The recent Union Budget saw as many as 186 amendments to the direct tax laws. While all the amendments favourable to taxpayers were mentioned by the finance minister in his speech, as usual; tucked away in the fine print were certain amendments that are detrimental to taxpayers. The amendments that cause the greatest concern are those relating to the powers given to tax authorities to seek information and to carry out surveys, besides the powers to withhold certain information relating to searches. How do these affect taxpayers and the general public?
A survey is a provision whereby tax officials can visit any premises where business or profession is carried on, and inspect books of accounts, documents; or verify cash in hand, stock or other valuable articles; or obtain information required for the purposes of any tax proceeding. Currently, this power is restricted to business premises, or to premises of persons required to deduct tax at source. This power is now being extended to premises from where any charitable activity is carried on.
This would mean that tax officers will now be able to visit any premises of a charitable organization. Many charitable trusts do not have a large infrastructure, or a regular office, and therefore the residence of a trustee is designated as the registered address of the charitable trust. In such cases, tax officers may be able to visit the residence of the trustee, on the ground that a charitable activity is being carried out from such premises.
This power of survey vests with even a junior level officer, and there is no safeguard in the form of the requirement of a prior approval by a higher level officer before carrying out such a survey.
It is a well-known fact that there is a substantial misuse of powers by officers at the lower levels of the tax department for extraneous reasons. To illustrate, the law does provide that such a survey can be commenced during the hours at which such premises are open for the conduct of business or profession, and in other cases, only after sunrise and before sunset. However, in practice, it is seen that, since there is no restriction on the time within which a survey has to be completed,often, such surveys start before sunset, but may continue until the early hours of the morning.
So far, the brunt of such surveys was borne only by businessmen. Now, even charitable trusts and their trustees would have to suffer possible harassment under these provisions. Should no safeguards be put in place to ensure that such powers are not misused, before extending the powers to non-business entities?
Currently the power to call for information from any person, when there is no pending tax proceeding, can be exercised only by senior-level tax officials of the rank of commissioner or its equivalent. This power is now being given even to the two lower levels of tax officers, without any safeguard in the form of requirement of prior approval by an officer of the level of commissioner.
Again, given the past experience, should safeguards not be put in place to ensure that people are not unduly harassed?
A retrospective amendment is being made, effective from April 1962, to provide that in cases of search, the reason to believe or the reason to suspect, which was the basis on which the search was carried out, shall not be disclosed to any person, authority, or the appellate tribunal. In a search, the privacy of a person’s home is violated, he is subjected to the indignity of having all his personal documents and records examined, and his and his family’s life is completely disrupted for a substantial period of time. Search is a provision meant to tackle only the worst of offenders, where substantial tax evasion is involved.
However, in reality, over the years, one has noticed many cases where a search was conducted mistakenly on a person, or on the basis of wrong information or assumptions, and no tax evasion was detected. In the past, appellate authorities have called for and examined such reasons, and granted relief to taxpayers. Should such a person not have the right to know why he was searched? In this age of transparency, should one have such secrecy, where one is not able to even know why one’s basic fundamental rights have been violated? Why should tax officers, who have caused substantial damage to a person who has committed no wrong, be protected from even disclosing the basis on which they took the harsh action?
The stated objective is to protect the identity of informants, who may have provided the information. But that purpose could be achieved by merely providing that the name of the informant need not be disclosed, while stating the reasons to believe that tax evasion was involved. There is really no need to go overboard by not providing reasons at all.
These provisions seem to be giving the tax authorities wider powers, without any provisions to check their misuse. While one understands the need to root out black money, should taxpayers be deprived of all protection and be totally at the mercy of any tax officer? The government needs to strike a proper balance between taxpayer rights and the powers required for tax officers to unearth tax evasion.
Gautam Nayak is a chartered accountant