As Prime Minister Narendra Modi said immediately after the victory in the 2014 general elections, that the good days have come, so is it with the Finance Bill 2016. Rarely has any bill been ever so welcome publicly. The authors of the bill are to be saluted for the care and concern shown by them towards benefiting the interests of every section of the society. And, in a society which not so long ago was only concerned with the promotion of the interest of a single individual, the current shift in focus to the entirety of society is amazing.
For more than a decade now the annual Finance Bills has been known for their single point agenda, which has been to undo the orders of the courts and tribunals that have, during the preceding year, gone in favour of the taxpayers. Notoriety in this regard was so deep that sometimes the annulment stretched back to the year when the 1961 Act came into being. Happily, it is not so this year. The purveyors of the annual bills would be enormously missing the great Nani Palkhivala and his applause for this bill.
Just as the budget preparations started, the government announced its serious concern for the quality of the collection rather than the quantity of the collection. Any misplaced enthusiasm in this regard, it was stated, would be taken serious note of. Reversal of additions made in assessment in the appeals would no longer be taken simply as a product of difference of opinion based on judicial discretion. No more would there be kudos for resources mobilisation.
The people had freed themselves from the vicious grip of corruption through the 2014 elections. But society could not, on its own, rid itself of its pernicious effects. Indulgence of the government was much in demand. So, the first priority was the need to flush out the dirt and the scum which had collected over the years. Wittingly or unwittingly, over the years, some muck invariably collects. That requires de-silting. And to do that, this Finance Bill offers an “Amnesty Scheme” with a 45% tax retention (against the normal tax rate of 33%) in pre-detection cases. It is called the Income Declaration Scheme, 2016. Assurances given to the court in the past, in the face of criticism of discrimination and moral laxity, stood in the way of introducing a cleansing scheme. Now with a 45% cost, there is both an avoidance of discrimination and a levy of penalty for moral turpitude. The scheme is subject to just exceptions. A 7.5% diversion out of the collection for Krishi Kalyan is both commendable and laudable. For the post-detection cases, a Dispute Resolution Scheme 2016 has been devised. It envisages a final settlement of disputes arising out of assessment. It also provides for a major settlement of penalty. It provides immunity from prosecution. Requisite modalities for effectuating the objections of the scheme are proposed to be devised, which would have Parliamentary sanction. These would be for matters pending before Appellate Commissioners.
Individuals at the fringe of the taxable income are now to be provided a Rs 5,000 relief instead of Rs 2,000 as in the past. Considering that a large number of assessees cling to the fringe of the tax exemption limit, a good number would benefit from the changed Section 87A.
Housing is a basic concern. Those developing and building affordable houses are to be provided a 100% exemption of the profits earned there from. With the belt being tightened for the tax administrators and accountability for their acts getting into place, the tax official cannot act arbitrarily as they did in the past. The proposed deduction would no longer be a mirage confined to the pages of the statute alone. Interest during the construction period for SOP properties is proposed to be extended to five years from the present three under Section 24(b). So, interest deduction for a longer period would be allowable. Treatment of unrealised rent is proposed to be simplified. Individuals paying rent without HRA benefits are proposed for a higher deduction under Section 80GG of Rs 60,000 p.a. against their taxable income in lieu of the previous Rs 24,000.
Professionals with gross receipts up to Rs 50 lakh have been spared the labour of maintaining books of accounts, provided they are willing to return presumptively 50% of such receipts for tax. The audit threshold for under Section 44AB has been raised to above Rs 50 lakh for professionals. Non-professionals with a turnover not exceeding Rs 2 crore, a presumptive income @8% has been made applicable under Section 44AD.
Every senior tax administrator has his “revenue target”. To achieve that several abominable measures have been adopted in the past. The framing of high pitched assessments was one such ploy. Successive regimes barred first appeals being taken up in the year of filing the appeal. The idea was to delay the possible appellate relief and in the meanwhile to collect the disputed tax coercively so as to fulfil the revenue targets to the extent possible. Such coercive collections ruined many a good business by dislocating their financial circle. Succour was available only at the High Court level to a few who approached them. It is now proposed to eradicate this malaise. Only 15% of the disputed demand is permitted for collection now onwards.
Collections effected qua means fair or foul were returned most reluctantly by the assessing officers. Refunds of excess taxes paid or collected were hard to beget. The new proposal provides a 90-day time limit for return and for delays beyond that period additional interest @ 9% p.a. with fiscal responsibility for the excess on the defaulting tax collector is provided for.
There is no torture proposed through “retrospectivity”. This time “retrospectivity” in a couple of instances is to be invoked for conferring benefits and effecting mitigation to the assessee. Victims of retrospective amendments are provided a one-time dispute resolution.
