07 March 2010
On the face of it, amnesty schemes appear to have disappeared from the country’s tax lexicon. But the Budget fine-print reveals that life could get a little easier for evaders — both companies and individuals — that have tax dues of over Rs 50 lakh.
Income-tax evaders can knock at the doors of the Settlement Commission, a quasi-judicial body to settle their tax liabilities, to come clean. They can pay their tax dues without a penalty and also get immunity from prosecution, if the commission passes an order.
The proposed change in the Finance Bill marks a reversal of the 2007 decision to bar those who have been searched — search and seizure cases in jargon — from filing applications with the Settlement Commission. This will mean more work for the commission and, perhaps, improve tax collections. But the danger is that it fits the bill of a permanent amnesty, with no deterrence for tax evasion.
Amnesty schemes offer relief to tax dodgers and penalise honest tax payers. They have been morally corrosive, and each scheme — be it the gold bond scheme or the Voluntary Disclosure of Income Scheme (VDIS) — had amounted to a gilt-edged incentive to keep money black, or unaccounted, and redeem it in the next instalment.
After the VDIS of 1997, the Supreme Court had ruled that amnesties should not be offered for disclosing black money. A few years later, the United Progressive Alliance (UPA) promised measures to unearth black money in its common minimum programme, but steered clear of amnesty schemes.
Protests from political parties thwarted the government’s attempt to levy a cash transaction tax on savings accounts to curb evasion. A panel was then appointed to identify a way of inducing tax evaders to become honest citizens, and yet not offer amnesty. But that too remained an unfinished task.
Clearly, the UPA was unhappy with tax evaders finding easy shelter in the Settlement Commission, formed over three-and-a-half decades ago to settle tax liabilities in complex cases. Many changes were made in its charter. Till 2007, the Settlement Commission had the powers to give tax evaders immunity from prosecution if they wanted come clean. But the big setback came in 2007 when the government clipped its wings.
The rationale for the policy reversal now is not clear. One reason could be quick recovery of taxes and speedy disposal of cases. But trend shows that revenues raised from amnesty schemes were never awe-inspiring. The question now is: does the wider mandate for the Settlement Commission signal its resurrection? The proposed Direct Taxes Code shut the doors for the Settlement Commission. The Budget move could well mean that the commission is here to stay.
Search is the ultimate weapon to nab tax evaders and reopen their books to make them pay their dues with interest and penalty. The tax administration has the right to collect taxes, though there is a case for refraining from high-pitched assessments, a practice rampant in India.
The Budget proposal to bring search-and-seizure cases under the purview of the Settlement Commission needs to be reviewed. If status quo cannot be restored, one option would be to levy penalty in such cases. Else, this could provide an escape route for alleged evaders such as Madhu Koda, former chief minister of Jharkhand. Of course, the commission has to accept Koda’s application.
Credible measures are needed to clamp down on tax evasion. The country-wide switchover to the goods and services tax (GST) in April next year would help the government on this count. While the GST is good for the consumer, tax-compliant and the government, it runs the risk of exposing incomes of tax evaders.
The unique identification number and the inter-related databases represented by the tax information network (TIN) raise the chances of the evader being caught in the net, irrespective of whether or not there is a Settlement Commission.
07 March 2010
U r r8 sir. It is political attempt to keep politicians out of prosecution who have now come under the Madhu Koda Net. Definitely, we miss P. Chidambaram at this point.
23 March 2010
Understanding the need for Incometax Settlement Commission shall begin from Wanchoo Committee report and not from Finance Act 2007 or from Finance Bill 2010 alone. India is a developing country in all areas where tax awareness is very low. That is the reason the IT Act 1961 underwent with so many amendments to take stock of development and awareness. The Incometax Settlement Commission is not a body for tax evaders as wrongly understood. It gives one time opportunity for the persons who did not comply the law henceforth to come clean. It is a correcting process not an continunation of evading process. It is only an option given to clean yourself and not a binding one. The Incometax Settlement Commission helps an Assessee who wants to become clean and if he does, in the process avoids unending litigation with the Department and Department too gets the revenue faster.The past history of Incometax Settlment Commission has shown several cases have been settled wherein litigation is avoided and Department got its reveune. It is evident from the fact that 99.99% of the orders of ITSC had been accepted by the Department.There are instances where law was not properly followed the Apex court corrected it. One such an occasion can be found in a land mark decision in the Case of Hindustan Bulk Carriers.
23 March 2010
the application before ITSC shall contain true and full disclosure of income which has not been disclosed before the Department and shall contain the disclosure to the manner in which it is earned. In regular returns income can be disclosed as tailoring receipts, brokerage and commission. Whereas before ITSC such practices can not be resorted. It has been said by some persons that the ITSC is opened up again to accomodate Mr.Koda,Mr.Hassan Ali etc., It is based on improper understanding of Chaper XIX-A of the Act. The amended provisions in Finance Act 2007 provides ample arms for the Department to ask for the Invalidation of such applications.In some cases the past history shows admission of such applications did have to exit from the purview of ITSC on the intervention of various high courts of this country.
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