New Income-Tax Act: CBDT Invites Suggestions, Tax Expert Offers Many Valuable Suggestions

A Task Force has been constituted to review the Income-tax Act, 1961 & to draft a new Direct Tax Law in consonance with the economic needs of the country.

The Income-tax department has invited suggestions and feedback from stakeholders in the format provided on the departmental website.

In response, Dr. Shivaram, Senior Advocate, has offered several valuable suggestions.

All taxpayers and professionals are also requested to contribute with suggestions and feedback.

Suggestions by Dr. K. Shivaram, Senior Advocate

New direct tax legislation – Duties and responsibilities of tax professionals to send their suggestions objectively to have better tax law for our country

On 22nd November, 2017, the CBDT issued a press release for constitution of a task force comprising of a seven member committee for drafting a new direct tax legislation. The task force has to submit its report to the Government within six months. The terms of reference of the task force is to draft an appropriate direct tax legislation keeping in view the following:

(i) The direct tax system prevalent in various countries;

(ii) The international best practices;

(iii) The economic needs of the country; and

(iv) Any other matter connected thereto,

(Source.www.itatonline.org)

The intention of the Government to simplify the present Income–tax Act, 1961 is laudable; however is it possible for the Committee to submit a comprehensive report on or before May 2018? A classic example of rushed legislation is the Goods and Services Tax Act, 2017, (GST),which is well conceived and with good intention. However the Government is not able to get the desired results because of poor implementation (Abicor and Binzel Technoweld Pvt. Ltd. v. UOI (Bom.)(HC) www.itatonline.org).

It is desired that the Government does not needlessly hurry to bring the new Income-tax Law without discussing the implications of the same with the concerned stakeholders. It is desired that the members of the taskforce committee may reach out to small towns as well as large metropolitan cities and interact with tax professionals and small assessees to understand the difficulties faced by the taxpayers.

It may be an impossible task to reach and understand the concerns of the tax payers and professionals across the country and compile a comprehensive report within six months.

Tax professionals as citizens, bearing duties to the nation may have to consider sending objective suggestions for the consideration of the Committee and the Honourable Finance Minister. The Representation Committee of the Federation will be sending specific suggestions on various sections.

In this article, I am sharing my personal views on various conceptual issues for consideration and discussion by the readers.

1. Terms of reference

Terms of reference put before the committee should have been very broad. For e.g. “to examine the existing Income–tax Act, 1961, and to suggest changes that have become necessary for doing easy business and compliances“.

Members of the Federation had an opportunity of discussing the issues with two learned Members of the Task Force i.e. Mr. Mukesh M. Patel, Advocate, and Dr. Girish Ahuja, CA. According to them, the mandate is very clear to rewrite the new Income –tax Act, considering the need of our Country, it is not direct taxes code, it will be a new Income–tax Act. They are very positive that the new Income–tax Act will be tax payer friendly which will bring accountability on the part of the tax administrators as well as the tax payers. They are working with clean slate and out of box thinking.

2. Time frame for submitting the report

The present Income–tax Act, 1961, refers to 98 Central Acts, various State Legislations and more than 800 Sections, Rules, Notifications and various case laws of the Apex Court, High Courts, Appellate Tribunals and Authorities for Advance Rulings. It may not be possible to consider all the aspects within a period of six months. Ideally, there has to be an on-going process for at least two years.

3. Accountability provision

One of the suggestions made by Dr. Raja J. Chelliah in his committee report (1992) 197 ITR 177 (St) (257) para. 5.9) suggested that ways must be found to hold the Assessing Officers accountable for kinds of assessments they make. He suggested as follows:

The Assessing Officers should be made accountable for their actions by being blamed for raising demands which are not upheld by a reasonable figure, say 50 per cent, the officer should be given a black mark and also reprimanded. On the other hand, an Assessing Officer should be protected and defended if he has observed instructions of the Board and followed the Court rulings even though audit might raise objections about his actions”.

Federation has sent representations from time-to-time to introduce the accountability provision in the Act. It is desired that the accountability provision as suggested by Dr. Raja J. Chelliah Committee may have to be incorporated in the proposed new Act.

Bringing in accountability in tax administration is the first step in reducing avoidable litigation, and would benefit honest taxpayers of the country. If accountability provision is not introduced, whatever may be the law, the desired object of simple tax law may not be achieved.

4. Culture of tax services

The Hon’ble Prime Minster always says that he is the servant of the people of our country, however it does not seem to be the case when it comes to tax administration. The honest taxpayers are finding it difficult to get the refund due to them. Rectification applications are not disposed off in time.

