As per the existing Legislative framework of the Direct Taxation Laws in our Country, the tax collection measures can broadly be classified into Pre-Assessment tax collection measures and Post Assessment tax collection measures.
The pre-assessment tax collection measures include tax collections by way of TDS, Advance Tax, and Self- Assessment Tax as per Chapter XVII of the Income Tax Act, 1961.
The post-assessment tax collection measures include collection of taxes by way of regular assessment taxes by way of conducting regular assessments u/s 143(3), exparte assessments u/s 144, income escaping assessments u/s 147 and the block assessments u/s 153A/153C pursuant to surveys u/s 133 or searches and seizures u/s 132 of the Income Tax Act, 1961.
The Legislature has casted the statutory onus and responsibility of compliance of the pre-assessment tax collection measures of payment of TDS, Advance Tax and Self-Assessment Tax on the assessees themselves. No doubt there are well defined and well laid out penal provisions including prosecution in the Income Tax Act which act as an effective deterrent for the non-tax paying and non-complying assessees but still by and large these pre-assessment tax collection measures are looked after well by the assessees themselves and the Income Tax Department’s Machinery plays only a monitoring and regulatory role in such measures.
The Income Tax Department’s Machinery comes into active play in the post-assessment tax collection measures including collection of regular assessment taxes arising out of conducting of regular assessments u/s 143(3), exparte assessments u/s 144, income escaping assessments u/s 147 and the block assessments u/s 153A/153C pursuant to surveys u/s 133 or searches and seizures u/s 132 of the Income Tax Act, 1961, by the Revenue Officials. The launching of prosecution proceedings u/s 276B also forms an integral part of such post-assessment tax collection measures.
Now after having such well-defined categorization, it would be interesting to know as to what is the respective contribution of the pre-assessment tax collection measures and the post-assessment tax collection measures in the total annual tax collection figures
The gross annual Income Tax collections for the FY 2017-18 as per the latest available data of CAG Reports were Rs. 11.54 lakh crores. The pre-assessment tax collection measures in the form of TDS, Advance Tax and Self-Assessment Tax amounting to Rs. 9.76 lakh crores constituted approximately 85% of the gross income tax collections, and the post assessment tax collections of Rs. 98,975 crores by way of different Tax Assessments constituted only 8.57% of the gross income tax collections. These statistical figures speak for themselves.
Interestingly, for contributing towards this substantial share of 85% of the gross income tax collections by way of pre-assessment tax collection measures of TDS, Advance Tax and Self-Assessment Tax, the assessees do not get rewarded in any manner. Infact to the contrary, a failure or default in discharge of this burden, even an unintentional one, results in some very dire consequences including prosecution also.
The Hon’ble Finance Minister Smt. Nirmala Sitharaman, while presenting the Union Budget 2019-20, before the Parliament, in her maiden budget speech in Modi 2.0 Government, has commenced with her Direct Tax Proposals by thanking and acknowledging the valuable contribution of taxpayers in the all-round growth of our Nation.
At this juncture, she found wisdom in a line from Pura Nanooru, a Tamil Sangam Era work by Pisirandaiyaar. The verse ,” Yannai pugundha nilam” was sung as an advice to the King Pandian Arivudai Nambi, the English translation of which comes out as under:
“a few mounds of rice from paddy that is harvested from a small piece of land would suffice for an elephant. But what if the elephant itself enters the field and starts eating? What it eats would be far lesser than what it would trample over!”
Admiringly, in the above verse, by referring the Government as the Elephant, the Taxpayer as the Farmer of the Paddy Field and the Mounds of Rice as the Income-tax Collections, the importance, significance and effectiveness of tax rationalisation measures aimed at ensuring voluntary compliance and tax deposition by taxpayers as against the coercive tax recovery measures, has been emphasised and encouraged by the Hon’ble Finance Minister.
The regulatory body CBDT has also, always emphasized on creating and providing a taxpayer friendly regime.
However, this intent and thought process of the Law making and regulatory authorities in encouraging and rewarding voluntary compliance by taxpayers and ensuring the ‘taxpayer friendly regime’ should not merely be on paper and it should infact be reflected in the actual conduct of the law enforcing agencies and the Revenue Authorities, while conducting tax assessments and collecting taxes from the assessees.
The logo of the Income Tax Department “कोष मूलो दण्डः” as adopted from the ‘Kautilya’s Arthashastra’ actually means “Revenue is the backbone of Administration.”
However, going by the present day tendency of the Revenue Authorities to put undue pressure on the assessees for tax collections for meeting out budgetary targets for improving service records by using the window of survey, search & seizure and even prosecution, it appears that the logo “कोष मूलो दण्डः” has been interpreted by the tax collecting authorities as to mean that ‘in the core of revenue collection, lies the punishment.’
