income tax appellate tribunal

Centre’s New Rules for Appointing Income Tax Tribunal Members Are Still Problematic

The changes made to the ITAT under the new rules seem to blatantly ignore the principles iterated by the Supreme Court in a number of cases.

The politics of how members are appointed to India’s legal tribunals has always been a contentious issue.

Independence of the judiciary and separation of powers have been held to form part of the basic structure of the Indian Constitution. Considering tribunals perform the functions earlier performed by courts, the Supreme Court has held that such tribunals must also possess a dominant judicial character like courts and adhere to the principles of separation of powers.

Thus, tribunals in India are mandated to be similar to courts in terms of appointment and removal procedures, qualification of members, etc.

Last year, the Supreme Court struck down rules on the qualifications, appointments, removal, and remuneration of members to various tribunals formulated under Section 184 of the Finance Act, 2017, as being violative of the principle of separation of powers, and ordered the government to formulate new rules in strict adherence with the principles laid down by it.

Accordingly, on February 12, new rules were notified. However, the changes made to the Income Tax Appellate Tribunal (ITAT) under the new rules seem to blatantly ignore the principles iterated by the Supreme Court in a number of cases ranging from L. Chandra Kumar v. Union of India in 1997, to Rojer Mathew v. South Indian Bank in 2019.

In the erstwhile rules struck down by the Supreme Court last year, the search-cum-selection committee constituted for the purposes of appointing members of the ITAT – other than for the post of president and vice president of the tribunal – consisted of a minimum of two, and a maximum of four representatives from the government as opposed to just one judicial member.

This arrangement was held to be a direct contravention of the doctrine of separation of powers and an encroachment on the judicial domain. The Supreme Court went on to categorically hold that a committee constituted for the purposes of appointing tribunal members must be dominated by judicial members and not representatives from the government. Despite this, the new rules envisage an equal representation with two judicial members and two representatives from the government, without codifying a method of resolution in case of a tie between the members with judicial members voting alike.

Supreme Court. Photo: PTI

In order to ensure compliance with the Supreme Court’s directives, the judicial members must have the power to outvote government representatives in such situations, to ensure judicial dominance in the appointment process. However, equal representation is unlikely to be viewed by the courts as a means to achieve the desired outcome. While the new rules empower the search-cum-selection committee to formulate its own procedures, and this anomaly could be rectified therein by providing the judicial member with a casting vote in case of a tie. However, it remains to be seen how the search-cum-selection committee acts in this regard.

The composition of the ITAT has been retained from earlier with a president, a vice president, judicial members and accountant members. While the Supreme Court has held that judicial members should be given preference for appointment to the posts of president and vice president, the new rules mandate only the president to be a judicial member and the search-sum-selection committee has discretion over appointing either a judicial member or an accountant member as the vice-president. Thus, the search-cum-selection committee must be mindful while filling up the vacancy for the post of the vice-president, and only resort to appointing an accountant member as the vice president in cases where a suitable judicial member cannot be appointed.

Further, the new rules identify the eligible pool of candidates fit for appointment as judicial members of the ITAT. These include district judges with 10 years of service, members of the Indian Legal Services, and advocates with 25 years of standing. The Supreme Court has time and again held that the members of the Indian Legal Services are not fit for appointment as judicial members of any tribunal. However, the government seems to have failed to comply with this direction of the Supreme Court.

Furthermore, the apex court has categorically held that advocates having 10 years of standing, and district judges with five years of experience are perfectly eligible to be appointed as judicial members of tribunals. Despite that, the eligibility for appointment of advocates as judicial member of the ITAT has been increased, and for district judges, the threshold is above the minimum standard set by the Supreme Court.

While previously, advocates having 10 years of experience were eligible for appointment as members of the ITAT, this limit has now been changed to 25 years of standing experience, thereby narrowing the pool of candidates eligible for appointment as judicial members. This seems odd, given that on several occasions, the government has expressed its concern over its inability to find enough qualified members from the judiciary to be appointed as judicial members of a tribunal.

While the new rules suffer from lesser anomalies than the version struck down by the courts last year, some irregularities as identified persist nonetheless. Considering it is an age-old issue which has seen multiple litigations, the government needs to step up and fix these anomalies before it is dragged to courts again.

Nikhil Kapoor is a research fellow with the Tax Law Vertical of the Vidhi Centre for Legal Policy. The views expressed in this article are personal.

