A bare look at the Finance Bill reveals that various amendments are proposed with retrospective effect from the date the provisions were enacted originally in the Income Tax Act 1962. The competence of the legislature to enact or amend the law with retrospective effect is not in doubt but exercise of such power was rare. It used to be an exception rather than the rule. But this time, the retrospective amendments are being proposed just to nullify the effect of judicial decisions rendered by the courts and the tribunal. All the retrospective amendments are proposed in the guise of removing doubts as if the proposed amendments were the intent of the legislature from the inception. No objection can be raised if the decisions had been rendered overruling such legislative intent. But if no such legislative intent can be inferred then such proposals cannot be said to be bonafide. Nothing has been pointed out to indicate such intent in the year 1962 when the Act was enacted.

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Leading industrialist Rahul Bajaj suggested at a CII interactive session with Finance Minister Pranab Mukherjee that the government could come out with an ‘One Time Amnesty Scheme’ to tax unaccounted money. Rahul Bajaj hastened to add that he did not like people who cheated on their taxes and he also did not like income tax officers who were corrupt.

On the aspect of tax amnesty, Rahul Bajaj suggested that if the people with black money in foreign countries did not avail of the amnesty scheme, they should be “sent to jail” (if and when convicted) and their black money should be “confiscated” (if and when found).

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Jaithirth Rao, entrepreneurial whiz-kid, has launched a blazing attack on the income-tax department for its arbitrary policies which is forcing large blue-chip MNCs to shift their BPOs from India to more reasonable Countries.

In a thought-provoking article in the Indian Express, Jaithirth Rao spoofs a letter from the Finance Minister of Philippines to the Finance Minister of India “thanking” the latter for the “vicious harassment” that the income-tax department has heaped on the Indian IT and BPO industries which has caused a shift of BPO businesses from India to the Philippines.

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The truth of the matter is this. Sachin Tendulkar’s hundredth century was the turning point in the journey of Union Budget 2012-13 and after this the interest of an average Indian in the whole Budgetary process receded and went down and down. But by the time the hundredth run was scored, the average Indian had reached to the following conclusions with regard to the Budget.

The Finance Minister was playing a game of political survival in New Delhi while the game of ODI was being played in Mirpur, Bangladesh. The attempt was to have a smooth sailing without disturbing further the political balance. There was no major reform programme to be presented before the Parliament. There was no desire to please the corporate world. The common man was to be pleased to keep the vote bank intact. In short, the government had no great agenda other than to continue to be in power.

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Mr. Sudhir Chandra, CBDT’s ex-Chairman has come out with all guns blazing in support of the retrospective amendments in the Finance Bill 2012 seeking to nullify the judgement of the Supreme Court in Vodafone International vs. UOI 341 ITR 1. In a hard-hitting and no-holds barred article in the Business Standard, Sudhir Chandra attacked tax consultants who think it is their right to create paper SPVs in tax havens to avoid Indian capital gains and when their right to avoid tax is challenged, they shout or grumble.

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Shri. S. E. Dastur, eminent Senior Advocate, gave a lecture yesterday (20.3.2012) where he meticulously analyzed the Finance Bill 2012 and provided brilliant insights into its implications.

On the retrospective amendments made to overcome the judgement of the Supreme Court in Vodafone International vs. UOI 341 ITR 1, Mr. Dastur pointed out that while parliament had the power to enact retrospective legislation, there were three aspects to be considered.

Br. Veerabhadrappa, the Officiating President of the Income Tax Appellate Tribunal, Br. Manmohan, Vice-President of the Mumbai Zone, my esteemed erstwhile colleagues, and the newly appointed Members of the Tribunal:

A very good afternoon to all of you. It is a privilege accorded to me very kindly by Bro. Veerabhadrappa to address the newly appointed members of the Tribunal. The Tribunal is close to my heart for several reasons. I spent close to 20 years here and I tell you, those were some of the very best years of my life. Besides giving me a sense of satisfaction so far as the work aspect is concerned, it also gave me an exposure which otherwise I may not have had. I worked in several places of the country and both I and my family could imbibe the various cultural hues and enjoy the pleasure of meeting myriad kinds of our countrymen. The Tribunal was so kind to me. I had the benefit of sitting with several members coming from different social, cultural and career backgrounds. I learnt from every one of them. Every one of them, without exception, was considerate and kind to me and my family. The Tribunal has always been one family and I indulged in the brotherhood prevalent here. I therefore consider it my duty to be able to contribute whatever you think I can, to the institution I served.

Before the advent of East India Company judgement writing was not as important as it is now. The decisions were rendered by Kings or Juries/Panchayats, who need to do no more than sum up, as briefly as possible. Under the common law system all the developed and developing countries are following the precedent based approach and there are hierarchy of courts. In order to enable an appellate court to understand as to why a judgement is rendered in a particular manner, the judge must now prepare the judgement often at considerable length.

Prashant Bhushan, legal crusader, has launched a scathing criticism of the judgement of the Supreme Court in Vodafone International vs. UOI. In an article published in the Hindu, Prashant Bhushan argues that the Supreme Court has again made a wrong call on tax avoidance and set a precedent that jeopardises thousands of crores of potential revenue for the exchequer.

Prashant Bhushan points out that tax avoidance through artificial devices has become a very lucrative industry today and that a large part of the income of the ‘Big 5′ accountancy and consultancy firms is derived from such schemes. McDowell 154 ITR 148 (SC) had put the issue in the correct perspective, though two later decisions (Azadi Bachao Andolan & Wallfort) reverted to calling artificial tax avoidance devices “legitimate tax planning” rues Prashant Bhushan.

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Core Principles of Law laid down by the Supreme Court in Vodafone International Holdings B.V. vs. UOI

(A) Tax planning vs. Tax Evasion:

(1) The cardinal principle is that if a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance. A document or a transaction cannot be looked at isolated from the context to which it properly belonged. It is the task of the Court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not to adopt a dissecting approach. This is the “Look At” principle. The Revenue cannot start with the question as to whether the transaction was a tax deferment/saving device but that the Revenue should apply the “look at” test to ascertain its true legal nature. Genuine strategic planning had not been abandoned and it cannot be said that all tax planning is illegal/ illegitimate/ impermissible. Tax planning may be legitimate provided it is within the framework of law. However, a colourable device cannot be a part of tax planning. There is no conflict between McDowell 154 ITR 148 (SC) and Azadi Bachao Andolan 263 ITR 706 (SC).