T N Pandey: New plan to unearth black money

TAXING MATTERS

The common minimum programme (CMP) of the United Progressive Alliance (UPA) government has been pronounced. One aspect of the programme relates to formulation of a special scheme to ferret out black money.

When asked to clarify whether the CMP implied that there would be a new tax amnesty scheme, like the Voluntary Disclosure of Income Scheme (VDIS), Finance Minister P Chidambaram avoided the issue by saying: "The word 'amnesty' is your interpolation. The CMP merely talks about special scheme."

There are enough provisions in the Income Tax Act to catch tax-evaders and make them pay their due share of taxes, backed by deterrent measures like penalty and prosecution.

If, despite this, the black money gets generated, the remedy lies in having a re-look at the legal provisions to examine whether the law needs to be made more stringent and enforcement machinery more effective. This cannot be done by "schemes".

Having failed to realise taxes through normal measures, the government now proposes to appeal to evaders to dole out taxes. Any such appeal has to be sugar-coated, incentive-based and at the cost of honest taxpayers. Whether it is called amnesty or VDIS is not material.

Chidambaram already has to his credit one voluntary disclosure scheme, which was announced while presenting the Budget for 1997-98.

In paragraph 92 of the Budget speech, he said: "I believe that the time is opportune to introduce a voluntary disclosure scheme. This will be a simple scheme where, irrespective of the year or the nature or the source of the funds, the amount disclosed, either as cash, securities or assets, whether held in India or abroad, will be charged at the revised highest rate of tax. Interest and penalty will be waived. Immunity will be granted from any action under the Income Tax, Wealth Tax and Foreign Exchange Regulation Acts".

The scheme opened floodgates for evaders and black marketers to declare income and wealth"" existing or fictitious. Suddenly people in the country were found to be owners of tonnes of jewellery, gold, silverware, diamonds and precious stones, which was brought to books merely by paying tax at the rate of 30-35 per cent.

Bogus declarations were made even to cover incomes for future years. Under the scheme, the tax officials were barred to make any probe into the source from where declarant has earned the income/wealth declared. It was roses, roses all around.

The scheme shook the conscience of some well meaning people. The All-India Federation of Tax Practitioners filed a writ petition in the Bombay High Court, challenging the provisions of VDIS, 1997, labelling it as unconstitutional, ultra vires in its entirety with a prayer that the government be directed not to implement it.

The court, however, held that the scheme was constitutional, but made observations, which showed that such schemes were to be deprecated. The court said:

• By voluntary disclosure schemes, dishonest taxpayers get advantage.
• There might be abuse of the scheme.
• It is true that honest taxpayer is at discount.

But, the challenge to the scheme was turned down, inter alia, on the grounds that:

• Despite stringent taxation laws, for various reasons, it appeared that it was not possible for the executive to unearth unaccounted money. (This is a sad commentary).
• The court's platform could not be used for having a debate whether such scheme would yield results.
• It was for Parliament to enact laws pertaining to tax , giving benefits or immunities to tax-evaders or taxpayers.

The matter was taken in appeal to the Supreme Court through a special leave petition.

During the hearing, the attorney-general placed the following statement before the apex court, indicating the policy, which the government is following, and will be following in checking tax evasion. His said:-

• After December 31, 1997, the income-tax department will considerably step up survey operations under Section 133 A of the Income Tax Act, 1961, and search operations under Section 132 of the Income Tax Act, 1961.
• With effect from January 1, 1997, if, in the course of a search, undisclosed income is detected then the assessee is liable to pay:-

• tax at the rate of 60 per cent;
• penalty, which can be up to 300 per cent on the tax evaded;
• interest under Section 158BFA. (This scheme is no longer in force).

• In every case of detection of undisclosed income, prosecution will be launched (This in practice, does not happen).
• Besides tightening up of legal provisions, the following steps have also been taken:-
• Acceleration of the process of issuing Permanent Account Number (PAN);
• Acceleration of the computerisation of the income-tax department ;
• Installation of software to detect assessees, who satisfy the criteria laid down under the proviso to Section 139(1) of the Income Tax Act.
• The government is committed to making a success of the VDIS-97 for fulfilling the objectives set in the finance minister's Budget speech."

In view of the statement of the attorney-general, the court did not consider it necessary to interfere with the judgment of the high court.

Observations of the high court, in its decision (supra), reported in (1997) 93 Taxman 737/228 ITR 63 (Bom) are in terms indictment of such scheme, which was upheld on technical grounds.

The apex court upheld the validity of the VDIS-97 in view of the statement made by the attorney-general.

However, despite the rosy picture pointed out by the attorney-general before the Supreme Court, the position did not improve. For this, administrative steps are necessary""not special schemes.

The Wanchoo Committee, in its report has criticised floating of such schemes. Apparently, the need is to work out measures for augmenting tax revenue, and not float any new scheme for giving benefits to tax evaders.

Such schemes, besides seriously dampening enthusiasm for voluntary compliance, affect the morale of tax administration and erode the credibility of the government to check tax evasion.

Hence, the idea of special scheme, to bring out black money, as conceived in the CMP, needs a fresh thinking after weighing the pros and cons of the proposal.

If still Chidambaram brings out an amnesty scheme, it is feared that people may start calling him D (Disclosure) Chidambaram instead of P Chidambaram.