The finance ministry has decided to not to announce the terms of reference of the proposed high-level committee on retrospective taxation to avoid any controversy on trying to infringe upon field officers’ authority and discretion in selecting cases for investigation.
Sources said the ministry is considering if a minimum amount should be specified as tax sought to be avoided in an offshore transaction for the department to invoke the provisions relating indirect transfers of Indian assets and raise a tax claim.
The move to keep the remit of the committee under wraps comes in the context of past challenges of a Central Board of Direct Taxes (CBDT) circular to field officers that curtailed their statutory authority to probe into suspicious claims of tax benefit under India’s tax treaty with Mauritius.
The proposed ‘internal advisory group’ that would scrutinise all fresh cases of indirect sale of Indian assets reported by assessing officers before tax demands are raised, will have as members the Director General of Income Tax (International Taxation), Member (Income Tax), CBDT and a senior official from the Foreign Tax Division.
The idea of the panel is to make sure that the controversial amendments to the income tax law in 2012 to tax transactions of even previous years is used diligently. It involves setting broad parameters to select taxable cases with significant revenue implications and not giving directions to assessment officers (AOs) to act in a certain way in the case of specific companies.
Setting such broad parameters to prevent officers from chasing all possible cases of taxable indirect transfers too goes against the statutory powers given to them in Section 143(3) to make an assessment of income after seeking a return, hearing evidence in support of claims of relief, and then determining the total income on which tax is to be paid.
However, the tax department is relying on the Supreme Court ruling in the Azadi Bachao Andolan case which held that the CBDT can issue instructions to assessing officers meant for ‘appropriate use of resources’ in revenue collection.
The SC had also reversed a Delhi HC order that struck down a circular issued in April 2000 by the CBDT (circular 789) saying a circular cannot usurp the quasi-judicial powers of officers to lift the corporate veil of an entity.
Experts said it would be a balancing act for a panel set up by the executive to give directions to quasi-judicial