A few measures for rationalisation have been proposed. The provision relating to computation of capital gains at circle rates mandatorily on the basis of transfer deed under Section 50C is now altered to provide for construing the value at the agreement rate, if any, if there is tangible evidence.
Looking at the unending need for power augmentation, the power transmission units are proposed to be allowed additional depreciation @ 20% on the actual cost of new machinery employed during the year. To encourage start-ups and facilitate their growth at the formative stage, it is proposed to provide a deduction of the 100% of the profits and gains where innovation development, development or commercialisation of new products, process or services driven by technology or intellectual property are involved. With a view to facilitate foreign mining firms to undertake activity of uncut diamond (sans sorting or sale) in the special notified zone, Section 9 of the Act as existing is proposed to be amended to provide that in the case of a foreign company engaged in the business of mining of diamonds, income would not be deemed to be accrued or arise in India to it through or from the activities which are confined to display of uncut or unassorted diamonds in a Special Zone as would be gazetted. Urgent measures are proposed to be put in place to facilitate national oil companies to tide over the taxation problems in the event of sale of the stored crude oil in India by multinational companies. The tax incentives under Section 80JJAA of the Act are proposed to be broadened. Shares received by an individual or an HUF on the demerger or amalgamation of a company are proposed to be freed from the pernicious effects of Section 56(2)(vii) of the Act.
A good number of clarificatory changes are proposed for foreign taxation under Section 6(3) and 9A of the Act with reference to location of the place of effective management of the business and taxation of off-shore funds. The transfer pricing norms in response to be OECD advisories are also proposed for alteration. The MAT provisions under Section 115JB as applicable to foreign institutional investors with no PE in India is proposed to be modified, effective from AY 2001-02, so as to ensure uniformity with the existing law. There are several other proposals which are all mostly matters of detail and amelioration.
There are, however, a few proposals which are not only displeasing but are also unwelcome in the context of the emphasis of the government to promote “Brand India” and Make in India. Incentives provided to industry on account of locational handicaps, infrastructural hassles and a variety of other reasons have nothing to do with the lowering of corporate tax rates. For ushering in development, boosting industrial activity and employment generation and financial augmentation, many such measures have been put in place by visionaries and pragmatists like T.T. Krishnamachari, C. Subramanian, R. Venkataraman and Dr Manmohan Singh, amongst other luminaries. Each one of them had one’s own plausible and cogent reasons for doing so. Now, in the name of reducing the corporate tax rate, the phasing out of these incentives is most ill-advised and undesirable. That is particularly so because in the past an irresponsible and obdurate tax regime has always denied the benefits and fought the issue of grant of the rebate on spurious and superfluous grounds right up to the Supreme Court. What was otherwise necessary was to ensure that the statutory benefits and concessions as envisaged did indeed reach the targeted section without any hit or hindrance and whosoever obstructed them was given exemplary punishment for frustrating the government’s objections by derailing the available benefits.
An amendment concerning the Income-tax Appellate Tribunal is disheartening. This Tribunal has a glorious history of performance. It enjoys enviable public trust, so much so, at one time the joke was that it is the Income-Tax Assessee’s Tribunal. Orders of this Tribunal have met confirmation at the level of various High Courts and Supreme Court in an overwhelming number of cases. It had its own hierarchical discipline. Its president was always from among its members. Having been a part of it for several years the president not only knew the law and procedure as was to be administered, but also knew each of its around 100 members personally both by name and capacity. Looking to its precision and efficiency, at one time, in conformity with public opinion, it was even contemplated that the order passed by it, both on facts and law, ought to be final, subject to an Apex Court review. Many other tribunals in other subjects were formed and fashioned after it. But all good things must come to an end. That is the rule of nature. And so it was in 2013 when on irrelevant and erroneous considerations it was provided that a retired High Court judge of not less than seven years’ judicial standing could be appointed as the president. The provision for the appointment of the senior vice-president and the vice-president as the president was reluctantly retained as a second option. This change enabled the government to appoint an outsider, who may neither be familiar with the complicated tax laws nor with the technicalities or peculiarities of its procedure and practice at the Tribunal. Being himself new, the incumbent could lay no claims on either knowing the members or their work. In this scenario, the current proposal to do away with the designation of senior vice-president is outright erroneous and uncalled for. What was necessary was to prevail upon the president to share his administrative more effectively and meaningfully with the senior vice-president.
Overall, the Finance Bill’s proposals are a concerted attempt to help all the indigent and needy and to remove some of the crudities and the rigidities in the Act. Hope this will usher in good days soon.
K. Sampath is a practicing tax advocate and ex-President and Patron of the ITAT Bar Association.