India to Try Solve Its Tax Dispute Litigation Mess, but Will the New Rules Do the Trick?

While the government is looking to take a crack at the Rs 7.6 lakh crore in tax claims locked up in litigation, it remains to be seen whether the tax man’s discretionary powers will undermine this push.

New Delhi: Nearly five months after outgoing chief economic adviser Arvind Subramanian flagged concerns over the increased delay in resolving corporate litigation disputes, the government has moved to unclog tribunals and courts choked with tax cases.

The finance ministry on Wednesday raised the threshold for filing appeals in tax disputes, in a move that should cut 27,000, or 41%, pending cases and provide relief to small businesses and taxpayers.

However, the ministry has kept intact the taxman’s discretionary powers, which allows them to not follow these new rules in cases where “substantial point of law is involved”.

According to tax experts, this is a grey area and discretionary powers could be misused to deny benefits of the circular to deserving taxpayers.

Dhaval Vussonji of Dhaval Vussonji and Associates, a Mumbai-based law firm, told The Wire that small businesses will benefit from the circular, though he too admitted that the clause relating to the “point of substantive law” is a grey area.

As of March 2017, direct and indirect tax claims of Rs 7.6 lakh crore are under dispute at various levels – ranging from tax tribunals to the Supreme Court.

However, the value of 66% of those cases account for just 1.8% of the total disputed tax value.

“Sometimes the amount spent on litigation is more than the amount received as tax later,” admitted Piyush Goyal, who is currently officiating as finance minister in the absence of Arun Jaitley, while talking to the media on Thursday.

Rs 6,000 crore in revenue foregone

According to a finance ministry statement, in the case of the Central Board of Direct Taxes (CBDT), 34% out of the total cases filed by the department at the Income Tax Appellate Tribunal will be withdrawn.

In the case of the high courts, 48% of cases will be withdrawn and 54% of cases will be withdrawn in the Supreme Court.

The total percentage of reduction of litigation from department’s side will get reduced by 41%. However, this will not apply in such cases where substantial point of law is involved, said a finance ministry statement.

Similarly, in case of the Central Board of Indirect Taxes and Customs, out of the total cases filed by the department in Customs, Excise and Service Tax Appellate Tribunal, 16% of cases will be withdrawn.

In the case of the high courts, 22% of cases will be withdrawn and in the case of the Supreme Court, 21% of cases will be withdrawn.

“The total percentage of reduction of litigation from the department’s side will get reduced by 18%. However, this will not apply in such cases where substantial point of law is involved,” the statement said.

“This is a major step in the direction of litigation management of both direct and indirect taxes as it will effectively reduce minor litigations and help the Department to focus on high value litigations,” the statement added.

With the withdrawal of all these cases, the Narendra Modi government will forego about Rs 6,000 crore in tax .

Are separate benches needed?

The Economic Survey 2017-18, authored by a team led by the CEA and tabled in parliament in January, had pitched for setting up separate benches at various high courts to bring down pendency.

“India needs to address pendency, delays and injunctions which are overburdening courts and severely impacting the progress of cases, especially economic cases, through the different tiers of the appellate and judicial arenas if it wants to further ease prospects of doing business here,” the survey had said.

The survey analysed six prominent appellate tribunals that deal exclusively with high stakes commercial matters – telecom (Telecom Dispute Settlement and Appellate Tribunal, or TDSAT), electricity (Appellate Tribunal for Electricity, or APTEL), environment (National Green Tribunal, or NGT), consumer protection (National Consumer Disputes Redressal Commission, or NCDRC), central income tax (Income Tax Appellate Tribunal, or ITAT), and central indirect taxes (Customs, Excise and Service Tax Appellate Tribunal, or CESTAT.

Its analysis revealed a high level of pendency across the six tribunals, estimated at about 1.8 lakh cases. The pendency has risen sharply over time. Compared to 2012, there is now a 25% increase in the size of unresolved cases. The average age of pending cases across these tribunals is 3.8 years.

On the other hand, total backlog in high courts by the end of 2017 as per the National Judicial Data Grid is close to 35 lakh cases. While the volume of economic cases is smaller than other case categories, their average duration of pendency is arguably the worst of most cases, nearly 4.3 years for five major high courts – Delhi, Madras, Bombay, Calcutta, and Allahabad.

The average pendency of tax cases is particularly acute at nearly six years per case, according to the website Livelaw.in.

