Block assessment will get a new name

QUESTION: What are the changes in respect of post-search block assessment?

ANSWER: Block assessment scheme for making post-search assessments, which had come under heavy fire from Kelkar Committee, is proposed to be dropped in respect of searches initiated on or after June 1, 2003. The powers for making normal assessments are adequate to deal with undisclosed income discovered during the search. But the present block assessment scheme is proposed to be substituted by another block assessment scheme under new Sec. 153A, 153B and 153C, which provide for automatic issue of a notice for six past years for initiating action against searched persons as well as third parties, whose undisclosed income might have been discovered in the course of search by way of assets, books of account or documents relating to such third parties. A separate time limit for completion of such assessments has also been prescribed.

The difference between normal procedure for back assessment available under Sec. 147 and the proposed new scheme is that such reopening would not require any new information or concealment on the part of the assessee so that the substituted scheme suffer from the same uncertainty as to the jurisdiction as the present block assessment.

The mandate to assess or reassess the total income of each assessment year falling within such six assessment years without discovery of undisclosed income during search would be as vulnerable as the pre-existing procedure for block assessment under Chapter XIV-B of the Act. Merely because a search has been conducted, there is no justification for automatic reopening the assessments for six years. The intention obviously is to dispense with the pre-condition of any `reason to believe', that there is liability for taking action for back years. Without the safeguards now available under Sec. 147, the search powers themselves are likely to be abused, as it would be an indirect route for exercise of such powers, which are not available under Sec. 147. Some rethinking is necessary as to the need for such power as well as the need for any special procedure for post-search assessments.

Tax clearance certificate — More rigid procedure

Q: What is the proposed dispensation regarding tax clearance certificates for persons going abroad?

A: Sec. 230 under the present law requires tax clearance certificate for every person domiciled in India in case of his departure for employment or as an emigrant or there is a direction from the assessing officer to any assessee not to leave India without such certificate. Non-domiciles were required to obtain a tax clearance certificate, except for minors, and diplomats and those whose stay in India did not exceed 120 days. The carrier becomes responsible for any tax that might become liable against the person, if he facilitates any such person to leave India without such certificate. This provision is proposed to be substituted.

The Finance Minister's speech claims that the proposal is to restrict the need for such certificates only to expatriates coming to India in connection with business, profession or employment subject to guarantee from the employer, with those domiciled in India requiring only Permanent Account Number (PAN) and declaration of intended period of stay abroad. The substituted section would accept from every person domiciled in India a certificate in lieu of PAN, if he is not required to get such number. The power to stop those domiciled in India, if the assessing officer feels it necessary, will continue in the new section. The proposed section requires a person not domiciled in India, who comes to India on business, profession or employment or who may have any income in India, other than those, who come on tourist visa for short period or for purpose unconnected with business, profession or employment, will now require tax clearance certificate, as before, subject to an undertaking and indemnity "from his employer or through whom such person is in receipt of income".

Tax clearance certificate is now made more difficult for expatriates other than those with tourist visa or on Government duty to leave India once they come here, since it will not be easy to conform to the requirement of finding not only a certifier but also an indemnifier of undetermined and uncertain tax, presumably for an indefinite period.

Apparently, the belief that Finance Minister had, when he assured the Parliament as one of the principal proposals in the basket of tax reform is "the abolition of tax clearance certificate needed by a person leaving India........" is based on the mistaken impression that the substituted section is easing the procedure. He has, apparently, assumed that the permission to leave India on guarantee is a relaxation of existing law, which it is not. Unless liability to tax is determined before a non-resident leaves India, it may never be determined, with guarantee not being of any avail, so that the new procedure is not good enough even for revenue, besides imposing a difficult and indiscriminate burden on all those who visit India.

S. Rajaratnam

(To be continued)

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