B. M. Chatterji, Senior Advocate
Earlier this month, the Supreme Court adjudicated a 44-year old case pertaining to Finance Year 1975-76, in the case of National Co-Operative Development Corporation (a government corporation set up under the National Development Corporation Act). While concluding, the Court remarked on the present system of tax litigations that the Supreme Court is left ‘to give the final knock-outpunch, being the fifth round of adjudicatory process on this issue itself!’
The Court has categorically remarked that tax litigations are piling up before various forums including the Supreme Court. And to add to this misery, there are appeals filed by Government and its bodies against each other. In other words, it is not discernible as to which Department of the Government is benefitted by such litigations inter se the Government and its bodies. This issue was examined by the
Supreme Court in Oil and Natural Gas Commission & Anr. v. Collector of Central Excise 1995 Supp (4) SCC 541 which held that these cases must be referred to a Committee to be appointed by the Government to facilitate a resolution of such disputes and that no case should be filed without the approval of this Committee. However, this system could be considered as a failure since the present case, where SLP was initially dismissed, was eventually brought back to Supreme Court to decide the case, after the Committee’s observations on legal questions involved.
Thereafter, the Court also remarked on the litigation management systems being framed by the Government to reduce litigations and pendency of cases. To the contrary, the Government is biggest applicant with 87% of the tax cases before the Supreme Court being attributable to it. The Supreme Court in the case of Union of India & Ors. v. Pirthwi Singh & Ors. (2018) 16 SCC 363 where the question of law had been settled and yet the appeal was filed only to invite a dismissal. The Court remarked that the object appears to be that a certificate for dismissal is obtained from the highest court so that a quietus could be put to the matter in the Government Departments.
The Court also remarked the need for ‘a vibrant system of Advance Ruling’ to reduce taxation litigation. The Court recommended the Government “to consider the efficacy of the current advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved.”
About Advance ruling system, back as in 1971, a report was submitted by the Direct Taxes Enquiry Committee under the Chairmanship of Dr. K.N. Wanchoo recognising the need for providing Advance Ruling System, particularly in cases involving foreign collaboration. The aim was to give advance rulings to taxpayers or prospective taxpayers, which would then considerably reduce the Revenue’s workload and decrease the number of disputes. This finally resulted in a scheme of Advance Ruling being brought into effect in 1993, with the introduction of a new Chapter in the Income Tax Act, 1961. The Court remarked that “this methodology has proved to be illusionary because there is an increasing number of applications pending before the AAR due to its low disposal rate and contrary to the expectation that a ruling would be given in six (6) months (as per Section 245R(6) of the IT Act), the average time taken is stated to be reaching around four (4) years!”, which is primarily attributable to large no. of vacancies and delayed appointment of AAR members. Thus, the revival of present ‘defunct’ system of Advance Ruling could go a long way in reducing taxation litigation and help taxpayers who are more than willing to comply with the law of the land but find some ambiguity.
The Court also observed that the limit of Rs.100 Cr set in for making an application by a resident to AAR is quite high. It has, thus, suggested “to reconsider and reduce the ceiling limit, more so in terms of the recent announcement stated to be in furtherance of a tax friendly face-less regime!”
The SC made references to tax systems of different jurisdictions like USA, New Zealand, Sweden as well as suggestions of Organisation for Economic Cooperation and Development (OECD) to (re)develop advance ruling system as ‘a dialogue between taxpayers and revenue authorities to fulfil the mutually beneficial purpose for taxpayers and revenue authorities of bolstering tax compliance and boosting tax morale.’ And that such mechanism should not become another stage in the litigation process.
While concluding, the Court quoted the legal legend Mr. Palkhivala who had once said to the Attorney General that the greatest glory of Attorney General was not to win cases for the Government but to ensure that justice is done the public at large.