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Widening Tax Base in Indian Tax Laws and Income-Tax In Particular From Ramanamurthy M.V.

January 25, 2014

Advocate  B.S.K.RAO

In this computer era, all records of business enterprises are maintained in computers and voluntary compliance of return filing U/s 139 of Income-Tax Act are also sought in digital format. Return preparation utilities are provided by the Deptt. so that there may not be any instance of wrong claims or deduction, unless there is bug in the utility provided. Therefore, Tax Professionalshould be more specialized inComputer Operation rather than Income-Tax Law and Accounts at Original Side. As per Section 288(2) of Income-Tax Act, Eight class of persons are authorized to act as representative of assessee. Among them, only following Five class of persons are authorized to prepare return on behalf of assessee under Rule 12A of Income-Tax Rules :-

(a)  Legal Practitioners

(b)  Chartered Accountants

(c)  Cost Accountants, Company Secretaries & Income-Tax Practitioners.

Audit means “verification”, depending on the purpose they are classified as Energy Audit, Environment Audit, Product Audit, Process Audit, Legal Audit in USA & Tax Audit in Indian Income-Tax Act. Here, person conducting audit should be specialized in that subject. Hence the word “Audit” is not the domain of Chartered Accountants. Assessing Officers in Income-Tax Deptt. who conduct audit in assessment proceedings are not Chartered Accountants. In conclusion, person specialized in Income-Tax law should issue “Certificates/Reports’ under Income-Tax Act. In 1984 certificate from only Chartered Accountant U/s 44AB called Tax Audit introduced in Income-Tax Act to ensure that physical books of accounts are properly maintained by business enterprise & claim for deductions are correctly made and also to save thetime of assessing officers to verify correctness of totals at the time of scrutiny. Since then, CA Certificates started entering Income-Tax Act and on date there are 46 Plus CA Certificates in Income-Tax Act. Because of 46 Plus mandatory CA Certificates in Income-Tax Act, Legal Practitioners, Cost Accountants, Company Secretaries and Income-Tax Practitioners can not exercise the authority granted in the statute fully & independently. This is practically causing strict hurdle for voluntary compliance. This position is comparable to decree of the court which can not be executed. Here the question is, when such other classes of persons are authorized to PREPARE RETURN under Rule 12A, there is no JUSTIFICATION to prohibit them from issue of certificates in Income-Tax Act. It is also clear that, on introduction of CA Certificates in Income-Tax Act, original intention of legislature in Rule 12A has been struck down. In fact, there is no such type of certification clause in any country throughout the world in revenue side.

In latest e-filing website of Income-Tax Deptt. only CA’s are treated as Tax Professionalswith special login to upload CA Certificates, without which Non-CA Tax Professional can not give compliance to the Deptt., if given his clients are under the risk of penal provision. These CA Certificates barricade support for voluntary compliance from Non-CA Tax Professionals & new Non-CA Tax Professionals are not entering tax profession on one hand and total number of practicing CA’s are not increasing on the other hand (Considering the output & death rate of practicing CA’s). In the enclosed Tax Audit Data provided by DIT(S) (See Exhibit-1), it is evident that only 65,570 Chartered Accountants are practicing throughout India. Further, there is ceiling of 45 Nos. of Tax Audit Certificate, fixed for each Chartered Accountant irrespective of corporate and non-corporate assesses, without considering the demographic spread of CA’s throughout India. Because of ceiling, existing Non-CA Tax Professionals handling tax audit cases have to roam around in search of empty slots of CA Signature to give compliance in the case of their clients during due dates. This has also resulted in high cost of compliance, due to high demand and extra payment made for reservation of empty slots of CA Signature. These CA Certificates in Income-Tax Act are causing strict hurdle for voluntary compliance not only in Income-Tax Act, but also in other Central and State Govt. tax laws (Ex: In Finance Act, 2012 negative list introduced in Service Tax requiring the assistance of more tax professionals, but number of tax professionals are stand still on date). In this situation, Govt. has to relay on only 65,570practicing CA’s for seeking compliance under Income-Tax Act.

In Chapter No.7, Manual of Office Procedure Volume-II published by The Directorate of Income-Tax, lot about widening of tax base has been discussed, but nowhere discussed about hurdles for voluntary compliance in Entry Door of Section 139. Deptt. should admit the fact that compliance U/s 139 from business class comes through Tax Professionals only. Hence, more persons in the line of tax practice more revenue. Following are genuine points should be considered by CBDT before taking action for widening tax base of assesses.

(a) Assesses sign affidavit format called Verification in the return of income, which  makes him liable for imprisonment which may be extend to seven years with fine U/s 277 of Income-Tax Act in the event of furnishing false information. (See also Section 181 of IPC) Further, it was held in the case of CIT Vs HCIL Kalindee ARSSPL Delhi HC  Dt.29.07.2013 that mere CA Certificate do not establish the bonafide of assesses claim  & CIT Vs G.M. Dandekar 22 ITR 235 (Mad) it was held that CA’s can not be made accountable to Income-Tax Department as they are acting in representative capacity. Therefore, Deptt. should decide that it wants CA Certificates or Revenue ?

(b) Whether Widening of Tax Base has direct relation to growth in number of persons       engaged in Income-Tax practice? If so, who are the persons authorized to practice  Income-Tax law U/s 288(2), assisting for propagating & compliance U/s 139. Whether they are increasing/decreasing every year, because of support/cornering in the Income-Tax law or is there any constraint in their practice. Even holding CA’s are increasing, whether they         stick to practice without seeking employment ?

(c)  Hurdles in Entry Door U/s 139 of Income-Tax Act, analyzing the types of hurdle such as highly complicated process of e-return filing prevailing under Income-Tax Act on   dateor any other hurdle that relates to assesses or tax professionals. Extent of application and coverage of Income-Tax Act as compared to other Indirect Taxes, quantum of tax professionals required for the same and there demographic spread throughout India. Ie,    whether persons on whom full power of certification and representation granted in             Income-Tax Act on date are evenly spread throughout India to cover all cases ?

(d) Stop filers tracking mechanism, whether tax professionals can handle such event       better by sending notice on regular basis to their clients, if they are encouraged by the           Income-Tax Deptt. without bias.

In India there are professional bodies passed by the Acts of Parliament, to protect the interest of their members only, but there is no professional body to generate tax professionalsto protect the interest of govt. revenue. Therefore, it is right time, our Central Govt. should seriously consider passing of Tax Practitioners Bill either in the lines of Tax Agent Service Act of Australia (See or in the line of Tax Practitioners Bill of Republic of South Africa ( to generate tax professionals to fully support voluntary compliance in Indian taxation laws to enjoy the privilege of optimum tax collection by widening of genuine tax base of assesses. In developed countries like Australia 70% to 80% of population are under tax net, whereas in India only 2% of population are under tax net. This is because of confining certification powers only to Chartered Accountants in Income-Tax Act, 1961 as discussed above. On date ample tax compliance work is there, but there is no required Tax Professionals to support voluntary compliance.


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