10 Easy Steps to Nirvana of "Sulabh Nyay Satvar Nyay"

The author trains his guns again on the proposed National Tax Tribunal and makes out a compelling case on why it should never be implemented. Instead, a different approach is required to solve the problems of delay and cost in justice delivery says the author. The ten-point agenda formulated by the author will, if implemented in true earnest, deliver us the Nirvana of “Sulabh Nyay Satvar Nyay” (Simple justice, Speedy justice) assures the author

The Constitution of India is the Supreme Law of the Land. One of the most important provisions of the Constitution of India is Article 265, which provides that “No tax shall be levied or collected except by authority of law”.

In the year 1998-99, the total pendency of tax appeals before the Income Tax Appellate Tribunal were 3,00,597 it took six to seven years to hear the appeal before the Tribunal, and in High Courts the matters were heard after 10 to 15 years. Shri Palkhivala in his article “The Maddening Instability of Income Tax Law” (Income Tax Review – August-Sept, 1996 P. 57 has stated as under “A telling example of the total absence of a sense of time in our tax administration is afforded by Supreme Court’s decision rendered last November in the case of Sutlej Cotton Mills Ltd. vs. CIT (1990) 2 SCALE 931. It was a case under Business Profits Tax, 1947. The accounting period was 1946-47. The amount involved was paltry sum of a few lakhs of rupees. The High Court’s order was rendered in 1965. The Supreme Court sent the matter back to the Income Tax Appellate Tribunal to re- hear the appeal 44 years after the close of the accounting period. Is there any other civilized country where a tax payer would not know the quantum of his liability for 44 years?”.

There is no mechanism even today in the tax administration to find out whether effects to the orders of Supreme Court or High Courts are given if the matter is decided in favour of the Department. It is heartening to note that as on 1-5-2011 there are only 55,564 appeals are pending before the Income Tax Appellate Tribunal, in some of the places the matters are heard within six months of filing of an appeal. Even in Mumbai, the Income Tax Appellate Tribunal, which has pendency of only 16,984 appeals, the matters are heard now within one year of filing of an appeal. For rendering the quick justice the efforts of Hon’ble Members of the Income Tax Appellate Tribunal and the contribution of the President of Income Tax Appellate Tribunal deserves to be appreciated, because, this is the only institution of our Country where pendency has reduced, whereas in all other institutions the pendency of litigation has increased.

It may be appreciated that litigants before the Tribunal and Courts are of two categories; the aggrieved assessee and the Tax Department. But the objective in filing appeal is different for both categories.

An assessee rings the bell of justice in the Tribunal and Court only when the Assessing Officer levies taxes or makes additions which are not in accordance with law. As appeals involve time and money, both of which he can ill afford to squander, therefore, before doing so, he makes a careful cost benefit analysis and elects to appeal only when the stakes are high and there are chances of success. He is no academician and he does not derive any pleasure in obtaining a judgment for the sake of publicity or for laying down a legal precedent.

Whereas the tax official on the other hand, files an appeal, in most of the cases not because he needs to do so, but mainly because of fear of being questioned by superior or fear of audit and vigilance, hence, he prefers to file an appeal though only question of fact is involved and same would be dismissed. As there is no accountability, nobody will question him why appeal was filed. This tendency was there in the past, it is there now and it will continue also in future unless some provision of accountability is introduced in the Income-tax Act.

One of the reasons stated for introduction of National Tax Tribunal in the year 2003 was huge pendency of references in various High Courts, without making an attempt to find out what was the reasons for huge pendency, though the 80% references were pending before various High Courts were of the Tax Department. The constitutional validity of the National Tax Tribunal was challenged and the matter is now pending before the Apex Court. As the pendency has reduced before the Income Tax Appellate Tribunal, there will be less number of appeals before various High Courts. The Department has also come out with the Circular No. 3/2011 dt. 9th February, 2011 (2011) 332 ITR 1 (St) revising the monetary limit of filing appeals, as per the Circular Department will not file an appeal to the High Court if the tax effects are less than Rs.10,00,000/-. Some of the Courts have taken the view that the instruction will be applicable to all pending appeals and references, therefore more than 50% of revenues appeals which are pending before various High Courts will be dismissed only due to lesser tax effect. Now this is the trend of tax litigation before the various Courts, it is for the Government to decide whether they intend to pursue the establishing of National Tax Tribunal by spending crores of tax payers money for establishing and experimenting a new institution which may not serve any purpose?

