QUESTION: In an article published in Business Line on June 18, 2011, it has been suggested that “tax administration in India is notoriously known to be slack; there is lot of political interference”. The article also implies that tax evasion is not a criminal offence compared to the situation in the U.S. or China. It has also been mentioned that “surprisingly DTC has omitted the term “concealment” from the Code. I am not in a position to agree with the author on these observations and would like to have the reaction of Tax Forum .
ANSWER: Tax evasion has always been a criminal offence in India. There are a number of provisions relating to prosecution under Chapter XXII of the Income-tax Act, 1961. Failure to file timely return of income, false statement and verification, wilful attempt to evade tax, fabrication of accounts and documents and failure to deposit tax deducted or collected at source attract minimum rigorous imprisonment of three/ six months. Removal, concealment, transfer or delivery of property to thwart tax recovery or failure to afford necessary facilities for the officers during search operations are some more offences liable for rigid sentences. Abetment of false return, where it is proved, would land not only the accused in trouble but those who help him, including those rendering professional assistance, providing for a rigorous imprisonment for a minimum period of three/ six months and a fine. Where the offence is rendered by a firm or company partners and the officers, including directors of the company, may be responsible, unless they are able to prove that the offence was committed without their knowledge in spite of due diligence on their part. For the offence of the Hindu Undivided Family (HUF), the karta himself, besides all members, is deemed to be guilty, unless such members are able to prove that the offence was committed without their consent or connivance.
Enforcement of law is also made easier for prosecution by statutory presumptions of culpable mental state placing the responsibility of proving innocence on the accused. Probation of Offenders Act, 1958, is not applicable for economic offences under the income-tax law, except for persons below 18 years of age.
The law in India treats tax offences not only as a criminal offence but also has strengthened the same by statutory presumptions and minimum rigorous imprisonment subject to a maximum period of seven years. There are number of prosecutions launched year after year.
It is difficult to accept that tax administration in India is “notoriously” slack and that there is a lot of political interference. More often the Department is known for its overzealousness, while the tax officers are comparatively independent protected by law. If they yield to political pressure, it cannot be solely the fault of the politicians. There are numerous instances, where the officers have not yielded to pressure from any quarters. If there is still significant tax evasion, it is as much a part of the system of limited scrutiny in vogue for the past several years and more probably because of all pervading corruption against which stiffer action is certainly necessary.
As for comment relating to the proposed Direct Taxes Code Bill, 2010, provisions relating to prosecutions under Chapter XV in the proposed Code do not lighten the severity of the provisions under the present Act. The word “concealment” is not used in the context of prosecution either under the present Act or the proposed legislation. But there are provisions to tackle defaults of every kind. As regards penalty, the Code provides for levy of penalty automatically, wherever there is a difference between reported and assessed income. The removal of the word “concealment” takes away the need for inference of intent to keep back any information relating to assessment. The law in the Code makes no difference between the deliberate delinquency and the innocent omission so that the Code, as in most other aspects, is more stringent on the taxpayer.
