Dealing with Judicial Arrears: System Re-engineering and Artificial Intelligence - Dr. Subhash Chandra Pandey

Date - 16 March, 2021

Recently, Mumbai High Court granted probate to a Will full 31 years after the death of testator bequeathing all assets to a charity. The Will remained inoperative as there were no witnesses to attest the Will as required under the Indian Succession Act though the Act was inapplicable in this case, the testator beinga Kutchi-Memon lady governed by Muslim law.

The case reminds us of the dictum: Justice delayed is justice denied and justice hurried is justice buried. In his famous "To be or not to be" soliloquy, Shakespeare’s Hamlet says "the law's delay" is among the list of negatives, to be weighed when considering whether or not to "bear the whips & scorns of time." It is an allusion to either the slowness of justice or to law as an obstacle to action.

The efficacy of justice delivery system is a function not just of the number of judges and courts but also of the systems, processes, infrastructure and resources.

The e-Courts project (Phase-I) was started in 2005 (Phase-II in 2015) to implement of information and communication technology in Judiciary to make justice delivery system affordable and cost-effective. Growing use of computers in courts has led to substantial convenience to litigants, lawyers and judges in dissemination of information about daily listing of cases to be heard. Liquidation of pendency has been rather high and even now it is quite significant.

Our courts are over-burdened with caseload. As on 1st March, 2021, total 66,727 cases were pending before the Supreme Court (60,469 on 1.3.2020). Out of which about 34,851 ‘Admission’ matters(28,736 on 1.3.2020) and 18,732 regular/admitted cases (19,662 on 1.3.2020) were ready for hearing.

On 14 March 2021, total 48,11,110 cases were pending with various High Courts (46,43,854 on 31st March 2020). Of these, about 16% cases were less than a year old, 60% cases were less than 5 years old but 20% cases were more than 10 years old.

Also, there were3,79,44,657 pending cases 2,77,42,814criminal and 1,02,01,843 civil cases (up from 3,24,06,349 pending cases , 2,33,51,663 criminal and 90,54,686 civil a year ago) are pending in about 15,000 lower courts (below High Courts). About 25% cases in lower courts are less than a year old, and 75% cases are less than 5 years old.

Thus, the Supreme Court, the High Courts and the lower courts together have total pendency of more than 4.28 crore cases.

In addition to these courts constituting ‘judiciary’, there are tribunals and other quasi-judicial authorities created under different laws to adjudicate issues and take decisions affecting legal rights of persons. (Tribunals like Central Administrative Tribunal, Tax Tribunals, Green Tribunal; Labor Courts, RERA, NCLT, NCDRC etc.) Their pendency also affects the state of law enforcement in the country. However, no statistics about pending caseload in these fora is readily available in public domain. If we add complaints/grievances pending with public authorities (government departments, regulatory bodies, municipal authorities on which also no data is available, and also factor complaints/grievances/cases which are not lodged by the aggrieved persons due to unhelpful or blocked channels, the emerging picture is quite disconcerting.

Even where data on pending cases/complaints is available, more important metric to report is turnaround time – average time taken to dispose off a case.

If there is efficient disposal, even a high caseload may be tolerable but a high caseload should prompt a review as to the root cause of complaints and redress it at the system level. For example, a large pendency in civil courts could be quickly liquidated if the land records computerisation is completed expeditiously. Proper record of land title, tenancy, charges, occupation and usage will pre-empt fresh caseload from swelling.

Likewise, decriminalising some minor offences can take some load away from criminal courts. After all, we don’t have enough jails and judges to convict every offender. Shouldn’t we have a hierarchy or priority list of offences to be targeted by prosecution and adjudicating systems?

One such category requiring policy action is ‘cheque bounce cases’- estimated to be about 20% of total caseload (2018) - clogging our already over-burdened criminal courts. The Negotiable Instruments Act 1881 was amended in 1989 to introduce 1 year jail term, enhanced to 2 years in 2003 for cheque bounce but the offence was made ‘compoundable’, meaning that the criminal proceedings can now be dropped if some compromise is reached between the opposite parties. Recently, the Supreme Court has sought constitution of special courts to liquidate these cases.

Should the debtors who have already mortgaged movable and immovable properties should be further subjected to criminal liability? At least for them, the cheque bounce can be decriminalised and made a civil matter.

Even within the existing system, the provisions regarding mediation and conciliation, pre-mediation and powers under Section 89 of the Civil Procedure Code for out-of-court settlement of disputes are not being utilized sufficiently.

Government has requested the High Courts of Delhi, Bombay, Calcutta and Karnataka to ensure that no trial court judge under their jurisdiction gave more than three adjournments in a case, particularly in the commercial division of the High Courts. These Courts have a high pendency of high stake commercial cases and delay affects business and economy.

