Caught In A Jam

That the circulars by the CBDT giving umpteen benefits were indeed unauthorised, now stands confirmed by the Andhra Pradesh High Courts decision in the case of Shankarlal vs ITO (1998).

The issue before the court related to the interpretation of section 64 (2) (ii) of Chapter IV of the Finance Act, 1997, operative from July 1, 1997 to December 12, 1997. During the period that VDIS was in force, any person could declare any income chargeable to tax for any assessment year in respect of which he has not filed a return under s.139, or which he has not disclosed in a return filed earlier. The income so disclosed was chargeable to tax at the rate of 35 per cent in respect of a company or firm, and at the rate of 30 per cent in the case of others.

 

But nothing in the scheme was to apply to income assessable for any assessment year for which notice under s.142 or s.148 has been served and the return has not been filed before the commencement of the scheme, and to the income in the previous year in which a search was initiated under s.132, a requisition was made under s.132A, or a survey was conducted under s.133A, and in respect of any earlier previous years in search cases. The voluntarily disclosed income was not to be included in the total income where tax is paid in respect of it, and such tax was not refundable.

A number of clarifications were issued concerning VDIS, inter-alia, for search cases also. The relevant questions and replies relating to search cases are contained in circular no. 754 (questions no. 6 & 23 and their replies) and circular no. 755 (questions no. 35 & 52 and their replies). These replies stipulate that for the year in which search had been conducted and all the years prior to that year, no declaration under the VDIS could be filed. Further, declarations could be made in cases where assessments have been set aside by the appellate authorities.

Elaborating on the relevant provisions concerning VDIS, in the writ petition, the court has rejected the contentions that classification of tax-evaders has no nexus with the object of the scheme, and that persons equally placed are not treated equally on the grounds that the object of the scheme is to give concessional rate of tax and immunity in respect of disclosure of the concealed income. Since the scheme applies to disclosure of incomes and not persons, there is no discrimination vis-a-vis persons equally placed.

While considering the writ petition, the court has also examined the authority of the CBDT to issue circulars concerning VDIS. It has observed that the Board had no power to confer benefits to the declarants outside the provisions of the VDIS by issue of circulars.

It has also observed that Chapter IV of the Finance Act, 1997, does not contain any section enabling the CBDT to issue any clarifications. Section 77 only enables the Board to make rules which are also to be placed before each house of the parliament. Reference was made to s.119 of IT Act which enables the Board to issue circulars for proper administration of the Act. Since the Finance Act is not part of the IT Act, clearly the provisions of s.119 cannot apply.

The CBDT was constituted by the Central Board of Revenue Act, 1963 and the functions entrusted to it are such as are given under the various taxing statutes. The Finance Act does not contain any provisions other than s.77 entrusting any function of giving clarification to the CBDT. On the other hand, s.76 provides that the central government may remove difficulties in giving effect to the provisions of the scheme and this function cannot be delegated to the CBDT under that section.

Interestingly, no counter affidavit concerning the authority of the CBDT to issue the impugned circulars was filed by the government before the court. This fact has been taken by the court to indicate that the government had no grounds to issue the circulars.

The decision of the court clearly shows that the provisions of VDIS were overliberalised by CBDT and Secretary (Revenue) much beyond what was conceived of by the parliament. Irregularities galore viz, permitting valuation of silver and gold (other than jewellery) coins on the date of acquisition merely on the basis of statements/affidavits, permitting declaration in set aside cases, asking the appellate authorities to set aside assessments so that the appellants could make declarations under VDIS.

As pointed out by the Andhra Pradesh High Court, these do not confer any legitimate rights on the declarants to avail of the VDIS benefits. And hence, such persons are disentitled to claim immunity under VDIS.

Further, the question whether the scheme has succeeded or not needs to be re-examined after excluding declarations prompted by unauthorised inducements, which the CBDT was not competent to issue.