Calcutta, Feb. 26: A Union budget provision allowing taxmen to attach "any property" during search and seizure could potentially jeopardise the continuation of ongoing business as it takes away the protection provided to "stock in trade", tax experts have warned.
The Centre had inserted sub-section 9 (B & C) in section 132 of the income tax act, enabling "provisional attachment" of any property belonging to the assessee for protecting "the interest of the revenue".
Previously, taxmen could not seize items such as bullion, jewellery or other valuables that constitute stock-in-trade of the business and instead could only make a note, or inventory, of the items.
The tweak
Under the new amendments proposed in the budget that will come into effect from April, taxmen can not only attach these items but also keep them under their possession for six months - and then carry out valuation.
"In order to protect the interest of revenue and safeguard recovery in search cases, it is proposed to insert sub-section (9B) and (9C) in the said section, to provide that during the course of a search or seizure or within a period of sixty days from the date on which the last of the authorisations for search was executed, the authorised officer on being satisfied that for protecting the interest of revenue it is necessary so to do, may attach provisionally any property belonging to the assessee with the prior approval of Principal Director General or Director General or Principal Director or Director," the memoranda of the budget read.
Earlier, taxmen could "seize books of accounts, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such, provided that bullion, jewellery or other valuable article or thing, being stock in trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock in trade of the business".
The impact
N.G. Khaitan, partner of Khaitan & Co and vice-president of the Bharat Chamber of Commerce, said the new provision could lead to the shutdown of ongoing operations in case of search of seizure.
"How could a business continue to operate if its inventory, which constitutes stock-in trade in the books, is seized? The businessman will have few options left if he wants to continue with the business," Khaitan noted.
He listed this amendment along with the one that enables taxmen to carry out search and seizure operation without declaring "reason to believe" or "reason to suspect" to anyone. "These provisions can lead to tax terrorism in the country."
FM argument
Finance minister Arun Jaitley, however, has argued that tax dodgers could hardly claim amnesty on the grounds of human rights.
"I can't understand why a tax fraud committed by a person should be made a human rights issue. Nowhere else in the world it happens," Jaitley was quoted as saying in a television interview.
However, industry has said that such unfettered power at the hands of the taxmen could potentially be misused.
Jaitley has argued that only 3.7 crore out of a population of 125 crore Indians files tax return, and only 78 lakh report income above Rs 5 lakh. Moreover, 56 lakh of the 78 lakh people are salaried, the finance minister told Parliament during his budget speech to drive home his point that India is a country of non-compliants vis-a-vis tax.
However, the argument appears to be skewed since two-third of the population declares agricultural income which does not come under the purview of taxation.
"If you consider the below poverty line population, population under 18 who is unlikely to be earning, elderly and retired people, housewives, the taxable base may not be 10-15 crore. In that case, the non-compliance is not as big as it appears to be," Khaitan said.