So many questions of law get referred to the superior courts (the High Courts and the Supreme Court) which points to the complexity of laws. This results in lack of consensus on what is the correct interpretation of a legal provision. The laws need frequent changes because smart people find loopholes to bye-pass the true intent of the law and legislatures need to respond. It is an endless tussle between making newer locks and keys to open those locks. Apart from delays in court proceedings, complexity of law means that those who are responsible for their implementation may lack the wherewithal to enforce the laws efficiently. The complexity of Income Tax Act and the Companies Act is the result of such a tussle.

Some systematic changes can help conserve precious judicial time and pare down the mounting pile of pending cases. Judges need empowerment to throw out petty and frivolous litigation. Fixing Standing Operating Procedures for recurrent cases like bail, police remand, judicial remand, transit remand, introducing plea bargaining for petty offences, limiting adjournments, taking strong action against vexatious litigants and their lawyers abusing the judicial process, wasting precious judicial time on the lines of Madhya Pradesh Vexatious Litigation (Prevention) Act, 2015 etc. can be helpful.

Technology has brought improvements in many areas of G2C (Government to Citizen) interface including the judicial system but more needs to be done and fast.

On technology front, new initiatives are steadily being tried. Observing that "Sunlight Best Disinfectant", the Supreme Court allowed (Sept 2018) Live-Streaming of Hearings. The court proceedings are by default open to public, subject to infrastructure constraints. Some High Courts have also started this. Live streaming makes it feasible for a wider audience to watch court proceedings and in particular it helps law students to learn.

Video-conferencing has been selectively used by some courts to hear routine cases like violation of traffic rules. In criminal matters, physical presence of witnesses is considered important to that the judges can closely watch the countenance/demeanour of witnesses. With improved video quality systems, more and more cases can be heard online. In civil cases, where mostly documents play an important than personal testimonies, online hearings have bigger scope.

If the police can video record and upload the crime scene in a secure portal and if police can arrange to video record all statements during investigation before judicial magistrates, a lot of delays during proceedings can be avoided. A system of plea bargaining where the accused accepts the charges before the court on promise of lighter penalty (instead of going for full-fledged trial) in cases of minor offences can also help to cut caseload.

A still deeper application of technology in judiciary would be if the plaints and chargesheets are filed as digitally searchable documents which can then be tagged according to various legal provisions. Then the databases of pending cases and judicial pronouncements can be properly searched by judges and lawyers resulting in quicker browsing and data analytics capabilities in case management.

Chief Justice of India has repeatedly spoken about application of advanced technologies like Artificial Intelligence to deal with judicial arrears. Use of AI does not mean computers analysing and deciding cases but being an aid to the judges. Selection of cases for fast-tracking disposal, gaining insights into pending legal questions through data analysis and structured engagement with lawyers to improve case management can be possible use cases of applying AI to judicial caseload. The computer can efficiently ferret out relevant material for consideration of judges to save precious judicial time.

Information and communication technologies introduced in courts under the e-courts project are sought to be taken to a higher level with Artificial Intelligence tools. IT can help in tracking latest status of pending cases, searching and sifting past judgments to find relevant ones, translation of judgments of superior courts (in English) to the language used in lower courts, profiling of pending cases to fix priority and even giving judges auto-correct type suggestions and queries after going through whole case record. Under AI environment, machines learn from previous iterations (like dictation tools improve accuracy based on extent of usage) - higher the usage better the machine suggestion.

Obviously, just like using Google Translate type tools, one cannot fully rely on computer output and has to apply mind to whatever test is suggested. In early training/learning phase, it can be frustrating to deal with responses from translation/dictation software and chatbots but machines learn pretty fast. Use of AI in judiciary would not replacing judges' discretion, human intervention.

Conversion of huge mass of case records, some in delicate state of manual maintenance, into machine readable form is a huge administrative task. Given the diversity of ground practices, the task of digitising case records and introducing standardisation in future accretion is a huge challenge. Pilot projects can begin in high caseload States like UP, Maharashtra and Karnataka.

Is it utopian to visualise an end State vision where say 95% cases get disposed off within say 6 months?

GST awaits realisation of Full Potential - Dr. Subhash Chandra Pandey

Date - 15 December, 2020

Government is cracking whip on tax evaders to ramp up GST collections.Nationwide raids by Directorate General GST Intelligenceunearthed4,586 ‘fake’ entities registered under GST,arrested132 persons in 1,430 cases of illegally availing or passing on fake input tax credits.More than six months’ default in filing monthly tax returns led to cancellation of GST registrations of 1,63,042 entities.

