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The author argues that the adverse outcome of the Aditya Birla Nuvo matter was the result of shoddy drafting of the JV agreements by AT&T’s lawyers which the department’s lawyers exploited to the hilt. But its too early to write an obituary for the India-Mauritius DTAA says the author.

The judgement of the Bombay High Court in Aditya Birla Nuvo vs. DDIT must have sent a chill down the spine of foreign investors hoping to escape tax in India by routing their investments through Mauritius.

On paper, Aditya Birla Nuvo had a seemingly cast-iron case. Like hundreds of foreign investors before it, AT&T USA set up a 100% subsidiary in Mauritius, funded it with enough capital and got it to invest in the shares of Idea Cellular.

So what if AT&T Mauritius was a dummy company with no operations worth its name. It had the ‘precious’ Tax Residency Certificate from the Mauritius tax authorities and that is all that was required to wish away all tax headaches as per the CBDT’s Circular Nos 682 & 789 dated 30.3.1994 and 30.4.2000 and the judgement of the Supreme Court in UOI vs. Azadi Bachao Andolan 263 ITR 706.

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The author adds his voice of reason to the strident debate on the pros and cons of the Lokpal bill. The author argues that while the proposal to bring the judiciary under the scrutiny of the Lokpal is well-intentioned, it will adversely affect the fearlessness and independence of the judiciary and have disastrous consequences. Instead, the author suggests measures to curb corruption in the judiciary.

In India common citizens have full faith in the Judiciary, but their objection is against the Judiciary is delay in justice delivery system. Therefore, one need to take remedial measures to reduce the pendency of cases before various Courts. Mere introduction of Lokpal Bill may not have much impact on the present system. According to me, the legislature alone is responsible for delay in justice delivery system, because they have not increased the strength of judges and have also not been filling up the vacancy of Judges.

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The author lashes out at the proposal of the Government to enact a new law to regulate lawyers, claiming that it will be an immense waste of public money. Instead, if the Government is really serious of protecting the interests of the public, then there is a series of steps it can take under the existing legislation to promote the rule of law and enhance standards in the profession, says the author. The author identifies 10 such steps which he claims will reform the legal sector.

The Government of India is proposing to introduce “Legal Practitioners (Regulations and Maintenance of Standards in Profession, Protecting the Interest of Clients and Promoting the Rule of law) Act, 2010“, and has requested for suggestions from the stake holders i.e., Public in General, Legal Fraternity, Educationalist, etc. Under Clause 35 of the proposed Act, until competent regulatory bodies are established by the Central Government or State Government as the case may be. The Legal Services Board shall function as the regulator for the regulatory objectives under this act for legal professionals other than those covered by the Advocates Act, 1961 as enumerated in Schedule I i.e.

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The author raises the seminal question as to why, while the Tribunal has all the trappings of a Court, does it not have the power to punish for contempt. He cautions lower authorities that the lack of contempt power is no reason for not following the binding judgements of the Tribunal. He also makes a fervent plea to all practitioners to uphold the honour & dignity of the great Institution.

Under the Income tax Act, the Income Tax Appellate Tribunal is a final fact finding authority.  In Ajay Gandhi v B. Singh (2004) 265 ITR 451 Apex Court observed that “The Income tax Appellate Tribunal exercises judicial functions and has the trapping of a Court”. Apex Court in ITAT v V.K. Agrawal (1999) 235 ITR 175 has held that interfering with administration of justice of the Income Tax Appellate Tribunal will amount to contempt of Court. In an historic judgment then law secretary was held for contempt. It is now beyond doubt that the Income tax Appellate Tribunal has all the powers of Court. It can issue summons and  exercise all the powers vested in the Income tax authorities under section 131 of the income Tax  Act, hence any proceedings before the Income tax Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 for the purpose of section 196 of the Indian Penal code. The Tribunal shall be deemed to be a Civil Court for all the purposes of section 195 and Chapter XXXV of the Code of Criminal Procedure 1898.

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Despite vehement protests by the legal fraternity, service-tax on legal consultancy services has become a reality of life w.e.f 1.5.2011. The author, an eminent expert in service-tax law, has prepared this Guide to assist lawyers in complying with their newly-imposed service-tax obligation. A pdf copy of the Guide (revised) is available for download

Service tax was first introduced on Legal Consultancy Service from 01.09.2009 by the Finance (No. 2) Act, 2009 by inserting cl. (zzzzm) in S. 65 (105) of the Finance Act, 1994. The coverage of taxable service was limited to service provided by a business entity to any other business entity. Further, the taxable service was restricted to advise, consultancy or technical assistance in any branch of law, in any manner, but not appearance before any court, tribunal or an authority. Thus, service provided by an individual to any person and service received by the individual from any person was not liable to tax.

This write-up is now redundant in view of changes to the law. Click here for the revised Guide

The Finance Act, 2011 (enacted on 8th April, 2011) has substantially increased the scope of the levy which is explained in this article. This amendment comes into force from 01.05.2011.

