Why Tax Practitioners Bill Required For India
Need Of Tax Practitioners Bill In India, As per Section 288(2) of Income-Tax Act, 1961 eight class of persons are authorized to represent the assesses.Author Name: bskrao@legalserviceindia.com
Need Of Tax Practitioners Bill In India, As per Section 288(2) of Income-Tax Act, 1961 eight class of persons are authorized to represent the assesses.
Why Tax Practitioners Bill Required For India
01. As per Section 288(2) of Income-Tax Act, 1961 eight class of persons are authorized to represent the assesses. Among them only following five class of persons are authorized to prepare return on behalf of assesses under Rule 12A of Income-Tax Rules, 1962:-
(1) Legal Practitioners
(2) Chartered Accountants
(3) Cost and Management Accountants
(4) Company Secretaries
(5) Income-Tax Practitioners
02. Original Income-Tax Act, 1961 was well drafted by learned officials in Finance Ministry and it was capable of meeting the expectation of the Govt. in all future events, except requiring amendments for events/changes taking place in this 21st Century. Disturbance to the original intention of legislature in Income-Tax Act, 1961 started in 1984 by the intervention of Institute of Chartered Accountants of India by way of inserting mandatory Tax Audit Certificate U/s 44AB by only Chartered Accountants. This was also cautioned by Sri. P.C.Padhi, former Chairman, Central Board of Revenue and Deputy Controller and Auditor General of India, Sri. D.K. Rangnekar former Editor, Economic Times, who were the members of Direct Taxes Committee, popularly known as Wanchoo Committee and gave dissenting note on the issue.
03. Hon’ble Ministry of Finance, Govt. of India entirely depending on only Chartered Accountants for issue of various Certificates/Reports under Income-Tax Act. On date, there are 46 Plus Mandatory CA Certificates in Income-Tax Act. Because of these CA Certificates, other four class of Non-CA Tax Professionals Viz. Legal Practitioners, Cost and Management Accountants, Company Secretaries and Income-Tax Practitioners who are also authorized to prepare return under Rule 12A of Income-Tax Rules, 1962 read with Section 288(2) of Income-Tax Act, can not exercise the authority granted in the statute fully and independently, in fact they have been ignored. Such dependency on one Professional body is a dangerous trend and leads to monarchy in our democratic setup. Here, crux of the matter is CAs enjoy both the power of certification and representation, but Non-CA Tax Professionals are authorized only to represent assesses. This is practically causing strict hurdle for voluntary compliance and assesses prefer to approach only CAs for tax compliance, resulting in unemployment of Non-CA Tax Professionals and over burdening of Chartered Accountants. Hence, new Non-CA Tax Professionals are not entering tax practice to support voluntary compliance in Indian taxation laws since 1984.
04. Audit means “verification”. Person who conduct audit need to be a knowledgeable in the matter he under takes to Audit. Ex:- Energy Audit, Environment Audit, Product Audit, Process Audit, Cost Audit, Legal Audit in USA and Tax Audit in Indian Income-Tax Act. Hence, the word “Audit” demand varied type of knowledge and it can not be restricted to single professionals like Chartered Accountants. In conclusion, person specialized in Income-Tax law should issue Certificates/Reports in Income-Tax Act. On careful study of Section 288(2) of Income-Tax Act read with Rule 12A of Income-Tax Rules, it has to be presumed that all five class of persons possess knowledge of Section 145 read with Income Computation and Disclosure Standards of CBDT, required for Income-Tax Practice. Because certain qualification has been fixed in Income-Tax Act for these five class of persons. Accounting standards are only clarificatory in nature and can not override Accounting Concepts and Principles. Further, Accounting Standards framed by ICAI and IFRS not required for Income-Tax Practice. Here the question is, when such other four class of Non-CA Tax Professionals are authorized to prepare return under Rule 12A of Income-Tax Rules, there is no justification to prohibit them for issue of Certificates/Reports in Income-Tax Act, it works contradictory to the spirit and intention of law framers.
