At this forum I had the privilege of getting my article published a few days back. In that article I had put forth my view on the purported illegality of the promise made by the Finance Minister and the CBDT Instruction dated 29.05.2012 directing its officers that no reopening should ensue on the basis of the retrospective amendments in the Finance Act, 2012. A number of comments on that article and also a detailed article of Sh. K.C. Singhal (Former Vice President, ITAT) have shed considerable light over the various dimensions covered in my article to opine to the contrary. The learned Former Vice President has in fact gone on to state that the said Instruction is well within the powers of the CBDT. I have examined the views in considerable detail and made further research to analyse the correctness of the proposition. In the end I am unable to persuade myself to the counter-view and would like to reflect my viewpoint in the form of this rejoinder. The intent is not to carry any ill-will but to pose other factors for an erudite debate on the correct legal position.

Recently, had an occasion to read the Article “FM’s & CBDT’s Promise Not To Reopen Cases Despite Retro Law Is Illegal” written by Sh. Tarun Jain, Advocate, Supreme Court published in ITATONLINE wherein it has been advocated to the effect that the aforesaid circular and statement of FM have no legal sanctity and therefore not binding on the quasi judicial tax authorities. This view has been expressed on the basis of certain judicial pronouncement. According to him, it is the settled legal position that such circulars are not binding on tax authorities and consequently, the AO can reopen the assessments on the basis of retrospective amendments made by Finance Act 2012 even in cases falling within the ambit of the above circular. With all humility and due respect to the Author, it is humbly submitted that the said circular is valid and binding on tax authorities for the reasons mentioned below:

Retrospective amendments have always been a bone of contention in taxation laws. Sometimes to cure the defects pointed out by courts in the fiscal legislation and sometime (by being accompanied by validation laws) to take away vested rights of the citizens, retrospective amendments are not unknown to tax jurisprudence. Even though they may be criticized on grounds of unreasonable or unfairness and the legislature making such amendments may not be beyond reproach, still the competence of the legislature to make retrospective amendments in taxation laws is duly acknowledged and judicially upheld.

In the past six months, several decisions of substantial importance to the tax payers have emerged. The Supreme Court decisions in the Vodafone case and also in the section 80-HHC issues are examples of the same. Since these decisions have been widely discussed, they have not been considered in this article to avoid duplication. Apart from these decisions, several decisions of the High Court and the Tribunals on issues of taxation of royalty etc have been nullified by the Government by resorting to retrospective amendments in the recent Finance Bill. These have also not been discussed as their value as legal precedents for the future would be doubtful after these retrospective amendments. The decisions selected in this article are only those which the author felt have analytical value to the readers.

All tax payers and to a large extent their advisors too, generally face anxiety and stress more so in the months of January to March on account of the recovery spree that the tax department gets into.

The department generally goes overboard and tries to collect even demands which are incorrectly raised and / or can easily be rectified. This is inspite of there being specific guidelines laid down by the CBDT (in Circular No. 1914) or the guidelines laid down by various High Courts/Tribunal decisions on the subject. This year, the position was compounded by a communication dated 07 February 2012 issued by the Chairman of the CBDT to all CCITs, DGITs, CITs and DIT(IT)s inter-alia linking revenue collections to the performance parameters of the tax officers and also giving importance to the same while considering future placements.

The noteworthy aspect of Pranab Mukherjee’s speech in the Rajya Sabha yesterday was that, inspite of the huge groundswell of domestic and international opinion against the proposed retrospective amendments seeking to nullify the verdict of the Supreme Court, he was not at all apologetic. Instead, he looked the members of the opposition in the face and had an eyeball to eyeball confrontation with them, forcing them to blink and look away.

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Close on the heels of eminent senior advocate Harish Salve‘s passionate attack on the Vodafone retrospective amendments and General Anti-Avoidance Rules (GAAR), noted economist Bibek Debroy has also torn into the Government’s proposal to nullify the Vodafone verdict and implement GAAR.

In a short but succinct article, Bibek Debroy gives persuasive reasons for his suggestion. With regard to GAAR, Debroy points out that the time is not opportune for GAAR. There is already a severe dent in investor confidence owing to the state of the economy and the adverse balance of payments and GAAR will create great uncertainty, subjectivity and non-transparency.

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Excerpts from the speech delivered by Shri. Pranab Mukherjee, Finance Minister, on 8.5.2012 in the Lok Sabha, during the debate on the Finance Bill 2012

On the Report of Standing Committee on Direct Tax Code Bill 2010

I thank, once again, Chairman and members of the Standing Committee on Finance for the excellent Report they have given on DTC. But I admit my own shortcomings that I could not fully implement it because I could not fully study it. I knew the proposals but to know the basic proposals and to study, understand and appreciate are different. Perhaps my intelligence level is low, that is why, I require some time to study and thereafter to firm up my view. Somebody’s IQ is may be much higher than me but my IQ is little less perhaps and that is why I wanted to read it thoroughly. It is an excellent Report. I have gone through some pages. It is an excellent Report and I am giving you an assurance that if you cooperate, we will get it done; get it passed in the Monsoon Session; and thereafter we can implement it. I have provided some of these provisions. A few of these provisions are already in the Finance Bill of this year.

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Harish Salve was addressing an august gathering of top business persons and high-level decision makers at a meeting organized by IMC a few days ago.

Harish Salve said that a country would prosper only when its economic and political institutions – the institutions that regulate and write economic policy – were transparent and stable and it did not matter what political system produced this. He cited the example of China which, though an autocracy, was able to attract large foreign investment because its political and economic institutions were stable.

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On 25th January 1991 the Income-tax Appellate Tribunal completed fifty years of its existence. On its Golden Jubilee it is but fair to record that it has won golden opinions on all sides throughout the half a century that it has functioned. There is no doubt that over this long period, the Tribunal has been manned by some very able individuals. Quite a few of them were fit to adorn any High Court Bench. No other Tribunal in India his won such well-deserved popularity and confidence of the public as the Income-tax Appellate Tribunal.

Administrative justice demands compromise. There is no pre-determined solution to the problem of tempering power with justice. The Tribunal has rightly earned the reputation of tempering judicial power with justice. It has evolved a cheap, quick and informal procedure for doing justice as between the State and the citizen, to the great satisfaction of the litigating public. In other words, it has acted as a Court of law in everything but name, while avoiding the regular process of civil law which is too cumbersome, technical and expensive.

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