The Finance Bill 2020: Nani Palkhivala Rightly Called The Income-tax Act “A National Disgrace”

NA-PalkhivalaDr. K. Shivaram, Senior Advocate, has pointed out that the lament by Nani Palkhivala several decades ago regarding the ‘maddening instability‘ of the Income-tax Act and it being a “national disgrace” holds good today as well as is reflected by the numerous amendments ushered in by the Finance Bill 2020. Some amendments are ill-thought of and have led to enormous confusion and anxiety amongst taxpayers. Also, the non-allocation of funds to the Judiciary shows a lack of seriousness in the Government regarding clearing the massive backlog of cases in Courts. The learned author has also made valid points regarding the ‘Vivad Se Vishwas’ scheme and other important proposals in the Budget

Finance Bill -2020 –In the visionary budget, there is no allocation of funds to the infrastructure, digitalisation and modernisation of the judiciary.The Judiciary is the backbone of Democracy, unless sufficient resources are allocated towards the judiciary efficient to render speedy justice by appointing judges and providing the much-needed infrastructure, we may not be able to achieve the desired object of becoming a 5 trillion economy.

1. No allocation of funds to the judiciary.

The Honourable Finance Minister has presented a visionary budget for India. It is for the first time the budget has focused on upliftment of the rural economy and agriculture, which is a welcoming move and deserves to be appreciated.

It is to be understood that, one of the road blocks for the development of the economy is the huge pendency of litigation before various Courts. No doubt, that the government is taking measures to reduce the litigation, however the process is quite slow and has not yet been able to achieve the desired results. The speedy disposal of the disputes is imperative for attracting investments. One of the reasons for delay in disposal of the cases is the delay in not appointing Judges on time. Since the Government is aware of the fact that a number of judges are going to retire in a particular year, the process of appointment should be done well in advance, to ensure that vacancies do not affect the dispersion of justice and the transition is smooth. This may require better management in appointment of judges and improvement in infrastructure. To add to the problem, neither is there a vision laid down or a specific allocation of funds for the improvement of the judiciary. The All India Federation of tax Practitioners (AIFTP) has, from time to time suggested that there should be separate allocation of funds for the Judiciary in the Union budget proposal.

It is noteworthy that the Central and State Governments are the largest litigants in most of Judicial forums. More than 60 percent litigation in Courts have their genesis in the Central Acts. The need of the hour is for the Government to realise that the Judiciary is as important asthe economic development of industry & commerce. As the Judiciary cannot make the representation to the Government, it is upon various Bar Associations across the country to make effective representations to the Govt regarding the difficulties faced by the judiciary to provide the common man in the country with the hope to have access to speedy justice.

As per a paper report dated February 8, 2020, the Hon’ble Supreme Court of India which was established in the year 1958, is today an overcrowded place, which requires to have a new building or additional places to operate out of. The Hon’ble Bombay High Court is in need of a larger space for functioning and for other statutory functions. In a PIL the High Court had directed the State Government to find a suitable place, however, no progress is done till date. For progress of the country, proper court rooms and infrastructure are as important as roadways, airports and other infrastructure. It is very unfortunate that in this visionary budget, no funds are allocated to modernisation and infrastructure of the Judiciary. Even the opposition parties are not raising the issue of allocation funds to the judiciary.

We hope that the Government will take positive measures to resolve this issue while taking into consideration the suggestions from various Bar Associations and the State Governments across the country.

2. Instability in tax law.

The great jurist, Late Shri N.A. Palkhivala in his article titled “TheMaddening instability ofIncome tax law” in the Golden Jubilee souvenir for the year 1991, stated as under:

“To day the Income -tax Act, 1961, is a national disgrace. There is no other instance in Indian Jurisprudence of anAct mutilated by more than 3000 amendments in less than thirty years, Simple provisions like Sections 11 to 13 (which deal with exemption of the income of charitable Trusts) have suffered no less than fifty amendments.”

The tragedy of India is the tragedy of waste-waste of national time, energy and manpower. Tens of millions of men -hours, crammed with intelligence and knowledge -of taxgatherers, tax payers and tax advisors – are squandered every year in grappling with the torrential spate of mindless amendments. The feverish activity achieves no better than fever?”

The Finance Bill, 2020 contains more than 104 amendments, one can perceive the amendments which will lead to manifold litigation with regards to its the interpretation. Amendment to Section 6 i.e. definition of non-resident has created doubt in the minds of the non-residents, for which clarification was issued by the Honourable Finance Ministry the next day itself, arguably, contradictory to the wordings of the amendment. This shows that proper home work has not been done while introducing these new clauses in the Finance Bill, 2020. The number of amendments introduced should have been minimized with a view to bring stability to tax laws.

