The Hindu Business Line : Board not on board

The position of the Central Board of Direct Taxes (CBDT) in the Income-Tax Department is that of an apex body discharging important functions in the administration of the direct taxes law. In Nathuram Kapoor vs ITO (1979 120 ITR 257 MP), the Madhya Pradesh High Court elucidated its powers thus:

“….It’s (CBDT’s) powers of administration, supervision and control extend over the whole department. It has power to make rules and issue orders, instructions and directions to all officers and persons employed in the execution of the Act…”

It is absurd that this highest functionary in the I-T Department was not taken into confidence while drafting the Direct Taxes Code (Code), which is reported to be the handiwork of few officers working in the Department of Revenue. Obviously, a Code, which is so drafted, cannot command the respect of those who have to implement it.

Powers pruned

Not only has the CBDT been ignored, its powers are proposed to be curtailed.

Clause 17 of the Code says that the management of the Board shall vest in the Board of Members when it should be ‘Chairman of the Board and its Members’.

This, prima facie, undermines the role of the CBDT chairman.

In Section 118 of the I-T Act, mentioning the designations of the I-T authorities, the CBDT is at the top. In the corresponding clause 130 of the Code, the CBDT’s name has been removed without mentioning any reasons. The CBDT exercises statutory powers under the I-T and the wealth tax legislation. If the CBDT ceases to be an I-T authority, it would not have legitimacy to exercise such powers.

Section 119 of the I-T Act authorises CBDT to issue orders, instructions and directions for the ‘proper administration of the Act’. In the corresponding clause 133 in the Code, the CBDT can exercise such powers only for the ‘Management’ of the Code.

At present, there are no restrictions on the powers of the CBDT to issue orders, directions, and instructions under Section 119. Clause 133 of the Code puts specific restrictions on the CBDT in respect of the following powers, which it currently exercises: extend the date for completion of any proceedings, etc; relax any requirement or condition in relation to grant of any deduction or relief; and admit any application for condonation of delay, etc.

Prima facie, the Department of Revenue, wishes to exercise such powers, when it is to be concerned only with policy matters.

Re-establish clause

A surprising aspect in the Code is clause 115, which authorises Central Government to re-establish (i) CBDT; (ii) I-T Department; (iii) Authority for Advance Rulings; and (iv) Income-Tax Appellate Tribunal (functioning under the Ministry of Law).

There is no corresponding provision in the existing Act. Why this clause is proposed is a mystery. It is not clear how the I-T Department would be re-established.

Further, the CBDT has been created by the Central Board of Revenue Act, 1963, which Act is not proposed to be repealed by clause 282 of the Code. Then how an institution already in existence can be re-established belies logic.

The Direct Taxes Code is to be enacted to correct imperfections, remove complexities, ambiguities and distortions in the existing tax laws and usher in a taxpayer-friendly regime — and not to whittle down CBDT’s powers and functions, which, considering the emerging challenges, need to be upgraded, not curtailed.

It is unfortunate that this is proposed to be done in a surreptitious way, through the Code without any demands from any quarters for this.

The CBDT’s working has been constantly reviewed by PACs (Public Accounts Committees) and Estimate Committees of Parliament, CAG and various high-powered commissions and committees of the Government. All of them have recommended upgrading the CBDT’s status — and not curtailing its powers.

Wanchoo Committee

The Wanchoo Committee, chaired by a retired Chief Justice of the Supreme Court, found the powers of CBDT “lacking in may respects” and regretted to find that the CBDT does not have the same independent status as the Railways or the P&T (Post and Telegraph) Boards. It remains a part of the Revenue Department. This restricts its administrative powers and impinges on its independence. The Committee observed that the CBDT discharges a dual role. As a part of the Finance Ministry, its Chairman and Members, being ex-officio Additional Secretary and Joint Secretaries (now Special Secretaries) to the Government, it is concerned with tax policy on the one hand, and administrative matters on the other. The Committee expressed surprise that the CBDT has not been constituted as a separate Department and, hence, the Chairman of the Board is not the head of the Department.

The Administrative Reforms Commission (on Central Direct Taxes Administration) also expressed the view that the CBDT be constituted as a separate unit on the lines of the P&T Board and suggested that it should be allowed to function as a self-contained department, administering not only its subordinate offices but also its headquarters.

The recommendations

The Wanchoo Committee’s recommendations were:

The CBDT, which is the creation of a Statute viz. the Central Board of Revenue Act, 1963, should be reconstituted as an independent and autonomous body.

Its Chairman and Members should have the same status and draw the same emoluments as the Secretary to the GoI and should, as a rule, be appointed from among the personnel of Income Tax Service. The Government should scrupulously respect CBDT’s autonomy and independence.

The Choksi Committee also suggested that the Chairman of the CBDT should have the status of Secretary to the GoI and he should be from technical background. In the Commissioners’ Conference of 1990, the then Finance Minister Madhu Dandavate accepted this position and directed Secretary [Revenue], who was present in the conference, to process the proposal, but after his demitting office, the direction was put under wrap. Similar recommendation was made by the Estimate Committee of Parliament in 1991, but this recommendation too has been assigned to the archives of the Finance Ministry.

It is most unfortunate that CBDT has been ignored in drafting the Code. It is more regrettable that in the garb of enacting a new Code, there is concerted move to denigrate it when it is functioning with technical competence and efficiency. The need is to give CBDT the status recommended by various expert Committees — not undermine its Authority.

Hence, a body which generates nearly Rs 4 lakh crore a year by way of revenue, has to be honoured — not let down. The proposals in the Code concerning CBDT need to be withdrawn.

(The author is a former chairman of CBDT.)