In my FB status update on Sunday the 1st of July I had expressed my intention of fresh attempt at blogging. This time it is an exclusive blog on matters of professional interest. The title of the Site is “Pashyanti – the intellectual consciousness”. Pashyanti is a stage in the process of converting Consciousness into Speech. That stage where intellect is applied to a spark of thought that sprouts out of consciousness, which then converts into language and is delivered as a speech. For more detailed discussion see this scholarly article on Mimamsa by Justice B N Srikrishna
Jaabaali is the pseudonym, I wish to adopt to emphasise that the arguments advanced here are to pinpoint a plausible viewpoint with a caveat that, like Jaabaali, the author is also aware and believes in the Conservative View. However, an alternate view is put across since such a premise could also be possible in given circumstances. The readers like Rama should condone any errors and help in correcting perceptions through a vibrant interaction.
A small discussion on the philosophical rationale for Tax Avoidance is not out of place. In India we have the famous case of Mcdowell & Co., Ltd Vs. CTO  154 ITR 148 (SC) cited often by the department in support of their abhorrence for Tax Avoidance. The famous Jurist and ‘Free-Market Fundamentalist’ (apologies to everybody who feel offended), Nani Palkhiwala always used to hold the view that it is the right of every citizen to manage his affairs within the legal contours in such a way that the incidence of tax is less. The legal authority for such a view is the decision of the Supreme Court in the case of CWT Vs. Arvind Narottam  173 ITR 479 (SC). In this case Justice Sabyasachi Mukherjee (as he then was), dismissed the arguments cited from Mcdowell’s case (supra) and went on to observe thus: ” It is true that tax avoidance in an under-developed developing economy should not be encouraged on practical as well as ideological grounds. One would wish, as noted by Reddy, J. that one could get the enthusiasm of Justice Holmes that taxes are the price of civilization and one would like to pay that price to buy civilization. But the question which many ordinary taxpayers very often in a country of shortages with ostentatious consumption and deprivation for the large masses ask, is does he with taxes buy civilization or does he facilitate the wastes and ostentatiousness of the few. Unless wastes and ostentatiousness in the Government’s spendings are avoided or eschewed, no amount of moral sermons would change people’s attitude to tax avoidance.”
Now back to topic, the format of this blog shall be largely in text form with links provided through open source Scribd or other PDF storage sites. As we go along may be PPT could be added subject to techinical feasibility. As a Chartered Accountant in Practice for about three decades, I intend discussing whatever comes along as topic of current interest for the profession. The discussions on a single topic could span multiple blogs.
The first topic for discussion is Section 56 of Income Tax Act,1961 as amended by Finance Act, 2017. The discussion on this topic shall be on these lines:
- Position pre-finance Act, 2017
- The contours of taxing Capital Receipts
- The exceptions and inclusions
- Case Studies
- Accounting and other implications
Historically, Gifts were not subject to Income Tax since these were considered Capital Receipts. The 50s and 60s were glorious years for Tax Department and Tax practitioners. During this period the Tax Rates in certain slabs reached a whopping 99% which combined with Wealth Tax exceeded 100% in some peculiar cases. Naturally this gave incentive for Tax Practitioners to innovatively design schemes to avoid such high incidence of tax. One of the innovative designed schemes to transfer incidence of tax is transfer of assets without consideration, commonly known as Gift. This made the Government bring a law to tax Gifts and thus was enacted the “Gift Tax Act, 1958”. This sought to tax donors granting gifts beyond a threshold. This was also one of the most litigated legislation with tax payers and tax gatherers playing the Tom and Jerry under the able guidance of Lawyers and Accountants. Vexed with the futility of the legislation and buoyed by tax collections the Government abolished Gift Tax Act with effect from 1990 and proposed to introduced a Donee based Gift Tax.
This (donee based levy), one can presume was in view of the change in the complexion of Gifts in the late 80s. The falling Tax rates made donor instigated gifts less in prevalence than Donee instigated Gifts to launder money and manage benami wealth. After dithering for more than a decade the law of taxing gifts in the hands of the recipient started in a small way in the year 2004.
Let’s continue the discussion as we go along…
au revoir! Till we meet again.