3. Proposed provision to curtail the power of Tribunal to grant the stay.

Clause 97 of the Finance Bill, 2010, proposes to introduce proviso to Section 254 of the Act where in the Tribunal should not grant the stay unless at least 20% of taxes, interest etc is paid.  One fails to understand the cardinal data upon which this discretion has been based and in how many matters has the tribunal has granted a stay without any pre-deposit. Before granting stay, the Tribunal always considers the financial difficulties, merits of the case and various other factors and thereafter grants the stay. This is quite evident from the orders passed by the Tribunal.  If the revenue is not satisfied with the order of the stay, they are at liberty to approach the High Court. Further, it needs to be evaluated as to in how many matters has the revenue challenged the stay order before High Court. According to us, the Tribunal has inherent power of stay, they can in an appropriate case even grant a blanket stay, e.g. Where the Ld. CIT (A) has not followed the orders of the jurisdictional High Court on the ground that appeal is pending before the Apex court etc. 

The proposed provision may also be held unconstitutional in an appropriate case. As this may lead to interfering with judicial functioning of the Tribunal. There are instances where the assesses have succeeded in appeal however the appeal is not given and refund is not granted. There needs to be provision where if the refund is not granted with in prescribed time, interest should be made applicable. The Officer concerned must be held responsible for not granting the refund.The honest tax-payers money should not be misused.

5. The Direct Tax Vivad se Vishwas Bill, 2020.

This is a welcome provision to reduce the tax litigation. The scheme can become success only with the active support of the tax professionals. The tax administrators must interact with the tax professionals and try to clarify the issues raised at the earliest. It is desired that there should be a regional co-ordination committee of the Department officials, representatives from the tax professional organisations who can interact with the officials concerned on day to day basis and get the clarifications and inform the professionals who in turn advice the assesses to avail the benefit of the scheme. This will help in effective implementation of the scheme.

Few issues with respect to the successful implementation of the scheme.

As per the definition 2(n) “Specified date” means the 31stday January, 2020.

(1)It is desirable that any appeal pending on the date of application may be held eligible to get the benefit of the scheme. There are instances the orders are passed by the AO /CIT(A) or Tribunal before 31stJanuary, 2020 and time limit for filing the appeal in respective forum has not expired and hence the appeal may not yet be filed. This may lead to assessees not being able to get the benefit of the Scheme.

(2) As per ‘clause 3’, the amount payable under the Act or before 31stday of March 2020 only 100 % of tax amount is to be paid and on or after 1stday of April, 2020,until the last date 10 % extra is charged (subject to the maximum of aggregate amount of interest chargeable or charges, and penalty leviable or levied on such disputed tax). Though the Bill has been tabled, it has not yet become an Act, and no rules nor clarification has been issued till date. It is desired that the period of time limit of 31stMarch may be extended up to 31stJuly and 10% may be charged only after 31st July. The scheme may be kept open at least up to 31stDecember, 2020.

(3) Clause 9(a) (i): It is a well-known fact that a large number of cases pertaining to ‘penny stock’ are the ones that would seek refuge under this scheme. The number of cases and the quantum of addition are both high. Exclusion of assessment arising on account of 153C of the Act, further defeats the cases where information has been received subsequent to a search at another premises, as most of the cases of penny stock may have its inceptions in such a manner. Further, discrimination between a reassessment proceeding under section 147 of the Act and 153C of the Act, where the earlier mode of assessments is allowed to apply for the scheme, seems irrational. Furthermore, as discussed above, there are a lot of ‘penny stock’ cases where prosecution has already been initiated by the department though the appeals are pending before the CIT (A) or Tribunal, these cases would not fall within the ambit of the scheme.

(4) Clause 9(a)(ii):The ‘institution of prosecution’ being a criterion for non-eligibility under the scheme. Since, the scheme of compounding is always open for a tax payer, exclusion of such assessment years, the exclusion of the instances where prosecution has been initiated, seems a bit irrational and defeats the purpose of reducing litigation.

6. One-time settlement of prosecution.

Under the present system, it takes more than 20 years to decide prosecution matters relating to Direct Tax Laws. Hence, the deterrent provisions fail to achieve the desired object due to the delay in disposal of cases by the trial courts. Large matters of prosecutions are launched for technical defaults for delay in depositing the TDS although the TDS was paid along with interest. Further, the compounding fees fixed are very high. These may be revised reasonably so that the assesses can settle the disputes by paying compounding fees. The tax administration may consider a one-time compounding application.  As per the guide lines dated December 23, 2014, Compounding application will not be entertained if the application is filed after 12 months of the filing of complaint, however, as per the new Circular dated June 14, 2019, the CBDT has relaxed the period to 24 months. There are instances where the accused has received the intimation of the filing of complaint after 12 months of the filing of the complaint. In few cases the application for compounding are not entertained only on technical grounds. As per the Act and judicial decisions there is no limitation for filing of compounding application. The same can be filed even after the Court holds the accused guilty of the offence.

