The twin losses in quick succession on the depreciation front have put depreciation – aficionados in a sense of gloom. First, in Techno Shares & Stocks, they were told in no uncertain terms that their esoteric arguments on the intangible assets front was far fetched. Second, in Plastiblends, they were told that their gambit to extract maximum deduction u/s 80-IA while postponing the claim for depreciation for later years when the s. 80-IA relief would run out was not going to work.

To be fair to the aficionados, on the first part, the Legislature did lead them up the garden path by promising depreciation on virtually everything under the sun. The draftsman, probably having a moment of “goodwill” towards the taxpayers, drafted the term “intangible assets” to include not only all the known intangible assets like “knowhow, patents, copyrights, trademarks, licences and franchises” but also “any other business or commercial rights of similar nature”. Enthused by the seemingly unlimited scope of the definition, the aficionados set off a flurry of claims – on goodwill, non-compete fees, stock exchange card – there was no stopping them – if it looked intangible, it was depreciable!

The aficionados also displayed a remarkable sense of alacrity. When their argument that a stock exchange card is not a capital asset for purposes of wealth-tax and capital gains was successively thrown out by the Special Bench in Jagan Nath Sanyal 72 ITD 1 (Del) (SB) and R. M. Valliappan 103 ITD 63 (Che) (SB), they quickly recovered their wits and used the same arguments that had been used to decide against them to urge that they were entitled to depreciation. After all, if a stock exchange card is an “asset” liable to wealth-tax and is also a “capital asset” liable for capital gains, then surely it is also an “intangible asset” for purposes of depreciation, they argued.

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The decision of the President of the ITAT to stay hearing of appeals involving Daga Capital 119 TTJ 289 (Mum) (SB) has provided temporary reprieve to beleaguered assesses reeling under the twin losses of Daga Capital and Cheminvest. In Daga Capital, it was held that Rule 8D though inserted vide notification No. 45/2008 dated 24th March 2008 would apply to pending matters as well. Though the Special Bench was not concerned with the mechanics of Rule 8D, its ruling cast a gloom because Rule 8D, if literally applied, can result in the quantum of disallowance exceeding the quantum of exempt income! Of course, the correct interpretation, according to some experts, is that Rule 8D is meant as a measure of last resort only; i.e., when it is not possible to work out the disallowance correctly having regard to the accounts.

Daga Capital came close to being referred to a 5 Member Bench for reconsideration. In GE Capital, the Bench fairly acknowledged that at the time of hearing, its initial impression was to write a reference to the President for constituting a larger Bench though it stopped itself because an appeal had already been filed in the Bombay and Delhi High Courts against Daga Capital and as per the decision of the President in Star India a reference to a larger Bench cannot be made when the High Court is seized of the issue. It, however, was considerate enough to direct that the appeals be blocked for 6 months or till the disposal of appeal by the Bombay High Court in Daga Capital whichever was earlier.

Cheminvest added to the pall of gloom by holding that the disallowance under section 14A has to be made even if assessee has no tax-free income in the year.

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The author is chillingly polite when he says that even the draftsmen of the Direct Taxes Code have not realized the far reaching consequences that their proposals will have. He identifies ten conceptual problems with the Code and warns that unless these are addressed, the Direct Taxes Code will become a draconian piece of legislation. He also implores tax professionals to rise to the occasion and come forward with objective suggestions which will help simplify and rationalize tax laws and procedures

Direct Taxes Code – 2009, may not achieve the desired object of simplification of the Direct Taxes. Tax Professionals must come forward with objective suggestions which will help to simplify and rationalise the tax laws and procedures.

In the 62nd year of independence, the Government has proposed the Direct Taxes Code. Tax professionals, have already started debating on the proposed Direct Taxes Code. We are of the considered opinion that if Government considers the various suggestions put forward by the professionals and professional organisations and thereafter the amended bill is introduced, it will bring stability in the tax laws. Hence the professionals concerned must send objective suggestions without any fear or favour. There are provisions of far reaching consequences in the proposed Code and the objectives may not be realised by the team which has drafted the Direct Taxes Code. It is therefore, desirable to refer the matter to the Select Committee of the Parliament before the Bill becomes an Act.

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The author is aghast that while the Finance Minister has been generous in providing funds to the other sections of society, he has totally overlooked the judiciary. He implores the Government not to ignore the judiciary and warns that unless financial independence is given to the judiciary, judicial reforms are not possible.

While preparing the budget for our country the Hon’ble Finance Minister made a sincere attempt to satisfy all sections of society, for which he deserves to be congratulated. However, two important areas, which escaped the attention of Hon’ble Finance Minister is allocation of fund to judicial reforms and accountability on implementation of budget allocation.

1. Judicial Reforms

Judiciary is guardian of our democracy. The common man has faith in the temple of justice. Only one criticism against the judiciary is that there is delay in disposing of the matters. Delay in disposal of matters are not on account of judges fault, it is only due to shortage of judges and lack of infrastructure. When world is becoming one global village, the judiciary also requires to keep pace with modern technology. The judiciary is neither having any political lobby to take up the cause of judiciary with the government when the allocation of fund is required to be made for modernisation and innovation nor they can make representation to Government. Therefore, it is very essential for the Government to allocate in each years budget a specific amount for the research in law and modernisation of judiciary.

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The author puts on his thinking cap and conjures up a 10-point wish-list of conceptual changes that need to brought about in the tax policy to ensure effective compliance. He also uses his vast experience in the field of tax laws to identify specific loop holes and suggests measures to plug the same.

Every year the Hon’ble Finance Minister interacts with representatives of industries. Representative of each industry appeals to the Hon’ble Finance Minister to give concession in rate of tax and incentive to their industry. However, we are not aware of any representation from any industry to raise the tax base, simplify the tax law and humanise the tax administration. My experience shows that it is the tax professionals, who make the representation objectively without any favour or fear. Earlier the Member Legislation of Central Board of Direct Taxes used to visit Mumbai before the Finance Bill and after introduction of Finance Bill and discuss with the professional organisations to ascertain their views on various issues and provisions. We hope this tradition of interacting with voluntary organisations will be resumed to common good. One of the duties of the tax professionals is to make representation for better tax law and responsive administration. The suggestions herein, therefore, are made in three parts and deal with the issues that engage us viz.

(A) Conceptual (B) Specific and (C) Increase of Tax Base.

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