In the regular assessments u/s 143(3), the making of huge additions/disallowances even on unlawful and factually misconceived grounds and raising of huge income tax demands have become a regular and common phenomenon. In such high-pitched assessments, the assessee is being compelled to deposit atleast 20% of such high pitched demands and any failure on the part of the assessee even a non-intentional one, results in seizure of his bank accounts and even in taking recourse to the extreme co-ercive tax recovery measures of attachment of properties and prosecution.
The sacrosanct window of income escaping assessment u/s 147 of the Act is being used as a habitual and casual opportunity of reopening the already concluded assessments any number of times within the maximum stipulated period of six years, and thereby demeaning and disregarding the very sanctity and conclusivity of the completed assessments.
Such additions/disallowances made on merits and duly corroborated and substantiated by corresponding material and evidences and not just conjectures, surmises and pre-sumptions and such re-openings of already concluded assessments based on tangible, reliable, material and concrete basis of reason to believe are always welcome and appreciable, and the concerned revenue officials should be applauded and duly rewarded for bringing to fore the habitual and willful tax defaulters.
However, making of huge additions/disallowances in assessments, just for the sake of making additions and reopening the already concluded assessments u/s 147, just for the sake of re-opening and creating hefty fictitious income tax demands and completely ignoring the well settled and established binding legal precedents even of the Hon’ble Supreme Court, being contrary to the very intent of the Legislature, must be avoided and infact effective deterrent provisions in the scheme of the Act itself must be incorporated to fix the accountability and responsibility of the errant revenue officials.
Similarly in the survey u/s 133 and search & seizure action u/s 132 of the Act, the high handed approach and the co-ercive tax recovery measures are integrally prevalent in the tax administration system. Entire focus is being put on forcing admissions by the assessees of the concealment of income and tax evasion by resorting to undue pressure tactics. This is followed by making of huge additions/disallowances in the block assessments u/s 153A/153C, and thereby raising huge income tax demands on the assessees.
And in doing so, the well-established and well settled position of Law stipulating the mandatory requirement of unearthing of the incriminating material and evidences during the course of such surveys and searches, in substantiation and corroboration of the alleged concealment of income or tax evasion, as per numerous binding judgements of Hon’ble High Courts and even the Hon’ble Supreme Court, is very conveniently ignored and disregarded and the assessee is again being compelled to battle out the vicious circle of depositing huge income tax demands and fighting litigations on various appellate forums.
In resorting to such co-ercive tax recovery measures, including seizure of bank accounts, conducting surveys and searches, attaching properties and launching prosecutions, even against the bonafide and circumstantial defaulters, the Tax Authorities somehow adopt a very short sighted approach and vision of meeting out their budgetary tax collection targets for a particular financial year and in the process they miss out on a much bigger picture and perspective concerning the future revenue generation and employment generation potential of such bonafide entrepreneurs and taxpayers, one such case in point being the recent unfortunate demise of the owner of Café Coffee Day Sh. V.G. Siddhartha.
Numerous researches based on sound empirical evidences and even the tax collection data and statistical figures of the Income Tax Department itself have made it duly evident and amply clear that the ultimate tax-realization out of such co-ercive tax recovery measures is almost nothing in comparison to the huge cost involved in undertaking such measures both in terms of money, manpower, time & resources as well as in terms of loss of goodwill and taxpayer friendly image of the law enforcing agencies and the Government.
In order to bring to fore the ‘Ease of Doing Business’ and the ‘Taxpayer Friendly Regime’ in reality and not just on papers, there is a serious and grave urgency of overhauling and rationalizing of the entire tax administration and the tax regulatory environment and eco-system so as to enable an effective, lucrative and merit-based tax-realisation from the willful and habitual tax defaulters and incentivisation of the honest and compliant tax payers, who create wealth for the Nation.
Ultimately, the tax administration authorities, must not forget their genesis and roots stemming from the ancient robust and well defined tax administration systems outlined in the ‘Kautilya’s Arthashastra’ and the Manu’s ‘Manu-Smriti’, wherein it has been categorically advised that,
“यथाऽल्पाल्पमदन्त्याद्यं वार्योकोवत्सषट्पदाः ।
तथाऽल्पाल्पो ग्रहीतव्यो राष्ट्राद् राज्ञाब्दिकः करः ॥ १२८ (१२९) ॥“
Meaning thereby that, “As the water-insect, the calf and the bee eat their food little by little, so little by little should the King draw from his kingdom the annual taxes.—(128)
“यथा फलेन युज्येत राजा कर्ता च कर्मणाम् ।
तथाऽवेक्ष्य नृपो राष्ट्रे कल्पयेत् सततं करान् ॥ १२९ (१२८) ॥
Meaning thereby that, “After due investigation the King shall always levy taxes in his kingdom in such a way that he himself and the man who carries on the business shall both receive their reward.—(129).