My tryst with the legendary N. A. Palkhivala*
H. S. Serna, IRS
The author fondly reminisces the time when he, as an Income-tax Officer, met the legendary Nani Palhivala and how the latter cast a spell on him with his arguments.
Having retired from Income Tax Department after having served for long years, one can look back and reminisce some very interesting incidents and episodes which stick on in one’s memory as images which just do not go away!
One such episode dates back to the time in late sixties when I was posted as a Senior Grade Income Tax Officer in Companies Circle-I, in Calcutta West Bengal (now-Kolkata). This was sometimes in 1967. Earlier I had worked in a Company Circle at Kanpur and had already honed my skills as an enthusiastic young officer seeking to make a mark in the service.
Hell broke out in the Birla Group when they received my notice because I had made my intentions known to them, propelled by my professional enthusiasm that not only I would tax the Birla company as an ‘agent’ in India of the nonresident British company and bring to tax several hundred lakhs of income for this particular assessment year but that I would also re-open their assessment for many preceding assessment years. The untaxed income which, I believed, the Birlas had ‘concealed’ would have brought to the exchequer hundreds of lakhs of rupees.
The Board had assigned to myself and another batchmate of mine the daunting task of investigating the cases of the Birla Group of Companies which had been centralized for an indepth scrutiny after a great uproar in the Parliament raised by Mr. Basu, the fiery CPM leader who was then heading the Public Accounts Committee of Lok Sabha and had levelled massive charges of concealment of income by the Birla Group which had built up a huge industrial empire in the country and abroad, over a number of years.
I had geared up myself to accept the challenge and to break the veil of mystery and uncover the alleged concealment of income by the Birla Group who had been maligned ceaselessly by the Communist Party of India, then ruling West Bengal. During the course of my investigations, I had hit upon a brilliant idea. While working on the scrutiny of one such flagship company of Birlas (I am hesitant to reveal the name at this stage), I thought that I had found a ‘business connection’ between the Birla controlled company and a non-resident entity in Great Britain within the meaning of section 163(1) of the Act.
The Birlas were claiming the non-resident British company to be just a broker and business associate carrying on transactions in the ordinary course.
I promptly issued a show cause notice to the Birla company expressing my intention to treat it as an ‘agent’ of the Non-resident company. Hell broke out in the Birla Group when they received my notice because I had made my intentions known to them, propelled by my professional enthusiasm that not only I would tax the Birla company as an ‘agent’ in India of the nonresident British company and bring to tax several hundred lakhs of income for this particular assessment year but that I would also re-open their assessment for many preceding assessment years. The untaxed income which, I believed, the Birlas had ‘concealed’ would have brought to the exchequer hundreds of lakhs of rupees.
In my effort to bring the Birlas to task in this manner, I had full support. But the Birlas would not like be seen in the public eye as tax-evaders as I was trying to make them out!
They, it seems, brought the boiling issue at the discussion table of their top management and took a decision to rope in the brain and services of the legendary Mr. N. A. Palkhivala, the Bombay Tax and Constitutional expert with an international fame, to thwart the attempt of a junior I.R.S. officer of the tax department to do them in!
I received a letter in response to my show cause notice that Mr. N. A. Palkhivala would appear in person before me and try to convince me that my proposed action to treat the Birla company as an ‘agent’ of the non-resident British company was wide of the mark, ill-conceived and contrary to the relevant provisions of Income-tax Act which were then on the statute book.
I was quite taken aback with this move of the Birlas. Mr. N. A. Palkhivala had not been known as yet of ever having appeared before just an Income Tax Officer in a long long time. One had heard about Mr. N. A. Palkhivala exhibiting his skill in interpreting tax laws and constitutional intricacies before the black judges of the Indian Supreme Court or sometimes before their junior brother judges of the various High Courts. And the very prospect of this legal luminary appearing ‘in person’ before a mere Income-tax Officer sitting in a small room on the 7th floor of Aayakar Bhawan, Calcutta put a great scare in my mind!
I fixed a date of hearing about 3 clear weeks time from the receipt of the reply of the Birlas. And as regards myself, I started sweating as the time grew nearer for the ‘hearing’ of the case. Mr. Palkhivala I thought could have supplied his considered opinion in the matter by sending one of his assistants to argue before me or he could have suitably instructed some senior executive of the Birlas dealing with their tax matters to come before me. But the very fact that he had offered to come in person before me for this purpose had made it very clear to everyone that both he and the Birlas had attached great importance to have the issue decided in their favour considering that very heavy financial stakes were involved in the matter as well the reputation of the Birla group.
