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Finally…Achche Din For Tax Litigation?

Published on Fri, Dec 18,2015 | 22:38, Updated at Mon, Dec 21 at 22:20Source : CNBC-TV18 |   Watch Video :

There’s good news for Indian taxpayers. Actually it may even be landmark news. A couple of announcements by the CBDT indicate a new approach to tax litigation. Couple that with the speedier disposal of tax cases and what do you know – achche din may finally be here for tax litigation!

On the show this week, Menaka Doshi of CNBC-TV18 is joined by two veteran tax lawyers – Dinesh Vyas and Arvind Datar.


Jan – May 2014

APPEALS FILED            4784
By Tax Department        3968
By Assessees                816


Nov 2014
Collegium of Chief Commissioners Of Income Tax to approve filing of appeals

Dec 2015
Extend collegium system to also consider withdrawal of appeals from High Courts if they are no longer considered prosecutable

Doshi: There are two CBDT decisions from barely three days ago that I want to discuss with you. Starting first with the one that I consider a landmark -- the Tax department has often been criticised by High Courts for filing frivolous appeals. A Bombay High Court judgement noted that in the first five months of 2014 of 4,784 appeals filed from tribunal orders, 3,968 were filed by revenue and only 816 by assessees. Last year, a CBDT order directed collegiums of chief commissioners of Income Tax to approve the filing of appeals before High Courts but the problem persists and the criticism unabated. So now the CBDT has decided to extend the collegium system to consider withdrawal of appeals that are no longer prosecutable.

Have you ever heard of tax department taking a position that we will consider withdrawing frivolous appeals?

Tax Dept vs Tata Petrodyne

‘It is unfortunate that the Revenue officials, often very senior, unmindful of the damage that they cause to larger public interest by indulging in fruitless litigations, file frivolous Appeals to this Court and burden this Court unnecessarily.’

Bombay High Court
December 2014

Vyas: No, never in the past had things such as this had happened. At this stage, let me draw your attention to the decision of the Bombay High Court in the case of Tata Petrodyne. The judgement delivered by Justice Dharmadhikari and Justice Syed in the month of October or November 1914, it was there that the Bombay High Court had delivered a very stern warning to the department and told them not to file frivolous litigation and they also warned that if the trend of filing frivolous litigation continues, the court will be compelled to levy heavy costs on the department and in some cases, the costs maybe recovered also from the officers. It is because of that the heat seems to have been generated. So it is from that point of view that the department has obviously started taking things very seriously and we are happy. There is a change in the mindsets and we hope that this continues.

Credit Agricole vs Tax Dept

‘Either there is no application of mind to the order of the Tribunal before filing of this appeal or the Revenue is deliberately seeking to keep the pot boiling, so that uncertainty is kept alive. It shows the casual attitude of the Revenue in filing appeals.  This  is not   the   first   of   its   kind.   We   had   earlier   also   passed   orders disapproving   this   conduct   of   the   revenue,   but   there   is   no improvement.’

Bombay High Court
June 2015

Credit Agricole vs Tax Dept

‘What   could possibly be  done is to  provide an inhouse committee of senior officers  of  the  Revenue to  review decisions taken in respect  of appeals already filed and pending.’

Bombay High Court
June 2015

Doshi: The Bombay High Court may have sparked this fire if I may say so. It has also added fuel to it, because I am going to refer to another decision in the Credit Agricole case where a bench of Justice Sanklecha and Justice Jamdar scolds the appeal by the tax department frivolous saying, "Either there is no application of mind to the order of the Tribunal before filing of this appeal or the Revenue is deliberately seeking to keep the pot boiling, so that uncertainty is kept alive. It shows the casual attitude of the Revenue in filing appeals. This is not the first of its kind. We had earlier also passed orders disapproving this conduct of the revenue, but there is no improvement." In that very same decision, the Bombay High Court has suggested that this kind of collegium system be set up and in-house committee of senior officers to review decisions taken in the aspect or respect of appeals already filed and pending and it seems that the CBDT has followed up on both these directions of the Bombay High Court. The one that you outlined and the one that I have added to this discussion. How much faith do you have that the tax department will in fact use these collegiums not only to review the appeals that are taking place from the tribunal to the High Court levels but now also consider withdrawing some of those frivolous appeals because this is probably the first time that the department will consider doing this?

