The ITAT Bar Association Mumbai has made a detailed representation to Shri. Arun Jaitley, the Hon’ble Finance Minister of India, with respect to Part XIV of the Finance Act, 2017 and notification of the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other conditions of service of Members) Rules, 2017 in so far as it concerns the Income Tax Appellate Tribunal
20th June, 2017.
Hon’ble Shri. Arun Jaitley,
Finance Minister of India,
New Delhi:- 110 001.
Sub:- Representation in respect of Part XIV of the Finance Act, 2017 and notification of the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other conditions of service of Members) Rules, 2017 vide G. S.R. 514(E) dated 01.06.2017 in so far as it concerns the Income Tax Appellate Tribunal
The ITAT Bar Association is an Association formed by the Advocates and Chartered Accountants practising primarily before the Mumbai Bench of the Income Tax Appellate Tribunal (the ITAT). Recent amendments in the Income-tax Act (the I. T. Act) by the Finance Act, 2017 (the Act) and notification of the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other conditions of service of Members) Rules, 2017 vide G. S.R. 514(E) dated 01.06.2017 (the said Rules), are a matter of concern to our Association and its members, since, in our view they are likely adversely to affect the future working of the ITAT. We therefore place our views for consideration of the Hon’ble Minister.
The ITAT has been the mother Tribunal. Its role and manner of functioning has received uniform appreciation from all persons including the assessees, professionals, higher judiciary and the executive. The souvenir published in the year 2016, on the occasion of Platinum Jubilee Celebrations of the ITAT confirms this position. The ITAT has a unique role to play. It is the final arbiter of facts in a matter. Further, with regard to the tax disputes, it is for most assesses, the final court of appeal on account of the cost and the time involved in pursuing litigation before the High Court and the Supreme Court. Sample analysis showing the result of the review of the orders of the Tribunal by the High Courts, during the last 75 years being Appendix-10 of the above referred souvenir shows that the High Courts have affirmed the judgment of the Tribunal in 69.18% of cases which have come up before them. With this rich pedigree, the members of our Association feel that at least in so far as the ITAT is concerned it does not seem appropriate to change the present set up and applicable rules.
The position of the ITAT is unique compared to other Tribunals. Every citizen of India with an income over Rs. 2.50 lakh is chargeable to income-tax under the I. T. Act. Such citizen is often listed as an appellant/ respondent before the ITAT. Further, irrespective of whether a citizen is listed as an appellant/ respondent before the ITAT, its judgments are binding on all the Income-tax Authorities functioning under the I. T. Act where similar issue arises in case of other assessees. Therefore, orders passed by the ITAT have wide ramifications. It is not a specialised Tribunal in the sense of matters being carried to only by a select group of persons engaged in particular activities. Its constitution is also unique with a judicial and an accountant member. The qualification for being appointed as a judicial member are the same as for appointment as a judge of the High Court (section 252(2) of the I. T. Act). To be appointed as an accountant member a person is bound to have had exposure to tax for at least 10 years (section 252(2A) of the I. T. Act). The unique position of a Member of the Tribunal is seen from the fact that a judicial member can be, and is often, appointed as a High Court judge. Statistics show that 33 Judicial Members of the ITAT have been elevated to the High Courts in the last 75 years.
In so far as the ITAT is concerned, it has to decide questions of fact and intricate questions of law which would require application of and consideration of issues which are often connected with provisions of allied laws such as the Transfer of Property Act, the Negotiable Instruments Act, the Companies Act, the Partnership Act, the Limited Liability Partnership Act, the Trademarks and Copyright Act, the Indian Trusts Act, the Indian Contract Act and the Sale of Goods Act etc. In addition, issues under personal laws including Succession and Marriage Acts have to be also adjudicated. Of late, the Tribunal has to also adjudicate on issues arising from the several DTAAs India has entered into as well as special subjects such as Transfer Pricing. The Tribunals constituted under other Acts cannot be compared to the unique position of ITAT. It is, therefore, submitted that the ITAT be excluded from Part XIV of the Finance Act, 2017 and notification No. G.S.R. 514(E) dated 01.06.2017 issued by the Central Government ought not to be made applicable to it.