I started visualizing the prospect when Mr. Palkhivala would enter my room with a pile of law books and I.T.Rs held by his assistants donning black coats and taking his seat in front of me! The whole imaging scenario was awesome. I had leant my Income Tax by reading the famous two volume tome. ‘Law and Practice of Income Tax’ authored by this very N.A. Palkhivala while undergoing training at Nagpur as a probationer and his arguments in legal cases before the highest of law courts as reported in I.T.Rs used to inspire conviction and respect.
I, however, remember till today the eventful one month that preceded the closure of proceedings which I had commenced with great fervour and enthusiasm against the Birlas as a young company circle officer of the Income-tax Deptt. at Calcutta and my first and last encounter with the redoubtable N.A. Palkhivala!
And here I was expecting this very man to come before me and argue a not so important matter and rather unimportant from his point of view! Before the fixed date of hearing the news had spread that N. A. Palkhivala was appearing before a company circle I.T.O. and there was great excitement all around. In fact the normal working on the 7th floor of Aayakar Bhawan, Calcutta had been somewhat affected and some advocates, their clients and quite a few members of staff were seen just going past my room in measured steps just to have a glimpse of the ongoings inside.
At 11 O’clock sharp, my peon brought in the visiting card of N. A. Palkhivala and he was promptly ushered in. The room had been specially spruced up and the measly furniture had been appropriately arranged for seating 3 to 4 persons in front of my table stacked with some law books and the voluminous Birla case file.
Mr. Palkhivala was dressed up in a creamish summer suit, his sparkling eyes covered by a pair of glistening spectacles. He was accompanied by two other persons as I had visualized carrying some books and a few files and some volumes of I.T.Rs. I stood up and greeted my V.I.P. visitor and after exchanging pleasantries, we all settled down in our seats. I was quite nervous and he was smiling all along. He opened up by making a few preliminary remarks and then handed over to me a thick compilation of neatly typed pages and marked Annexures observing at the same time that the matter for consideration before me was an extremely simple one and that he would satisfy me in a few minutes that there was hardly any ‘business connection’ between his client, the Birla company and its non-resident British associate and that the relationships between the two was, in fact, of entering ;into business transactions in the ordinary course.
And lo and behold, after I had expressed my views on the subject and Mr. Palkhivala having made a few submissions supported by several case laws and rulings of the Privy Council I had already realized that I had been barking up the wrong tree! His arguments and clarifications were too good to be taken lightly. He went into the very genesis of the section dealing with the ‘business connection’, its historical background and the debates in the Parliament when the draft enactment was being discussed.
Mr. Palkhivala, with in nearly one hour of his arguments. had floored me and I felt totally convinced that there was indeed no ‘business connection’ between my assessee company and its British associate and that the two entities were just having normal business dealings and that my entire approach in the matter had been wrong and clouded by my enthusiasm and desire to somehow establish a ‘business connection’ where, in fact, none had existed!
However, not to be entirely brow-beaten I managed to put up a brave face and told Mr. Palkhivala that I would consider his arguments and the entire evidence brought on record by him before coming to any final decision.
Mr. Palkhivala then stood up, flashed a toothy broad smile, shook my extended right hand and exited from my room followed by his assistants who too had shaken hands with me.
I sunk back in my seat, heaved a great sigh of relief and after sipping some water, started thinking about what drama had been enacted in my room during the last couple of hours!
The excitement on the 7th floor of the Aayakar Bhawan had died down.
I studied the entire issue in great details over the next couple of days and had discussions with my superior officers.
We all concluded that there was no case against the Birlas as I had attempted to build up and that Mr. Palkhivala had very correctly and ably interpreted the law on the subject.
Thus, with full support and approval of my higher authorities, I dropped the proposed action against the Birla company and resumed the normal assessment proceedings relating to the group.
I, however, remember till today the eventful one month that preceded the closure of proceedings which I had commenced with great fervour and enthusiasm against the Birlas as a young company circle officer of the Income-tax Deptt. at Calcutta and my first and last encounter with the redoubtable N.A. Palkhivala!
*Reproduced with permission from the AIFTP Journal – June 2008 issue.