The Supreme Court too is constrained by high pendency to deal with rising economic cases.

The survey observed delays and pendency of economic cases are high and mounting, which is taking a severe toll on the economy in terms of stalled projects, mounting legal costs, contested tax revenues and reduced investment.

The survey noted that the government persists with litigation despite high rates of failure at every stage of the appellate process, which adds to pendency.

On this point, it pointed approvingly towards the Supreme Court’s experience of a dedicated bench to deal with taxation issues.

“The Supreme Court’s recent experiment with constituting an exclusive bench for taxation produced impressive results, which may be replicated for other subject matters, and emulated by other high courts that do not have special rosters for daily hearings,” suggested the document.

The survey also highlighted that since the tax bench was set up in 2014, the apex court has been able to reverse the trend of burgeoning pendency of tax cases.

“It is noteworthy that during this period, the SC reduced its reliance on staying claims of the department (revenue), and focused on hearing and disposing cases,” the survey said.

‘Immediate’ Tax Demand of Rs 429 Crore is Blatantly Unlawful, Says NDTV

It also characterised recent decisions taken by CBI, ED and income tax department as “attempts to intimidate and paralyse” the news organisation.

NDTV believes that it is being intimidated and harassed by the government. Credit: Reuters, PTI

New Delhi: Broadcast channel NDTV has called a tax demand notice of Rs 429 crores from the income tax department (IT department) “blatantly unlawful” and characterised it as part of a larger attempt by various government organisations to “intimidate and paralyse” the news organisation.

In a statement issued on Friday, the TV channel – which was subject to a series of CBI raids last month over the issue of allegedly causing a loss of Rs 48 crore to ICICI bank – stated that it was currently facing “new attacks from the CBI and enforcement directorate”.

“In short, there is a concerted and orchestrated three-pronged attack on NDTV by the CBI, enforcement directorate and income tax department,” the statement said.

Over the last five years, the income tax department has launched investigations into NDTV over tax liabilities, in the range of Rs 450 to 500 crore. Last week, the Income Tax Appellate Tribunal (ITAT) upheld the IT department’s tax demand on a $150-million investment by a US television network in NDTV in 2008. At the time NDTV said that the ITAT’s order had “numerous inconsistencies and contradictions”.

This week, NDTV received a demand of Rs 429 crores from the IT department, a letter that allegedly stated that the broadcast channel had to pay the amount “immediately now”.

“A demand for immediate payment without any notice period is unheard of and smacks of sinister motives by the IT Department. NDTV will not take such arbitrary and illegal action lying down and will take appropriate action in the matter,” the company said in its statement.

According to the statement put out by NDTV, the income tax department’s letter is blatantly unlawful for four reasons:

1) The IT department has not even completed the assessment of NDTV as directed by the Income Tax Appellate Tribunal (ITAT).

2) The ITAT had told the IT Department to make a fresh assessment on no less than four issues. These instructions have been flat-out ignored by the IT Department in rushing its tax demand to NDTV.

3) It is unknown in law to make this sort of “partial tax demand” without completing the entire tax assessment.

4) Income Tax law only recognises one assessment order – and the IT Department must complete the assessment including the four new factors raised by the ITAT.

In addition to this, NDTV states that it still has 120 days to appeal the ITAT order, and that the tax department has acted before it could do so.

CBI, ED pressure

The news organisation believes that the IT department’s urgency “reflects instructions to punish NDTV” and that is a “warning to the media at large of the consequences of balancer journalism”.

According to the broadcast channel, both the CBI and Enforcement Directorate (ED) have also stepped up pressure over the last week.

“In an undisguised fishing expedition, the CBI has sent NDTV a letter demanding documents from NDTV and its subsidiaries for an unspecified period – this despite NDTV having supplied more than 500 pages of documents only two weeks ago. Strangely, the CBI does not acknowledge the receipt of these documents,” NDTV said in a statement.

The ED, on Thursday, informed the Bombay High Court that it had started investigating NDTV for violations under the Prevention of Money Laundering Act. Over the past five years, the ED has launched investigations into these allegations.

NDTV, however, maintains that it has not been informed of such charges.

“The ED has already spent a good part of the year summoning NDTV management and questioning them repeatedly, without informing the company of what it has done wrong. The government is making clear the implications of fearless journalism. Despite the illegal and massive pressure, NDTV will not allow its coverage to be affected by these shameful tactics.”