T N Pandey: Attempt to widen income tax information net

TAXING MATTERS

To pass on the burden in regard to collection of information for income tax assessment on taxpayers and others, a step has been taken vide the Finance Bill, 2004 by prescribing filing of annual information returns.

Clause 58 of the Bill substitutes a new Section 285BA for Section 285BA, which provided that any assessee, who entered into any financial transaction, as may be prescribed, with any other person, should furnish, within the prescribed time, an annual information return in such form and manner as may be prescribed in respect of such financial transactions entered into during any financial year.

This section was inserted in the Income Tax Act by the Finance Act, 2003 with effect from 1, 2004. Before the ink could dry, as the phrase goes, relating to this provision, it has been discarded and replaced by a new provision of the same number and dealing with the same matter.

Such piece-meal legislations, besides duplicating efforts, do not indicate the seriousness needed in drafting tax laws.

The need for bringing more exhaustive provision concerning information returns was realised because it was felt that the existing section did not cast any obligation on government agencies and others, who possess information, which can be useful in the context of income tax assessments, to furnish the same to the income tax authorities nor any mechanism was provided for it.

The provisions of the proposed new section are:-

• Sub-section (1) provides that an assessee or any other person prescribed in the case of an office of the government or certain other authorities, who are responsible for registering or maintaining a record or persons, who enter into specific financial transactions shall furnish an annual information return in respect of such transactions registered or recorded or entered into on or after April 1, 2004 to the authority notified for this purpose or such other authority or agency as may be prescribed. The other authorities, who are to file returns mentioned in sub-section(1) are registrars/sub-registrars, PMG, collector under the Land Acquisition Act, stock exchanges, the RBI and depository under the Depository Act, 1996.
• Sub-section (2) stipulates that the return shall be furnished within the prescribed time. The return has to be in the prescribed manner, including a floppy diskette, magnetic cartridge tape, compact disc or any computer readable media. Where the prescribed authority considers the annual return defective, he may intimate such defect to the person, furnishing the return, requiring him to rectify the same within one month or within such time as may be extended and thereafter, the rectified return would be filed within the time allowed (sub-section(4)).
• Sub-section(5) provides that if a person, required to file the return, fails to do so, then the prescribed income tax authority shall issue a notice for the furnishing of the return to the defaulter within the time specified in the notice.

The proposed new Section 271FA prescribes penalty for those, who fail to furnish the return within the time prescribed, which is Rs 100 for every day during which the default continues. The most important provision in the proposed section is sub-section (3), which inclusively defines the expression "specified financial transactions" to include

• a transaction of purchase, sale or exchange of goods or property or right or interest in property;
• rendering of any service;
• works contract ;
• transaction of investment or expenditure; and
• transaction of accepting any loan or deposit (why giving of loans and deposits has been excluded is not clear) and makes filing of Information Returns mandatory.

Where the value or aggregate value of the transactions referred to it (a) to (e) earlier exceeds Rs 50,000 or such other higher value as may be prescribed.

The provision, when enacted, is going to be extremely bothersome for taxpayers, who are not well organised like individuals/Hindu undivided families, and also create substantial implementation problems and infructuous work for the income tax department for which the department does not seem to be geared up unless the monetary limit is kept high.

At present, if a person in a year buys a refrigerator (Rs 15,000) incurs an expenditure on the repair of his residence (Rs 10,000) takes up tuition and earn say Rs 15,000 from it, takes a loan of Rs 20,000 from his brother to pay the fee of his son in a college, he will be required to file an information return, as the total of all the aforesaid sums in aggregate, exceeds Rs 50,000.

Further, prescribing of the items like services to be included in the return may not be an easy exercise. Fixing the monetary limits at high figures may frustrate the very object of the exercise.

Hence, the intended returns may not be very useful unless considerable thought is given for areas, where prescribing is to be done by the government. The income tax department, it appears, has gone into the practice of collecting information without making much use of the same.

The "one-by-six scheme" has already generated enough records, which have been practically of no use (at least no reports have appeared in press to show its usefulness). The proposal to get returns from those, who will have no tax liability up to Rs 100,000 income and proposed information returns too will fall in this category.

Incidentally, nearly two decades back tax return, soliciting information on similar lines, was prescribed under the income tax rules. Because of great public uproar, it had to be withdrawn. The same fate may not be awaiting for the new Section 285 BA.

Finally, in an economy, where parallel money is the order of the day, much information in regard to various items, mentioned for the returns, may not be surfacing out for being included in the return, thus, defeating the very objective behind such returns.