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The author argues that the verdict of the Special Bench in Tata Communications vs. DCIT that stay of demand can be extended by the Tribunal beyond 365 days is the result of inept handling by the department. He calls the situation a “fiasco” for the department and dishes out advice on what can be done to remedy the situation

The judgement of the Special Bench in Tata Communications vs. DCIT that the Tribunal has the power to extend stay beyond 365 days despite the clear language of the Third Proviso to s. 254(2) of the Act must have come as a big surprise to even the most optimistic tax-payer. Certainly, the decision caught battle-hardened tax professionals by surprise.

The blame for the fiasco lie squarely with the department for their inept handling of the matter. Of course, it is another matter that the provision of law is itself grossly misconceived.

The Tribunal’s power to grant stay of demand was recognized by the Supreme Court as early as in the year 1969 in ITO vs. M.K. Mohammed Kunhi 71 ITR 815 where it was held that the power to give final relief in the appeal included the power to grant interim relief to stay the demand.

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The author is indignant at the proposal in the Finance Bill 2011 to levy service tax on lawyers. The practitioners of the noble profession are “Officers of Court” and not providers of a crass commercial service, argues the author. To levy the tax on “accrual” basis is deplorable and adds insult to injury claims the author pointing out that the proponents of the World’s second-oldest profession have been following the “receipt” system since time immemorial. The author implores Parliament to introspect carefully before giving sanction and warns that this ill-conceived provision stands a serious risk of being declared unconstitutional

When Service Tax was levied on Chartered Accountants, the levy of Service Tax on Chartered Accountants were challenged by the Federation in association with Bombay Chartered Accountant’s Society and The Chamber of Tax Consultants. The Apex Court up held the constitutional validity [All India Federation of tax Practitioners vs. UOI (2007) 293 ITR 406 (SC)] on the ground that the Chartered Accountants, Cost Accountants and Architects render service by giving advice on tax planning, auditing, costing, etc. which attracts value addition as in the case of manufacturer. The Court also observed that in the said petition there was no challenge to Article 268A and entry 92C of list 1 which was inserted by Constitution of India (Eighty-eighth Amendment) Act, 2003. Possibly, the All India Federation of Tax Practitioners along with other associations may have to once again knock the doors of the judiciary to challenge the levy of Service Tax on legal services including Article 268A of the Constitution of India.

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The author is aghast that the Government is contemplating yet another scheme to offer amnesty to tax evaders. The author calls such schemes a “fraud on the honest tax payer and the nation” and reminds the Government of its solemn promise made to the Court that it would not introduce any more amnesty schemes. Amnesty schemes should not be used as a measure to raise revenue says the author and offers a number of practical suggestions to help the Government deal with the menace of tax evasion and increase revenue. Amnesty schemes will not curb tax evasion but will encourage it is the chilling warning given by the author

Recent newspaper reports suggest that the Government has constituted a committee to study the channel to bring back the black money lying in various banks abroad. The Federation supports all efforts to eradicate black money, however, the Federation is strongly against an Amnesty Scheme for achieving this objective, as any such scheme would really constitute a premium for dishonesty.

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The author pays rich tribute to the Tribunal for its exemplary functioning in the role of dispensing justice. However, this is not the time for the Tribunal to rest on its laurels, exhorts the author, and warns that there are several challenges ahead. To meet the challenges, the author has formulated an agenda for the Bar & the Bench to implement. If implemented in true earnest, the Tribunal will become the best judicial institution in the Country assures the author

The Income Tax Appellate Tribunal which was established on 25-1-1941 had 3 Benches in the year 1941, where as today, it has 63 Benches, in 25 Cities. As on today pendency before the Income tax Appellate Tribunal is only 53,650 appeals. This is one of the Tribunal of our Country which decides the matters within a year of filing of appeal. In Mumbai, only 15,320 appeals are pending. The logo of the Tribunal conveys the message that the Motto of the Income Tax Appellate Tribunal is “Sulab Nyay and Satvar Nyay”.

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The author expresses concern over the rampant use of rough-neck techniques by the Department for recovery of tax dues. Despite severe reprimand by Courts, there is no improvement in the Department’s behaviour due to lack of accountability muses the author. The author advises the department to adopt Chanakya’s techniques for recovery and assures that this will benefit the department in the long run

1. Sections 222 to 232 of the Income Tax Act, 1961 and schedules II and III, thereto and the Income Tax (Certificate Proceedings) Rules, 1962, together constitute a self contained code prescribing the various modes for the recovery and arrears of tax under the Act. These provisions are also applicable to Wealth Tax Act.
2. The Tax Practitioners have the duty to advice the assessees to pay the tax what is rightfully due to Government, neither less nor more. The law of recovery is based on Civil Procedure Code, 1908. In Krishna Prasad Singh vs. TRO (1996) 221 ITR 720 (Cal.), it has been held that the provisions of Schedule II to the Income tax Act are analogous and similar to those in Civil procedure Code and therefore, the decisions relating to the CPC would be applicable for interpreting similar provisions in Schedule II to the Act.

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