Datar: Yes, as Mr Vyas pointed out this is indeed completely new landmark event. I think there is no better way to start 2016 than by having the collegium decide and withdraw the appeals, which are not worth pursuing.

However, I was just hearing what you were saying and Mr Vyas was mentioning. It is very easy to criticise the department for filing appeals but one must also realise that sometimes it is a question of playing safe. They don’t file an appeal, they are found to fault with. If they file an appeal, they are found to fault with and you have the audit-making all sorts of comments saying that you did not file the appeal and there was a loss of revenue so it was basically an attitude of playing safe that why should I take a chance and I will simplify the appeal and let the High Court or the superior tribunal of the high court decide. That is the point.

Now with the collegium, you will not be able to victimise a particular officer for not filing the appeal. There is a collegium of two very senior officers and I am certain that they will take a decision and withdraw the appeal. Especially where the cases are already covered by the Supreme Court, cases are no longer relevant. They might as well withdraw the appeal and I think they have also given clear guidelines as to when they will withdraw and when they will not withdraw and if they follow the guidelines, it will be a very welcome step in reducing the arrears in the courts. Particularly one more fact you must know that because of the NJAC judgement and so on, the vacancies are now 40 percent in High Court. In many High Courts, the vacancies have touched 40 percent of the total strength. So you also have a shortage of judges. So this kind of move is most welcome. It will reduce the pressure on the courts.



Collegium will consider withdrawal of appeals in cases
-    if no question of law is involved
-    issue is considered settled by the Dept
appeal no longer relevant due to amendment

Doshi: They have put down some guidelines for the withdrawal of such appeals and very briefly the department is saying that this will be considered in cases involving the tax effect above the revised monetary limit if no question of law is involved or if the issue is considered settled by the department or the appeal is no longer relevant in view of subsequent amendment. Do you think these are too many caveats and that in effect, very few cases will be considered for withdrawal of appeal or these are fair grounds?

Datar: No, I think these are fair grounds because suppose if it is an important question of law, even if the amount is less, they will not withdraw it and they had mentioned cases where there are multiple batches where it involves the constitutional validity of a provision. So I think all in all I would say, I have gone through the guidelines, I think they have been well drafted.

Doshi: Do you have any doubts about the feasibility of this. Maybe this looks good on paper but is unimplementable in real life, this ability to withdraw or consider withdrawing cases?

Vyas: No, it is attractive and possible for a serious implementation in practice also. The reason is this that it is the climate which has changed totally, number one. So far the decisions for either filing or for withdrawal was being taken by one single commissioner sitting alone in his office whereas now it is going to be a collegium consisting of normally probably three commissioners.

Doshi: Here it says two.

Vyas: Even if it is two there will be objectivity, truthfulness and the fear that it is me, me and me alone who is taking a decision. Once that fear is not there, once it is a joint decision the adherence to the truth, objectivity will be much greater.


‘The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, in a major decision, has decided to accept the order of the High Court of Bombay in the case of Vodafone India Services Private Limited (VISPL) dated 10.10.2014. This is a major correction of a tax matter which has adversely affected investor sentiment.’

Government Of India
28th January 2015

Doshi: This whole approach of the department of revenue or the tax department was in fact heralded by the decisions in the Vodafone transfer pricing case and the Shell transfer pricing case because in both those cases the decision by the Bombay High Court was against revenue and revenue at that point decided that we are not going to appeal these matters to the Supreme Court thereby in a sense setting a new precedent because it is very rare in this country that in big ticket cases where the numbers involved or the amount involved are very large that revenue decides not to appeal. One may argue that those cases to begin with could have been termed frivolous yet I do want your comment on what you think this means, a landmark shift in the way the government and the department of taxes looks at tax litigation?