I have made an attempt to put forward my vision and road map for the tax litigation in India; which are as under:

1. Accountability in Tax Administration

It has been found that on many occasions the additions are made for name sake, knowing well that the additions will be deleted by the Tribunal, because there is no accountability on the part of Assessing Officer to explain such additions Dr. Raja J. Chelliah in his report suggested as under (1992) 197 ITR 177 (St) (257) Para 5.9. “Ways must be found to hold the officer accountable for kinds of assessments he makes under present procedure”. He suggested that “The Assessing Officers should be made accountable for their actions by being blamed for raising demands which are not upheld by a reasonable figure, say 50 per cent, the officer should be given a black mark and reprimanded. On the other hand an Assessing Officer should be protected and defended if he has observed instructions of the Board and followed the Court rulings even though audit might raise objections about his actions”.

It is very unfortunate that the Government has accepted most of the recommendations of Dr. Raja Chelliah which are favourable to department and not implemented the recommendations which are favourable to the assessee. Even the proposed Direct Taxes Code, 2010 does not contain any provision on accountability on the part of the tax administration. I am of the opinion that if provision of accountability is introduced it may reduce unintended litigation and will benefit the honest tax payers of the country.

2. Income Tax Department should have an independent National Tax Litigation Cell to monitor the tax appeals before various High Courts and Apex Court

Though the 60% of Tax appeals before the Income Tax Appellate Tribunal and 75% tax appeals before the High Courts are of the Income Tax Department, the Income Tax Department does not have a centralized legal department to monitor the cases pending before the Courts. There has to be independent departmental legal cell which can decide which the appeals to be filed are and can monitor various issues pending before various Courts. Collegiums of legal cell can decide whether it is a fit case for filing an appeal to High Court or Apex Court.

3. Research Team to monitor tax matters before various High Courts

The City like Mumbai should have a well equipped library to assist the counsels who represent the matters before the Court, and there has to be continuous research to monitor the tax litigation before various Courts and Tribunal.

4. Age limit of members of ITAT may be increased from 62 to 65

Parliament Committee has recommended to the Government to increase the age limit of Judges of High Courts from 62 to 65 years, it is desired that the law may be passed at the earliest. According to me, speedy justice is the need of hour for the development of the nation. Experience of a Judge and his knowledge is an asset of the nation. It is desired that the age limit of members of the ITAT may be increased to 65 and their knowledge and experience may be utilized for speedy disposal of tax matters.

5. Permanent Tax Bench in all High Courts

There has to be a dedicated tax bench in all the High Courts for speedy disposal of tax matters. In Mumbai there is a permanent tax bench to decide only tax matters, which has helped to reduce the pendency of tax litigation. There are always shortage of tax judges it is desired that some of the deserving members of the Income Tax Appellate Tribunal may be elevated to the High Court, which will help to have a dedicated tax bench at all the High Courts.

6. Supreme Court Benches in three Zones

In the year 2000, the Parliament Committee has made an appeal to Union Government to pursue the Supreme Court to set up Benches in three distant regions however there seems to be no political will to set up the Benches of the Supreme Court. More than 50% of tax litigations which are pending before the Supreme Court is from State of Maharashtra considering the cost of litigation, it is desired that Supreme Court may constitute benches at least in three distant regions. It is beyond reach of common citizens to approach the Apex Court. Till such time regional benches are set up the admission before Apex Court may be heard by e-Court, by linking to various High Courts and one may argue the before Apex Court sitting at Mumbai High Court.

This can be tried as optional at the beginning and if it is successful it can be extended to other courts as well. This will benefit the nation and will help to reduce substantial the cost of litigation before the Apex Court.

7. Amendment in Tax Law – Appeal to Income Tax Appellate Tribunal

One of the suggestions made by the Professional organizations is all the orders must be made appealable. This will save time and amount to be spent only to decide whether orders are appealable or not. There are number of orders passed by the Commissioner of Income Tax for which no appeal is provided. The only remedy available to the assessee is to approach High Court in its writ jurisdiction. A simple amendment in the Income-tax Act may be made stating that all orders of Commissioner of Income Tax are made appealable to Tribunal for example, Order under sections 264, 273A, waiver of interests charged under sections 234A, 234B, and 234C, order under section 179, etc. This will save substantial time of Court and the assessee will get the justice from the Tribunal within six months of filing an appeal. Income Tax being Central Act there may be certain issues which may be affecting large number of assessees. If an application is made by the assessee and the department, a direct appeal can be made by the Income Tax Appellate Tribunal in appropriate case. Section 257 of the Income Tax may be suitably amended to enable the assessees as well as the department to approach directly to the Apex Court. This will help to reduce the pendency of tax litigation in all Courts and the finality may be attained on some of the important issues within one year of the order of the Tribunal. Similar provision may be introduced in the proposed Direct Taxes Code, 2010 as well.