Without prejudice to this general opinion of our members, we highlight certain issues which the legislation, as framed, raises. They may be summarised as follows:
a. The first proviso to section 184(1) of the Act inter-alia provides that the President, Vice President or Member of the Tribunal would hold office for such term as may be specified in the Rules framed by the Central Government, but not exceeding five years from the date on which he enters upon his office and that he shall be eligible for reappointment. In the said Rules as notified by the Central Government, the term of office for ITAT is fixed as three years; and
b. The said Rules give wide powers to the Executive, which would seriously interfere with the independent discharge of judicial function by the ITAT.
Appointment for a fixed term
As stated above, the issues which arise for consideration before the ITAT touch upon various streams of law including specialised subjects which require substantial expertise and experience on the subject. Further, ITAT is the final fact finding appellate authority under the Income-tax Act. Ability to identify the facts relevant to the issue and evaluate them for giving a finding of fact also requires considerable experience. For this reason also, experience plays an important role in effectively discharging the duties of a Member of the Tribunal. It has been observed that considerable time and effort on the part of both existing and more so, on the part of newly appointed Members of the ITAT is required to acquire knowledge and expertise on innumerable intricate and complex issues not only under the annually changing Income Tax Act but also allied laws. The term of office of three years as fixed by the said Rules would be too short a period for a person to gain expertise and utilise it in the course of rendering of justice. If the term of appointment is restricted to three years, then, even before the person would acquaint himself with the intricacies of the Income Tax Act and issues connected with these varied streams of law and acquires the specialised knowledge his term would expire.
We are further of the view that, the success of the ITAT lies in a fair combination of its Members having been selected from the two professions (being Law and Accountancy) and also from the administration. In case of fixed term tenure, it is possible that a person who has joined the Tribunal from the administration could be again absorbed as an administrative functionary after he has completed his tenure in the ITAT. However, in so far as a professional is concerned upon completion of his tenure after three years or six years (if re-appointed) he would have hardly any prospect to re-enter the profession. This would discourage professionals to look upon joining the ITAT as a career. If the number of professionals joining the ITAT reduces and the ITAT is substantially manned by persons from the administration or other bodies/courts it would seriously affect the standards and the quality of the Institution.
Further, Law Commission of India in Report No. 232 dated 22.08.2009 has emphasised that the professional experience gained by the judiciary should be fully tapped for the good of the society. It has also been acknowledged that the Government incurs a lot of expenditure on the orientation and training of Members which should be fully utilised for the common good. Based thereon, it was suggested that the age for superannuation should be increased. Present move, prescribing a term of office of only three years with re-appointment for another term of three years would also be contrary to this philosophy of the Law Commission.
Appointment for a fixed term with eligibility for re-appointment
In view of first proviso to section 184(1) of the Act, one of the litigants before the Member, the Vice-President or the President of the ITAT, in every case they have to decide, will determine whether their appointment after the period of three years should be renewed. Apart from it being unfair and counter productive to expose the judicial functionary to this “temptation”, it goes against the cardinal principle that a judge should be free to decide as per his conscience and independent appreciation of the law without having the sword of possible non reappointment hanging over his head perpetually. It is for this reason that the Judges of the High Court are shielded from any type of executive interference in their functioning and since the Members of the ITAT perform functions very closely allied, at a subordinate level, to those of High Court Judges they should not be subjected to tenure service. Incorporation of such a provision will shake the high confidence which the Tribunal enjoys in the public perception and will lower the dignity of the time honoured Institution. In a lighter vein, it may be stated that it is like giving power to a cricket team to decide that a particular umpire will not function in their future matches! Also a feeling may be engendered in a Member or Vice- President or President that, if he is not reappointed he may find it difficult to resume his old calling or to rejoin a firm of which he was a member. This would probably unconsciously make him feel that it would be advisable to do nothing which may antagonise his reappointing authority.
