In its bid to simplify the provisions of the income tax law, the Centre has set up a high-profile committee headed by Justice RV Easwar, a retired judge of the Delhi High Court and a former president of the Income Tax Appellate Tribunal.

The terms of reference of the committee are to study and identify the provisions/phrases in the Act that lead to litigation due to different interpretations, the provisions impacting the ease of doing business and the areas and provisions of the Act for simplification in light of the existing jurisprudence. It is to suggest alternatives and modifications to the existing provisions and areas so identified to bring about predictability and certainty in tax laws without substantial impact on the tax base and revenue collection. The committee has a life span of one year and it has been asked to give as many recommendations as possible before January 31, 2016.

No looking back

One of the fail-proof ways in which predictability and certainty can be brought about in tax laws without impacting the ease of doing business is to shun retrospective amendments to the Act. The government uses retrospective amendments as its brahmastra to negate court decisions that have gone against it. In cases where the tax involved is really huge, it has amended the Income Tax Act from 1961 onwards! It needed the report of an expert committee for saner counsel to prevail. There should be an absolute ban on retrospective amendments.

Amending provisions that could be the cause for litigation is an unenviable task. The tax department does not seem to have got the provisions on cross-border taxation and transfer pricing right as every alternate litigation can be traced to these areas.

For instance, Section 92B which defines international transaction, has 2 sub-sections, 5 explanations as to what would constitute an international transaction, and 12 definitions of what would constitute intangible property. Anyone reading the section in one sitting will be worse off in his knowledge of what constitutes an international transaction. The provisos and explanations are inserted into the sections as and when the department feels the need to clarify provisions of the law.

Root of the problem

A lasting solution to this would be to attempt to tackle the problem at its roots. Instead of laying down or amending provisions and forming a committee to re-amend them after a few years, the government can entrust the work of drafting the provisions to an independent panel of advisors which would comprise tax officers, industry representatives and practitioners.

The provisions should be enacted only after everyone gives their nod. The committee should recommend that the provisions on domestic transfer pricing (an area where the provisions self-invite litigation) be deferred till the department gets provisions on international transfer pricing right.

However, litigation may not reduce unless the tax officers on the ground are trained and instructed on all aspects of the law. The tendency of some trigger-happy officers shooting out notices for tax dues based on the amounts involved rather than the merits of the case has to be curtailed. This would call for clear instructions and constant communication with tax officers at all Aayakar Bhavans.

The writer is a chartered accountant

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