In the pressure of meeting the last date, one question often forgotten is, are these so-called clarifications valid in law? Will they be upheld by the courts? Even more importantly, will the tax department itself stand by such clarification or will it state that since the clarification is not consonance with the law, they will not be adhered to?

This issue is important since the assessee may take part in the scheme putting faith on these, declare his unaccounted income and pay the tax.If these clarifications would be ultimately held to be invalid, he may not lose the amount of tax paid which typicallymay not be refundable, but his declaration may amount to admission of undisclosed income and he may be subject to interest, penalty and prosecution.

A classic case demonstrating this can be seen from a recent decision of the Calcutta High Court in Nilesh Hemani v. CIT (1999) 239 ITR 517 (Cal.). This was a case arising out of the Voluntary Disclosure of Income Scheme 1997 (VDIS 1997). The facts are very peculiar and one need not go into the minute and complicated issues except for one matter.

But, briefly stated, the assessee was subjected to search operation by the tax department and the issue in this case concerned one bank locker containing a sum of Rs 1.35 crore. It seems that this represented unaccounted money of the assessee. The assessee made his declaration under the VDIS 1997.

The provisions of the scheme stated that in respect of an assessee, who has been subjected to a search operation, he would be ineligible to make such a declaration. However, the assessee approached a member of the CBDT andreceived a clarification in writing that "this is to confirm that your case is not hit by the provisions of section 64(2)(iii) (the prohibitory provision mentioned earlier) of the VDIS 1997."

However, the tax department questioned the validity of the declaration made and refused to grant the benefit of the scheme to the assessee.

The assessee petitioned the High Court and strongly relied on the written clarification given by a member of the CBDT. The Court had no hesitation the question in principle. It stated, "the pertinent question is whether the opinion of the member of the Central Board of Direct Taxes is binding on the Assessing officer, though it may be contrary to the provisions of the scheme. My answer will be obviously in the negative."

As stated earlier, authorities at all levels issue clarifications orally (to the press or to associations or otherwise) and in writing. These are quickly circulated amongst professionals, associations, businessmen and the general public. In fact, the last VDISscheme saw more than one hundred of such clarifications/replies issued by various persons.

Interestingly, in many cases the clarifications made relaxations beyond what was expressly stated by the law made by Parliament. Understandably, for every issue, it is difficult to go back to Parliament and traditionally, positive relaxations are made to make the scheme and the law workable.

Of course, the tax law as well as judicial decisions have laid down that certain types of relaxations bind the tax department. However, this is provided they are made by the specified authorities and in the prescribed manner. This, it seems, what was lacking in the clarification in the aforesaid case and hence the disastrous results for the assessee.

Clarifications issued should not be taken at their face value and it should be seen who is the person or authority issuing it and professional advice may also be taken on this issue. At the same time, in the interests of increasing the credibility of the scheme, clarificationsshould be refrained to be issued by persons not authorised in law. Enabling provisions may also be contained in the scheme which permit issuance of such clarification.

Above all, once such clarification, reply or relaxation is made, it should be adhered to by the tax department, irrespective of the authority which has issued it.

(The author is a Mumbai-based chartered accountant)