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    Information-furnishing obligation: Indian concerns must produce prescribed documents when foreign interests derive value from India assets.
    An information-furnishing obligation requires an Indian concern to provide prescribed information or documents to the prescribed income-tax authority when a foreign company's or entity's shares or interests derive substantially their value from assets located in India and those assets are held, directly or indirectly, through the Indian concern; specific documents, the authority, the period and the manner of furnishing are to be specified by subordinate prescription.
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    Non-residents with RBI/FEMA authorised liaison offices must annually prepare and deliver to the Assessing Officer a statement of the office's activities for the tax year in such form, containing such particulars and within such period as may be prescribed, with the deadline and particulars to be specified by subordinate legislation rather than fixed in the statute.
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    Clause 500 permits an Assessing Officer, with prior Competent Authority approval and by written order, to provisionally attach property during assessment, reassessment of escaped income or specified penalty proceedings; attachment follows the statutory attachment procedure and valuation by a Valuation Officer. Attachment is revocable on furnishing a scheduled bank guarantee generally equal to fair market value (or a lower guarantee if accepted); guarantees may be invoked on default. Temporal limits apply (initial six months with limited extensions) and proceeds are adjusted against existing demands with balances deposited in designated accounts.
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    Presumption as to assets extended to electronic information and computer systems when tendered as prosecutorial evidence.
    The statute extends the evidentiary presumption applicable to assets, books of account and documents found in searches or taken into custody to include information in electronic form and computer systems, applying the presumptive framework when such items are tendered in evidence and qualifying that application by the phrase "so far as may be, apply"; the Act cross-references statutory definitions for electronic information and computer systems to ensure consistent meaning.
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    Abetment of false return criminalises abetting or inducing another to make a false tax-related account, statement or declaration where the abettor knows it is false or does not believe it to be true, and prescribes a two tier sentencing regime based on the monetary magnitude of tax, penalty or interest evaded or wilfully attempted to be evaded; textual differences between the Bill and the enacted section are limited to phrasing around liability to fine and an editorial sentence, with no observable change to imprisonment ranges or threshold.
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    Falsification of books: criminalises willful false entries to enable another's tax evasion, allowing prosecution without proving actual evasion.
    Section 483 proscribes falsification of books or other documents when a person wilfully makes or causes a false entry or statement, knowing it to be false or not believing it to be true, with intent to enable another to evade tax, interest or penalty; the offence carries rigorous imprisonment and fine, and it is not necessary to prove that the other person actually succeeded in evading tax.
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    Criminal liability is imposed for wilful failure to furnish a required return of income, with a two-tiered custodial and fine regime linked to the amount of tax evaded. A limited bar to prosecution exists where the return is subsequently furnished within the procedural time references or, for non-companies, where the residual tax shortfall after qualifying payments falls below a de minimis threshold. The scope of the safe harbour depends on the timing rules in the cross referenced procedural subsection.
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    Wilful attempt to evade tax: criminalises deliberate falsification and omissions, with tiered imprisonment and fines.
    Section 478 criminalises a wilful attempt to evade tax and wilful under reporting by prescribing tiered rigorous imprisonment and fines, and it lists illustrative acts-false entries, omissions, possession of falsified books and conduct enabling evasion. The Act relocates and rephrases fine and penalty preservation language into a standalone non prejudice clause and tightens causation wording in an illustrative sub clause. Definitions of key terms and procedural or evidentiary standards are not provided in the text.
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    Failure to remit tax collected at source criminalised, exposing collectors to imprisonment and fine; exception for timely remittance.
    Failure to remit to Government the tax collected at source is a penal offence punishable by imprisonment and fine, targeting persons who collect tax at source and imposing personal liability for payment to Government credit. A narrow temporal exception excludes application where payment has been made on or before the time prescribed for filing the relevant statement, and the provision contains no mitigating grounds, mens rea gradation, or procedural compounding mechanisms.
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    Failure to remit withheld tax attracts criminal liability including imprisonment and fine; safe harbour if credited before filing deadline.
