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By Ashwani Kumar, Founding Partner & Sanjeeva Narayan, Managing Partner
The Union Budget 2021-22 has, overall, received encomiums from economists, academicians, and the like for not only its transparency but also the efforts made to provide an impetus to an already slowing economy further ravaged by the pandemic and its latent side effects. However, in terms of the tweaking of fiscal laws what has caught the tax-payers and assessees by surprise is the sudden, in fact abrupt, decision to discontinue the ITSC from February 1, 2021, and constitute one or more Interim Board(s) for Settlement to deal with the pending applications.
To provide a historical perspective, the ITSC was set up in 1976 as an Alternative Dispute Resolution Body on the recommendation of the Direct Taxes Enquiry Committee headed by Justice KN Wanchoo, retired Chief Justice of the Supreme Court of India. It was conceived as a mechanism to provide a one-time tax evader or an unintending defaulter a window to make a clean breast of his affairs. Functioning against the background of well-defined rules and procedures (duly calibrated from time to time), with prescribed timelines (whether statutory or administrative), the ITSC provided an avenue to assessees to avoid protracted litigation while also seeking to serve the interests of the revenue by acting the process of speedier and defined tax collection.
With a large proportion of its orders having been accepted, both by the Revenue and the taxpayers, and only a minuscule being challenged in the High Court, it had over almost half a century served the purpose and attained the objectives for which it was established. Against this background to suddenly and abruptly disband the ITSC, without laying out any reasons while surprising, definitely falls foul of the canons of equity, justice, rationality, and above all trust. After all, in a Democracy, a duly elected government is supposed to act in a ration reasoned and logical manner while decisions have to be well-thought-out, adequately researched and analyzed, and not just blandly pronounced as a part of the Finance Bill with the Explanatory Memorandum not shedding any further light on the underlying thought process. Being a quasi-judicial body, the decision also goes against, the stated resolution of the Hon’ble Finance Minister on the floor of the Parliament to strengthen the functioning of the Tribunals since it also served to reduce overall litigation and the strain on a judicial system already creaking at its seams
The decision of the Government to shutter down the ITSC and replace it with an Interim Board which shall function in a faceless manner, of which the procedures have not been notified (given the secrecy and confidentiality underlying the entire process and past experience we do not even know whether they have, at all, been conceptualized) and to transfer all the pending applications thereto is definitely a breach of trust for the pending applicants. After all, the assessees, who chose to approach the ITSC, acted keeping view the existing framework in mind, coupled with the confidence in an Institution which had been in existence for close to half a century and whose working and results apart from being already available in the public domain had reached a certain level of stability and predictability. Having been, if it can be said, lured, to the portals of the ITSC, by the prospect of ending and putting a quietus to prolonged litigation, the decision smacks of a breach of fiduciary capacity and trust that citizens repose in its executive and which forms the bedrock for the sustenance of a vibrant Democracy, and is something which the framers of our Constitution put a premium to while engaging in their hallowed exercise.
While the decision to discontinue the ITSC henceforth is perhaps understandable (of course, the issue is again, not free from the debate) and a reflection of adopting a zero-tolerance policy to tax evasion, extending its scope to cover pending applications would deeply prejudice assessee who had approached the ITSC by making a clean breast of their affairs. Of course, it is easy to stress on tax compliance and to ensure revenue collection, a forum albeit with a limited scope and defined reach (such as the ITSC) was and is definitely needed or required – if that not be so what was the need for a series of amnesty schemes (couched in different terminology to obviate the wrath of the Supreme Court) and even the recent much talked about Vivaad-se-Vishwas Scheme.
To take up the discussion further, both the Citizenry and Government act in a fiduciary capacity (an extension of the underlying trust) with each other. As a part of these duties and fiduciary responsibilities, citizens are expected to comply with laws and pay, among others, due taxes with a corresponding responsibility on the exchequer to enact laws which are fair, and judicious and operationalize them in an equitable manner, while at the same time ensuring a certain degree of stability and continuity. In a situation where an assessee approaches the ITSC working within a well-defined framework, the decision to transfer their jurisdiction to an, as yet, indeterminate and invisible Board, and that too without any apparent reasoning being provided, is nothing but what can be described a breach of fiduciary responsibility by the Government towards not just the existing applicants but also a fair number of assessees who had plans to approach the ITSC and in fact, had taken substantial steps in that direction.
While the legal pundits can debate and exercise their minds as to whether the vires of this unilateral act of the Government can be challenged, one does hope that the decision-makers and the powers who matter do undertake a rigorous rethink of this decision which is manifestly unjust, inherently iniquitous and represents a definite breach of trust that the citizenry in general and the taxpayers in particular repose in the Government. (In fact, press reports do suggest that legal challenges have been mounted in various Courts and the Telangana High Court in a writ petition filed under Article 226 of the Constitution has directed the ITSC to receive an application by holding that “just because the bill is introduced that will not have the enforceability of law unless it is passed by the Parliament and notification issued to that effect”) the least, what is necessarily required is to modify the decision to enable disposal of the pending applications within the existing framework thereby providing continuity of approach and consistency in adjudication without the Government reneging on its fiduciary responsibilities and lending a semblance of rationality to the scenario. Now that the Finance Act has also been enacted and the said position having become law, various assessees have filed writ petitions before High Courts across the country including Bombay, Delhi, and in Madras High Court assailing the provisions of the Finance Act, 2021 that abolished the Settlement Commission; The petitions have been moved on the grounds of ‘manifest arbitrariness, ‘retrospectively, and that the Revenue would act as a judge in its own case which is violative of Article 14 of the Constitution. In fact, Madras HC bench led by Chief Justice has issued notice over petitions challenging the abolition of Settlement Commission on constitutional grounds and we will have to now see how the judiciary will interpret the abolition of the said forum.