Tax evasion is rampant and strong anti-evasion measures are needed as GST collections are below expectations and potential. Lok Sabha was informed in March that GST evasion of Rs.70,207 crore had been detected during July 2017-January 2020 of which Rs.34,591 crore had been recovered.Directorate General of Analytics and Risk Management has identified over 12,900 business entities suspected of availing input tax creditthrough fake invoices worth over Rs.100,000 crore by March 31, 2020 since July 1, 2017.

Tax collections from taxes subsumed in GST was about 6% of GDP in 2016-17. In contrast, GST collections to GDP ratio was 6.25% in 2018-19 and 6% in 2019-20. GST collections were about Rs.7,40,650 crore in 2017-18, Rs.11,77,370 crore in 2018-19 and Rs.12,22,131 crore in 2019-20 crore. GST collections were about Rs.32,000 crore and Rs.62,000 crore during April and May. Next 4 months saw average collection of Rs.90,000 crore pm, which improved to Rs.105,000 crore pm in last two months, showing robust recovery.

If GDP at factor cost (proxy for total base of indirect taxes) is assumed to be Rs.160 lakh crore and 60% of this GDP pays average GST of 15%, then the GST revenue should be Rs.120,000 crore per month. Obviously, GST revenue is below expectation and potential. Governments are taking steps to overcome resistance to formalisation and digitalisation, rationalisation of GST rates and curbing tax evasion through claims of fake or excess input tax credits, misinvoicing or undocumented sales.

GST system includes certain checks on tax evasion like mandatory audits, matching of returns, e-way bills, reverse charge mechanism and invoice matching. These are being gradually introduced.

To check the practice of setting up shell firms for fraud, government has mandated Aadhaar authentication for taking GST registration. GST law permits deemed registration 21 days after an application is filed. Authorities will now physically inspect to verify entities obtaining deemed GST registration without Aadhaar. Ever since Economic Administration Reforms Commission (chaired by Shri L K Jha1984) highlighted how 80% of Excise manpower then guarded gates of low revenue yielding factories, tax administration has been moving away from physical controls to self-assessment.A trust-based tax assessment system is effective only when there is deterrence of test check and fear of penal action on detection of breach of faith in test check. Otherwise, the tax system will be no different than managing DAAN PATRAS placed in temples!

Since tax inspectors no longer guard gates of factories and godowns, ‘E-Way Bills’ system was rolled out in April 2018 to trackmovement of taxable goods. This also reduces the income tax evasion by transporters as they need to get registered. Capturing the vehicle registration numbers into a trackable IT system, the eWay Bills and FASTag systems help check other malpractices. (In Bihar fodder scam, CAG detected certain vehicles supposedly used for fodder transport were actually registered two wheelers, proving fake procurement.)

Officials have found lakhs of eWay Bills being cancelled within few hours indicating undocumented delivery to intra-city or nearby destinations or multiple trips being made against a single eWay Bill to transport excess undeclared goods. To curb misuse, EWBs are now being integrated with the FASTag system being used for electronic collection of tolls on National Highways and Vahan database.

Instances have been found where unscrupulous dealers have used fake invoices for inputs (not received) to claim undue input tax credit. Such invoices don’t have any corresponding supply of goods/services or not to the full extent and do not involve actual payment of GST on inputs.This practice also leads to defrauding banks by exaggerating turnovers and money laundering.

CAG report on GST (July 2019) expressed concern on continuing delay in full invoice matching system which has made the system prone to input tax credit frauds. The system was intended to be designed based on 100%invoice-matching to ensure system-verified input tax credit, correct settlement of IGST and minimizing direct human interface with assesseees.

After full automation is adopted by taxpayers, even “assessment” as understood in the manual system may no longer be necessary. The tax returns can be generated by a system that matches invoices. Tax evasion can be detected by applying analytical tools and AI to the massive data that crores of invoices generate. In fact, the GST system should reach the same maturity in terms of providing visibility of Input Tax Credit as is now available for verification and tracing of TDS/TCS credits by Income Tax assesses.

One common problem especially for small businesses is that the GST system is not designed to distinguish a sale for full upfront payment and a sale on credit; a sale on EMI. Why force a seller to pay GST even before he gets paid for the supplies? Even allowing quarterly filing of GST returnswith monthly payments does not addresses this problem. Small businesses selling to big buyers including governments and PSUs routinely face payment delays though some progress has been made recently. It would be desirable if in a GST2.0 upgrade, a receipt-based GST system can be implemented where the GST would be payable to the Treasury only on receipt of full or pro rata payment for the supplied goods/services. One theoretical option to implement this at least for small businesses could be to allow them to opt for Cash Accounting rather than Accrual Accounting but that will create problems when they grow and have to leave the small business tag. Better option will be to introduce payment tracking whose benefits will go beyond the GST sphere in checking defaults and delinquencies.