In a recent judgment, the Bombay High Court in Bajaj Auto Finance Ltd., it held that the (www.itatonline.org), Officers are not following the judgments of Jurisdictional High Court and Tribunal. The Hon’ble Court has held that if the decision of the Court/Tribunal interpreting a provision is to be ignored by the Assessing Officer, it shall ring the death knell of Rule of law in the country.

It is only the big assessees, who can afford to go to the High Court in appeal but for a small assessee, he will be at the mercy of the tax administration to get the refund or rectification as per the assessment.

The CBDT in the year 1955 has issued the Circular (XL-35 dated 11-4-1955) dealing with refunds and reliefs. The circular stated that the Officers should guide the assessees and if any claim which is rightfully due to the assessee is not claimed in the return, it must be allowed to the assessee.

How many officers have given the relief to the assessee which he is entitled to and not claimed in the return? The need of the hour is a change in the mind-set of the tax administration from that of tax collection to that of providers of tax services.

5. Pendency of tax litigation

Before the introduction of new tax legislation, the Government must chalk out an action plan on how to reduce the pendency of tax litigation before Apex Court, various High Courts, the Appellate Tribunal, Commissioner of Income-tax (Appeals) and Prosecution matters before various designated Magistrate Courts.

The pendency of tax matters before Bombay High Court is alarming. Appeals filed take nearly five years to come up for admission. Once admitted, it takes another 10 years for them to come up for final hearing and disposal. Now the Bombay High Court is taking up the matters which were filed in the year 2015 for admission and final hearing matters which were admitted in 2002.

It takes more than three years to get an order from the CIT(A) and another two years from the Appellate Tribunal. If the matters are taken to the Apex Court, another five years may be consumed before the matter comes for hearing. That means tax litigation takes nearly 20 years to attain finality.

Unless the Government makes serious efforts to reduce the litigation, whatever may be the law, the desired objects of simplifying and streamlining the tax administration and adjudication may not be achieved.

The Federation has made various suggestions from time-to-time to the Government with respect to the ways and means to reduce tax litigation. One of the suggestions was to set up an e-Bench of Supreme Court, linking of the Supreme Court to various High Courts and that SLP in tax matters can be heard by arguing the matters from respective High Courts. (refer www.itatonline.org).

Similarly hosting of various issues pending before various High Courts by CBDT on their website as directed by the Bombay High Court in CIT v. TCL Ltd. (2016) 241 Taxman 138(Bom.) (HC) and Independent National tax litigation cell separate legal cell.

As regards prosecution, setting up of special Courts to deal with prosecution in relation to direct and indirect taxes was proposed. In Mumbai, more than 300 cases of prosecution have been launched in the year 2018. One will be surprised to know that the prosecution notice is issued for few days delay on filing of return though the taxes along with interest were paid.

6. Tax deduction at source

In the Income–tax Act, 1961, there were only two sections under which the assessee was liable to deduct tax at source, whereas presently, there are more than 25 sections under which the assessee is required to deduct tax at source and file the tax return.

If there is a failure to deduct the tax at source such a payment is not allowable as deduction. By deducting the tax at source and depositing such amount to the Government Treasury, the assessee is doing the honourary duty of the Government.

As of today, upon a few days delay in depositing the tax or return of tax deducted at source, he is made liable to pay interest, penalties and the omnipresent threat of prosecution. Many-a-times there is no clarity on various issues that can be faced while deducting such tax.

It is desired that one may think of having the concept of a passbook and only one return for all TDS deducted at source. The assessee may deposit the amount as advance or may adjust against various taxes to be deducted. This will help to reduce the compliance provisions.

7. Advance Ruling for taxation – Scope may be extended to residents by giving power to Income Tax Appellate Tribunal

It has been observed that on many occasions the assessee is not able to find out what the tax liability would be i.e. whether the expenditure will be capital or revenue, whether the said amount will be allowed as deduction or not, what is the rate of tax, etc.

For the resident assessee, there should be a provision for approaching the Authority for Advance Ruling. Such a power can be given to the existing Income Tax Appellate Tribunal and the modality can be worked out to integrate this within the existing system of tax administration.

This will greatly reduce tax litigation. Relevant provisions in the Maharashtra VAT legislation can be considered as a guiding force.