05. Indian legislature provided special class of persons called Advocates in Advocates Act, 1961 to practice all Indian laws. Therefore, authorised representative clause not required in any Indian taxation statute. Bar Council of India Vs A.K.Balaji [SLP(Civil)No(s)17150-17154/2012] Dt.4.7.2012 (SC) and A.K.Balaji Vs Govt. of India (2012) 35 KLR 290 21.02.2012 (Madras HC) it was clearly held by Hon’ble Supreme Court and Madras High Court that Advocates alone are entitled to practice the Profession of Law both in litigious and non-litigious matters, nullifying the effect of Section 33 of Advocates Act. This also confirms to Section 29 of Advocates Act. The constitution bench of Apex Court in National Tax Tribunal case of Madras Bar Association Vs Union of India bearing No.150 of 2006 Dt.25.09.2014, it was ultimately held that Chartered Accountant to represent a party to an appeal before NTT, unconstitutional and unsustainable in law. The verdict of Supreme Court is the declared law of land, binding on all throughout the territory of India under Article 141 of Indian Constitution and contravention liable for action under Article 129 read with Article 142(2) of Indian Constitution. Hence, Advocates alone are entitled to Practice, Plead and Act before the revenue authorities. On date, authorized representative clause under all Indian taxation statute has been subject to review of apex court and hence require deletion. Other than Advocates should appear before tax authorities under CPC/Evidence Act, against summons issued. If such appearance clause still retained in statute book of Indian taxation laws, situation may arise that order of assessing authority passed against the representation of Non-Advocates become in-fructuous, bad in law, null and void. Further, such orders cannot be enforced/appealed and the Department is restrained to invoke action U/s 288(5) of Income-Tax Act on such persons for Professionals Negligence. Power of attorney (Vakalatnama) to practice law can only be given to Advocates. Practice of law is the “Prerogative Power” of Advocates. As appearance clause Section 288(2) of Income-Tax Act, induces Non-Advocates to commit offence punishable U/s 45 of Advocates Act, such clause no longer required in statute book of Income-Tax Act.
06. Latest policy decision of learned officials in Finance Ministry, Govt. of India to expand the definition of “Accountant” to include related professionals in DTC-2013 read with delegated legislation Section 320(2)(iii) is highly appreciated. But, in order to give full effect for the same, it is necessary to involve all knowledgeable persons in the field to improve/enhance compliance and revenue. Therefore, Tax Practitioners Law required for India to enable well diversified group of tax professionals to practice tax law in India. Our Central Govt. should come out with substantial legislation; introduce Tax Practitioners Bill covering all five class of tax law professionals of India. Such Tax Practitioners Bill should be introduced with “Preamble” stating that “Other than Advocates are also practicing tax law in India, in order to protect them and also in the interest of Govt. revenue, this Tax Practitioners Bill has been introduced”. Then such Tax Practitioners Law can not be struck down in view above court verdicts. US Treasury Circular No.230 for regulations governing practice before the Internal Revenue Service of Income-Tax Deptt. in USA and Tax Agent Service Act of Australia are very good examples for consideration of Ministry of Finance, Government of India to have similar Tax Practitioners Law in India also, to generate tax professionals for widening genuine tax base and number of assesses.
07. Opinion No.50 Dt.12.03.2013 issued by Committee on the Unauthorized Practice of Law appointed by Supreme Court of New Jersey USA states that “A non-lawyer who holds a power of attorney may not engage in the practice of law”. US Treasury Circular No.230 is the Tax Practitioners Law, regulating all Tax Law Professionals in United States of America. Limited appearance of persons other than Attorney’s/Advocates before Internal Revenue Service of Income-Tax Authorities in USA provided in Clause No.10.3 read with exception Clause No.10.32 of US Treasury Circular No.230. Exception Clause No.10.32 reads as under:-
“Nothing in the regulations in this part may be construed as authorizing persons not members of the bar to practice law”
08. In view of the above facts and court verdicts/opinion, it is right time to have unified control and regulation of all players practicing taxation laws in India, Tax Practitioners Law is the need of the hour. 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 professionals to protect the interest of Govt. revenue. Among Legal Practitioners, Cost and Management Accountants, Company Secretaries, Chartered Accountants and Income-Tax Practitioners, who wants to practice tax law in India, should mandatorily seek registration under Tax Practitioners Law, whatever their parent body says is immaterial and Tax Practitioners Law should mention the qualification and experience required to be possessed by all the five class of tax professionals. On date ample tax compliance work is there, but there is no required Tax Professionals to support voluntary compliance in Indian taxation laws. Further, “More persons in the line of tax practice leads to improvement in quantum of compliance and more revenue to the Government”. Tax Practitioners Law in the lines of US Treasury Circular No.230 is well suited to India, required for India to widen genuine tax base of assesses.