It is a creditable achievement that the number of registered businesses under taxes subsumed in GST has increased from 72 lakhs to 1.28 crore despite significant de-registrations due to increased thresholds for registration and voluntary deregistration by some Central Excise-exempt units located in Himalayan/ North Eastern States whose business became unviable under the destination-based GST.Some 82 lakhs registered sellers filed detailed returns for November 2020 and over 20 lakh GST taxpayers opting for ‘composition scheme’are exempt from filing detailed returns. As a taxpayer facilitation measure, almost 94 lakh small GST taxpayers are now allowed Quarterly filing of Return with Monthly Payment.

GST rate rationalisation is also on course. Almost 99 per cent of all commodities are now taxed with GST@18 per cent or lower. Consumers tend to compare GST rates with erstwhile Sales tax/ VAT rate not realising the basic fact that the GST subsumes Central Excise which has been hidden in the price of products on which VAT was applied. When the invisible Central Excise and other taxes are subsumed in visible GST, the GST is bound to be seen higher than VAT. (Pre-GST taxation of goods was a typical standard VAT @14.5%, Central Excise @12.5% and CST@4%. With cascading effect of tax on tax, total tax paid by end consumer was beyond 30%. The entertainment tax was being levied by the States from 35% to 110%.

Inclusion of petroleum products in GST, if necessary by adjusting non-GST taxes like Customs, allowing input tax credit across full value addition chains, further lowering of rates with continuing strict action against tax frauds can make GST more acceptable and yield more revenues.

Digitalisation and formalisation of businesses poses some short-term costs and hassles but it is inevitable and it alone holds the promise of giving long awaited justice to the overtaxed. Rates can come down when compliance improves for this grand reform.

Decriminalisation of Minor Economic Offences - Dr. Subhash Chandra Pandey

Date - 24 November, 2020

Today 3,61,30,556 court cases are pending in various courts, out of which 2,62,80,291 are criminal and 98,50,265 are civil in nature. 1,60,89,064 criminal and 58,96,321 civil cases are more than a year old. What types of cases are clogging the criminal courts and how can the government ease the burden on these courts? Indian Penal Code is our primary criminal law but many other laws have stipulated that this or that act of commission or omission would be treated as an ‘offence’ punishable with jail term or fine or both. For example, the Negotiable Instruments Act, 1881 was amended in 1989 to introduce 1 year jail term, enhanced to 2 years in 2003 for cheque bounce.

Issuing of post-dated cheques or signing of irrevocable mandates to banks to debit the agreed EMI on a fixed date every month is a common practice when loans or goods purchased on credit are repaid/paid on EMI basis. If the cheque or automatic electronic debit is dishonoured by bank for want of funds/mandate and the debtors fails to clear the dues within 15 days of written notice (to be given within 30 days of dishonour) the creditor can file a criminal complaint. For, the debtor commits an offence punishable with upto 2 years jail or fine upto 2 times the amount of cheque or both. Criminal case can be dropped in case of a compromise settlement. This is so provided under Section 138 of the Negotiable Instruments Act, 1881. The objective of all this is to promote the efficiency of banking operations and to ensure credibility in transacting business through cheques.

The Negotiable Instruments Act, 1881 was amended in 1989 to introduce 1 year jail term, enhanced to 2 years in 2003 but the offence was made ‘compoundable’, meaning thereby that the criminal proceedings can be dropped if some compromise is reached between the parties. A PIL filed by Indian Banks Association in 2013 highlighted that out of 270 lakh cases then pending in courts, about 40 lakhs were cheque bounce cases involving about Rs.1200 crore. Cheque bounce cases were estimated to be about 20% of total caseload in 2018. The question is should cheque bounce continue to be treated as an offence? Can it be decriminalised by amending the law? Do we have enough jails and judges to convict every offender? Shouldn’t we have a hierarchy or priority list of offences to be targeted by prosecution and adjudicating systems? Should the debtors who have already mortgaged movable and immovable properties be further subjected to criminal liability?

Civil cases, which only result in award of monetary compensation/damages or confirmation of civil rights, require a less stringent standard of evidence: Proof based on ‘preponderance of probability’. On the other hand, in a criminal case, the law tilts in favour of defendants. It prefers some guilty being set free rather some innocents being convicted. For criminal courts, the standards of evidence are set very high – ‘prove beyond reasonable doubt’. It prima facie means criminal cases involve more intensive examination of records and witnesses produced by opposite parties.

Normally, for criminal liability to be pinned to a person, presence of mens rea, i.e. malafide intention is a must. However, in cheque bounce cases, malafide intention may or may not be there and need not be proved. A strict liability has been created without going into cheque issuer’s intentions as a measure to build trust and credibility in cheque transactions.