I wish I was the Income – tax Officer. MR. N A Palkhivala. No other words are required
Naniji had the ability in thinking on his legs;
as also right grip on facts of the matter;
just because he himself was a great English Literature scholar;
that means he had great grip on language.
In fact , in law matters, all you need is a good grip on language; after all every ‘law’ section is written in a great language;
then it was in English, every , every ; every . has a meaning as in every other language;
besides, history of a matter, is the history progressing from a definite methodical progress;
that would build the groundwork of any case;
(so we say every fact of the matter has a mechanics of growth, like ‘any single leaf on a tree branch’;
as each leaf growth depends on the base of the relevant branch, which too works on the relevant roots of the tree contribution;
so every other tree cannot be the same is a great fact).
That way language grip of the man contributes;(without sound grip of the language concerned, interpretation attempt is always futile exercise’)
and interpretation of the ‘section’, on the basis of language based sentence(s) construction has a bearing.
Therefore, you cannot have same meaning of the ‘section’, as it has to be ‘weighted’ on the ‘anvil’ of the facts, as also on the ‘anvil’ of the section(s).
That would give a great impact.
‘Sections’ are not ‘accounts based ideas’;
but based on some ‘legal premises’, as conceived in the section, by the draftsman, which concept might differ and based upon the ‘facts’ prevailing.
That way weights get distributed.
That idea only led to the development of ‘law’ courts from day one, as judges need to interpret the ‘sections’ on many other factors too relevant as considered necessary by them, before applying on the ‘facts’;
as also need to assess the ‘facts’ rightly; and that way the ‘testing’ on mutual ‘anvils’ starts working.
Obviously, advocacy is ‘that’ specific fact only.
Administrators have ‘limited’ understanding of the ‘statutes’, as statutes are normally ‘read with other sections’, not necessarily mutually acceptable;
but when applied on ‘facts’ naturally contradictory results otherwise arise or surface.
Here ‘agency’ as a concept connotes that there is a previous continuous connection between the two entities – companies ;
but if just ‘new’ business connection means obviously there is ‘no’ agency connection relevancy could be perceived; that has to be read in;
while the ‘Notice’ purported ‘agency’ relevancy’; while ‘fact’ is ‘not’ the ‘agency’ as such ;
but some new business link.
‘Agency’ could mean many things; but business link might involve some ‘single’ business link, too.
Obviously one might look at North and another might look at South.
That way Nani was with the ‘grip’ of the ‘fact’ concerned;
and weighted with the ‘sections’, the Notice was showered with.
So his Advocacy of superb quality;
Officer is obviously only had confused understanding with the weights prevailing;
That is obviously possible is – the whole episode – here referred to.
Therefore , advocacy plays the great part.
Nani’s advocacy is obviously indeed superb.
Fact Nani was cool person to think coolly an issue of facts with the sections as individual weights, that puts him at the pedestal .
I had goosebumps while reading this. And Sir, hats off to the way you described it, for a moment I was also worried about – “What Next” 🙂 Thanks for sharing.
Sh. Sarna has drawn a good picture and one can imagine easily his position at that time. No doubt Sh. Palkhiwala was a legend
Indeed a good article. Shows the qualities of both the auther and his special visitor. Auther is very openminded in accepting the qualities of Mr.Palkhiwala despite the fact that he was a officer at the helm. He did not let his ego come in the way. Mr.Palkhiwala’s undisputed ingenuity is felt in every word of the article.
In deed I can imagine how the author was awed by the presence of Shri Palkhiwala. I was Chairman of Lucknow Branch of ICAI in 1985 when he gave his budget lecture under the agies of S Vaidyanath Memorial lectures. When I and my other Friend CA Rajesh Jain went to Airport to see him Off the fligth was late by 2 hours we two and Mr Palhiwala were together at the small Airport Lounge at Lucknow. I was so awed by the overwhelming presence of Mr Palkhiwala that that I do not remember the talks we had with Mr Palkhiwala. Ho foolish of me.
indeed, it was a great live article in fact I would say a slide shows of the events that took place in the author’s life.
truly, i experianced the mastery of hte legend through the Author.
A really good article, rather a milestone for young officers to come!
I know Mr.Sarna as he was married in my town.But the way this article has been written, it places Mr. Sarna in good light. May God bless him more in the rest part of his life!
very interesting reading especially for a young and enthusiastic IRS officer. indeed a pictographic description of the events.
The article written here virtually gives a visual representation of what would have happened in Ayakar Bhavan at that time. The article is a very interesting reading