Rajshri Rai (RR): The Income Tax Appellate Tribunal (ITAT) is known as the mother tribunal as it is the oldest one in India. What is its mandate? How does it resolve direct tax problems?
GS Pannu (GSP): ITAT was established in 1941. And the uniqueness of it is that it’s a quasi-judicial body where two minds work together. One is the judicially trained mind of a lawyer and the other is of a technical expert who can be a CA or an IRS officer well-versed with income tax laws. ITAT provides dispute resolution with blending of two thought processes and that is the uniqueness of our institution. Secondly, ITAT was the first experiment with tribunalisation in the country, after which other tribunals were established. It has been a role model for other tribunals. Since 1941 till this year, we have settled around 31 lakh cases. About 80-85% of our orders get approved by higher courts. In fact, our orders are final orders and they can be challenged in a High Court or Supreme Court only on grounds of question of law. ITAT is different from a civil court though it has all the trappings of a court in the sense that we have an informal system of pleadings and filings. We have a bench, and lawyers argue for their clients; sometimes, the taxpayer himself can argue his case.
For the last three years, there was negative growth in our pendency. This is primarily because we have kept pace with whatever appeals come in. We started in 2017 with a pendency of about 92,000 appeals and today, we are down to 36,000. We are at 30 stations. When we started in 1941, we were at three stations—Delhi, Bombay and Calcutta. Now we have about 63 benches at different stations. Our head office is in Mumbai.
RR: ITAT deals with direct tax issues. When does a person come to ITAT?
GSP: When you file a return of income, there is a scrutiny. If there is a difference in the assessment of the taxpayer and the assessing officer, then the former has the first right of appeal before the Commissioner of Income tax (Appeals) or CIT. In simple terms, it is an in-house mechanism for help. If the taxpayer is not satisfied with the CIT appeal order, he can appeal to the Tribunal. The Tribunal is the first forum which is outside the department and the department also can come in and appeal before us. In many cases, assessments after having been seen by the first separate authority, come to us.
RR: If a taxpayer is not satisfied with ITAT orders, what options does he have?
GSP: A direct appeal to a High Court is possible, but only when there is a substantial question of law and that too, when the Court is satisfied. Most of our decisions are not overturned by higher courts. The dispute is more on the factual aspects of the matter. Those manning the Tribunal are experts in the field of taxation unlike judges in higher courts who are trained in constitutional law and are generalists. Of course, the Supreme Court and High Courts have been rendering excellent jurisprudence which we apply often in our institution.
RR: One of the biggest problems is pendency. You said that pendency of cases is diminishing rapidly. So, is there any role of Alternative Dispute Resolution (ADR) alongside with ITAT? Do matters get resolved via mediation as well?
GSP: ITAT does not use ADR because it is a part of the appeal process. But yes, under the Income Tax Act, there are provisions which deal with ADR. It comes into the picture only when the normal appeal process is time consuming or costly. For eg, except for Delhi and Mumbai, all appeals filed between April-May have already been scheduled before benches. As far as the ADR mechanism is concerned, though it is time consuming, it also imparts certainty. It is fruitful and coupled with the Authority for Advance Ruling (AAR).
RR: AAR was created so that tax cases would be reduced. Was this objective achieved?
GSP: I don’t have any statistics, but one particular measure cannot be used to assess the overall performance of a policy. This advanced ruling is being used by non-resident taxpayers, who are looking for policy certainty and because they are not exposed to the Indian system. AAR is a very good mechanism. Normally, appeals before the AAR are disposed of between one to one and a half years. If you compare this with the normal appeal process, it is definitely lesser.
RR: Don’t you think the settlement commission was a better proposition as AAR takes money and time. Why was it wound up?
GSP: Let’s understand why this happened. The settlement commission had the power to grant immunity from prosecution and penalties at a time when people could go and settle their matters. For a pending case, there is an interim board and it is settling cases. Perhaps the government wanted to provide an opportunity for settlement. But now there are also dispute resolution committees for small taxpayers where tax disputes up to Rs 10 lakh are settled or where the income is up to Rs 50 lakh. The best part is that these committees don’t have physical interface, it is a faceless assessment.
RR: Does ITAT have any power to handle contempt situations?
