The Finance Minister publicly expressed his anguish at the mounting number of frivolous cases filed by the department which are choking the Courts. The author, a public-spirited citizen ever eager to help the FM in such matters, puts on his thinking cap and formulates a 12-point agenda to cure the malaise. If implemented in real earnest, the mindless filing of departmental appeals will cease, assures the author. Is the FM listening?
The Hon’ble Finance Minister while addressing the Chief Commissioner’s Conference asked the CBDT to come out with a comprehensive proposal to address the issue of unwanted litigation with the tax payers. Federation has suggested proposals to reduce the tax litigation from time to time. “Kar Vivad Samadhan Scheme, 1998” (1998) 233 ITR 36 (St.), which was successfully implemented by the Government was the suggestion of the Federation. Hon’ble Justice Mr. V. C. Daga, Judge, Bombay High Court in Commissioner of Central Excise vs. Techno Economic Services Pvt. Ltd. (2010) 255 E.L.T. 526 (Bom.) has taken judicial notice and directed the Chairman, Central Board of Excise and Revenue, Ministry of Finance to frame guide lines similar to Income tax matters. The Hon’ble Justice observed that “Let the Court to decide, attitude needs to be given go bye”. The Comptroller & Auditor General of India (CAG), in its recent report has revealed that a whopping sum of Rs 2.2 lakh crores has got locked up in appeals at various levels. The report stated that “absence of centralized database on appeals, non production of records during audit was a major constraint and concern”. Even the Federation in spite of making a sincere attempt could not succeed to get the number of tax appeals, references and Writ petitions pending before the various High courts.
As on today, in direct tax matters 80% of tax appeals before the Apex Court, 70% of appeals before various High Courts and 60% of appeals before the Income Tax Appellate Tribunal are by the Department. Therefore, though tax department is one of the biggest litigant in tax matters, they do not have their own legal cell at national level or Zonal level to monitor the tax litigation before various High Courts. The total pendency of tax appeals before the Income Tax Appellate Tribunal as on 1-7-2010 is 50644 (AIFTP Journal – July, 2010) and total pendency of tax appeals before the Customs, Excise and Service Tax Appellate Tribunal as on 25th June, 2010 is 51162 (AIFTP Journal August 2010 p. 68). In Bombay High Court the pendency of appeals for admission as on 1-4-2010 is 1727, appeals admitted and pending for final hearing is 2258 and old references for final hearing are about 2700 and more than 500 Writ Petitions may be pending for final hearing. Our proposals to reduce the unwanted litigation with Tax payers are as under:-
1. Accountability, fear of Audit and vigilance.
Main reasons for unwanted litigation with the tax payers are lack of accountability, fear of audit and vigilance. The Commissioner who has to take the decision as to whether an appeal is to be filed or not does not desire to take the responsibility. Many a times he is fully aware that there is no question of law involved and still he recommends filing of appeal due to the high stake involved. He always has the fear of audit and vigilance, that he may be questioned as to why an appeal was not preferred. He always try to play safe. Even though the stake involved is very small, he recommends preferring an appeal. If CBDT is made to address these issues, there will not be unwanted litigation with the tax payers.
2. Separate Legal Cell of tax Department.
Though the Income Tax department is one of the biggest litigant in High Courts and Apex Court, they does not have their own legal cell. There can be constituted zone wise, a separate legal cell in the Tax Department. The legal cells may be managed by a panel of lawyers and retired members of the ITAT, in co-ordination with the Chief Commissioner judicial. Before filing an appeal the legal cell may consider the tax involved, issues involved and chances of success. Once the panel is satisfied, then only an appeal should be filed.
As soon as the appeal is filed the legal department may prepare the list of issues involved in the appeal and tax effect. If it is very important issue affecting large number of matters, the legal department may request the court to group all the matters together. If it involves important issue of national importance the tax department may engage a special counsel of eminence to represent the matter.
At Board level there has to be Central legal cell to monitor the tax appeals, pending before various High Courts and Apex Court. Each Zone legal Cell may send the list of cases filed before the High Courts, the issues involved, the matters heard and disposed off to the Central legal cell.
At least, once in a year the Board may prepare the list of cases pending before the various High Courts, Apex Court and publish the same in website, tax journals or magazines for the information of tax payers.
It may be appreciated that the Income Tax Appellate Tribunal maintains the details of pendency of cases every month and at any given point of time the Income Tax Appellate Tribunal is in a position to inform the tax payers, Bench wise, how many appeals are pending, and how many are of the department. The technology adopted by the Income Tax Appellate Tribunal may be adopted by the High Courts, the Board and Chief Commissioners.
3. Research team to monitor the tax matters before various Courts.
The City like Mumbai, should have a well equipped library to assist the counsel who represent the matter before the Court. The department may take assistance of young Lawyers or Chartered Accountants to prepare a note on the brief to assist the counsel. This will help the tax department to make a better representation and also to build the team of panel of lawyers for the tax department.
4. Uniform procedure for filing appeals in tax matters before the various High Courts.
There can be a uniform procedure and guidance note for filing an appeal before various High Courts. Federation has prepared a detailed fact sheet which can be filed along with the appeal itself. If the same is adopted by all the High Courts, it will save substantial time which will help the court for clubbing the matters together. The fact sheet is published in the journal of AIFTP Journal – April, 2008 P. No. 51.