8. Settlement Commission: Transparency in appointment of Members of Settlement Commission

An ideal Settlement Commission should comprise of one representative from the revenue and one each from the legal and the accountancy professions. The Members may be selected by inviting applications and following the due process of interviews in a transparent manner.

There has to be a minimum term of five years for serving as a member of the Settlement Commission. The scope of the Settlement Commission may be broadened wherein a once in a life time opportunity may be given to an assessee who comes before the Settlement and voluntarily pays the taxes.

9. Independent Committee to suggest amendment in tax law

An independent committee consisting of representatives from the tax profession, tax administration, taxpayers, judiciary etc. may be constituted. It may scrutinise suggestions received from various bodies on a concurrent basis.

After examining suggestions in detail, the committee may suggest amendments which should be made public and debated. If this process is followed, I am sure that 90% of litigation will be reduced.

10. An ideal tax reform committee

An ideal tax reform committee, should preferably be headed by a retired Judge of the Supreme Court or the High Court having experience of dealing with taxation matters as chairman. Representatives from professional organisations, trade associations, constitutional experts, economists, representatives from tax administration, etc. should constitute the remainder for the committee.

11. Conclusion

The drafting of a new direct tax law for the country requires members from different backgrounds who can think about the progress and vision of the country at least for another 50 years. The law should be drafted in a manner that they spell out the objects behind the law and duties expected of the taxpayers.

There should be a reasonable time before a draft law or amendment is suggested and the enactment of such law. The draft law should be widely circulated for suggestions and such suggestions have to be carefully considered before the draft gets finalised.

It is desired that the committee may invite suggestions from Bar Associations, eminent tax professionals and senior advocates who practice on direct taxes on certain specific issues. There has to be on-going research to understand the implementation of tax law.

We hope that we may have new Income-tax Act law which will be taxpayer friendly possibly by the time we celebrate 75 years of Independence.

Dr. K. Shivaram
Editor-in-Chief, AIFTP Journal
Source : AIFTP Journal March, 2018.

Refer link:

Click to access draft-questionnaire-task-force.pdf


17 comments on “New Income-Tax Act: CBDT Invites Suggestions, Tax Expert Offers Many Valuable Suggestions
  1. Indraj Singh Rajput says:

    Agricultural income is free from income tax, but as per amendment made by Finance act 1973 if some have agricultural income along with other type of taxable income ,then agricultural income becomes taxable at lowest slab’s rate.
    It is my suggestion that Agri income should be totally tax free irrespective of other type of income, i.e it should not be clubbed with other incomes for tax calculation. If govt, feels that in such case people can show very high agri income to escape from tax, then some limit of a reasonable amount may be set for this exemption. for example if a person have agri income less than Rs. 5 lakh then need not to be clubbed with other income for tax calculation, and agri income in addition to Rs. 5 lakh will be clubbed with other taxable income for tax calculation purpose.

    I hope that the present Govt which is well wisher of farmers, will certainly consider my suggestion.

  2. AIFTP says:

    Dear Members,

    ITAT Bar Associations’ Co-ordination Committee desired to send suggestions to the Tax Force for Rewriting of Income-tax Act on following:-

    1. Law and Procedure before ITAT
    2. Appeals before CIT(A)
    3. Settlement Commission
    4. Authority for Advance Ruling
    5. Prosecution matters relating to Direct Taxes
    6. Reduction of appeals before High Court and Supreme Court or
    7. Any other conceptual issue which you may consider.

    Sir, we request you to send your suggestions on or before 30th April, 2018.

    Thanking you,
    For ITAT Bar Associations’ Co-ordination Committee
    A. K. Srivastava and Paras S. Savla
    Convenors

    Note: Readers may send their valuable suggestions to AIFTP at aiftp@vsnl.com

  3. Veer says:

    Totally out of the topic. Taking out on Modi government is not the issue

  4. to veeramani, sir, very income tax law is some fake idea, it has to be taxpayer friendly, we cannot admire any Modis or jaitleys, in fact these politicians are accusable under the same Act; see advocates are MPs/MLAs/MLCs and draw remuneration and perks from taxpayers moneys only still these worthies practice in court under what Article these worthies are permitted, why can’t be prosecuted just because they r your ministers and they task all bull you want to help them i see no point, if IRS men till arrest these men under disproportionate assets, i will say even these so called IRS men are also accused and need be tried in a court of law is my take, veeramani , you seem to me talking like a lawyer for these worthies – they are law makers, how PM can have them as law makers so he can be accused and need to be arrested and be tried in a regular court of law.