This provision would also be unconstitutional as violating the basic structure of the Constitution which requires that independence of the judiciary should not be interfered with.
Without any disrespect to the Commissioners who function as the first appellate authority, it is submitted that it has been the experience of assessees in general and of professionals that specially in matters involving high stakes relief is often not obtained by an assessee and he has to look to the Tribunal. Therefore, nothing should be done which in any way shakes the public confidence in the independence of the ITAT.
Other provisions in the said Rules
The other provisions in the aforesaid Rules which would reflect serious interference by the Executive with the independent functioning of the Judiciary are:
a. The appointment and re-appointment of the President, the Vice-President and the Member of the Tribunal is to be made by a Search and Selection Committee. The Search and Selection Committee for appointment and re-appointment of the Accountant Member and the Judicial Member would comprise of a nominee of the Minister of Law and Justice who shall act as the Chairperson, Secretary to the Government of India in the Ministry of Law and Justice (Department of Legal Affairs), President of ITAT and such other persons, if any, not exceeding two, as the Minister of Law and Justice may appoint. Therefore, the only judicial functionary in the said committee comprising of 3 to 5 members would be the President of ITAT who will always be in a minority position. This is contrary to the view expressed by the Supreme Court and several High Courts that the composition of selection committees must be balanced with members from both the judiciary and the executive and not loaded in favour of the latter. This is further likely to create an apprehension in the mind of the Members of the ITAT that if they antagonise the reappointing authority, their reappointment would be in difficulty.
b. Normally, the Tribunal should be able to decide on number of vacancies in the judicial posts and their manner of filling it up. However, as per rule 4(2) of the said Rules if any requirement/ vacancy arises in the posts of the Tribunal, then, it will have to approach the Secretary to the Government of India in the Ministry of Law and Justice (Department of Legal Affairs) for convening of a Search and Selection Committee which would enable appointment or reappointment of the President, Vice President and the Members of the ITAT.
c. In the Search and Selection Committee which majority comprises of the Executives, Rule 4(4) provides that no appointment shall be regarded as invlaid merely by reason of any vacancy or absence in such committee. Therefore, it is possible that the selection may be made only by members of the executive in the absence of the judicial functionary.
d. The enabling provision for removal of a Member from his office is in Rule 7 of the Rules. Central Government may remove from office any member on the recommendation of a committee which is constituted by it in this behalf. The Rule is silent about the composition of the Removal Committee. Further, Rule 8 of the Rules leaves it to the discretion of the Central Government to make preliminary scrutiny in the case and the concerned Ministry to make a reference to the Removal Committee. Therefore, the Member against whom an enquiry is made will be at the mercy of the Central Government who is one of the parties in each and every dispute which comes before the ITAT.
e. As per rule 14(2) of the said Rules, the Central Government shall be the leave sanctioning authority for the President of the ITAT. This would also influence the decision making process in the administration and adjudication of disputes by the President.
Though Form-I of the said Rules being the form of oath to be taken by inter alia the President, the Vice President and the Members of the ITAT states that they would discharge their duties “without fear or favour”, we submit that sufficient road blocks have been placed in the said Rules so as to test their ability to stand by the oath.
We are therefore of the view that the Rules as drafted particularly with reference to the selection, tenure and removal of the Members would adversely affect the judicial independence of the ITAT which exists today and has existed for past several decades and contributed to the track record achieved by the ITAT so far.
In view of the above, we recommend that:
(a) section 252A of the Income-tax Act, as inserted by Finance Act, 2017, may be omitted; or
(b) the provisions of part XIV of Chapter VI of the Finance Act, 2017, may not be made applicable to the ITAT.
For ITAT Bar Association
Mrs. Arati Vissanji