Government is considering decriminalising cheque bounce and some other ‘civil wrongs’. On 8th June, 2020, Finance Ministry sought stakeholder comments on its proposal to decriminalise 39 ‘minor economic offences’ created under 19 Acts, including non-repayment of loans and dishonor of cheque or automatic electronic debit. Government thinks it will ‘improve ease of doing business and help unclog the court system and prisons’. The decriminalisation proposal has been opposed by the Indian Banks’ Association, Confederation of All-India Traders, Finance Industry Development Council, Federation of Industrial and Commercial Organisation and some Bar Councils.

The Bar Council of Delhi has highlighted the effect of the pandemic on the lawyers community and how every advocate is facing a financial crisis. The Bar Councils of Maharashtra and Goa have also opposed the proposal to decriminalise Section 138 of NI Act. They contended that offence of cheque bounce should not be termed as a ‘minor offence’ by the government in its bid to decriminalise the same. For lawyers, decriminalisation clearly means adverse impact on their livelihoods. For traders selling on credit also, there is a genuine problem of having often no security against customer default. Instalment purchase of goods on equated-monthly instalments (EMI) is supported by post-dated cheques, and no one will accept cheques if its bouncing is decriminalised. Trade will be left at the mercy of civil litigation that takes several years for justice. Even after the current stringent Section 138, more than 20 per cent of all pendency of cases across the country is only pertaining to cheque bounce.

Bankers’ opposition to decriminalisation can also be understood for cheque bounce against unsecured loans. However, there is absolutely no justification for continuing with this additional protection to secured creditors. While sanctioning EMI based loans, banks insist on mortgage of immovable property or shares/debentures/FDRs etc. or obtain guarantees from employers for deduction from salary. In such cases, the cheque bounce should be considered for decriminalisation to begin with. Borrowers - distressed by coronavirus pandemic - have been provided some relief by way of moratorium and deferral of fresh applications for insolvency proceedings but the criminal liability under Negotiable Instruments Act, 1881, as amended in 1989, 2003 and 2018 remains.

The objective of amending Section 138 of the Negotiable Instruments Act in 1989 was to ensure credibility in transacting business through cheques. Current realities are so very different from 1989 when cheque bounce was first criminalised.

Provision of criminal liability – prosecution/imprisonment – on strict liability basis without need to prove malafide intention - is an identified deterrent for attracting new investment. It is in larger public interest to declog our criminal courts and jails.

In Kaushalya Devi Massand v. Roopkishore Khore, the Supreme Court held that the offence committed under Section 138 of the NI Act cloaks a civil wrong as a criminal wrong and the gravity of offence under Section 138 of the Act cannot be equated with an offence under the provisions of the Indian Penal Code or other criminal offences.

In Makwana Mangaldas Tulsidas v. State of Gujarat & Ors, the Supreme Court on 5 March 2020 favoured decriminalisation of dishonour of small value cheques. The court suggested various ways to deal with the over flooded situation of cheque bounce cases pending for adjudication across the country. The Court suggested developing a mechanism for pre-litigation settlement in these cases.

The Centre, while decriminalising some defaults, has to balance the interests of lawyers, business community and welfare of public at large especially those who are not wilful defaulters. We need to find a balance so that malafide intent is punished while other less serious offences are compounded. As the working of SARFESAI Act and IBC has shown that the cases of wilful defaults are very few and offenders continue to dodge while a large number of non-wilful defaulters continue to suffer harassment in courts. Public policy is all about balancing conflicting requirements and expectations. Creditors would like to have as many remedies as possible and pursue all those remedies simultaneously but such an approach has a deleterious effect on business sentiment. It may end up having a chilling effect on potential borrowers and consumer demand.

If fear of imprisonment and litigation charges along with fine truly had a deterrent effect on timely payment of cheques, the courts would not have had such a big pendency. Huge backlog of cheque bounce delays trial of more serious crimes, with public faith in the judicial system being adversely affected.

Hence, decriminalisation of bounce cheque should be seriously pursued. Secured creditors have remedies available under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 and Insolvency and Bankruptcy Code, 2016. Hence, cases involving secured lenders should be decriminalised except borrowers declared ‘wilful defaulters’ or ‘fugitive economic offenders’. Even in cases involving unsecured creditors, the criminal cases should be continued against repeat offenders and a more lenient view may be taken for the first time defaulters/offenders.

There should be very clear articulation of legislative intent as to its retrospective or prospective operation. To reduce a large pendency of court cases, retrospective application based on a differentiating criterion like secured/unsecured creditor and wilful/non-wilful defaulters would be necessary and desirable. While the ‘crime’ of issuing a bounced cheque or not ensuring availability of funds in bank account when an automatic debit drops in has been discussed in detail, same logic applies to many ‘other economic offences’ like delay in filing reports and returns to tax/regulatory authorities.

