An Important Step to Revamp Complex Structure of DTC

The Standing Committee has finally spoken on major aspects of the direct taxes code, or DTC, including a direct critique on its very structure. The Committee notes, the overarching objectives of the DTC to make tax laws simple and comprehensible yet the structure of the DTC whereby large number of schedules containing detailed provisions are relegated at the end of the main body of the Bill would only create more confusion than clarity. The Committee has, therefore, recommended a complete relook at the structure of the DTC to make it more user friendly. (One wonders whether this recommendation alone would ensure that the duly revised DTC cannot see the light of the day in time for its immediate implementation.) The other heartening recommendation of the Committee is to note the unfettered discretion sought to be granted through the rule making provisions in the DTC to the Tax authorities. For instance, in relation to the General Avoidance Agreement Rules (GAAR), the Committee has specifically recommended that the onus of proof of tax avoidance should rest with the tax authorities and not the tax payer. The Committee has recommended that suitable grandfathering provisions should be made to protect the interest of the taxpayers who have entered into structures and arrangements under the existing law. Another welcome aspect of the Committee's report is affirmation of the Corporate tax rate of 30% and a thumbs up to 'investment linked' incentives as opposed to 'profit linked' incentives. Interestingly, the Committee has gone on to suggest provisions which are presently missing in the DTC for eg. the aspect of accountability of Assessing Officers and the exaggerated assessments and additional demands without sufficient grounds raised by the Assessing Officers has been noted by the Committee. The Committee has made a radical suggestion of taking disciplinary action against those Assessing Officers who have raised unreasonable tax demands based on irrational tax assessments which is perhaps of the first of its kind ever in the history of parliamentary recommendations in India. Another important recommendation of the Committee is to allow for tax consolidation of group entities to eliminate multiple levels of taxation of income generated within the group and reduce compliance costs. This is a far reaching suggestion which should be duly incorporated in the DTC. Finally, the Committee has recommended setting up of special fast track courts comprising of experts to dispose of the plethora of pending cases. It is not clear as to whether this is to be a one-time mechanism or a sustainable solution to reduce the time taken in litigation.

Economic Times, New Delhi, 10-03-2012