The Hindu : Sport : Forcible recovery need not be unduly aggressive

Online edition of India's National Newspaper
Monday, Oct 11, 2004

Sport

Sport

Forcible recovery need not be unduly aggressive

QUESTION: There is a recent report of Board's instructions requiring the assessing officers to enforce collection of taxes by taking appropriate legal action including provisional attachment of properties of not only defaulting taxpayers but also those who, it is apprehended, are likely to default on an assessment yet to be made. It is stated that appropriate action would be taken at the discretion of the assessing officers and that they would be accountable for any loss of revenue for failure to take such action. Indiscriminate recovery action even of disputed demand is already spreading consternation among many taxpayers, who are victims of unconscionable assessment. How far are such instructions consistent with law?

While coercive process of collection of tax may well be necessary for undisputed tax, the suggestion that in every case of assessed tax, such action may be necessary would lead to harassment besides being illegal. Needless to add even provisional attachment in case of further assessment cannot be made except under circumstances covered under Sec. 281B and certainly not at behest of the Board in a routine manner. Sec. 281 already declares any alienation pending proceeding as void, so that more aggressive action should not be necessary to the extent reportedly contemplated. It will only strengthen the hands of those officers prone to corruption and extortion, while the timid as well as over-zealous officers, because of threat of accountability, would hesitate to exercise responsibility in use of the powers. It will distance honest taxpayers, spoil public relations and bring a bad name to the Income-tax Department. It is necessary that Tax Forum brings to the notice of the policy makers the damage the present instructions as reported will do for the tax payers and the image of the Income-tax Department.

ANSWER: The law has given ample powers to collect arrears of tax like levy of interest, penalty, issue of garnishee orders, attachments of bank accounts and immovable property, prevention of foreign travel, denial of State patronage. Provisional attachment of properties of persons likely to leave India for good or likely to alienate their assets is possible.

The law tempers such powers even in respect of undisputed demand, where the funds may have got lock-up with unrealised debtors or such other reasons. Assessing officers themselves can grant instalments under Sec. 220(3) subject to conditions and mandatory interest. Commissioners are given powers under Sec. 220(2A) to waive interest in cases of belated payment of tax caused by genuine hardship. Sec. 220(7) provides for automatic stay in respect of tax on foreign income, where there is prohibition or restriction on repatriation of such amounts back to India. Penalty under Sec. 221, which is otherwise leviable for non-payment of tax is spared, where the assessee proves to the satisfaction of the assessing officer, that the default arose for good and sufficient reasons. Even the power to bar a person leaving India under Sec. 230 is subject to arrangements satisfactory to the assessing officer for payment of outstanding tax. In other words, even in respect of undisputed demand, the law is humane and is expected to be administered in such manner, without, of course, endangering public revenues.

As for disputed demand, Sec. 220(6) specifically provides that even if the due date for payment has expired, the assessing officer has discretion subject to conditions to treat the assessee as not being in default, as long as there is a pending appeal. Courts have repeatedly pointed out that the discretionary power is expected to be exercised with a sense of responsibility. If it is not so exercised in circumstances which warrant it, courts can compel the authorities to do so. In fact, his administrative superiors are also expected to ensure this, since the matter of recovery is different from the matters relating to assessment, where such interference is to be avoided. When the statute vests discretion, it is expected that such discretion is "exercised in a reasonable and rational manner free from whims, vagaries and arbitrariness" as pointed out in Union of India v Jesus Sales Corporation (1996) 4 SCC 69. Such power has to be exercised honestly and not in a manner, which is "illusory, dishonest, corrupt, mala fide or ulterior purposes or objects" as pointed out in Chella Rama Bhupal Reddy v CBDT (1977) 108 ITR 695 (AP). It is for this reason that even rejection of stay is expected to be done in a speaking order after considering all the reasons, which prompted the application for stay. In other words, discretion is not unfettered. In fact, even a demand which has been confirmed in appeal, but disputed in further appeal, can be stayed by the administration subject to conditions, and if not so done, by the Tribunal, though the Tribunal has not been specifically vested with such powers as held by the Supreme Court in ITO v M.K. Mohammed Kunhi (1969) 71 ITR 815 (SC), where it was pointed out that the right of the assessee to have the disputed demand stayed is part of right of appeal, in cases, where the appeal, even if ultimately successful, is likely to be rendered nugatory. What is required therefore is that the stay of disputed demand should be reasonably considered.

The instruction to terrorise the assessing officers reminding them that they are accountable for any failure of their duty in collection of tax may result in routine rejection of deserved stay even as found from the present experience of most taxpayers. If the supervisory authorities monitor assessments in a manner that bad assessments are less and ensure same accountability in avoiding over-pitched arbitrary assessments, the present arrears of 87K will be significantly reduced. Such accountability is required to be ensured on the part of appellate authorities as well.

If there are instructions from the Board as indicated in the reports, such instructions would be contrary to law, even if such instructions are hedged with necessary precaution to deal with stay application with due care. If the effect is to create anxiety or fear of reprisal, such instructions would be illegal and even otherwise not justified in the interest of proper administration of law and public relations in the context of instances of improper use of such powers evident from the number of writs filed and pending in the courts.

Even a preliminary study of the outcome of appeals would indicate that most additions do not stand the test of appeal. The assessments themselves are often influenced by a fear complex, fear of audit — internal and revenue, fear of inspection and fear of vigilance. Only a tax administration bereft of such panic can do justice not only for taxpayers but to revenue because voluntary compliance ultimately depends upon fair treatment of taxpayers, who comply with the law. While every effort should be made to safeguard revenue and to defeat alienation of assets with a view to defraud revenue, there is an equal responsibility to accommodate the taxpayers, where it could be done without jeopardy to revenue and where the circumstances otherwise warrant it.

As otherwise, the only beneficiaries of the instructions, if carried out literally and indiscriminately, will be that the dishonest officials and equally perfidious professionals at the cost of the taxpayer. The apprehension caused by the reported instructions is, therefore, justified. There is need for immediate reappraisal of such instructions, so as to restore proper perspective on the part of tax administration. The present arrears are not so much due to the negligence to the officers to recover them but largely due to bad or defensive assessments.

S. Rajaratnam

Printer friendly page
Send this article to Friends by E-Mail

Sport