The All India Federation of Tax Practitioners (AIFTP), an apex body of tax practitioners, has addressed a detailed representation to Shri Arun Jaitley, the Union Finance Minister, pointing out that section 184 of the Finance Act 2017, which mandates the appointment of Members of the ITAT for a short tenure of only five years, will undermine the independence of the institution and lead to disastrous consequences. The AIFTP has warned that the whole purpose of setting up the ITAT as an independent and fearless judicial body will be frustrated and taxpayers will lose confidence in the institution. It has urged the Hon’ble Finance Minister to rescind the said provision and retain the existing provision for appointment of ITAT Members.
May 3, 2017
Shri Arun Jaitley
Hon’ble Finance Minister of India,
New Delhi – 110001.
Sub: Representation in respect of system of appointment of Hon’ble Members of the Income-tax Appellate Tribunal for tenure of five years, Section 184 of the Finance Act, 2017 r.w.s. 252A of the Income-tax Act, 1961
All India Federation of Tax Practitioners (AIFTP) is an Apex body of the Tax Practitioners of India. The main object of the Federation is to spread education in the matters relating to tax laws, other laws and accountancy. One of the objects of AIFTP is to strive and work for independency of the Hon’ble Courts, quasi–judicial Authorities, Appellate Authorities, etc. The ITAT Bar Associations’ Co-ordination Committee of the Federation plays an active role in matters of vital importance to the Tribunal.
The AIFTP is the only professional association in our country which has 132 professional associations from 18 States as its affiliated members and more than 6800 individuals as life members. The members of the Federation include Senior Advocates, Chartered Accountants and Tax Practitioners, who practice in the field of direct and indirect taxes.
As per section 252A of the Income-tax Act, 1961, which is yet to be notified, section 184 of the Finance Act 2017 is made applicable even in respect of the Members of the ITAT who will be appointed hereafter. At present, the Income Tax Appellate Tribunal has a sanctioned strength of 126 members out of which only 102 members are available. 4 members will be attaining superannuation in the year 2017 and another 7 members will be attaining superannuation in the year 2018. Thus, there will be a vacancy for 32 members by the end of 2018. Therefore, all the new 32 members will be appointed for a tenure of five years and may be reappointed for another tenure of five years.
With utmost respect, the members of the AIFTP are of the considered opinion that if the proposed provision is made applicable to the appointment of Members of ITAT and the members are appointed for a tenure of five years, it will affect the independency of the institution and could be disastrous. The whole purpose of setting up of the institution of ITAT and 76 years of its existence will be shaken and the tax payers will lose confidence in the institution.
It is therefore prayed that, in respect of the appointment of members of the ITAT, the present system of appointing the members may be continued without making any changes.
Sir, the Income-tax Appellate Tribunal was founded on 25th January, 1941, and has completed 76 years of purposive existence. It is considered as the Mother Tribunal of all Tribunals in the country. It is the final fact finding authority under the Income–tax Act, 1961. Both tax payers and the Revenue have placed utter faith on the functioning of the Tribunal due to the process of appointment of the Hon’ble Members, who administer justice.
The Income-tax Appellate Tribunal has two types of members, i.e. A Judicial Member and an Accountant Member. A Judicial Member is a person who has, for at least ten years, held a Judicial office in the territory of India or who has been a member of the Indian Legal Service and has held a post in Grade II of that Service or any equivalent or higher post for at least three years or an advocate in practice for at least ten years. An Accountant Member is be a person who has, for at least ten years, been in the practice of accountancy as a Chartered Accountant under the Chartered Accountants Act, 1949 (38 of 1949), or who has been a member of the Indian Income-Tax Service, Group A, and has held the post of Additional Commissioner of Income-tax or any equivalent or higher post for at least three years.
As and when a vacancy arises, the Ministry of Law and Justice makes an announcement in the leading newspapers, web sites of ITAT, www.itat.nic.in and www.itatonline.org etc. and invites applications from eligible candidates. The applications are scrutinized and thereafter, interviews are held at different places. The Selection Committee comprises of a Sr. Judge of the Supreme Court as Chairman, Union Law Secretary, President of ITAT and Member, Law Commission. There is complete transparency in the process of interview and has proved to be a satisfactory method for selection of Members. Once members are appointed, they are governed by the Income-tax Appellate Tribunal Members (Recruitment and Conditions Service) Rules, 1963 (Notification no. GSR 1265, dated 27-07-1963) www.itat.nic.in.
