A self-reporting tax system prevails in India. The Income Tax Act of 1961 gives a detailed procedure for the assessment of taxable income. It also provides guidelines on the redressal of disputes arising from such assessments.
Such settlements, however, often take decades to complete. They involve long and complicated litigation procedures. To make things simpler, the Income Tax Settlement Commission (ITSC) was established in 1976. This quasi-judicial body was set up “as a mechanism to allow a one-time tax evader or an unintending defaulter to make clean breast of his affairs.” It functions as an alternative grievance redressal system.
There are seven benches of the Commission - three in Delhi, two in Mumbai, and one each in Chennai and Kolkata. Each bench consists of maximum three and minimum two members and is headed by a Chairman and a Vice-Chairman. It functions like a court and decisions are taken on a majority basis.
The main objective of the ITSC is to quickly dispose tax cases and settle disputes. Within 14 days from the date of application, a provisional admission order is passed. The final disposal of the case is called for within 18 months from receival of the case. The Commission has a track record of solving most cases within 10-12 months. The application for settlement can be made only during the pendency of the assessment proceedings. The settlement mechanism allows taxpayers to disclose additional income before it - over and above what has been already disclosed before the Department of Income Tax. The applicant has to pay full amount of tax and interest on the additional income disclosed before the Commission before filing the application. Any tax payer in whose case there is pendency is entitled to approach the Commission and has to come clear. Once he discloses his undisclosed income fully and truly and extends full cooperation to the Commission, proceedings, which are more in the nature of conciliation or arbitration, are conducted. Ultimately, fair and judicial settlement orders are arrived at.
In the rarest of the rare cases, the Commission may decide to impose penalty for concealment or not coming clean. The Commission has wide powers of granting immunity from penalty and prosecution which are major sources of litigation. The orders passed by the Commission are final and conclusive. In very rare cases may one appeal to the Supreme Court or the High Court. Even in such cases, the complaint is usually that the applicant has not been heard adequately. “The quantum of the liability is almost never changed by the Courts”, said B.D.Gupta, a member of the ITSC, Additional Bench, Kolkata. Gupta also said, “A lot of elbow room is there in determining tax liability in ITSC. Many provisions of the tax law are not followed as strictly as in the Income Tax Department.”
The Kolkata bench of the ITSC has a long drawn reputation of being unrivalled in the country. According to Jb. Syed Muhammad Ashraf, Vice Chairman, ITSC, Additional Bench, Kolkata, “Each member in the bench usually has 30-35 years of experience. So, when you stand before a bench, you have almost 100 years of experience looking at you.”
The government has also realised the importance as well as potential of the ITSC in effective tax dispute resolution. In the Finance Act of 2014, the scope of ITSC proceedings has been widened substantially. The forum is also gaining popularity amongst tax payers as a time bound resolution of tax disputes can be achieved through this mechanism. There is, however, lack of awareness about the existence of the Commission among people. “The Commission is grossly underutilised. The Kolkata bench has greater number of applications than the others in the country but even these figures are gravely unsatisfactory,” informed Ashraf.