    Failure to remit taxes deducted under Chapter XIX-B or required by specified Notes to the Table in section 393 constitutes a criminal offence punishable by rigorous imprisonment and fine; the offence applies where a person fails to pay amounts to the credit of the Central Government, subject to a temporal safe harbour if payment is made or credited on or before the time prescribed for filing the relevant statement.
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    Fraudulent disposition of property to frustrate tax execution now criminalised, tied specifically to a certificate drawn under section 413.
    The offence criminalises anyone who fraudulently removes, conceals, transfers or delivers any property or interest therein with intent to prevent such property or interest from being taken in execution of a certificate drawn u/s 413; punishment is rigorous imprisonment up to two years and a fine. The enacted text replaces the Bill's broader "as prescribed" formulation with a direct reference to section 413, clarifying the instrument whose execution the offence seeks to frustrate. The clause contains no exceptions, definitions of "fraudulently," or evidentiary rules.
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    Reasonable cause defence prevents penalties when a taxpayer proves it, expanding protection in the enacted provision.
    Section 470 bars imposition of penalties under the listed provisions where a person or assessee proves there was reasonable cause for the failure; it frames the exception as prevailing irrespective of anything in those provisions and places the burden of proof on the person, while not defining "reasonable cause" or prescribing standards, procedures, or timing for such proof.
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    Discretionary penalty waiver: voluntary pre-detection disclosure and cooperation enable administrative leniency, subject to prior approval thresholds and safeguards.
    Section 469 empowers the Principal Commissioner or Commissioner to reduce or waive penalties under section 439 where there is voluntary, pre detection disclosure, good faith cooperation and payment or satisfactory arrangements for tax and interest; sub section (2) contains a deeming rule for "full and true disclosure." Prior approval from a specified senior authority is required where multi year income/disclosure crosses the statutory threshold or where aggregate penalties to be waived under the hardship route exceed the threshold; once discretionary relief is granted for a person no further relief is available for other tax years. Procedural safeguards and a twelve month disposal timeline apply.
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    Tax penalties for procedural non-compliance impose fixed and daily monetary sanctions and designate imposing authorities by statute.
    Clause 465 distinguishes fixed penalties for discrete refusals or omissions from continuing daily penalties for delays or failures to furnish returns, statements, certificates or allow inspections, caps certain penalties by reference to deductible or collectible tax, allocates specified income tax officers to impose such penalties, and defines "income tax authority"; it cross references multiple substantive provisions and contains no express procedural safeguards, appeal route, or mitigation mechanism.
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    Penalty for non-furnishing by eligible investment funds may be imposed as a fixed sanction for late or missing reports.
    The provision authorises the prescribed income tax authority to direct an eligible investment fund to pay a fixed penalty of five lakh rupees where the fund fails to furnish a required statement, information or document within the time prescribed under the referenced provision; the sanction is discretionary and the text contains no exceptions, mitigation procedures or notice stages in the extract provided.
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    Penalty for inaccurate financial statements made mandatory; reporting institutions face per-account liability and recovery rights from account-holders.
    Section 455 imposes a fixed penalty on persons required to furnish statements under section 508(1) for inaccurate information, failure to correct within the period under section 508(8), or non-compliance with due diligence under section 508(9). It also imposes an additional per-account liability on reporting financial institutions where inaccuracies arise from false or inaccurate information furnished by account-holders, and entitles institutions to recover or retain amounts paid from those account-holders. The provision cross-references section 508 and does not set out adjudicatory or appeal procedures.
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    Penalty for failure to provide electronic payment facilities imposes strict daily liability and removes statutory exception to avoid sanction.
    The provision imposes a continuing daily monetary penalty, to be levied by the Assessing Officer, for failure to provide facilities to accept payments through prescribed electronic modes; the Bill included a proviso allowing avoidance of the penalty on proof of good and sufficient reason, but the enacted text omits that proviso, leaving key definitions, evidentiary standards, and procedural modalities unspecified.
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    Penalty for failure to comply: Assessing Officer may impose monetary penalty equal to sums received unless recipient proves good reasons.
    Section 451 authorises the Assessing Officer to impose a penalty equal to the sum received by a person in contravention of the relevant statutory provision; the earlier Bill expressly allowed escape if the recipient proved "good and sufficient reasons," but the enacted text omits that proviso, leaving the ambit of any exception, standards for evaluation, and the character of assessing discretion unspecified.