Criminalising procedural lapses and minor non-compliances increase burden on businesses and courts alike without serving broader public interest. It is essential that we relook at criminalising provisions for mere delays and defaults, more so if these are procedural in nature and do not impact national security or public interest at large. For example, to jail someone for not filing a report that no one is seriously examining or making use is not justified.

Statutory Regulation of foreign-funded NGOs - Dr. Subhash Chandra Pandey

Date : 18 October, 2020

Foreign Contribution Regulation Act 1976 sought to regulateforeign funding by banning, requiring prior permission or intimation of/to government. While retaining the 1976 basic framework, the Act was rewritten in 2010 by addition/updation and amended recently on 28th September, 2020.Amendments seem to have stirred a hornet’s nest.

The 1976 Act banned election candidates, ‘correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper’, judges and government / PSU employees, legislators, political parties and their office bearers from accepting any foreign funds. (The 2010 Act added television and digital media also.) The 1976 Actprohibited“organisations of a political nature, not being a political party”from accepting any foreign contribution directly or indirectly through any proxy WITHOUT prior permission of the Government.

Further, the 1976 Actallowed non-political entities ‘having a definite cultural, economic, educational, religious or social programme’ to receive foreign assistance provided they register with the government and keep the government informed about its quantum, source, time, purpose, bank account and actual utilisation. But the 2010 Act tightened control on ultimate recipients of foreign contributions by stipulating that FCRA registered entities can transfer funds only to other FCRA registered/regulated entities. Recent 2020 amendment has totally banned transfer of funds to others. The receiving NGO must spend all foreign contribution itself. It cannot become a distributing intermediary.

The 1976Actauthorisedgovernment to deny access to foreign contributions if it prejudicially affected (i) the sovereignty and integrity of India; or (ii) the public interest; or (iii) freedom/fairness of election to any Legislature; or (iv) friendly relations with any foreign State; (v) harmony between religious, racial, linguistic or regional groups, social, castes or communities. (The term ‘social’ was added in 2010).

The evolution of FCRA law clearly shows its basic intent: Foreigners indulging in local politics are not welcome.The legislative intent was to curb foreign interference in domestic politics, media, judiciary and government. Critics saw the law as an attempt to clamp down on political dissent.

Foreigners are treated somewhat differently everywhere. They must comply with local laws. While basic human rights are assured by India to everyone including foreigners, some rights are available only to Indian citizens. Foreign debt, equity, grants all are regulated in so far as they impinge on national security or where these can prejudicially affect culture, education, religion, social harmony.Foreigners are expected to stay away from local politics. They must stay away from divisive issues else they will get drawn into political controversies and will invite political backlash. Many NGOs have strong ideological biases and overtly political agendas. If an NGO indulges in political activities and religious conversion, it is bound to invite political backlash. It should be ready to face it.

Recent amendments to the FCRA Act generating controversy are analysed below.

(i) Cap on administrative expenses

The 2010 Act stipulated a ceiling of 50% on ‘administrative expenses’, which can be relaxed with the approval of government. The recent 2020 amendment has reduced this 50% to 20%. NGOs can seek government approval to exceed 20% limit with proper justification (like expenses on a non-recurring event).NGOs should spend more on implementation of projects, give more help to poor beneficiaries rather than lavishly spend on their high salaries, office rent and allied charges, business class travel, expensive event venues etc. Only 1328 NGOs reported administrative expenses exceeding 20% in 2018-19. 20% ceiling mainly hurts advocacy NGOs who don’t have projects.

(ii) Requirement to furnish AADHAAR/Passport/OCI credentials for key managerial personnel

New law requires NGOs to furnishAadhar numbers of all key functionaries while seeking FCRA registration, renewal of registration, or prior permission to obtain foreign contribution. For foreigners/OCIs, copy of passport or OCI card will do. Why should anyone be hassled by this one-time requirement?

(iii) Routing of funds through a bank account in SBI, New Delhi

New law requires that foreign contributions are to be routed through a bank account with SBI in New Delhi. From there, funds can go to other FCRA accounts of recipient’s choice. The FCRA accounts must not receive other funding to avoid mixing regulated and unregulated funds. NGOs can continue using their preferred bank account after foreign funding inflows pass through this SBI account. This is a one-time hassle. NGOs don’t need to come to Delhi. They can approach nearest SBI branch.Of the 21,490 NGOs filing FCRA returns in 2018-19, 1,488 were Delhi-registered.

Government should give directions to SBI to facilitate / fast-track the process and may alsogive some transition time to NGOs so that the fund flow does not come to a halt during the current pandemic.

