The Government’s decision to not only put off GAAR (General Anti Avoidance Rules) to April 1, 2015, but to make the regime innately pliable deserves condemnation.

It is amazing that those who took up cudgels for Vodafone and sprang to its defence saying that retrospective amendment to tax is unfair, have not uttered a word against the Government’s decision to grandfather the agreements entered into before April 1, 2010. If retrospective amendment to put a shovel into one’s past income is bad, it is equally bad to bend over backwards to please those who entered into contracts before April 1, 2010.


The thumbs-up to pre-April 2010 agreements is rather strange. Is it designed to bail out those who entered into tax avoidance agreements before this date, but who could come under the probing scrutiny of the GAAR in later years? An alien government can possibly say with some justification that it would not go into the genuineness of past accounts opened by Indian nationals with its banks, but would happily do so as far as new accounts are concerned, opened after the specified cut-off date.

But it is shocking for our own government to say that agreements entered into prior to cut-off date will not be questioned, even if tax avoidance is writ large on them. This is a sort of amnesty for, and settlement with, foreigners, actual and wannabe, no less. Yes, as the FII saga tells us, much of the foreign institutional investment flowing into India, especially through the opaque Participatory Notes (PN) route, is round-tripping, designed to bring back to India black money stashed away abroad by Indians.

One does not understand why the Government is genuflecting before foreigners. If xenophobia is bad, sucking up to foreigners is equally bad, even if the fawning surrender is with a view to garnering precious foreign exchange. Agreeing to back off from deals entered prior to April 2010 fortifies the view that the government has chosen to act tough after ensuring that those in the charmed circle are not embarrassed.


Tax avoidance is as bad as tax evasion, said the Supreme Court in the famous McDowell case of 1985. It is sad that the Supreme Court has chosen to quietly retreat from its judgment, as evidenced by its recent Vodafone verdict; what is worse is that the government too seems to view avoidance with a degree of indulgence vis-à-vis outright evasion.

The apex court in the McDowell case had frowned upon tax avoidance as well on the ground that it amounted to bending the law without breaking it, whereas evasion amounted to blatant breaking of law. Avoidance, in other words, was done through sophisticated means, with a veneer of respectability. And it was this cunning that the apex court frowned upon.

Now, the government seems to think that avoidance is kosher and the tax administrators need to be trained to sift evasion from avoidance. Touché!


The proposed move to make the GAAR panel multi-member is not bad, but its composition is bound to invite scepticism. It would comprise a tax official and two outsiders, one of whom would be an academic, hopefully a well-rounded professional tax expert.

The danger with this is while the tax official is answerable to the department and the exchequer, the outsiders apparently would not be subjected to the same discipline. The country is witness to the pathetic apathy brought to the table by the so-called independent directors on company boards. Incidentally, Satyam happened under the watch of the dyed-in-the-wool academics belonging to Ivy-league institutions like India Business School, Hyderabad.

Till date no one knows whether these highbrow intellectuals were privy to the sins committed by the Satyam promoter Raju or were mere spectators without bothering to bestir. What is the guarantee that an academic on the panel would be of unimpeachable integrity? Even if he is, is there any reason why he should be allowed to enjoy this sinecure?

The panel’s view on tax avoidance would be final, with no scope for appeal. This is scandalous. It is better to have a panel drawn out of income-tax employees, who, while not having the glittering qualifications of the academics, would at the end of the day have to explain their acts of omissions and commissions to their superiors and appellate authorities. Again, what if the lone tax official cowers in front of the more decorated members, either out of an inferiority complex, or covert or overt bullying?

The outside members may, in the absence of a review of their orders, be encouraged to enter into wink-wink-nudge-nudge deals with non-residents.

The nation might be in need of foreign exchange but that does not mean that we should kowtow to outsiders and wink at their shenanigans. There is no reason why the Indian tax authorities should not be allowed to question the source of funding of FIIs, just as there is no reason why they should meekly accept the residency certificate issued by Mauritius.

(The author is a New Delhi-based chartered accountant.)