With utmost respect, appointment of members of the ITAT on basis of tenure of five years, would cause uncertainty, affect the impartial functioning and integrity of the Institution for detailed reasons given hereunder:-
1. Appointment of Members of the ITAT on tenure of five years, affects the independence of the Institution.
The Supreme Court in Ajay Gandhi v. B. Singh (2004) 265 ITR 451 (at page 456) observed – “The Income Tax Appellate Tribunal exercises judicial functions and has the trapping of a court“. In Madras Bar Association v. UOI (2014) 227 Taxman 151 (SC), the Apex Court, striking down the constitutional validity of the National Tax Tribunal Act, 2005, has observed that the said Act, violated the “basic structure of the Constitution”. Before the Income Tax Appellate Tribunal, the Revenue is always either an appellant or a respondent. When a person is appointed for only five years and he may be reappointed only for the another five years at the mercy of the Government, while delivering judgments, the Member will always carry a fear in his mind that if he delivers the judgments against the Government, he may not be reappointed. This may create a tendency to lean in favour of the Revenue and such a trait may affect the independence of the institution and create suspicion in the minds of the tax payers that they may not be dealt with fairly. It is pertinent that orders of Tribunal have capacities to impact both commercial and fiscal fortunes of the tax payer’s community.
2. Independent functioning of the Income Tax Appellate Tribunal cannot be compared with other Tribunals.
When the Income Tax Appellate Tribunal was set up on 25th January, 1941, the Finance Department of the Government of India (Central Board of Revenue) was initially in-charge of the Tribunal. However, from 30th May, 1942, on opposition in public opinion, the Tribunal was put in charge of the Legislative Department, which is the predecessor of the present Ministry of Law and Justice of the Government of India.
The Income-tax Act, 1961 refers 92 Central Acts and various State Acts. Determination of tax in disputes has to be decided on the basis of assessment year. Finance Act, 2017 has introduced more than 97 amendments. There are frequent and yearly amendments in the Income tax Act, and such characteristic is not found in any other legislation. To decide most complicated issues, knowledge of accountancy is very essential. If a person is appointed only for five years, by the time he acquaints himself with the law and procedure, his term would get completed. The Tribunal being the final fact finding authority – rich experience is necessary for rendering the justice. Just because other Tribunal Members are appointed for five years term, the same cannot be made applicable to Income-tax Appellate Tribunal, being qualitatively different. If Members are appointed only for 5 years, they will be under a constant fear of non-extension, hence, may not be able to fearlessly discharge their duties. The Income Tax Appellate Tribunal has 63 Benches which are functioning from 27 places and hence, the same cannot be compared with other Tribunals, which have one or two Benches. Out of 26 various Tribunals referred to in the 8th & 9th Schedules of the Finance Act, 2017, the Income Tax Appellate Tribunal and Central Administrative Tribunal are functioning under Ministry of Law and Justice and all other Tribunals are functioning under different Ministries. Hence, the functioning of the ITAT cannot be compared with the other Tribunals. The ITAT has a pendency of 90,000 appeals as on 1st April 2017 which cannot be compared with other Tribunals. In most of the Tribunals referred in the Schedule, the disputes are between the two parties. In contrast, in the Income Tax Appellate Tribunal, the disputes are between the taxpayers and the Government. Hence, functionality of the ITAT cannot be compared with other Tribunals. Income tax Appellate Tribunal is the final fact finding authority on direct taxes and question of law decided by the one Bench of the Tribunal is binding on all the assesses across the country, whereas the issue decided by other Tribunals may not have binding force on other assesses, hence ITAT cannot be compared with other Tribunals.
3. Young talent from profession of law and accountancy will avoid joining the Bench.
As per the present law, once members are appointed after retirement, they cannot appear before the Tribunal. Therefore even young professionals will not join the Bench, the reason being, after five years, they may or may not be re-appointed. It may be difficult for any professional to re-establish the profession after a break of five years.
If the provision is made applicable to ITAT only, the judicial officers and revenue officials may at the time of retirement age, join the Bench so that they will get another five years of service.