8. Development of Tax Bar

Income-tax Act, 1961, refers to 98 Central Acts and many State legislations, however, in law colleges the tax is an optional subject. It is desired that the Direct and Indirect Taxation may be made compulsory subjects in all law colleges. This will help to develop the future tax bar of our country. At present, not even 2% of lawyers are practising on taxation. To develop the Tax Bar the ITAT Bar Association in association with AIFTP and Government Law College has started National Tax Moot Court Competition and Research paper in the taxation in the year 2003; where in every year more than 100 young professionals are participating in the competition. It is desired that all professional organizations must organize some educational programme for development of Tax Bar. Earlier tax litigations were on cash credits, low withdrawal, GP addition, penalty, etc. and tax involved was very less whereas, now the emerging tax litigations are on International Taxation and Corporate Law, tax issues on restructuring, joint venture, TDS, etc., and stakes are very high, India needs better equipped Legal tax Practitioners to make better representation before the Tribunal and Courts. It is only possible by continuous education and training. To develop the tax litigation practice one needs to attend the Courts and Tribunal sitting at office, one cannot get the deserved training which one may need when arguing the matter. It is the duty and responsibility of the senior members of the Tax Bar to train the young practitioners to develop the tax Bar.

9. Separate Court for Economic Offences

The Hon’ble Finance Minister in the Finance Bill, 2010 has proposed “National Mission for Delivery of Justice and Legal Reforms”. According to the Hon’ble Finance Minister the object of mission is to help to reduce the legal backlog in courts from an average of 15 years at present to 3 years by 2012. As regards the prosecution in tax matters are tried before the Magistrate Court and it takes more than 25 years to decide. It is desired that there has to be a separate Court which deals with economic offences and person who has knowledge on tax and accounts may be appointed as the judge to decide the matter, relating to prosecution. Unless the matters are decided within a reasonable time the purpose of launching the prosecution will not have any impact of tax evaders.

10.Technology in Tax Administration

Use of technology in tax litigation can help to reduce the litigation. The Central Board of Direct taxes can get the information from all the Zones, specifying what type of litigation is filed before various High Courts. Unlike in Civil matters the tax department is always as petitioner or respondent. The Board can get the information as soon as the appeal is filed in various high Courts the issue involved in appeal. Whenever the common issues are involved the grouping can be done. The Honourable Bombay High Court in last three years has disposed large number of matters by grouping the matters. If the issue involved which affects large number of matters the CBDT may request the Apex court to decide the matter out of turn hearing which will help to reduce the pendency in all the courts.

The World Bank Report 2007 on the subject of “Doing business in South Asia” observed that Commercial disputes before various Courts in India are among the most lengthy, costly and complex in South Asia and globally- resulting in a rank of 173rd.

Proposed Direct Taxes Code if it becomes Act in the present form, will make the settled law unsettled hence there will be new litigation in the Direct Taxes for another 50 Years.

It is also very unfortunate that the assessees are also not very serious about the tax litigation; they send only the accountant and junior staff to assist in the matter. It is desired that the directors and partners must attend the proceedings, and then only they will be able to understand the importance of tax litigation and better tax management. Whenever any assessee adventures in to tax planning and business restructuring, it is desired that the assessee should consult the tax litigation practitioner, because he will be able to guide the assessee by his experience whether such an adventurous tax planning will be accepted by the Courts or Tribunal under the present scenario.

Today, Tax Bar is considered as one of the best Bars of our country, this is mainly because of continuous education, value and ethics followed by the stalwarts of the Tax Bar, like Shri R. J. Kolah, Shri N. A. Palkhivala, Shri S. P. Mehta and many more. I hope the members of the Tax Bar will make a sincere attempt to preserve the value and ethics followed by the stalwarts and senior members of the Tax Bar. Every professional must play a proactive role and help the Government to prepare the Road map for better tax law and tax administration for achieving the goal of speedy justice, by sending suggestions objectively.

Jai hind

Editor-in-Chief

Reproduced with permission from the AIFTP Journal, July 2011