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Report No. 115

Approach to Taxation Law

2.23. Approach to taxation law has to undergo a sea change. While evasion of tax was frowned upon, avoidance by legal devices was pampered. 'The large hidden loss to the community' (as pointed out by Master Cheatcraft in Modern Law Review 209) by some of the best brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer and his perhaps not so skilful advisers on the other side.1 A dilatory process provides a haven for these tactics.

A developing society must find resources for its development projects. Taxes, direct and indirect, provide the main source of revenue from which socially beneficent activities can be undertaken by the State. Therefore, taxes must be recovered expeditiously. If court proceedings intervene to delay payment of taxes, the budgetary exercise 'is likely to transfer the burden of tax liability to the shoulders of the guideless good citizens from those of the artful dodgers'.2 It is, therefore, necessary to reiterate what Justice Holmes said "Taxes are what we pay for civilized society. I like to pay taxes, with them, I buy civilisa tion".3

1. Mc. Dowell & Co. v. Commercial Tax Officer, 1985 (3) SCR 791 (809).

2. Ibid, 809.

3. Ibid, 809.

2.24. Reducing one of the numerous stages of appeal and review may, to some extent, help in improving the situation. Human fallibility generated the concept of appeal. Therefore, court of appeal was styled as a court of error. But somewhere it must stop. At some stage, faith has to be reposed in adjudicating authority. Too many appeals do not guarantee non-erroneous decisions. Reversal of decisions at every upward stage may induce doubt about the system. Therefore, some stages have to be cut out. The one considered as the most superfluous and yet time-consuming must be axed first. Reference procedure under section 256 of the Income-tax Act and the corresponding provision of the Gift Tax and Companies (Profits) Surtax Act deserve to be abolished and must be abolished. That would remove two unnecessary stages in the upward journey of tax litigation. It would simultaneously render the procedure for direct reference to Supreme Court under section 257, otiose.

2.25. The lacuna felt in the present day tax litigation, as pointed out earlier, is the absence of an all-India perspective till the matter reaches the Supreme Court of India. Even if reference procedure is abolished, the High Court may interpose itself under Article 226 and defeat the very purpose for which the reference procedure deserves to be abolished. Interference of the High Court having statewise jurisdiction is the fruitful source of conflict in the matter of interpretation of tax laws. Every such apparent or real conflict adds to the workload in the Supreme Court much as tax law, like any other law, should have certainty in its application throughout the country. Therefore, the jurisdiction of the High Court under Article 226 must equally be abolished.

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