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      Introduction of concept of mediation and Advance Ruling System for Residents to reduce tax litigation and more clarity

      15 September, 2020

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      2020 (9) TMI 496 - Supreme Court

      While decided an issue pertaining to AY 1976-77, honorable Supreme Court has wrote two postscript with the following note:

      We have been persuaded to write two postscripts on account of the backbreaking dockets which are ever increasing and as a move towards a trust between the Tax Department and the assessee, and we hope that both the aspects meet consideration at an appropriate level. [Para 21]

       

      Postscript 1:

      1. The Indian legal system is reeling under a docket explosion.

      The Government and public authorities are active contributories to this deluge. To top it, a number of litigations arise inter se the Government and its bodies and, thus, the only question, as stated in the beginning, is which pocket of the Government will be benefitted?

      2. The aforesaid position resulted in a judicial innovation with the Supreme Court passing orders in Oil and Natural Gas Commission & Anr. v. Collector of Central Excise [1991 (10) TMI 58 - Supreme Court] requiring that such cases must be referred to a Committee to be appointed by the Government to facilitate a resolution of such disputes and that no case should be filed without the approval of this Committee. This system was a failure as is apparent from the facts of the present case, where the SLP filed by the appellant-Corporation was initially dismissed with liberty to revive the same in case the High Powered Committee granted such a permission which was so granted in a meeting held on 14.08.2009. The said Committee discussed the legal ramifications, and in some way opined in favour of the appellant-Corporation, as is apparent from the discussion aforesaid. But the ball was again lobbed back into the Court to adjudicate the said issue rather than a resolution being reached. The result was only the revival of the appeal, and the consequent decision which has seen the light of the day only now.

      3. The aforesaid failure of the system resulted in the Supreme Court recalling its orders in the ONGC cases vide Electronics Corporation of India v. Union of India. [2011 (2) TMI 3 - Supreme Court].

      4. The Central Government and the State authorities have been repeatedly emphasising that they have evolved a litigation policy. Our experience is that it is observed more in breach. The approach is one of bringing everything to the highest level before this Court, so that there is no responsibility in the decision-making process – an unfortunate situation which creates unnecessary burden on the judicial system. This aspect has also been commented upon in a judgment of this Court in Union of India & Ors. v. Pirthwi Singh & Ors., [2018 (4) TMI 1586 - Supreme Court]   albeit between the Government and the private parties, where the question of law had been settled and yet the appeal was filed only to invite a dismissal. The object appears to be that a certificate for dismissal is obtained from the highest court so that a quietus could be put to the matter in the Government Departments. Undoubtedly, this is complete wastage of judicial time and in various orders of this Court it has been categorized as “certificate cases”, i.e., the purpose of which is only to obtain this certificate of dismissal.

      5. The 126th Law Commission of India Report titled ‘Government and Public Sector Undertaking Litigation Policy and Strategies’ debated the Government versus Government matters which weighed heavily on the time of the Courts as well as the public exchequer. This was as far back as in 1988. It was only in the year 2010 that the National Litigation Policy (for short ‘NLP’) was formulated with the aim of reducing litigation and making the Government an efficient and responsible litigant. Five (5) years later it reportedly saw a revision to increase its efficacy, but it has hardly made an impact. In the year 2018, the Central Government gave its approval towards strengthening the resolution of commercial disputes of Central Public Sector Enterprises (for short ‘CPSEs’)/ Port Trusts inter se, as well as between CPSEs and other Government Departments/Organisations. The aim was and is to put in place a mechanism within the Government for promoting a speedy resolution of disputes of this  kind, however it excluded disputes relating to Railways, Income Tax, Customs and Excise Departments. It has now been made applicable to all disputes other than those related to taxation matters. This was pursuant an order passed in The Commissioner of Income Tax (Exemptions) v. National Interest Exchange of India -SLP (C) Diary No. 35567 of 2019 [2020 (3) TMI 1250 - SC ORDER] by a bench of which one of us (Sanjay Kishan Kaul, J.) was a part.

