Tax laws for national development
The Supreme Court Judge S.P. Bharucha seems to have given three judicial signals welcoming the New Economic Policy during his inaugural speech at the Golden Jubilee celebrations of the Income Tax Bar Association of Ahmedabad last week.The first signal is in the form of a virtual welcome to the Voluntary Disclosure Income Scheme. The judge pointed out that the last days of 1997 had great significance for the subjects of income tax. The VDIS that closed on the last day of the year collected a very large sum in undisclosed incomes and brought into the mainstream assets of a value which in real terms were quite staggering. According to Justice Bharucha, from this a vital lesson needs to be learnt - that assessees will pay their tax dues honestly if the tax rates are reasonable and by the same token the collection of revenue will be much larger. So this event of 1997 should create a new climate in tax assessments. However, the judge seems to have ignored the reality that the VDIS in practice amounted to a taxof only two to three per cent of the disclosed income. So the reasonable tax rate has to be only two to three per cent of the income earned. If so, what happens to the national budget? Is it that one must learn to survive by not paying taxes and then await the next VDIS?There is also no reference to the end use of resources generated by schemes like VDIS and the accountability of the ruling politicians for such end use. If resources mopped up by VDIS are not to be linked to the mandatory constitutional goals of literacy, health care, housing and jobs then there is no visible linkage between the morality sacrificed by such schemes and people's development. The honest citizen is once again faced with the question: resources for whom and for what purpose? The citizens have no remedy or an answer to this question since the apex court has already dismissed public interest petitions by the Bombay-based Tax Lawyers Federation challenging VDIS by pointing out mathematically its reality as also its effect on
ordinary citizens. This dismissal is not mentioned in the speech. The Supreme Court has explicitly stated in the medical admissions and hawala scam cases that it is the guardian of constitutional morality. The entire trend of Supreme Court activism on human rights, social justice and use of directive principles to convert fundamental rights into rights for all citizens is negated by the failure to link them with economic policies. An activism without the State's monetary resources to back it up cannot change the lives of people. However, the second signal came with Justice Bharucha criticising the Supreme Court judgment that commented adversely on tax planning. He declared that the distinction between avoidance of tax and evasion of tax had been lost sight of in that judgment. The judge was referring to the famous McDowell case judgment by Justice Chinnappa Reddy. What seems to have been missed is that the judgment referred to a certain kind of tax planning. The judgment did not deny that an assessee is
fully entitled to plan his financial affairs in such a manner as to reduce tax and legitimately reduce the burden of his tax liability - a right that the speech affirms.The third signal consisted of two parts. One for a uniform interpretation of Union Government's revenue or fiscal laws all over the country through the high courts. The guideline for that was that except in extraordinary circumstances each high court should follow the decisions of another high court. Such a uniform view would ease the pain of assessees in planning their affairs and of the benches of the income tax appellate tribunal. But for this to happen a communication grid of tax judgments delivered by the high courts should be available. The scene on this front is almost chaotic. The second part consisted of a suggestion for a new Income Tax Act. The problems of the assessee, untrained in the law, would be solved if there was a sensible, plainly worded statute. The judge rightly praised the Income Tax Appellate Tribunal as an
institution. But once again it seems that the judge has not been briefed by his own court about proceedings concerning this institution in the apex court. The proceedings would have shown that there are serious problems between it and the Union Law Ministry. Lastly the judge spoke about the methodology to be adopted in interpreting tax statutes, especially the Income Tax Act. This is to consider the relevant provisions of the statute first and to apply them to the facts of the case. The consideration of precedents or earlier judgments on the same issue can come later. This is traditional methodology following the good old Anglo-Saxon system of law. The major question that it raises is whether the methodology should remain unchanged after India had a Constitution that postulated certain legal aims for the country and its resources. Has this methodology resulted in meaningful justice to the citizens under a Constitution that promises them a minimal guaranteed existence? If it has not, shouldn't the courts
have a second look at the methodology that keeps the wealth creation process through laws separate from the constitutional rights of housing, health, education, medicare, and jobs? Why is it that the spirit of the directive principles in the Constitution does not inform the interpretation of tax law for the creation of national human capital, which is what economic development is all about.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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