5. Filing of appeals before the High Court can be out sourced.
At present, in Mumbai, the appeals are filed by different lawyers. It may be desirable to appoint one lawyer or a legal firm to file all the appeals before a particular Court, and representation can be given to panel of different lawyers. This will aid in a better Co-ordination and better representation. It is very unfortunate that most of the matters are adjourned for at least four to five times to find out what is the position in earlier years, connected matters, getting instructions, etc. Each adjournment costs substantial money to the tax payers. In earlier days there used to be a special officer who was allotted a duty at High Court for guiding counsel and to report to the commissioner judicial, such procedure now has been discontinued. There has to be at least one senior officer to take note of the issues argued before the High Court, administrative difficulties and make suggestion for improvement.
6. Sending of notice and order by e-mail.
Very recently the Apex Court passed an order in CERC vs. National Hydroelectric Power Corp. dt. 26-7-2007, source: www.itatonline.org stating that in all commercial matters the notice may be sent by e-mail. It may be desirable for the High Courts and Tribunal to follow the procedure adopted by the Apex Court. This will save substantial time of the Court. Even the orders can be sent via e-mail. In Direct tax matters the tax department is always either petitioner or respondent hence it will be easy to monitor and implement.
7. Mumbai should have two tax Benches only for Direct Taxes.
In Mumbai old references are pending, tax appeals of 2002 are pending for final disposal. In additions there are writ petitions which are pending for final disposal. There are also large number of appeals which are pending for admission.
It may be desirable to have one tax Bench for deciding old reference and writ petitions and one tax Bench for admission of appeal and final hearing. Though the Court is making an sincere attempt to dispose off matters, by grouping the matters, it may not be able to reduce the pendency as the important issues are involved and it takes number of days to decide very important question of law.
8. Appeal to Tribunal.
At present, the assessee can file an appeal against the order under section 263 and refusal to registration under section 12A, of the Income Tax Act. There are number of other orders passed by the commissioner of Income Tax, for which no appeal is provided. The only remedy available with the assessee is to approach High Court in its writ jurisdiction. A simple amendment in the Income Tax Act may be made by stating that all orders of Commissioner of Income Tax are made appealable to Tribunal for e.g. Order under section 264, 273A, waiver of interests, recovery, issue of notice under section 148, order under section 179, etc.
This will help to reduce the burden of Courts and precious time of Court can be utilized to decide the important questions of law.
9. The Income Tax Appellate Tribunal should be given the power to render advance ruling in respect of domestic tax issues.
One of the very important provision in the Maharashtra VAT legislation is the provision for Advance Rulings on the interpretation of the Act or Rules or Notification in respect of a transaction proposed to be entered in to. The Advance Ruling is given by the Bench consisting of the, members of Sales Tax Tribunal, senior practitioner nominated by the President of the Tribunal, and a senior officer of the Sales Tax nominated by the Commissioner. If similar provision is introduced in the Income Tax Act, Central Excise, Customs and Service Tax, for all residents, tax litigation can be substantially reduced. For e.g. Issues relating to Tax deduction at source is one of the major area of litigation in tax field. However, there is no mechanism to approach the higher authority to know the tax liability in advance.
10. Arbitration in Tax matters.
The Government may consider the proposal of constituting a committee consisting of representatives from Legal, Accountancy Profession and from the Tax Department of the rank of Chief Commissioner of Income Tax for arbitration in tax matters. The assessee may refer the matter to such committee within 30 days of receipt of the order from the Assessing Officer and the committee may pass an order within six months from the receipt of application. The order passed by the committee may be binding on both the parties. To begin with the matters like technical defaults for delay in filing of TDS returns, non issue of TDS certificate, refund calculation etc., may be referred. There are many issues which are of factual and such issues can be settled by the process of arbitration. The Government may consider to take advantages of services of retired members of ITAT. As the retired members are not allowed to practice their knowledge and experience can be utilized for arbitration proceedings.
11. Raising of Monetary limit for filing of appeals before the Income Tax Appellate Tribunals, High Courts and Apex Court.
As per the instruction No. F. No. 279/Misc/142/7 dt. 15th May 2008 (AIFTP Journal – July 2008 P. No. 37), the monetary limit fixed for filing an appeal before the various forums are as under:-
Tribunal Rs. 2,00,000/-
High Court Rs. 4,00,000/-
Supreme Court Rs. 10,00,000/-
Considering the inflation the limit may be raised as under:-
Appeal to Tribunal Rs. 4,00,000/-
Appeal to High Court Rs. 8,00,000/-
Appeal to Supreme Court Rs. 15,00,000/-
It is also suggested that the above limit of tax may be extended to all taxation matters such as Customs, Central Excise and Service Tax and Central Sales Tax Act and VAT Act. In respect of various State legislations where taxation is involved the State may be directed to issue similar circular or notification, this will reduce substantial unintended litigation before various forums.
12. Expert Committee.
As per the paper reports it is stated that the Government is proposing to form the committee consisting of members from the Ministry of Finance and Ministry of Law. We are of the opinion that if the Government really desires to achieve the object of reduction in unintended litigation, they have to nominate few professionals who have rich experience in the legal profession and who are more conversant with the law and procedure.
The Committee should also have technical person who can advice on the use of technology for better implementation of the suggestion given by the expert committee.
According to us, if the above suggestions are implemented there may not be any need to have National Tax Tribunal and crores of rupees which the Government desire to spend for the proposed National Tax Tribunal can be utilized for development of the Nation. We desire that the members may debate and send their suggestion objectively considering the national interest. Once the suggestions are received and considered the representation committee of the Federation shall forward the same to the Hon’ble Finance Minister, Hon’ble Law Minister and Chairman of CBDT for their consideration.
Wish you all happy Independence Day
Dr. K. Shivaram
Reproduced with permission from the AIFTP Journal, August 2010