Retro panel may not have powers to direct field officers

CBDT can give general directions but I-T Act limits its authority in issue of instructions to assessors in specific cases

A high-level committee under the Central Board of Direct Taxes (CBDT) to look at all fresh cases of retrospective taxation on indirect transfer of assets - as announced by Finance Minister Arun Jaitley in this year's Budget - might not have a legal backing to issue instructions to assessing officers in specific cases.

At present, the Income Tax Act does not allow CBDT to issue instructions or directions to an assessing officer on making a particular assessment or disposing of a case in a particular manner. This will limit the powers of this high-level committee.

"Under Section 119 of the I-T Act, CBDT can give instructions to assessing officers but there are some limitations. It cannot tell an assessing officer how to go about a particular case. So, we are trying to figure out how this committee will work," said a finance ministry official who did not wish to be named.

The finance ministry is, however, thinking of going ahead with notification of the committee by carefully wording its terms of reference. Since the committee is likely to benefit taxpayers, CBDT is confident its legality will not be challenged in any court. However, if an assessing officer doesn't agree with the committee's observation, there could be a problem.

Another ministry official confirmed this was the reason why setting up of the committee was delayed. He said various options were considered for setting up a panel with the objective mentioned in the Budget. For example, the committee could take a decision in consultation with the additional commissioner concerned, from whom an assessing officer takes instructions.

"I think the committee was formed mainly to give an assurance to the public that the government will not misuse the retrospective amendment. I don't think they will open any past case," said PricewaterhouseCoopers partner Rahul Mitra.

Next week, the finance ministry might issue instructions on the composition of the committee and its powers. The panel is likely to be headed by a CBDT member and have some commissioners as members.

"CBDT cannot issue instructions during the course of assessment. This committee will only look at cases where assessment has not begun," said a third official, interpreting the provisions of Section 119, under which the board issues administrative circulars to field officers.

Among companies affected by retrospective taxation on indirect transfer of assets are Vodafone, Cairn, AT&T, Mcleod Russel India, SAB Miller and Sanofi. The cases involving these firms, however, cannot be looked at by this committee, as the assessment in these cases has already begun; in some, even closed.

According to officials, though there would not be many fresh cases, the committee might have been proposed to send a positive signal to investors that the government was committed to providing a stable tax regime.

The proposal to set up such a committee had come up during the tenure of former finance minister P Chidambaram, too. But the finance ministry had, instead, come out with a circular that cases where scrutiny was made would not be reopened.

"We have decided, henceforth, all fresh cases arising out of the retrospective amendments of 2012 in respect of indirect transfers and coming to the notice of assessing officers will be scrutinised by a high-level committee to be constituted by CBDT before any action is initiated in such cases," Jaitley had said in his Budget speech.