      6. Insofar as non-taxation matters are concerned, the Administrative Mechanism for Resolution of CPSEs Disputes was conceptualised to replace the Permanent Machinery of Arbitration and to promote equity through collective efforts to resolve disputes. It has a two-tiered structure.

      7. At the first level, commercial disputes will be referred to the Committee comprising Secretaries of the Administrative Ministries/Departments to which the disputing parties belong and the Secretary, Department of Legal Affairs. In case the two disputing parties belong to the same Ministry/Department, the Committee will comprise Secretary of Administrative Ministry/Department concerned; the Secretary, Department of Legal Affairs and the Secretary, Department of Public Enterprises. If a dispute is between a CPSE and a State Government Department/Organisation, the Committee will comprise of the Secretary of the Ministry Department of the Union to which the CPSE belongs, the Secretary, Department of Legal Affairs and the Chief Secretary of the State concerned. Such disputes are ideally to be resolved at the first level itself within a time schedule of three (3) months, and in the eventuality of them remaining unresolved, the same may be referred to the Cabinet Secretary at the second level, whose decision will be final and binding on all concerned.

      8. We are of the opinion that one of the main impediments to such a resolution, plainly speaking, is that the bureaucrats are reluctant to accept responsibility of taking such decisions, apprehending that at some future date their decision may be called into question and they may face consequences post retirement. In order to make the system function effectively, it may be appropriate to have a Committee of legal experts presided by a retired Judge to give their imprimatur to  the settlement so that such apprehensions do not come in the way of arriving at a settlement. It is our pious hope that a serious thought would be given to the aspect of dispute resolution amicably, more so in the post-COVID period.

      9. In most countries, mediation has proved to be an efficacious remedy and here we are talking about mediation inter se the Government authorities or Government departments. India is now a signatory to the Singapore Convention on Mediation and we understand that a serious thought is being given to bring forth a comprehensive legislation to institutionalise mediation, in furtherance of this function to which India has committed itself.

      Postscript 2:

      10. We now turn to the issue of matters pertaining to CPSEs and Government authorities insofar as taxation matters are concerned,  because they are consistently sought to be carved out as a separate category of cases. One of the largest areas of litigation for the Government is taxation matters. The petition rate of the tax department before the Supreme Court is at 87%. - See ‘Economic Survey 2017-19 – Volume 1’ by the Department of Economic Affairs, Ministry of Finance, Government of India So, the question is can something be done about it?

      11. In our opinion, a vibrant system of Advance Ruling can go a long way in reducing taxation litigation. This is not only true of these kinds of disputes but even disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity. Instead of first filing a return and then facing consequences from the Department because of a different perception which the Department may have, an Advance Ruling System can facilitate not only such a resolution, but also avoid the tiers of litigation which such cases go through as in the present case. In fact, before further discussing this Advance Ruling System, we can unhesitatingly say that, at least, for CPSEs and Government authorities, there would be no question of taking this matter further once an Advance Ruling is delivered, and even in case of private persons, the scope of any further challenge is completely narrowed down.