(iv) NGOs can’t be financial intermediaries to route foreign contributions

The most substantive change in 2020 amendmentis that an FCRA-registered NGO cannot transfer funds to other NGOs. It has to directly spend all foreign funds it receives. Under the 2010 law, such transfer was permitted to other FCRA-registered entities. So bigger NGOs could act as a funnel to route foreign funds to grassroots organisations. Now these larger NGOs will have to reorient their working to start either direct spending or start connecting foreign donors and FCRA-registered grassroots organisations. Foreign funds will bypass the bank accounts of these intermediary NGOs and go direct to ultimate beneficiary NGOs.

Foreign funds received by NGOs totalled to Rs.18,337.66 crores in 2016-17,Rs.19,764.64 crores in 2017-18 and Rs.20,011.21 crores in 2018-19. There are around 22,400 FCRA registered active (return-filing) NGOs in the country. About half of them did not receive any foreign grants in 2018-19. 2,214 NGOs were registered in 3 years between 2017-2019.

In 2018-19, 4,107 NGOs received Rs.1,768 crores as re-grants from bigger NGOs, with a median transfer value of Rs.7.6 lakhs. Half of them received less than Rs. 7.6 lakhs. So who should cribif big NGOs routing funds for smaller ones is disallowed?Pruning of intermediation cost would mean more bang for the buck for genuine foreign donors. It will help government to know which foreign donor is funding which Indian NGO. Intermediary NGOs were an obstruction to this transparency and may be adding to the cost. For, they could be receiving a fungible pool of funds from many donors!

When the FCRA money was being passed on by recipients to other organisations, both of them reported the same amount as foreign contribution, leading to double counting. Also, who received from which foreign donor was unclear. So who should crib? Anyone who is against such transparency! Anyone who benefits from creating smokescreens. Of course, to avoid sudden disruption of fund flow during pandemic, some transition time should be allowed.

(v) Non-compliance

The 2010 Act barred following types of entities from getting/renewing FCRA registration: “Fictitious or benami entities” , i.e., entities acting as proxy for hidden owners/controllers; or entities prosecuted or convicted for indulging in activities aimed at religious conversions through inducement or force; prosecuted or convicted for creating communal tension or disharmony in any part of the country; found guilty or diversion or mis-utilisation of its funds; engaged in propagation of sedition or advocating violent methods to achieve its ends; using foreign contributions for personal gains or divert it for undesirable purposes.

The Government has strengthened the mechanism to find out non-compliant NGOs. Period of cancellation of registration has been changed from “upto 180 days” to “180 days to 360 days”.

In so many spheres of G2C or G2B interface, government regulations often get more stringent when few deviant entities misbehave and flout the law. A few commit mistakes and the governmental system reacts to clamp down more controls, inspections, reports, a clear hassle for all.

NGOs play an important role in development. Many NGOs are engaged in implementing government schemes to help the poor. The friction between NGOs and government arises only when foreign funded NGOs venture into prohibited areas: Politics, religious conversion, communal and social disharmony.

FCRA registration of as many as 14,500 NGOs were cancelled in 5 years ending December 2019. Mostly, these were duplicate registrations held by someNGOs. Failure to file annual returns also invited some cancellations as was the case with crackdown on shell companies. In 2017-18, names of 2.26 lakh companies were struck off.

Since 1976, we have had a nanny State preventing foreigners fanning social disharmony. We are a proud open democracy. Like any human institution, our systems may not be perfect. We do have problems to resolve but we don't need such foreigners who try to accentuate divisions, disaffection and alienation among people, playing on the insecurities of the wronged, deprived and misguided sections. Such foreign influences create social friction and weaken the nation.

The most vocal critics are actually the NGOs engaged in “proxy politics”,a no-go area for them right from 1976. If they fish in troubled waters, they will face pushback. They are free to go to undemocratic countries to help their voiceless people if they are allowed to operate there.Of course, the government needs to ensure that genuine NGOs are not hassled, rather facilitated, by officials. Genuine NGOs need not worry.

A Battle Half-won - Dr. Anju Srivastava

Date - 18 October, 2020

The education system of a country is entrusted with the responsibility of producing talented and well-trained humans with good values, who contribute in the growth and development of society with passion and vigour. Education and development are inseparable.Only a robust system of education can help achieve multi-fold economic growth. At the same time, the value of the education system lies well beyond economic growth – it promises to transform individuals and make an inclusive, fair, prosperous and healthy society. As Nelson Mandela said, “the power of education extends beyond the development of skills we need for economic success. It can contribute to nation-building and reconciliation”.

Macaulayism, the process of introducing English education to erstwhile British colonies, had the most lasting imprint on the Indian education system, since several artifacts of this system remained in place post-independence. While we have seen reforms in Indian education over time, it is clear that the influence of Thomas Babinton Macaulay has been a fixture. A system where rote-learning and memorization is rewarded cannot produce human capital. In spite of having more than a thousand universities and forty thousand colleges, not one of our institutions features in the top 100 worldwide.

