The Hindu : Business : Is another amnesty necessary?

Online edition of India's National Newspaper
Monday, Nov 22, 2004

Business

Business

Is another amnesty necessary?

QUESTION: There is an expectation of another amnesty scheme as part of the tax reform package promised by the Finance Minister. Is such amnesty necessary? If not, what is the remedy for persuading or pressurising the hoarders of unaccounted wealth to cough up the same?

ANSWER: There is a built-in amnesty scheme under Section 273A of the Income-tax Act, which spares penalty for any offer of income prior to detection on payment of tax. Settlement Commission is another route, which offers immunity from penalty even after detection, but before steps are taken for prosecution. Compounding is a still another route, which can avoid imprisonment, even after prosecution is launched or for that matter, even after conviction.

Taxpayers who have strayed away from the path of tax compliance find it difficult to come back to the mainstream, because of the abnormal burden of interest, which combines in itself a penal aspect. Such burden is even redundant, where the assessee has not filed return in time, so that for the same period there is interest for non-payment of advance tax and for non-filing of return.

Along with interest for shortfall in instalments, the aggregate interest often exceeds the tax or even income, if such admission relates to a much earlier year. There is a Board Circular, which empowers the Chief Commissioners to waive interest, but the circumstances listed for such waiver are so narrow, that it is really not effective enough to persuade the taxpayers to come out voluntarily, though belatedly.

When the Parliament has given power to the Board for waiver of interest to cover all cases of genuine hardship, the Board Circular has limited it in its delegated power of waiver. It should have been extended to any voluntary admission or any settlement of proper liability, whether it is done by a Commissioner of Income-tax or by the Settlement Commission. Tax liability should be commensurate with the income. As otherwise, it discourages people to come forward or even to admit liability during or after assessment.

It may be recalled that what was heralded as voluntary disclosure scheme in 1985 by the then Finance Minister, V. P. Singh, was only to give greater publicity to the waiver provisions under Sec. 273A and waiver of interest, which was then available to the authorities under Sec. 215 and 217 of the Act. Waiver power as regards interest was taken away from the authorities only from April 1, 1989 with powers restricted to limited circumstances granted to Chief Commissioners with effect from April 1, 1990 substituting the larger powers earlier available to the lesser authorities under Sec. 215 and 217.

Hence, mere enlargement of the powers of waiver of interest as for penalty under Sec. 273A (as once prevailed) to cover all cases of voluntary compliance before concealment is brought home by way of a formal assessment order should serve the purpose of unearthing black money better than any voluntary disclosure scheme, without the ignominy attached to such schemes especially in the context of the Government's earlier undertaking before the Supreme Court not to repeat such further schemes so as to compound tax evasion.

Waiver of interest is a normal concession especially in the context of the complexity of our laws, the ignorance of the taxpayers and the apprehensions as regards fairness they have of the Department.

If necessary the liability for interest may be limited to only one interest, when it covers the same period and such single interest may be limited to say 50 per cent of the statutory interest or 50 per cent of the tax payable, whichever is lower (or higher) in case where such admission is made during the assessment or pendency of appeal and full waiver, if admission is purely voluntary before detection.

As for the disclosure in the current return, the assessee could always offer such income without attracting either interest or penalty even under the present law as has been explained in these columns recently.

If the assessee wants to declare past income so as to rule out scope of future reassessment proceedings, it should be made possible on the lines suggested.

Hence, the best that could be done is to point out to the taxpayers by way of a publicity campaign, that any voluntarily admitted income in a return or revised return for the current assessment year (AY 2004-05) before a specified date will not warrant levy of penalty and that interest, if any, payable could be fully waived, while there will be a similar full waiver of interest for those who admit voluntarily any past income before detection.

Any voluntary admission of income after regular assessment or acceptance of a disputed addition should merit waiver up to 50 per cent of such interest. Any such publicity on these lines with an active role to implement the same for officers of the Department, would elicit a good response without departing from the existing framework of law.

There is a general feeling of the profession, that the main discouragement for the taxpayers to admit doubtful items or to come out with truth is the abnormal burden of interest. An approach on the suggested lines will incidentally solve the problems created by rectification proceedings in cases where Settlement Commission had waived interest partially but now found to be beyond its jurisdiction in view of the limited contingencies in which the Board has authorised remission notwithstanding the larger powers the Parliament has given it.

S. Rajaratnam

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Is another amnesty necessary?