Report No. 12
Note By Dr. N.C. Sen Gupta
I am in agreement with the lines of approach to the Income Tax Act adopted by the Report. I appreciate and agree generally with regard to the important provisions.
There is one thing however which I must repeat once again. I think it would have been an advantage if the consideration of the Income Tax Act had been adjourned until the Tyagi Committee had formulated their conclusions. I have been informed that the Chairman thought otherwise. Because he expressed the opinion that the Tyagi Committee has nothing to do with these proposals. I shall clear up the matter.
Income-tax is now only one of a number of personal taxes which, as things stand, have to be assessed by the Income Tax Officer. The result is that there is nothing to show that it will be the same Income Tax Officer who will assess a person-(1) for income and super tax, (2) for expenditure tax, (3) for wealth tax and (4) for Estate duty. But assessment proceedings must necessarily involve an examination of the accounts of the assessee for each of these purposes.
The same account will have to be gone through in the Tax Office, not once for all, but separately and not necessarily by the same Income Tax Officer. It would be not only convenient but almost necessary if the whole thing could be taken together in the case of a person who has to pay all these separate taxes or more than one of them. Each assessment proceeding will be separately started according to the procedure laid down in the separate Acts and necessarily the same accounts will have to be examined in each case. Now the Tyagi Committee can evolve a measure by which the integrated taxes could be assessed in the same office for each person and by a simpler procedure. It would be an undoubted advantage.
But it is not possible now to suggest in connection with the Income Tax Act how this can be done or now the separate procedures of these several Acts can be integrated or amalgamated. It would seem, therefore, that my suggestion to consider the procedure of the assessment of income tax after the Parliament has finally decided on the integration or otherwise of the proceedings on the report of the Tyagi Committee would be advantageous. Without that it may very well be that all our labours upon the Income Tax Act would be lost.
With regard to the content of the Report, I will refer to one or two matters only. The Report takes into account all the shortcomings of the present procedure and the confusing mode in which it has been laid down in the Act, and it seeks to safeguard the interest of the tax-payers adequately. I am in full sympathy with the criticisms which have been made and the lines of approach. As it is, the long-drawn proceedings of income tax assessment and the present features of taxing all round, amount to a great pressure on and hardship to small assessees.
But at the same time it leaves open wide gaps for escaping payment of the tax by sufficiently resourceful and rich parties. It is true that the assessee has got to be safeguarded against oppression and at the same time, it should be seen that the tax is not evaded by rich parties. For this purpose, I am afraid, the procedure in the present Income Tax Act is not adequate. The draft report attempts to make several efforts to remedy this defect. But I do not quite agree with its treatment to the question of evasion. The amendment suggested in section 34 seems to me to be generous to the assessee.
But we have got to see whether it does not become too generous to a wily evader at the cost of the honest tax-payers who have to bear additional burden. I agree that there ought to be a limit to the period for which the proceedings for taxation could be reopened. Whatever limits are fixed, there ought to be a general principle laid down that if escape from assessment or under-assessment has been shown to be due to any-dishonest or fraudulent practice of the assessee, there ought to be no limitation to re-open the proceedings. On the other hand, the limitation in ordinary cases ought not to exceed what is now prescribed under the Act.
With regard to the procedure of assessment and appeals, I agree with the proposals made. But I am not sure that the members of the Committee have given adequate consideration of the principles in French Law. Under that Law, in the case of assessment and realisation of provincial taxes, the matter is primarily within the jurisdiction of administrative officials. But it is provided that if any question of title is raised before the matter receives the sanction of the Ministry of the Interior, the Administrative Officer-inCharge of the proceedings has to refer it immediately to a Civil Court after which the proceedings take the form of a Civil suit. Something similar to this is to be found in a Bengal Act, the Estate Partition Act. Under that Act appeals to the Civil Court are strictly limited.
But if a question of title is raised in any stage of the proceedings, the Collector carrying on the proceedings has got to stay the proceedings and refer the parties to the Civil Court. I think some procedure like this might be conveniently provided for in the case of income tax assessment. There are some questions which would ultimately go from Civil Court upto the High Court even under the present Act. If such questions are raised at an early stage of assessment, the law may provide that the matter must be referred to the Civil Court and assessment proceedings stayed. Otherwise the assessment proceedings would be regarded as purely administrative-though under the strict control of the superior Administrative Officers, represented in France in the Council d'estate.
With further reference to the Income Tax Act in the proposals before the Tyagi Committee, I wish to add a few words with reference to my plea for the simplified and integrated procedure in the assessment of all personal taxes. It will be remembered that the new personal taxes have been imposed on the basis of the report of Professor Kaldor in which I find that he gives some indication about the procedure. The principles behind the new taxation according to Kaldor Report, are not independent of each other.
The taxes are intended to check and balance each other-so that there may be an integrated taxation. It is not the same thing as was asked for by older economists under the name of a single tax. For that purpose also it is necessary that in assessing one tax, reference will be made to the other taxes, so that ultimately there is no conflict or inconsistency between different assessment.
As to the mode on assessment Professor Kaldor refers to the Swedish procedure. In Appendix A he gives the suggested form of a comprehensive return for personal taxation in which the entries are made with reference to this and also other taxes which have not been imposed yet. In Appendix B, Part Two, he gives the form of a return under the Swedish Law which is based on the same principles. The whole return goes to the same officer who apparently carries out investigations in respect of them,-with a view to a consolidated assessment. Unless something like this is done in India also, the objective of Professor Kaldor's suggestion about multiple personal taxes should be defeated.
Therefore, I suggested that the whole law of procedure for the assessment and realisation of taxes should be recast on the lines suggested in Kaldor's report and for that purpose I should suggest that the Committee now appointed should go into the question of laying down a procedure by which simplicity and co-ordination may be properly achieved. The question of the amendment of the procedure of the Income Tax Act must necessarily wait; and the procedure not only for income tax but for all the personal taxes together should be laid down in one enactment.
I do not accept the principles of Professor Kaldor's report in their entirety. But as we are not concerned with the amendment of the tax structure, at least this can be accepted that the procedure laid down should be such as to avoid multiplication of proceedings and lead to a more just assessment of taxes than under the separate taxation laws.
There is another matter which I should like to mention with reference to Professor Kaldor's report. His criticisms of the provisions of the Income-Tax Act for assessment of Companies are trenchant but entirely justified; and his suggestions for the simplification of the procedure within the frame-work of the present tax structure are worthy of serious consideration. I regret to find, however, that our Draft Report does not make any reference to that and proceeds as if the Income Tax Act was the sole Act with which we are concerned. I think it was our duty to point out the improved procedure for giving effect to the taxation.
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