Many suggestions made by professional bodies and Industry have been found meritorious and accepted and incorporated in the recently tabled Direct Tax Code Bill 2010. However in the Direct Tax Code Bill 2010 certain provisions relating to the INCOME-TAX APPELLATE TRIBUNAL have been incorporated which were not in the earlier draft and therefore we do not have the benefit of any intelligent or meaningful debate in the hands of stake holders. The professional bodies such as trade associations, chambers of commerce and industry, Bar associations , lawyers, chartered accountants etc are yet to come out with their opinions on these provisions but I assume, considering the importance of these provisions, the Bar associations connected with ITAT at least are debating them and may come out with their view point shortly.

Right from inception, the scope of section 14A of I.T. Act 1961 ( the Act) has been a subject matter of litigation between the tax payers and the tax collectors. Divergent views had been expressed by various benches of the Tribunal on this subject. In order to resolve certain controversies, special benches of the Tribunal were constituted which resolved certain disputes between the parties. Subsequently, various High Courts have also expressed there views on this subject. Some observations have also been made by the Apex Court. In this Article, my endeavour would be to highlight the findings recorded by the tribunal and various courts and to reconcile the legal position as on today along my personal views.

1. An attempt is made to highlight some of the salient features of Taxability of Gifts as Income under sections 56(vii) and (viia) of the Income Tax Act, 1961 (‘the Act’) i.e., mainly gifts received after 1-10-2009.

1.1 The charging section of the Gift Tax Act, 1957 was suspended w.e.f. 1-10-98 to say that Gifts made after 1-10-98 would not be chargeable to Tax. It is a misnomer to state that the Gift Tax Act has been abolished as it is only the Charging Section which has been kept in abeyance. In short it can be revived if the Legislature deems it fit.

The fortunes of tax litigations can be akin to the outcomes of a war. Though elements of luck cannot be totally ruled out, the role of stratagems in shaping its outcomes can never be undermined. If a case is well pleaded or the law is ‘finely’ applied by the court – even an elephant can pass through the eye of a needle and whereas if it is not, even an ant may not so pass. An analysis of decisions can provide us valuable insights and critical inputs about the role stratagems have played in leading tax disputes to its logical ends.

In selection of important decisions for this article by the author, the criteria of ‘importance’ are the decisions in which law has been ‘finely’ applied. Further, discussion of recent important decisions on dividend stripping, 80-HHC issues, MAT etc., though widely affecting, have been avoided in this article as the same are, by now, easily accessible in popular tax journals and websites and any further discussions here would be wasteful duplication.

Requirement for "Satisfaction":

A bare look at the provisions of the section 271(1)(c) of I.T. Act 1961 ( in short ‘1961 Act) shows that satisfaction of the concerned tax authority to the effect that the assessee (in short ‘A’) has either concealed the particulars of income or furnished inaccurate particulars of income is the condition precedent for levy of penalty and such satisfaction must be arrived at in the course of any proceeding under the Act. This view was taken by the apex court long back in the case of CIT vs. Angidi Chettiar 44 ITR 739 while construing the similar provisions of section 28(1)(c) of I.T. Act 1922 (in short ‘1922 Act) and reiterated in the case of D.M. Manasvi 86 ITR 557 (SC) while construing the provisions of section 271(1)(c) of 1961 Act. Full Bench of Punjab & Haryana High court, in the case of CIT vs. Mohinder Lal 168 ITR 101, held that it is the satisfaction of the ITO in the course of assessment proceedings regarding the concealment of income which constitutes the basis and foundation of the proceedings for levy of penalty. Thus, this condition must be satisfied.

 I am grateful for the opportunity so kindly give to me by the organizers of the conference to speak on the subject “Effective dispensation of Justice” It is an onerous task and I stand before you in all humility shamefully aware of my limitation and lack of credentials to speak on the subject, and my only hope is that I will be excused for carrying coal to Newcastle.

Dharma & Justice

If ever there was a place on earth in which justice and fair play thrived without any threat, and was administered with utmost efficacy, it was our own country since time immemorial our ancestors adopted the principle of “dharma” in all their thoughts, words and deeds. Now the word “dharma” is not the same thing as “Justice” and this is quite a complicated subject, beyond the scope of the present speech and much more beyond the reach of intellectual faculties of the speaker but for the present purposes I am assuming that both words denote the same concept Justice Rama Jois in his book on legal and constitutional History of India (1984 ed) say that word "dharma” has no corresponding word in any other language and that it can only be explained, not defined Justice corresponds more with “nyaya” which in one of the several shades of meaning of the word “dharma”. Thus, loosely “dharma” can be taken to conform to what is referred to as justice in the Anglo-Saxon jurisprudence. It is necessary for all of us to keep this in mind.