Vyas: “Yes, certainly. It is certainly a very major departure. Let me draw your attention to the fact that as far as the decision not to file an appeal in the case of Vodafone that was taken at the cabinet level. It was in the cabinet, the meeting presided over by Mr Narendra Modi and all other senior ministers that this decision was taken and since it was taken at that higher level naturally it assumed importance. Since it was taken at that high level it is to be implemented, it is to be very seriously followed and I will say that whatever is happening now is in a way continuation of the same spirit.”


Revises monetary threshold for filing appeals

                                                      NOW                 EARLIER
Before ITAT      More than           Rs 10 lakhs         Rs 4 lakhs
Before HC        More than           Rs 20 lakhs         Rs 10 lakhs
Before SC        More than           Rs 25 lakhs         Rs 25 lakhs

Threshold refers to ‘tax effect’

The CBDT has also raised the monetary limits or thresholds for filing appeals. Here onwards matters in which the tax effect is lower than Rs 10 lakh will not be appealed by the department at the ITAT or tribunal level. The threshold for filing high court appeals has been doubled to Rs 20 lakh and for the Supreme Court stays at Rs 25 lakh.

Doshi: But what is most interesting is that this comes with retrospective effect. So, wherever there were pending appeals where the thresholds did not match the revised thresholds those cases can immediately be withdrawn or cancelled out?

Vyas: Yes, absolutely. In fact let me tell you in Ahmedabad day before yesterday an order is passed by the tribunal already in implementation of the CBDT circular of December 10. In Ahmedabad a tribunal order has been passed where 251 appeals are already disposed off on the ground of monetary limit and 1500 more appeals are slated for hearing immediately and they again are going to be disposed off because they are below the monetary limit which is laid down in the new circular. So, naturally this will apply retrospectively and that will therefore go a long way to reduce the current litigation also.

Doshi: This discussion is with many firsts because after a long time I am using the word retrospective with a positive attribute to it. The tax department says both moves together. The collegiums that will now consider withdrawal of frivolous appeals as well as this raising of monetary thresholds could cut tax litigation down by 50 percent. Do you think that could possibly happen?

Datar: I don't have the empirical about 50 percent but I am told that it could be anywhere between the region of 35-50 percent and as you mentioned that retrospective had acquired a very odious tone after the Vodafone amendment and when Mr Vyas mentioned about the decision in Vodafone equally embarrassing was the decision in Shell. The decision not to press the appeal before the Supreme Court was because the demand itself was so outrageous. You say that the premium on a share is your income under transfer pricing and then you say the premium should have been Rs 50,000 and you demand tax on that, demand interest on that, if it had gone to the Supreme Court it would have been laughable in world circles.

You see as it is after the Vodafone amendments retrospective amendments we have been subject to a great deal of criticism in international tax circles, we have got the largest amount of tax litigation. So, it had become so embarrassing to the government that the government starts appealing in every little case that this was perhaps a step in terms of necessity but what is heartening is that they have taken note of the criticism and acted positively and not stuck to some kind of obdurate principles that we will not change.

When you mention about retrospective you see unless they had made this circular retrospective it would have not made sense because if you say there are a lakh of appeals pending in the tribunal and if you are going to operate it prospectively then you are only going to cut down the appeals in future but what about the past. So, if you are to cut down the number of cases it had to be applied even to pending cases.

Doshi: There have been other changes taking place even in the judicial process front that is helping the expediting of tax litigation so to speak. In a conversation a few weeks ago, you were telling me how busy you were because the ITAT strength or the vacancies at the ITAT had been rapidly filled over the last few months and cases are now being heard faster than ever before.

Vyas: That is absolutely correct because in the last two-three months about 30 new members have been appointed. With the result that most of the benches in every station, every city wherever the tribunal is functioning, most of the benches are now functional and because more benches are functional obviously the rate of disposal of the appeals is also going up, the number of hearings which are taking place in the tribunal is going up very rapidly and naturally therefore this results in a faster and larger disposal of the appeals. So 30 new members have searched and added to the momentum, to the speed of the disposal of tax litigation in the tribunal.