  5. veeramani says:

    We are on the topic of framing a new tax code. I think Dr. has lost the tangent. Here we are not concerned with demonetisation or its after effect.

  6. we lost wisdom why? -Macaulay said western education would make indians poor ; indians have very great saving habits that way only they sustained gold standard since Gupta age since ancient times same was the great idea of economy, as every one is an economist for he saved 10 % of his legitimate income – our western education will make them corrupt because they will ever become greedy for expansion of money that was used by JM Keynes, that way paper money came – so your modi introduced rs.2000 currency, what is achieved is more b;lack money, even fake currencies are getting circulated as bankers also become great April fools just because they give good money for bad money that led to bad money chasing good money

    if u save 10% of your legitimate income, you will never become corrupt, there can never be possibility of creating any plutocrats,

    so the right thought is ‘neither be a borrower nor a lender for it oft losses itself and the friend’.

  7. veeramani says:

    Incometax law should be directed towards income. The Act should not classify tax payers to tax differentially. The Act should consider whether the existing Corporates and others should also be levelled. The classification of income under different heads also should be levelled. One should find a way to tax net income – say for example salary income should not be given special consideration on the ground that there is less scope for concealing income.

  8. Sir,

    This is to bring to your kind attention that Income Tax Act has not made any distinction between professional working as a practitioner and an owner and a professional engaged by a Hospital or Institute. The filing of IT Form No 4 – requires books of accounts to be maintained by the professional, earlier if the income was above Rs. 25 lakhs and now Rs. 50 lakhs.

    It is to be mentioned that a owner – professional he can employ a person and maintains books of accounts on his own. The professional engaged in a hospital owned by some other person cannot do so as the hospital has its own organization to admit the patients and receive expenses in treating the patients. A professional engaged by the Hospital or Institute cannot do so-he is called upon to come to the hospital/ Institute to do the work as required by the authorities and receives his fees in accordance with the agreement of engagement. In such a case he cannot maintain books of accounts as it would interfere in the working of the hospital or Institute. He receives his payment as per agreement by cheques or otherwise. The cheques are received through the Bank account of the professional and it can only be verified from the records of the owner whether the amount is correct or not. The expenses incurred by such a professional are only in respect of transport, telephone purchase of books if any for his own purposes etc. Therefore, it is suggested at Form No 4 may be divided into two parts – 4A or for professionals as owners and 4B for professional engaged in hospital or Institutes etc., not as an employee but as a practitioner who cannot employ anyone else as a helper as it would interfere with the hospital business. The number of professional engaged by the hospitals may be many more in addition to their own employees.

    Form No 4B therefore should not be dependent on the amount of income as income above Rs. 50 lakh also requires auditing of accounts which is not possible in a situation like above!!!

  9. veeramani says:

    Let us compile the provisions of the existing law which are mostly litigated. The law should be amended to make the provisions explicit and leaving no scope for different interpretations. No other laws should be allowed to be imported in interpreting the Act. The law should not use the terms “not withstanding”, “as referred to in section” etc. Each section should be independent. For clarification if need be examples also be given as in the case of Law of Tort/Criminal laws. This will leave no doubt as to be meaning of the provision and would be easy to understand by a common man. The law should be framed in simple language instead of technical language. I saw recently a WILL running into five pages. After going through the document I found that the testator bequeathed all his estate to his son. This could be have been stated in two sentences. The present Income-tax section are vague and is capable of different interpretations.

  10. vswami says:

    @ASM
    His reply pinpointing what is the immediate need, requiring to be looked into and remedial action taken on a war footing, cannot be faulted, by any reasoning, to be off-the- mark.

    May only ADD:

    The following, as repeatedly canvassed for and stressed,undeniably with merits,(see Posts on this website itself) are the two most significant and outstanding for long, matters to be so resolved :

    1. Scrapping , with retrospective effect, sec 14 A and the Rule 8D, the constitutional validity whereof is highly questionable and disputable- an issue heard to be already pending in SC.
    (For viewpoints shared and being persistently canvassed for, – based primarily on the strength of ‘the first principles’ of the law,- as is open to be easily gathered from,and on a conjoint reading and understanding of the entire scheme of the governing provisions of the IT Act,- suggest to go through the published Article- 14 CPT 891 (a Taxmann journal); additionally, the painstakingly updated Posts on FB and Linkedin)

    2. The enacted change in /shift of ‘BASE YEAR'(and, CII, for taxation of long-term capital gains)and the resulting confusion(further worse-confounded)largely prevailing; which, unless and until revamped /clarified,sooner than later,is, as personally envisaged, going to prove, to the disadvantage of the Revenue itself, a ‘non-starter’ – for a dilation, see the write-up displayed, quite recently, by ‘Taxmann’ on its website- ..