It is desired that the restrictions imposed in the circulars may be withdrawn. When a show-cause notice is issued, the assessee submits their reply thereafter no intimation is received by the assessee as to whether the submission is accepted or not accepted by the department. It is the duty of concerned officer to inform the assessee in writing whether the prosecution is launched or not.  

Further the CBDT vide Circular No. 25/2019 in para 5 stated that “prosecution proceedings are pending before any court of law for more than 12 months’

A one-time settlement scheme applicable to all pending prosecution matters arising out of technical failures, before any court including court of appeal, may be desired, which will help the revenue as well as the assesses.      

7. Tax deduction at Source

S.192: Salaried persons are given an option to choose a new scheme of assessment as introduced in the Act, however the employer has to deduct tax at source on salary at the time of credit or payment. If the employee wishes to opt for new scheme at the end of the year, how would the tax deducted will be adjusted? There could be a case where the employee may opt for new scheme in the beginning of the year and may change his mind at the end.If the employer deducts tax only at the end of year, he may be held liable to pay interest for failure to deduct tax at source. Some further clarification may be required.  

At present there are more than 25 Sections under which the assessee is required to deduct tax at source and file returns. Many a times, there is no clarity on various issues. It is desired that one may consider having a concept of a ‘passbook; and only one return for all Taxes deducted at source. The assessee may deposit the amount as advance or may adjust the same against various taxes to be deducted. This will help to reduce the compliance provisions.

8. Interaction of the Honourable Finance Minister with stake holders.

Professionals across the country have appreciated the initiative of the Hon’ble Finance Minister to interact with the stake holders on the various issues of the Finance Bill, 2020. It could have been better if a separate meeting could have been held for tax professionals. It would have brought to the notice of Honourable Finance Minister as to how the proposed provisions will lead to increase in litigation.

A few years back, the ‘Member Legislation’ had visited Mumbai and interacted with professional bodies like AIFTP, BCAS, and CTC. Clause by clause issues were discussed and suggestions were made. It was half day work-shop which helped the CBDT to understand the issues better. It would be ideal if the CBDT similarly depute the member legislation to Mumbai, Chennai, Bangalore, Ahmadabad and other metropolitan cities to interact with the tax professionals and addresses the inputs gathered.

9. Tax payer’s Charter Clause 64. S.119A

The former Union Finance Minister, Mr Vishwanath Pratap Singh, had announced certain ground rules for searches and seizures carried out under the Income -tax Act, the Customs Act, the Excise Act and the Foreign Exchange Regulation Act (FERA) (1986) 159 ITR 1 (St). The CBDT vide Instruction No 1/2014 dated January 15, 2014 to the Chief Commissioners to comply the Citizens Charter has directed the AOs to respect the Citizens Charter, however the non-compliance of the said instruction could not be enforced by law. Now the legislature has made the tax payer’s charter as part of the Act. As per proposed S. 119A, the Tax payer’s Charter will be part of the Act or Rules. This will bring accountability in the tax administration which is welcome provision. Non-compliance of the Tax payer’s Charter can be challenged before an appropriate form. 

As a citizen we have a duty to the country to pay tax which is rightfully due to the State. Article 51A of the Constitution of India, which contains the fundamental duties towards our Country also includes a duty to see that the tax collected by the state is utilised for productive purposes and for the welfare of the state.

We hope that the objective suggestions provided bythe citizens will be accepted by the Government to achieve the desired object of achieving a5 trillion economy by the year 2022.


Reproduced with permission from the AIFTP Journal
5 comments on “The Finance Bill 2020: Nani Palkhivala Rightly Called The Income-tax Act “A National Disgrace”
  1. Dr.P. Daniel Advocte says:

    On the occasion of the foundation day celebration at Delhi on 24 th January , Honourable President of the ITAT , made an request to expedite the process of appointment of members of the ITAT at the earliest . We hope the appointment will done soon .

  2. CA ANOOP BHATIA says:

    Thanks for enlighting readers with your views. Points made out are really practical and deserve action by the Govt.

  3. Sandeep Bagmar R says:


    Kindly look at the very poor quality drafting. The very first amendment proposed by FA Bill 2020 to s 2(19AA) is so badly drafted. “Long line shall be omitted”.

  4. KEEN OBSERVER says:

    It is reported in media about the spat between ATTORNEY GENERAL and bench of SC about appointments in HC AND SC.The issue be sorted out at earliest.
    However the article seems silent on ITAT Appointments.Few weeks ago the same was covered in several media about the above vacancies and impending appointments.

    • Pramod says:

      Because owners of this portal are not aware that Govt. has recently changed the rules for appointment. Henceforth, Additional Commissioners are not eligible. Only PCIT and above are eligible.
      CAs and advocates with 10 years practice are not eligible but only those with minimum 25 years of practice are eligible.
      Appointments will be made only for 4 years and no express provision of reappointment.
      Old process was in pursuance of different rules that are no longer in force.

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