By Shailendra Kumar
THE knitting and unbundling of Union Budget is conventionally a skittish and fraught gambit! It is much more macabre because the universal imagination about the Budget in India is not about the presentation of the government’s receipts and expenditure but predominantly about taxation – either pinching of taxpayer’s kitty of income or ‘fleshing’ the same by allowing extra bout of deductions! Aha! This is so crazily stark, irrespective of the class of taxpayers! Hinging on the fiscal or financial sops, varied reactions originate from the multitude as well as well-informed but ideology-seduced experts!
This is what appears to be palely repeating with monotony even in the case of fourth Budget of the Union Finance Minister, Ms Nirmala Sitharaman! For her avowed political ‘foes’, the Budget 2022 was a disorderly symphony with key ‘sonata’ form glaringly missing! For more ‘revered’ and highly
‘viral-prone’ ideologues, it was simply ‘damp squib’! For the metaverse netizens generally hopping platforms of modern drivers i.e the social media, the Budget emits stench of political ‘hypocrisy’! For the dyed in the wool taxpayers who were waiting with trepidation, the entire ‘omnishambles’ presented on the floor of the House could have been better packaged!
In the poll-bound States, it was prophesied to spark amped-up war of words! For a large section of corporate honchos, it was a bit ‘baroque’ on the social sector! The pedestrians simply rained the Budget with the rough edge of their tongues!
However, the Union Finance Minister, starved of resources gluttonously guzzled by the pandemic, knew that the road ahead was craggy and rocky! She was not given carte blanche by her political hegemon but was expressly mandated to jab a booster dose to revenue collections! How to do it? A billion-dollar question! Imposing fresh levies would have amounted to dicing with death! She did not have a restaurant menu to choose from!
Invitation to wade into cloying mud, indeed! But, bet your boots, she was in the know of the folkloric wisdom – You catch more flies with honey than with vinegar! And she rolled her dice in the courtyard of Expenditure rather than Income! That is how one may find copious amendments laser-focused on disallowance of expenditure.
In other words, every penny disallowed is a penny earned for the revenue kitty! Touché! Time to drool over!
Let me now run through the veracity of this hypothesis! Let’s begin with the retro amendment in Section 14A relating to exempt income. This Section prohibits deduction of expenditure incurred for earning exempt income.
However, the Revenue’s apple cart was upset when the Delhi High Court in the case of Maxopp Investment Ltd Vs CIT (2011-TIOL-753-HC-DEL-IT) held that no disallowance is warranted if no exempt income is earned. The Apex Court tossed out the Revenue’s appeal and upheld the HC decision (2018-TIOL-87-SC-IT) in 2018.
If the CBDT was indeed cocksure that it was not the intent of the legislature, it had copious time to amend the pertinent Section in 2019 and also 2020! But it finally landed as a windfall opportunity when the googling eyeballs were trained to dig out all such issues buried under mounds of anti-Revenue judicial decisions! Inshallah! One normally visits a burial chamber to pay tributes (umrah) but for the Revenue, such chambers are
like ‘servers of revenue’!
That is how a retrospective amendment has come now, of course, a bolt from the blue! And such retro amendments have not spared even the GST law a la Section 50 and the Customs Act, strenuously defining the ‘Proper Officer’!
Let’s now trudge to the insertion of a new Section 79A which impolitely mandates – No set-off of losses or unabsorbed depreciation against undisclosed income arising from differences in stock, undervaluation of stocks and unaccounted cash payment. A considered view was taken that allowing any adjustment of such undisclosed income either as a result of search or survey leads to short levy of taxes!
Thus comes the sledgehammer with a non-obstante clause – Notwithstanding …! The scissors do not halt here! To further ruffle the feathers of taxpayers, it visited Section 43B – certain deductions to be allowed only on actual payment. Interest linked to borrowings from banks & NBFCs, in hundreds of cases, was converted into debenture and deduction was claimed for constructive discharge of interest liability. Several courts also upheld such an innovative modus operandi. But a simple amendment has denied all such deductions by not equalising it with actual payment.
Time to visit Section 37. This allows expenditure incurred wholly and exclusively for the purpose of business. This also proscribes any sum spent for any purpose which is an offence by any law. No deduction, please! Here comes the Indian Medical Council mandate restricting their practitioners from accepting any gift, travel facility, cash or monetary grant from pharma and allied industries. The CBDT had issued a Circular in this regard which became a hot potato for judicial sparring. Several court orders, including the ITAT decision, went against assessees but the world of interpretations keep unsettling what may appear settled today. Thus, a few decisions also went agaisnt the Revenue. This seemingly elbowed the Board to amend the relevant Section to bookend the issue once forever! In fact, its ramifications are to be studied closely as there are several professions which prescribe code of conduct for their members and the CBDT may look for actionable clues for future amendments.
Yet another example of the rigorous ‘blading’ efforts of the Revenue is the amendment in the Section 40. This is about the Health & Education Cess. Some taxpayers paid it but also claimed it with aplomb as legitimate business expenditure! What cushioned their such a claim were favourable judicial decisions as such a cess was specifically not listed out in the provisions of Section 40(a)(ii). True, it may not be talll revenue but it was, in the hindsight, a case of not examining the provisions from the tail of one’s eyes or making the tactical error of taking smack dab measurement of the ever-widening and prying eye-sockets of the taxpayers. For the Sovereign, it was lèse-majesté, and thus descends the sledgehammer of retro amendment, disallowing all such expenditures.
This brings us to the harsh treatment meted out to the crypto-verse! It is a tech-based financial product born out of highly advanced coding system called blockchain. Changing its mind to table a stand-alone legislation, the Government has thankfully acknowledged it as a legal transaction and
proposes to tax it as a virtual capital asset. A punishing rate of 30% has been proposed.
Besides the high incidence of taxation on capital gains, the proposal is to disallow any loss incurred in trading of such virtual assets and no loss is to be set off against any other income. For the audit trail, one per cent TDS has also been proposed. The days are not far when the GST Circular would be issued imposing mercifully 18% tax rate rather than 28% earmarked for the ‘demerit’ goods. I sincerely hope that tech products like Crypto and NFTs are not forced to inch down their footprints as they are modern tech-originating financial products and nipping them in bud does not go handin-hand with a forward-looking, technology-biased government.
Before I rest my fingers on the keyboard, I cannot resist talking about the provision relating to filing of Updated Return. Two-year period has been provided. And the twin objectives are to enable the Revenue to extract actionable intelligence from the mounds of information stored in the server
and to reduce litigation. The latter concerns the assessees. If litigation is to be kept at arm’s length, why should Government punish the taxpayer voluntarily admitting an omission by imposing additional tax of 25% and 50% if it is filed within 12 and 24 months respectively! If honesty in fiscal behaviour is to be encouraged, punitive tax needs to be avoided. Secondly, if a large bucket of cases are to be excluded such as Scrutiny, reassessment, survey and search cases, then who are you waiting for availing such a facility?
Ideally, a faucet should be created for genuine taxpayers, particularly in the absence of the hastily-guillotined Settlement Commission, to settle such omissions on their own within a reasonable period and remove the wiggle room for ineluctable and egregious disputes! It makes a salubrious sense not to have a fly in the ointment! Smoothen the rough edges for the taxpayers to help the Exchequer!