though informal analyses and discussions abound in this subject. Mukesh Butani’s book meets this demand.

Butani starts by discussing the importance of tax policy and the manner of tax-law making in India. He hits the nail on the head when he talks on inadequate law-making and absence of clear administrative guidelines on interpretative issues being the root cause of tax disputes. The discussion on tax base, movements therein, and comparative analysis of tax bases in other countries is interesting. The impact of tax disputes on the investment climate is also a relevant issue that is discussed.

Dissecting tax disputes The book offers an in-depth discussion on the probable reasons behind tax disputes and the recommendations that could work for India. Gearing up the tax administration is a very important requirement, so also is the requirement for assessment procedures to be made more objective, though how this can be achieved in the present tax climate is not certain.

The author reviews the performance of the traditional forum of dispute resolution, i.e. the Commissioner of Income Tax (Appeals), which is bogged down by the huge backlog of cases accompanied by frequent transfer of the commissioners. This level in dispute resolution being an intermediary one, the multiplicity of appeals emanating from here makes it a less than effective mode of dispute resolution, says Butani.

Butani explores a few recommendations for strengthening the mechanism of the Commissioner (Appeals) and the higher judicial levels, i.e. Income Tax Appellate Tribunal, the High Courts and Supreme Court. Creating a separate vertical for the Commissioner (Appeals), restricting the right to further appeal beyond the Commissioner (Appeals) in certain cases, introducing timelines for the disposal of appeals, increasing the number of commissioners and strengthening administrative support are some recommendations.

The concept of an e-Tribunal, constitution of special benches to deal with important matters, appointing research assistants, according permission to examine expert witnesses while deciding technical and complex business issues, are some recommendations that the author has for the improvement in the functioning of the Tribunal Benches. Use of technology, permitting direct appeal to the Supreme Court on issues involving complex questions of law where there are conflicting HC decisions, permanent tax bench in the HCs and SC, issuing of circulars / notifications based on decision of the HCs/ SC in order to reduce multiple appeals on similar issue, are the recommendations for this level in the appeals mechanism.

Another interesting recommendation is the “judicial impact assessment”, which, says Butani, should be done whenever any legislation is introduced in Parliament or State Legislatures.

The book discusses the Alternate Dispute Resolution (ADR) framework. The practices in other countries in the world have been considered in the context of ADR framework. Butani gives recommendations for improving each of these modes. These include, making these modes available to all taxpayers, removing the restriction on taking recourse to these modes of dispute resolution, allowing more than ‘once in a lifetime’ application to the Settlement Commission, etc.

However, without introducing further conditions/restrictions, how this will aid in faster dispute resolution has not been brought out. For example, where an assessee having a pending appeal before the Commissioner (Appeals) is allowed to approach the Settlement Commission, it may only result in increase in numbers of applications before the Settlement Commission with the disputes not coming down. Without imposing additional conditions/restrictions by way of timelines, etc., there may not be the desired effect on the number of disputes. This aspect does not appear to have been discussed by the author.

The future of tax The book concludes with a discussion on key tax policy reforms. In the global context, BEPS (base erosion and profit shifting) and the 15 Action Plans are briefly discussed, though the impact of BEPS (in other countries) on India has not been examined.

According to Butani, more effective exchange of information between countries in combating tax evasion, consistent and effective implementation of transfer pricing (TP) documentation standards and country-by-country Reporting guidelines is essential, as also an effective forum for resolution of TP disputes through bilateral negotiation process under framework of tax treaties, are necessary in the process of dispute resolution.

In India, the author considers shifting to GST regime would lead to expansion in the tax base. Therefore, an effective dispute resolution mechanism in this changed context is imperative. Here the author feels that having some lead time before introduction of any law or amendments, making the language of the explanatory notes simpler so that the layman can understand it, proper review of representations on new law, consensus in the views of the Central and State governments, etc could go a long way in dispute resolution.

The author has, however, succeeded in covering all aspects in the framework of dispute resolution. A student of tax laws in India, particularly dispute resolution, would find this a useful guide, while investors, especially from outside India, would it useful a handbook on litigations and procedures in India.

MEET THE AUTHOR: Mukesh Butani is a specialist in corporate international tax and transfer pricing matters. He has significant experience in advising Fortune 500 multinationals and large Indian business houses.

The reviewer is a chartered accountant in Chennai

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