    • vswami says:

      < on the website @ [2018] 91 taxmann.com 39 (Article) A Correction- Instead,to be read "(2009) 14 CPT pg. 819"

  11. Niranjan Satpati says:

    Sir,
    It is a commendable gesture on the part of the GoI in constituting a Task Force to review the Income-tax Act, 1961 & to draft a new Direct Tax Law in consonance with the economic needs of the country. This Task Force has eminent members. It is requested that while drafting new Direct Tax Law, the task Force may kindly consider that the object and purpose of the the new law remains such that the government may collect maximum revenue in a fiscal year by not only bringing more potential taxpayers in the tax net but also including sources of revenue not so far taxed. Moreover, the tax rate for the lower income bracket should be adjusted in such a manner that people willing to pay tax do not voluntarily come forward to file their returns of income and pay due tax. The deeming incomes should be taxed at special rate of tax to be devised according to income slab or at such special rate which does not encourage evasion. The tax administration should, by the provisions of law, be made accountable for high pitch assessment and high handedness while dealing with the tax proceedings. There should be a mechanism in place by virtue of which the issues not requiring judicial intervention may be sorted out by departmental committees so as to collect the tax legally payable by the taxpayer. The ultimate object and purpose of the new law should be to collect maximum tax without avoidable protracted proceedings before the ITAT & Courts. Because raising of demand is not all if the same is not collectible or collected.

  12. There is no need for new direct tax law, it will create more problems for the already suffering tax payers from Company law and GST.

    if government really want to make changes then replace the direct tax law by introducing Banking tax, it will help government to widen the tax base and reducing the net tax burden on the citizens.

    Now a days officers are making very high pinch assessments and not following the judgement of jurisdictional tribunal/courts making the whole exercise more troublesome for the assessee.

  13. N. Krishnaswamy says:

    NDA must first consider UPA’s report on Tax Code and come out whether the suggestions there requires any correction, amendment etc.

    NDA opposed vehemently GST when proposed by UPA, without commenting and now wants to bring DT Act as a political ploy, thus wasting tax payer money and causing inconvenience to the tax payers without proper planning and time based action, as happening to the GST now.
    What is the guarantee that NDA will come back in 2019.
    Whatever amendments are made, in the absence of ethical mind set in the tax officers, it is not going to improve the tax settlement process.
    The govt. is under misconception that by increasing the salaries of the tax officers their tendency to cause irritation to the tax payer will be reduced. The concept is applicable to a logical mind but how it can be applied to the unethical kind of tax officers?
    CBDT must conduct training classes to the tax officers to strengthen and improve their ethical outlook and perceptions.

    In spite of various reminders,if refunds are not sent,to whom to report to get relief may be clarified first under the present laws itself.

  14. vswami says:

    OFFHAND

    The proposal is to draft a new ‘DTL’; seemingly different from ‘DTC’, earlier proposed but had to be eventually dropped for several known and unknown reasons. May have to wait for, with bated breath, until the contents of the ‘Draft’ from the new Task Force have been made known !

    For More shared > https://www.facebook.com/swaminathanv3/posts/1617813684961578

    May be, until that happens, it might, for reasons not- so-difficult-to-guess, be prudent not to, in the interim, make any changes in the extant law. To be precise, the need is to ensure not making any material (procedural or substantive) – changes, – for whatsoever reason that be otherwise considered unavoidable, – thereby the task of the experts Force is expedited and rendered as easy as humanly feasible !

  15. Agreeing with Dr shivaram , i have to say PM and all public servants are definitely the servants of dejure citizens and aliens if they follow the rule of called the constitution of india. why ever Courts are the servants of people but for the people who are their rulers, this is no Russia or china, it is India and democracy…. in fact whenever budgets are made then by a refferanendum process the governments ought to have sought public opinion not only of tax payers but the just public, no government can sit n the head of citizens that s a fact…there are about 800 sections who created these blessed governments only, don’t give any credit to these governments, admonish them these governments were and are like Lenin government in Russia and what he did in 1918 same these politicians do on the people he played on workers but these fellows on the people…admonishing very strongly modi government, i will give my suggestions as soon as possible in a book form that would be published as a regular book too, lest the government play drama. tks n regds

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