Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

Looking at London, Talking to Tokyo!

The Code boasts of incorporating simplicity, well accepted principles  & best international practices.’

Does it achieve or deceive on this count?

                 The Direct Tax Code claims that its attempt is “to simplify the language to enable better comprehension and remove ambiguity to foster voluntary compliance.” Just consider this. Section 284 dealing with ‘definitions’ defines as many as 318 terms and expressions, including commercial and common words, which contain cross references to meanings assigned under nearly 50 different Acts or legislations, a taxpayer would be required to refer to. 

             Even a simple word of daily use such as ‘however’ has been defined in such an intricate manner so as to mean “an alternative intention, or a contrast, with the previous section, sub-section, clause or sub-clause, item or phrase, as the case may be, and a modification of it under such circumstances as specified therein.” Complex and alien jargon under the Code such as ‘stop filer’ and ‘non filer’ is bound to baffle any common taxpayer.

 One Assessment – Five Authorities!

            Under the Code, for purposes of assessment, a taxpayer would be required not to just deal with his Assessing Officer (AO), but also be prepared to encounter the suo motu intervention of the Joint Commissioner or even the Commissioner, who have been empowered to call for and examine the record of any scrutiny assessment proceeding. This is over and above the matters he would need to handle with a Transfer Pricing Officer, in case of an international transaction or with a Valuation Officer, if estimation of the value of any asset, investment or expenditure in his case is referred to by the AO.

             Thus, for a single assessment, one taxpayer may be required to have interface with as many as five departmental authorities. How distressing and nerve-racking an experience this could be?

 Sweeping Powers with No Accountability

             Sweeping powers to tax authorities for reopening of assessment, rectification of mistakes and revision of orders prejudicial to revenue have been provided under the Code in such a dare-devil fashion, which virtually nullifies the ratio of all judicial decisions equitably interpreting the scope of these powers as currently prevailing under the Income-tax Act.

             One major area of concern on the procedural front is in regard to the highly discretionary and unrestricted powers granted under the proposed General Anti-Avoidance Rules (GAAR) to treat an arrangement as an ‘impermissible avoidance arrangement.’ The fear is that even genuine and bonafide transactions may come to be torpedoed by GAAR creating undue hardships and undesired litigation.

             Unfortunately, no spirit of accountability is reflected in the acts of omission or commission of the officers of the Department which are sought to be condoned and it is the poor taxpayer, who is required to bear the brunt in all cases of proposed corrective action. Even in a case where the Assessing Officer prefers to sleep over the taxpayer’s legitimate application for rectification, it has been provided that if such application is not decided within a period of six months, it shall be deemed to have been rejected. Why should a taxpayer be burdened in such a case with the time and cost of appeal, on account of willful negligence of the officer? 

 Irrational Procedures – Best Practices?

            The provisions of Section 83 of the Code in regard to maintenance of accounts are highly impractical. To illustrate, it has been made mandatory that all bills or receipts, exceeding Rs.50 issued to any person shall contain the name and address and such other particulars as may be prescribed. How does the taxman expect a busy retailer to do business, if he has to so elaborately prepare all cash memos over Rs.50 as mandated? And, on the other hand, Section 226 of the Code threatens levy of a minimum penalty of Rs.50,000 (and maximum upto Rs.2,00,000) if such accounting record is not maintained.

 Harsh Penalties, Harsher Prosecutions!

            Several provisions in regard to penalties and prosecutions as proposed under the Code are simply hair-raising and mind-boggling. A person has been deemed to have willfully concealed income simply because he has not filed the return by the due date or the assessed income or wealth is higher than the returned amount. Moreover, for computing the amount of penalty at the minimum of 100% or maximum of 200% of the tax payable on concealed income, the tax is required to be worked out, not at the applicable rate but at the maximum marginal rate of tax in the case of the concerned taxpayer.

             On the prosecution front, it has been provided that these proceedings shall be independent of any order under this Code and no defence shall be available under prosecution that such an order may be made or has not been made. When prosecution hinges upon an alleged evasion, how can there be a presumption of an offence, until a conclusive finding of concealment is finally arrived at?

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