Back to Tax'n'You
The Budget of 1998 incorporates several provisions with a view to reduce litigation with the department. Like several new provisions, some of these provisions are welcome and some unfair and unjustified.
The post of Deputy Commissioner(Appeals) is now proposed to be done away with. It means all appeals from October 1st, 1998 would be heard only by the Commissioner (Appeals) and not the Deputy Commissioner (Appeals).
Appeals pending before the Deputy Commissioners(Appeals) would be transferred to the Commissioners(Appeals). This is a very welcome provision and streamlines the appellate procedure
Currently, filing an appeal before the Commissioner (Appeals) does not require any payment of any appeal fees. Also filing of appeals before the Appellate Tribunal has a fee of not more than Rs.1500. This fee was earlier Rs.250.
The Government believed that this situation resulted in avoidable appeals before both these authorities and it has now proposed a filing fee before the Commissioner (Appeals) and an enhancement of the appeal fees for appeals before the Tribunal.
The minimum appeal fee for appeals before the Commissioner (Appeals) is to be Rs.250.
However, if the assessed income is between Rs.1 lakh and Rs.2 lakhs, the appeal fee is to be Rs.500.
In case the appeals involve a total income of more than Rs.2 lakhs, the appeal fee is to be Rs.1,000.
Appeals under other tax laws like Gift Tax and Wealth Tax would also require a fee of Rs.250.
The minimum fee payable for appeals before the Tribunal is enhanced to Rs.500 where the assessed total income is Rs.1 lakh or less.
If the assessed income is between Rs.1 and 2 lakhs, the appeal fee is to be Rs.1,500.
If the appeals involve a total income of more than Rs.2 lakhs, the appeal fee is to be 1% of the assessed income or Rs.10,000, whichever is less.
Appeals under the other direct tax laws will have a fee of Rs.1,000.
Miscellaneous applications for rectification of errors will have a fee of Rs.50.
Stay petitions before the Tribunal will also have a fee of Rs.500.
The above changes will be effective from October 1st, 1998.
You file an appeal because you think that your officer has made an error in either making the assessment, levying penalty, charging interest or has erred in some other way. You may be right or he may be right and this has to be decided by the appellate authorities. The issue may be small and you may want to fight on principle or you may want to file and get the records straight because it might have an effect in a subsequent year. You will, in any case, litigate with the department only out of compulsion and rarely out of pleasure.
An objective assessment of the past shows that a very large majority - over 80% - of the additions made by the Assessing Officers are deleted by the Tribunal, which is the final fact finding body.
About 90% of the decisions of the Tribunal are accepted by the tax payers and the department.
About 10% of the orders of the Tribunal are pursued by either the department or the tax payers in the High Court.
Of the 10% questions that go to the High Court or Supreme Court, about 65% of the decisions of the Tribunal are approved.
Even for the 10% questions that are referred to the High Court a majority - about 7.5% are by the department and about 2.5% are by the taxpayers.
An analysis of pending referring applications before the various Courts as on March 31, 1998 shows that out of a total of 6400 applications pending about 4,800 (or 75%) are by the department and only about 25% are by the taxpayers.
What do these figures mean? At least, this:
- The additions made by the Assessing Officers are often unjustified and erroneous.
- The assessee has to take justifiable recourse to appeal.
- The department is a bigger litigant than the assessee.
Now let us look at the reasons given by the Government. It makes interesting reading. It says, "Under the existing provisions of Income-tax Act unnecessary appeals are filed on decided issues and also on issues having petty tax effect as no fees is required to file appeals before Commissioner (Appeals) and the scale of fees for filing appeals before Appellate Tribunal is nominal. The assessees do not avail the benefit provided in Act in respect of repetitive appeals on identical issues. A large number of these unnecessary appeals take substantial time of the Appellate Authorities and consequently slow down the pace of disposal of appeals.
With a view to discouraging unnecessary appeals and appeals having small tax effect from being filed, the Bill proposes to provide for a scale of fee for filing appeal before Commissioner (Appeals) and also enhance the existing scale of fees in relation to appeals before the Appellate Tribunal" .
The first reason offered is that the assesses file appeals on decided issues. It is a fact that most officers do not follow decided cases and make additions ignoring them. This is true even if the matter is decided by the Tribunal or even the High Court. Often this is done on the pretext that the department has filed a reference application in the High Court on the same question or a special leave petition is pending in the Supreme Court. In such circumstances do you have a choice but not file an appeal?
But this issue is ignored by the government
The next reason is that assessees file appeals when the tax effect is petty. I cannot understand why a tax payer should accept any addition howsoever small its tax effect might be if it is unjustified. I do believe that it is the department which should have a large heart and let go of cases or issues where the tax effect is negligible.
I know of several tax payers who believe that, having returned the correct income, any addition or adverse remark would be unjustified. Many even consider it to be questioning their honesty. Such taxpayers would prefer a clean record and would go to any extent to set the record right. The issue in such circumstances is not the quantum of tax but a matter of principle.
The next reason given is that the assesses do not avail the benefits provided in law with respect to repetitive appeals.
If you look at the manner in which the law of repetitive appeals is drafted and practiced in the department and the Tribunal, you will immediately appreciate why assessees do not avail the benefit of the procedure. It is clearly a scheme which is not easily workable and needs to be fine-tuned before it could succeed.
As I said, you appeal because you have been treated unjustly. Now you are asked to pay for fighting injustice. Isn't that unjustified?
There is no denying the fact that there always are some tax payers, whose appeals are unjustified. However, for the sake of this minority there is absolutely no reason why the majority of justified appeals should be made to pay.
And in the whole process the biggest litigant - the department - is left untouched. Nothing is proposed to curb unwarranted, unjustified, high pitched assessments nor is anything proposed to reduce the number of appeals filed by the department before the Tribunal or references before the High Court. Until that is done, it is only the wronged tax payer who will be further made to pay.
An ideal solution to reduce appeals would be to give the Tribunal a power of awarding costs - just like the courts.
While the assessees may be asked to pay the appeal fees, if he wins the department should be asked to pay him the costs of appeal including the appeal fee and the representative's fees. This will be a very justified provision and a major disincentive against frivolous assessments or appeals. However, for obvious reasons, this is unlikely to be accepted.
The appeal fees proposed are based on taxed income and not on disputed additions, tax or penalty. So if you are assessed at Rs.10 lakhs and wish to contest an addition of Rs.20,000 you have to pay an appeal fee of 1% of the assessed income, ie, Rs.10,000. You can now see why linking the appeal fees to income and not to a disputed item is a wrong way to go.
If you are wronged by an order of the Tribunal, you are required to go through the process of filing a reference application before the Tribunal which will consider whether you have referable questions of law or not. Thereafter, it may refer the questions of law to the High Court. Then the High Court would hear the matter and give its opinion. This would come to the Tribunal and then the Tribunal would pass one more order correcting its earlier order, if required. After this the Assessing Officer is to modify his order.
This extremely cumbersome process is now sought to be modified by providing for a direct appeal to the High Court from the Tribunal - only on questions of law. This is a welcome provision and will reduce time involved in the whole process. However, this will have an appeal fee of Rs.10,000 which is as unjustified as the proposed appeal fees.
Will the Government take a right course instead of continuously wronging the wronged tax payer?
| 