GSP: As our proceedings are judicial, our orders are expected to be followed. Time and again, this has been laid down by higher courts also. The timeline of orders has to be implemented faithfully and diligently by lower authorities. It can happen that different benches and stations can pass contradictory orders as our orders go to different High Courts depending on the jurisdiction. But as far as the order is concerned, it is final and the setting officer is bound to follow it. There can be instances, though rare, where there was willful disobedience to follow the order. As per the Contempt of Courts Act, 1971, we have the power of contempt and can use it wherever there is a deliberate attempt to not follow an order.
RR: Why was the “Vivaad se Vishwas” Scheme started and what has it achieved?
GSP: This is one of the most ambitious schemes launched by the government. It is primarily aimed at reducing tax litigation. This February, the government looked at the number of cases stuck in different tribunals or courts. To resolve income tax cases, the Scheme was launched. It envisaged that the taxpayer could settle the dispute by paying the tax. Our redundancy levels went down because 15- 20% of appeals were settled under this Scheme. That allowed the ITAT to concentrate on larger cases with serious disputes.
RR: India’s reliance on indirect taxes, ie; levies on consumption, rather than on direct taxes is often cited by economists as one of the reasons behind the poor getting left behind. Between 2018 and 2022, the nation created 70 new millionaires. Oxfam International estimates that the top 10% of India’s population holds 77% of the national wealth and government data show about 6% pay income tax. So, how can one shift more people to direct tax mode, and how can the tax net be increased?
GSP: It should be the objective of any responsible state that the common man gets the benefit of tax policy. As far as inequality of wealth is concerned, India is no exception. It is there in every part of the world, but every country has its own way of dealing with it. I am reminded of my school and college days when we used to read that the indirect tax system is aggressive and the direct tax system is always progressive because 6% pay taxes, but GST compliance is comparatively better. This is because GST is levied across all products; products which are used by the rich, those used by the common man and the poor man. If we move more and more towards progressive taxation by increasing the base, the share of direct tax would increase. Often, economists say that indirect taxes go into cost of production. That is why luxury products are more expensive. Today’s technology-enabled department has led to greater surveillance, leading to more focused and targeted assessment. Any progressive economy should look forward to this. Indirect taxes are a major collection area for the government. If we move towards progressive taxation by increasing the tax base, the share of direct taxes will increase.
RR: Being a CA and an expert on taxation matters, tell us how we can save tax?
GSP: As a taxpayer, when I look at Form 16 which is sent to me by my employer, even I think: ‘This much is my salary and this much already gone.’ But we must have an overall system and the philosophy is that taxes are the cost of civilisation that we have to pay. Ultimately, the government, the system, security, civic amenities, education…all come from taxes. The best way to save taxes is pay it honestly. You will never feel the sense of loss of not saving it in taxes if you pay it honestly. There was a time when as a practicing CA, I had the task of making the taxpayer pay taxes efficiently. One way was to pay taxes as the business grows. As investment grows, there are tax-related benefits which are available. We should plan to avoid taxes, but should never plan to evade them. So we should consult our CA or lawyer and look at the basic tax which is required to be paid.
RR: Manpower is an issue everywhere, more so in courts. Is ITAT facing the same manpower shortage?
GSP: The recruitment processes inherently take some time. But keeping in mind the pendency levels we have presently, we are not fully staffed, but adequately staffed. The process is on and we’ll be getting more members soon.
RR: What are your future plans for ITAT?
GSP: We are moving towards a fully paperless and digitised Tribunal where we will be able to hear the matters both in the virtual platform and physical one. Both platforms would be made available to taxpayers. Our staff would be tech savvy. Even today, all our orders are on the website. Our daily orders are on the website by the evening of the same day. So, we are moving towards a Tribunal which is fully digitised, paperless, more efficient, accountable and more transparent.
RR: What advice would you give to a person to ensure that he doesn’t approach ITAT?
GSP: File returns honestly and pay taxes honestly. Our system allows one to assess his income at the time of payment of taxes and then, to pay taxes accordingly. So, if one pays taxes honestly and complies with the law, he won’t have to come to ITAT. However, if you come to ITAT, I am sure it will be a pleasant experience.