      12. It is as far back as in 1971 that a report was submitted by the Direct Taxes Enquiry Committee under the Chairmanship of Dr. K.N. Wanchoo, recognising the need for providing Advance Ruling System, particularly in cases involving foreign collaboration. The aim was to give advance rulings to taxpayers or prospective taxpayers, which would then considerably reduce the Revenue’s workload and decrease the number of disputes. This finally resulted in a scheme of Advance Ruling being brought into effect in 1993, with the introduction of a new Chapter in the Income Tax Act, 1961 (hereinafter referred to as the ‘IT Act’). A quasi-judicial tribunal was established as the Authority for Advance Rulings (for short ‘AAR’) to provide certainty and avoid litigation related to taxation of transactions involving non- residents. The scope of the transactions on which an advance ruling can be sought from the AAR has gradually increased to now include both residents and non-residents, who can seek the same for issues having a substantial tax impact. Chapter XIX-B of the IT Act deals with advance rulings and it has been defined in Section 245N(a) of the  IT Act. These rulings are binding both on the Income Tax Department and the applicant, and while there is no statutory right to appeal, the Supreme Court has held in Columbia Sportswear Company v. Director of Income Tax Bangalore [2012 (8) TMI 105 - Supreme Court]  that a challenge an advance ruling first lies before the High Court, and subsequently before the Supreme Court. The advance ruling may be reversed in the event a substantial question of general public importance arises or a similar question is already pending before the Supreme Court for adjudication.

      13. The ground level situation is that this methodology has proved to be illusionary because there is an increasing number of applications pending before the AAR due to its low disposal rate and contrary to the expectation that a ruling would be given in six (6) months (as per Section 245R(6) of the IT Act), the average time taken is stated to be reaching around four (4) years!- See Deloitte Report on Advance Rulings in India: Delivering Greater Tax Certainty (Deloitte Tax Policy Paper 5, 2019)  There is obviously lack of adequate numbers of presiding officers to deal with the volume of cases. Interestingly, the primary reason for this is the large number of vacancies and delayed appointments of Members to the AAR. ibid In view of the time taken, the very purpose of AAR is defeated, resulting in the mechanism being used infrequently as is evident from the ever- increasing tax related litigation.

      14. We may notice a significant development in Section 245N of the IT Act. It was through Notification No.11456 dated 3.8.2000 that public sector companies were added to the definition of ‘applicant’, and in 2014, it was made applicable to a resident who had undertaken one or more transactions of the value of ₹ 100 crore or more.

      15. Insofar as a resident is concerned, the limit is so high that it cannot provide any solace to any individual, and we do believe that it is time to reconsider and reduce the ceiling limit, more so in terms of the recent announcement stated to be in furtherance of a tax friendly face-less regime!

      16. We may refer to the international scenario where there has been an incremental shift towards mature tax regimes adopting advance ruling mechanisms. The increase in global trade puts the rulings system at the centre-stage of a robust international tax cooperation regime. The Organisation for Economic Cooperation and Development (for short ‘OECD’) lists advance rulings as one of the indicators to assess trade facilitation policies, making it an aspirational international best practice standard. For example, Australia and New Zealand have a robust system of advance rulings wherein the decisions (which are public rulings affecting a large number of taxpayers) are given teeth by being made binding on the revenue authorities. New Zealand has gone a step further and innovated “status rulings” under which a taxpayer can apply to the Commissioner for a ruling on how a change in the law impacts an existing ruling.

      17. In the United States, there is a mechanism for the Treasury to authorise guidance in the form of revenue rulings, procedures and notices. The mechanism again, has been bolstered by subsequent practice and interpretations of the United States courts, where rulings have indicated that taxpayers may be penalised if they act inconsistently with legal interpretations set out in the revenue rulings, procedures or notices.

      18. Tax transparency has been a hallmark trait of the Swedish legal system. Swedish law requires public disclosure of ex ante tax administration such as advance rulings. Both the taxpayer as well as the Swedish Tax Agency can request an advance tax ruling, these rulings are published without information identifying the taxpayer that requested them. The Skatterättsnämnden, or the Council for Advance Tax Rulings is the Swedish Government agency which is vested with this power. The advance ruling system has played a crucial role in Sweden’s position as a country with one of the highest tax compliance rates in the world.

      19. The aim of any properly framed advance ruling system ought to be a dialogue between taxpayers and revenue authorities to fulfil the mutually beneficial purpose for taxpayers and revenue authorities of bolstering tax compliance and boosting tax morale. This mechanism should not become another stage in the litigation process.

      20. We, thus, consider it appropriate to recommend to the Central Government to consider the efficacy of the advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved. A council for Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward.

       


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      2020 (9) TMI 496 - Supreme Court

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