4. Judicial members of the ITAT are a potential source for appointment of High Court Judges to deal with taxation matters.
As per the figures published in the souvenir of the ITAT on the occasion of 75thyear of celebration, 33 judicial members of the ITAT have been elevated to the High Court. (P. No. 39). Some of the judicial members have been elevated as Judges of the High Courts and thereafter, even as Judges of the Supreme Court. This was made possible because they have joined the ITAT at a young age and proved their worth by passing qualitative orders and possessing expert knowledge. Even now, many young promising lawyers join the Bench with the hope that they may be considered eligible for being elevated to the High Court. Even the High Court requires professionals with expert knowledge to decide matters and ITAT is one of the potential sources.
With utmost respect, if the Hon’ Members are appointed for a term of only five years, young professionals may not repose confidence in the institution as a career opportunity and may not join the Bench, which will be a loss not only to this institution but also to the High Courts.
5. No reason to disturb the system which has served well for more than 76 years.
Originally, the Members of the Tribunal were appointed on tenure basis – the contract being for a period of five years. However since 25th February, 1950, the appointments are made on a permanent basis.
When a system is working well and satisfactorily and without finding any fault therein, there is no reason to change the system of appointment of members to a tenure basis of five years. Few years back, there was a proposal to appoint the members of the ITAT on tenure basis of five years. The ITAT Bar Associations had strongly opposed the same, due to which the proposal was dropped.
6. National Tax Tribunal – Precedents
When the Government had introduced the proposal of appointing the Members of the National Tax Tribunal, one of the conditions was that the Members were to be appointed for a tenure of five years. The Tax Bar had strongly opposed the same and the constitutional validity of the said Act was struck down.
7. President of the ITAT retires at the age of 65, where as members at the age of 62.
When President of the ITAT can work till the age of 65, there is no reason why other Members should be made to retire at the age of 62. At the inaugural function of the ITAT Tribunal Members Conference, at Mumbai on 4th November, 2006, the then Hon’ble Law Minister, Shri H. R. Bhardwaj has stated that he was in favour of raising the retirement age of Members of the ITAT from present age of 62 to 65. In a PIL filed by the Sales Tax Bar Association, in respect of increasing the retirement age of Members of the Sales Tax Tribunal from 62 to 65, the Hon’ Bombay High Court (WP No. 8023 of 2013 6-09-2013). (www.itatonline.org), by its interim order had directed the State to consider the representation of the Bar and made an observation that – “when the retirement age of President of Tribunal is 65 years, there is no reason why other members of the Tribunal should not be given a retirement age of 65 years”. The matter is pending for final disposal.
Members of the AIFTP are of the considered opinion that the experience and knowledge of the judiciary is a national asset (i.e. intellectual property of the country) and that there is no reason why all Members should not be made to retire at the age of 65 only. Extending the retirement age of Members from 62 to 65 will help to reduce the pendency of appeals. This will also help speedy disposal of matters by their experience and knowledge.
As per the proposed amendment, the Members appointed on tenure basis would be made to retire at the age of 67. One may consider that the same may be made applicable to members who are presently serving as members of the ITAT. When a member attains superannuation at the age of 65 years; if any member is found to be capable of discharging duties and his integrity & reputation is beyond reasonable doubt, then he may be considered for reappointment for another two years.
We, therefore, make an appeal to your Honour, that as regards the appointment of Members of the ITAT, the present system may be continued.
Sir, at the meeting of the AIFTP which was held on 22-4-2017, its National Executive Members have strongly opposed the proposed amendment, the copy of which is enclosed herewith.
We therefore request you, Sir, to consider our representation and make an amendment stating that, provision of section 184 of the Finance Act, 2017 is not made applicable to the ITAT and consequential amendment may be made in section 252A of the Income-tax Act, 1961, stating that as regards the ITAT, the members are appointed only on the basis of present system.
We would also request you, Sir, to also give us an opportunity of personal hearing.
For All India Federation of Tax Practitioners
Mrs. Premlata Bansal,
Dr. K. Shivaram,
Encl.: As above
Copy to: Shri Santosh Kumar Gangwar, Hon’ble Minister of State for Finance
Shri Arjun Ram Meghwal, Hon’ble Minister of State for Finance