SC advises govt. to keep tax regime ‘convenient and simple’ for maximum compliance

By Legal Correspondent
A view of Supreme Court of India in New Delhi. File (Source: The Hindu)

The Supreme Court has advised the government to keep the tax regime “convenient and simple” to ensure maximum compliance.

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Payment of tax by both individual and corporate required planning. There was no room for presumption, a Bench of Justices S.K. Kaul and Hrishikesh Roy observed in a recent judgment.

“The tax an individual or a corporate is required to pay is a matter of planning for a tax payer and the government should endeavour to keep it convenient and simple to achieve maximisation of compliance,” Justice Roy, who authored the judgment, said.

The court quoted 18th century economist Adam Smith’s seminal work, The Wealth of Nations, “the tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid ought all to be clear and plain to the contributor and to every other person”.

The court said that in a taxation regime nothing should be left to be implied about, the contours should be clearly defined.

“Just as the government does not wish for avoidance of tax equally, it is the responsibility of the regime to design a tax system for which a subject can budget and plan. If proper balance is achieved between these, unnecessary litigation can be avoided without compromising on generation of revenue,” Justice Roy noted in the September 9 verdict.

The court was answering a question of law related to Section 14A (expenditure incurred in relation to income not includible in total income) of the Income Tax Act.

In this regard, the Supreme Court upheld the view of the Income Tax Appellate Tribunal that “proportionate disallowance of interest is not warranted under Section 14A for investments made in tax-free bonds/securities which yield tax-free dividend and interest to assessee banks in situations in which, interest-free own funds available with the assessee, exceeded their investments”.

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