The big-bang cleaning up apart, and notwithstanding improvements, a lot can be done on appeals, scrutiny, refunds and dispute resolution, procedural improvements, etc
Those who love music will be familiar with Enrique Martín Morales, better known as Ricky Martin. Unless you are a lawyer or a CA, you may not know that the Puerto Rican singer had a problem with India’s tax department. I was reminded of it when I read a just-published book, edited by Mukesh Butani and Kinshuk Jha, on taxpayer rights. The case was between Sony Music Entertainment and the deputy commissioner of Income Tax. The case started in December 1998 and ended (with intervention by Delhi High Court) in 2016. Seventeen years may not seem that long for those with knowledge of the notoriously slow justice delivery system. Nevertheless, such delays should not be acceptable, especially if there is no merit to a case.
Let me tell you what the case was about, in the words of the editors of this new volume. “On December 7, 1998, the famous Puerto Rican performer, Ricky Martin, was examined by income-tax officials at Hotel Radisson as he was summoned before his departure in relation to a ‘tax clearance certificate’ for leaving India.” What tax clearance certificate? I have to subject you to a little bit of legalese from Section 230 of the Income Tax Act. I will quote it verbatim. “No person – (a) who is not domiciled in India; or (b) who is domiciled in India at the time of his departure, but- intends to proceed to another country on a work permit with the object of taking up any employment or other occupation in that country; or in respect of whom circumstances exist which in the opinion of an income- tax authority, render it necessary for him to obtain a certificate under this section, shall leave the territory of India by land, sea or air unless he first obtains from such authority as may be appointed by the Central Government in this behalf a certificate stating that he has no liabilities under this Act” (and some other tax-related statutes too). Also, “If the owner or charterer of any ship or aircraft carrying persons from any place in the territory of India to any place outside India allows any person to whom sub- section (1) applies to travel by such ship or aircraft without first satisfying himself that such person is in possession of a certificate as required by that sub-section, he shall be personally liable to pay the whole or any part of the amount of tax, if any, payable by such person as the Assessing Officer may, having regard to the circumstances of the case, determine.”
Martin’s shows in India were organised by Sony Music Entertainment and he didn’t have the tax clearance certificate. Therefore, he wouldn’t be allowed to board the plane. To get back to Butani and Jha, “Against these investigations, the sponsor of the shows in India, Sony Music, filed a writ petition in Delhi HC (High Court) in 1999. Almost 17 years later, in 2016, the Delhi HC quashed all summons, notices and orders for failure of the Department to place on record any outcome of investigation initiated after examining Ricky Martin. The HC, in its conclusion, relied on a letter written by Ricky Martin retracting the recorded statements. Ricky claimed in this letter, addressing the department, “the statement on oath was extracted by you from me under threats from you that I would not be allowed to leave until I signed this statement under oath”… The recording of his examination started at 7.30 PM in the evening and went on until early hours of the next day, leaving him with only enough time to catch his British Airways flight.”
Like the judicial system, ex ante (a favourite expression of economists, meaning, in advance), one doesn’t know whether a person is innocent or guilty. That’s known ex post (after the investigation and judicial process). The process of investigation necessarily involves some harassment. In the shortage years, late 1980s, I applied for a MTNL land-line connection, and read the service-friendly MTNL circular to its employees, stressing that processes should not lead to “more than necessary harassment” to customers. I believe compliance costs cannot be truly reduced until the system is cleaned up through removing exemptions. (The new Direct Tax Code is still work in progress.) Having said that, notwithstanding the goal of cleaning up, what happened to Martin (and in other such cases) was undoubtedly more than necessary harassment.
Don’t get me wrong. There have been several improvements. I-T department has a ‘Vision 2020’ document. The PM launched the Taxpayer’s Charter in August 2020. (Fleshing out the Charter and giving it more teeth is the subject matter of Butani and Jha’s book.) There is faceless assessment and the ‘Vivad se Vishwas Scheme’. The big-bang cleaning up apart, and notwithstanding improvements, a lot can still be done on appeals, scrutiny, refunds and dispute resolution, procedural improvements, etc. If delayed tax payments automatically invoke interest, shouldn’t delayed refunds also automatically invoke interest payments? What about the alacrity with which the department implements orders of appellate forums? Even under the unreformed system, 17 years was too long. In other words, in the small picture, there is scope for a relook at the way the department handles litigation.
The author is Chairman, EAC-PM