1. Hitherto provisions relating to gifts:

Up to September, 1998 any amount received without consideration was taxable as gift under Gift Tax Act. From October, 1998 to August, 2004 any amount received as gift or without consideration no tax was leviable either for giver or receiver.

Thereafter, in Section 56(2), a Clause (v) was inserted vide Finance (No.2) Act, 2004 to provide that a sum of money exceeding Rs.25,000 received by an individual or HUF from any person after 01.09.2004 without consideration will be deemed to be income. In this provision amount was chargeable only if a single receipt was more than Rs.25,000. Hence, gifts became legalized as before this it was always debatable and issue before A.O. was that whether particular amount is gift or unexplained credit by the assessee in the form of gift. Such sums of money received as gifts, other than those in circumstances covered in exceptions in section 56(2), are to be treated as income from other sources. Such sum will not be treated as income from other sources if such receipt falls in those exceptions.

Amount received from any relative, as defined in explanation to section 56(2)(v)/(vi) is also not chargeable to tax.

1. Interpretation of statutes – Importance of subject For understanding the provisions of a statute, knowledge to apply the ‘correct’ interpretation, is an essential prerequisite.

In the case of taxing statutes, as in different type of statutes, there are certain bedrock principles on which the interpretation or construction of the particular statute is done by the Courts and Tribunals; and the tax practitioners are required to have the knowledge of these basics in their catalogue to understand the statute and implications of its provisions. Some important aspects relating to ‘Interpretation’ of Taxing Statutes are dealt herein.

2. ‘Interpretation’ and ‘Construction’ – Meaning of

Statutes are embodiments of authoritative formulae and the very words which are used constitute part of law. The interpretation or construction means the process by which the Courts seek to ascertain the intent of the Legislature through the medium of the authoritative form in which it is expressed. The law is deemed to be what the Court interprets it to be. The very concept of ‘interpretation’ connotes the introduction of elements which are necessarily extrinsic to the words in the statute. Though the words ‘interpretation’ and ‘construction’ are used interchangeably, the idea is somewhat different. The term ‘construction’ has been explained in CWT vs. Hashmatunnisa Begum [1989] 176 ITR 98 (SC) to mean that something more is being got out in the elucidation of the subject-matter than can be got by strict interpretation of the words used. Judges have set themselves in this branch of the law to try to frame the law as they would like to have it.

Shri Pranay Marfatia, Chairman of All India Federation of Tax Practitioners, Western Zone, Shri N. M. Ranka, President, of the Federation, Shri K. Shivaram, Deputy President Shri M. K. Chaturvedi, Vice President, ITAT, esteemed personalities on the dais, ladies and gentlemen. I feel honoured and privileged for having been invited to inaugurate the 12th National Convention in this great commercial city of Mumbai, particularly when such Conventions and Seminars are held when Budget Preparation is in the offing and particularly when as of date, there is throughout the country, great enthusiastic response to the Report of the Task Force on Direct & Indirect Taxes.

TAX EVOLUTION TO ECONOMIC REVOLUTION:

The topic from “Tax Evolution to Economic Revolution” is intricate. Economic Revolution is the goal, whereas Tax Evolution is one of the means to achieve that goal. I am not a certified Economist. However, as a citizen of this country, I would like India to be known as a secure Nation. As a citizen, I am concerned with GDP growth. We must discover ways and means to achieve GDP growth at the rate of 8% p.a. Too many young peoples’ future and too many poor peoples’ hopes rest on this achivement.

Let us begin our sojourn through this article on a humorous note. Once a king had a dream, in which he saw several ill omens. He described this dream to his astrologer, who was an expert dream interpreter. Hearing the description of the dream from the king, the wise astrologer turned his head gravely from one side to another and pronounced his analysis of the royal dream as follows – “O king! This dream foretells several ill ominous signs for you. You shall have the agony of seeing each of your dear ones dying one after another before your eyes.” The enraged king drew his sword from its sheath and cut of the neck of this astrologer with one stroke.

Still not finding himself at ease, the king decided to seek a second opinion from another astrologer. This astrologer had known about the fate of his predecessor and pronounced his opinion as follows: – “O king! This dream augurs well for you! You shall have the good fortune of living the longest life in your clan!” The king, overwhelmed with happiness, removed his royal necklace from his neck and presented it to this astrologer.

Such should be our analysis of tax decisions too. A dissent should be tactfully stated and never invite the ire of the authorities pronouncing the decisions.