Seeking maximum return

Author: | Published: 1 Aug 2012
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Please describe your role and how this fits in with the overall structure of the Income Tax Department

My role in the Income Tax Department (ITD) is that of an administrative income tax commissioner who heads an independent functional departmental unit. This unit deals with tax assessments, collections, and judicial matters on whether or not to further litigate appellate decisions in cases of assessment orders of assessing officers. It also has responsibility for all other connected administrative functions, such as review of assessments completed by officers in this unit of all corporate assessments within the region of Chief Commissioner, Kochi region. Many such units, along with units relating to appellate matters and dawn raids, make up the entire ITD. All of these units are supervised centrally by the Central Board of Direct Taxes (CBDT) from New Delhi.

Why do you think there has been so much controversy over the proposed retrospective amendments to India's Income Tax Act?

If we give a look at the explanatory notes on clauses to the Finance Bill, 2012, we notice that they amply clarify what the intent of the law is/ was. It also clarifies the instances where the intent of law, as drafted by the legislature, was always like that. There has been a continuous interrelationship in the history of legislative development that when, in the interpretation of any law enacted by the legislature, it felt that the judiciary was not interpreting the law in its true intent, the legislature has clarified its original intent through amendments to the law.

There has been a similarly long history of constitutional amendments in India. There may be different views on any of the actions of one of the founding pillars of democracy in India i.e. the executive, the legislature and the judiciary, but their respective roles are enshrined in the Constitution and are a part of its overall scheme. The legislature makes laws and the judiciary interprets them. These have to be in harmony with each other. If the legislature is of the view that the original intent behind any law is not being properly understood, it may clarify, in the interpretations, its real intent through amendments to the law. This is what has been done.

There are two ways to look at the whole issue: an interpretation not in tune with the real intent of the legislature and, following that, clarification of that intent through amendments by the legislature. We can't look at the one without looking at the other. The controversy emanates from those stakeholders who perceive their interests being aligned more towards one of these two sides and, consequently, they make appropriate noises suiting them.

What is your view on the objections towards retrospective amendments?

It may be of interest to know that there have been similar amendments in the past that apply, in some cases, from as early as 1962. Apparently, the objections were not that vociferous or were not given that much coverage at the time. Without going into details, suffice to say that there are apparent chinks in the armour of the judgment – such as making reference to a document (Direct Tax Code (DTC)) not yet accepted as law and taking support from that document to justify the judgment. If the legislature feels that its intended objective is not properly understood in the interpretations, it is within its right to indicate its intent through amendments more clearly. That is what has been done. A position of law has been made clearer. It should be seen in that limited context and not beyond.

What about concerns that the proposed tax amendments will deter potential investors?

This is a concern only in the minds of those who overlook the basic economic principle that capital seeks the maximum return. Such sentiment, rightly or wrongly, is certainly factored into business decisions. But these factors will always be given higher weightage in the decision-making process in China, for example, compared to India. And yet, people have not ceased to do business with China.

If the economy is doing well investors will come, and vice versa. It does not mean that we should create negative circumstances if the economy is doing fine. But it also does not mean that the country should not try to ensure that legitimate taxes due are collected, and that they do not escape because of some innovative investment device and a somewhat interesting interpretation of tax laws. The country cannot lose its sovereign right to tax as a result of some out-of-the-box thinking in the direction of investment vehicles for avoiding payment of taxes. It would have been better if the same results could have been achieved without changing the law, so as not to dampen business spirits. Unfortunately, that was not possible.

What are the key challenges facing the ITD in the foreseeable future?

The first challenge is harnessing technology and dealing with the consequent systemic and human challenges, including acceptance at all levels of a changed environment. The second challenge is the reorientation of the ITD from being a mere regulator to that of a facilitator engaged in helping citizens discharge their tax obligations and responsibilities. The third, and greatest, challenge is to win friends among stakeholders in order to enhance awareness among the citizenry and the political executive alike. This is despite having a mandate not liked by everyone.

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