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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The author is severely critical of the proposal of the Government to appoint Members of the Tribunal on contract basis for 5 years subject to renewal at the discretion of the Government. He warns that making the Members insecure about their position in the Tribunal will undermine the independence and judicial functioning of the Tribunal. He implores all stake holders to strongly oppose the Government’s move.

1. The Income Tax Appellate Tribunal is in existence since 1941. Over the years it has served as role model for other similar institutions. The members are selected by a high powered selection committee chaired by Senior Judge of Supreme Court. There is complete transparency in the process of appointment. It is because of this high tradition that we have witnessed many talented professionals joining the institution and many have been elevated to the High Courts. The present system of appointment of members of ITAT till the superannuation is working very satisfactorily and there is absolutely no need to amend the service rules for appointment of members of ITAT. Earlier there was a move to appoint retired members of ITAT on ad-hoc, contract basis for two years. All the Tax Bar Associations have strongly opposed the move, which was then dropped.

2. It has been given to understand that, there is a move to amend the service rule for appointment of Members and Government is proposing to appoint Members of the Income Tax Appellate Tribunal on contract basis for five years and thereafter, their tenure will be renewed every five years at the discretion of Government.

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The author argues that the Bar must not just complain about faults in the judicial process but must play a proactive role in bringing about reforms. He makes a fervent plea that we should follow the Ten Commandments and promises that we can then restore the Tribunal to its’ past pristine glory.

The role of the Bar in the administration of justice is no less than that of the Bench. It has been therefore, rightly said that only a good Bar makes for a good Bench. Hence, the Bar should evolve healthy conventions in order to maintain the institution’s prestige and honour. Hon’ble Mr. Justice M. Srinivasan in Dayal Sons vs. CIT (1998) 231 ITR 569 (571) (H.P.) has stated that “The profession of an advocate is a very noble profession and he is entrusted with a duty to be performed in the Court. He is not only an agent of the client in one sense but also an officer of the Court. He has got threefold duties; one towards the Client; another towards Court and the third towards the opposing Counsel”.

Hon’ble Mr. Justice V. R. Krishna Iyer in the landmark decision of Bar Council of Maharashtra vs. M. V. Dhabolkar AIR 1976 SC 242 (251) held that “law is no trade briefs no merchandise and so the leaven of commercial competition or procurement should not vulgarise the legal profession”. The Income-tax Appellate Tribunal is even today considered as one of the finest institutions of our country when compared with other institutions and the Tax Bar is recognized as one of the best Bars of our country. This has been made possible due to continuous education, ethics and values followed by the stalwarts of the Tax Bar such as Shri R. J. Kolah, Shri N. A. Palkhivala, Shri S. P. Mehta and many others. We have great responsibility to preserve the honour, dignity and purity of the institution before which we practice. Let us work together, hand-in-hand and see that the Tribunal retain its glory as one of the finest institutions in this country and as model for other institutions to follow. We, therefore, make an appeal to our readers to consider the following suggestions:–

1. The ITAT Bar Association and AIFTP has adopted a model code of ethics which may be followed by all the members who practice before the Tribunal. Visit www.itatonline.org or see AIFTP Journal Vol. 2 No. 3 Page No. 47 of July-September, 2001 issue.

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