The author can be reached at: bskrao@legalserviceindia.com
MO : 0-9035089036 / E-Mail : raoshimoga@gmail.com
ISBN No: 978-81-928510-1-3
Author Bio: ADVOCATE PRACTICING TAX LAW IN INDIA
Email: raoshimoga@gmail.com
Website: http://www.legalserviceindia.com
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K Nataraju Tax Advocate : it is need do it
B S K RAO : WIDENING TAX BASE IN INDIAN TAX LAWS & INCOME-TAX IN PARTICULAR (Before Hon’ble Finance Minister, Govt. of India, New Delhi) (1) 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 Professional should be more specialized in Computer 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. (2) 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 the time 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 (Here presumption is, such other class of persons also possess the knowledge of Accounting Principles prescribed U/s 145 of 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. (3) In latest e-filing website of Income-Tax Deptt. only CA’s are treated as Tax Professionals with special login to upload CA Certificates (Impracticable procedure), 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 CPC (See Exhibit-2), it is evident that only 69,630 CA’s are practicing throughout India. Due to Tax Audit ceiling fixed by ICAI irrespective of Corporates & Non-Corporates without considering the demographic spread of CA’s, 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 & extra payment made for reservation of empty slots of CA Signature. In fact, Tax Professionals are using “Section 44AB Certificate” as business tool to collect huge fees from clients. 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. In another 10 years, Non-CA’s who entered the Tax Profession in 1980’s will all eliminate & Govt. has to relay on only CA’s for seeking compliance under all Indian taxation laws. (4) In the enclosed attachment (See Exhibit-1), your good office will find that largest portion of revenue coming from Individual Income-Tax payers in USA. Presuming that 90% of revenue collected from Individual Income-Tax Payers in USA, balance revenue of 10% collected from Corporate Income-Tax payers. As per the enclosed data provided by CPC, Bangalore as at 04.06.2015 for the Asst. Year 2014-15 (See Exhibit-2) a total sum of Rs.2,90,335/- Crores has been admitted as Income-Tax from corporate tax payers covered by Certificate U/s 44AB in India. Presuming this as 10% Income-Tax collection from corporate tax payers, tax admission from Individual Income-Tax payers covered by Certificate U/s 44AB should have crossed at least Rs.26,13,015/- Crores (Basis being Rs.2,90,335/10 x 90 = Rs 26,13,015/-). Whereas in the same data provided by CPC (See Exhibit-2), it is evident that only total sum of Rs. 43,661/- Crores has been admitted as Income-Tax by Individual tax payers covered Certificate U/s 44AB in India. Therefore, it is clear that our Central Govt. incurring huge revenue loss of around 26 Lakh Crores every due to 46 Plus Mandatory CA Certificates prevailing in Income-Tax Act. (5) 46 Plus Mandatory CA Certificates prevailing in Income-Tax Act by only Chartered Accountants causing strict hurdle for voluntary compliance from Non-CA Tax Professionals of India. Central Board of Direct Taxes is the policy making body for Income-Tax Law in India. There is duty on the part of CBDT to collect & maintain data of Section Wise Wrong Claims reported in Certificate issued U/s 44AB uploaded to e-filing website of Income-Tax Department to enable assessing officers of the Income-Tax Department to utilize such data to conclude quality assessments & also to take major policy decisions. Against RTI Application filed before DIT (Systems) (See Exhibit-3), it is evident that DIT (Systems) have not captured Section Wise Wrong Claims in Certificate issued U/s 44AB uploaded e-filing website of Income-Tax Department. Therefore, I am of the strong view that CBDT has retained mandatory Certificate U/s 44AB of Income-Tax Act by only Chartered Accountants since almost three decades, that too in this computer era, without evaluating its utility (See Exhibit-4). (6) 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 277of 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 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 date or any other hurdle that relates to assesses/tax professionals. Extent of application & coverage of Income-Tax Act as compared to other Indirect Taxes, quantum of tax professionals required for the same & there demographic spread throughout India. Ie, whether persons on whom both the power of certification and representation granted in Income-Tax Act on date are evenly spread throughout India to cover all cases ? (7) 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 professionals to 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 www.tpb.gov.au) or in the line of Tax Practitioners Bill of Republic of South Africa (See www.sars.gov.za) 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. B.S.K.RAO, B,Com, LL.B, MICA, Auditor & Tax Advocate, BDKRAO, Beside SBI, Tilak Nagar, Shimoga-577201 Karnataka State Mobile : 0-9035089036 E-Mail : raoshimoga@gmail.com
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