Doshi: Also keeping lawyers busy was the Supreme Court tax bench, which maybe on a bit of a break since the early part of December but in a previous conversation I have had with you, you were indicating that the constitution of that tax bench since March this year has helped move cases stuck at the Supreme Court level, which number somewhere close to more than 10,000 have helped them move much faster.

Datar: Yes. In fact, the statistics show the appeals pending from 2002 and now in a matter of a few months, they have come to 2008. They have disposed off that number of appeals and this Supreme Court bench was excellent. It had a very good grasp of the subject and very speedy disposal.

Doshi: You said that the tax bench is no longer sitting since the beginning of December?

Datar: There was this cash bench, which was consisting of Justice Sikri and Justice Nariman, which was functioning for quite some time but after Chief Justice Dattur retired, Justice Sikri is now sitting on the first bench with Chief Justice Thakur and Justice Banumathi. So I do not know what is the plan post vacation. If he reconstitutes the bench then there will be another tax bench but right now there is no dedicated tax bench as it was earlier.

Doshi: You are hopeful that a tax bench will be reconstituted?

Datar: We hope so and I also wanted to mention -- I don’t know if it is relevant now but just as CBDT has issued a circular fixing monetary limits, I hope the Central Board of Excise and Customs also comes with a parallel circular whereby excise and customs appeals of -- which are either frivolous or low value, how we want to call them, they are also taken off the roster because their pendency is quite large in the excise tribunal as well. So I think this move by the CBDT can and should be copied or followed in indirect taxes as well.

Doshi: Which brings me to my last question and that leads back to my introduction, in which I said that finally Acche Din might be here for tax litigation, would you say that is the case and what else would you recommend the government implement, the judiciary implement so that these good efforts are doubled?

Vyas: Yes, certainly acche din are going to be coming. There is no doubt about it. If you ask me very specifically, what is the suggestion? In the income tax department, the representation of the cases on behalf of the department is an area where the CBDT and the government needs to look at very seriously. Let us face the reality. Today nobody wants to be a departmental representative in the tribunal and because of that the cooperation, which the department itself should give to the tribunal is lacking. It is not in the right measure and if therefore that area is taken up very seriously, I am sure that the engine of litigation rendering of the justice will move much faster.

Doshi: Acche Din for tax litigation are here?

Datar: Yes, I wholly agree with Mr Vyas on that and I think there is no better way to begin the New Year than this circular at least as far as the direct taxes is concerned.

On the suggestions for improvement as you ask me, I would just mention two things, one is this is a good step forward but it would be better if we have a situation where just as a collegium of not filing frivolous appeals, there should be some system where there is a method of not starting the frivolous litigation like the Shell case or the Vodafone case or the various transfer pricing cases, indiscriminate reopening assessments. If you nip it in the bud, you will have a system where you don’t come to situation where you have a bad assessment order, a bad appeal, a further bad appeal to the tribunal and then suddenly you wake up and say, there is too much of litigation and I am going to chop off 30-40 percent of cases. If you have proper assessment orders, you will have that many less frivolous appeals. That is one suggestion.

I don’t know if Mr Vyas will agree with me but one of the suggestions of my colleagues telling me is that the income tax tribunal works only half a day. Will it be possible for them to work full day as the excise tribunal works or the company law board works? If not for all the five days at least for two-three days, they can sit in a post lunch session also and dispose off cases. Mr Vyas would be the right person to comment on that. That is my suggestion.

Vyas: The position is this that there is a hearing for the first half until the lunch but then thereafter the tribunal members do have to dictate long orders, they have to read the facts, they have to read the law in great detail and it is for that that they need more than enough time to go deeper into the matter to deliver a good judgement. So for me personally, it appears that the system, which is currently going on in the tribunal is the correct system. Let me also tell you that whenever there are heavy complicated matters, the tribunal does continue in that particular case hearing even beyond the lunch.

Datar: I have only one caveat on that because the Supreme Court works the whole day, High Court works the whole day. After 4.30pm they still have time to ponder and examine and dictate. So I am just talking in terms of disposal of cases, excise tribunal works for the whole day, every tribunal works for the full day.

Vyas: It can be given a try.

Datar: You can try it as an experiment. It will be even more Acche Din in 2016 then.

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