For the first time in the twenty-first century, the Government of India has released a National Education Policy (NEP). This policy has been long overdue, given that the last one was formulated in 1986. This NEP promises to bring progressive long-lastingchanges, and to restore ethos of cultural and community pride in the coming years. The final sixty-three page document distilled from a five-hundred page draft has been formulated after incorporating feedback from2.5 lakh village level stakeholders, two parliament committees, workshops and conferences to ensure a participatory and consultative process over the last couple of years. The policy represents a blend of modern thinking and traditional ideas, and makes for a sincere effort to reform the system. The policy envisions a paradigm shift in the education system encompassing a revamp of all aspects of education from school to higher education. The design of its framework is deeply rooted in Indian ethos and emphasizes holistic development that would empower the country to compete with the best in the world. It also aims to address issues of institutional regulations and quality control.

One of the mostwelcome features of the new policy is the attempt to universalize early childhood education and foundational learning (3-8 years). National Council for Education Research and Training (NCERT), for the first time, has been assigned the job to develop a curriculum for children in the age group of 3-5 years. This pre-school training will be part of the formal school education and is a step in the right direction as these are the most formative years, crucial for the development of the mental faculties of a child. The effort to bolster early childhood education will be a collaboration between the ministries of Education, Women and Child Development, Health and Family Welfare, and Tribal Affairs. The curriculum and pedagogy when executed with flexibility, with a focus on strengthening basic literacy and numeracy skills, will curb drop out rates and raise academic achievement in the long run.

The school curriculum for Preparatory Stage (Grades 3-5, covering ages 8-11 years) has been designed to include flexibility and experiential learning to give a wide range of exposure, while reducing load and drifting away from the burden of rote-learning across all disciplines (the sciences, mathematics, arts, social sciencesand humanities). In the Middle stage (Grades 6-8, covering ages 11-14 years), and Secondary stage (Grades 9-12 in two phases, i.e., 9 and 10 in the first and 11 and 12 in the second, covering ages 14-18 years), a historic decision has been taken to reduce the syllabus and emphasis given to conduct teaching-learning largely in an interactive manner, and develop hands-on and vocational skills, to enable the students to identify their interest areas for pursuing study in the subject of their choice. Gradual enhancement of critical thinking has been designed to cultivate students’ aspirations. With this new norm of integrated school education from 3-18 years, the policy sets an ambitious target of a Gross Enrollment Ratio of 100 percent by 2030.

The NEP also provides for somewelcome changes in the higher education ecosystem, with an explicit emphasis on high quality among deemed, central, standalone institutions and universities. In the twenty-first century, solutions to problems faced by a rapidly changing world cannot be found within the silos of traditional subjects – there is a dire need to break down the walls between disciplines and develop a truly wide-ranging approach.

The policy places a combination of two views in higher education—the institutions which, according to certain well established parameters, have achieved a certain degree of excellence be given more liberty and freedom to grow further, and those institutions which are below these thresholds be encouraged to achieve the same in a regulated atmosphere, whereafter they will be given a similar degree of regulatory freedom.

This is important for a broad-based foundationfor universities and colleges which can be designed to expand the accessibility of higher education by offering a wide range of UG and PG courses that would cater to the heterogeneity of socioeconomic conditions.While providing holistic education with affordable fee structure across all streams the policy lays stress on the induction of entrepreneurial, industry oriented and vocational skill based courses for value addition for a large majority of students. A liberal arts approach to education proves to help in developing critical thinking and problem solving skills in real life settings. Industry tie ups and partnerships for courses of study, internships and trainings empower the learners significantly and simultaneously increase their employability manifold. Synergy between academia and industry through research collaborations and partnerships will pave the way for becoming self reliant and economically progressive. At all levels from school to universitiy, integration with ICT based teaching learning is envisaged to significantly increase the intake capacity while providing higher education in the 21st century.

A single, all embracing body, Higher Education Commission of India (HECI), will be set up by the assimilation of University Grants Commission, All India Council for Technical Education, and other such bodies. These changes in the higher education system will happen through an Act of the Parliament and one has to wait for the actual provisions in the HECI Act and the rules framed thereunder. There are provisions in the policy forfour verticals in HECI but how lawmakers will put it on paper, and how the persons entrusted with its implementation will interpret them remains to be seen. To sum up, one has to be cautiously optimistic – the right intentions are only a battle half won.

Festival Offer From Government - Dr. Subhash Chandra Pandey

Date - 15 October, 2020

Recently, Hon. Finance Minister announced two special offers for Central government employees, which she hopes can also be suitably modified and extended for State governmentemployees and availed by even private sector employees in organised sector.

The CG employees can choose to get some ready cash if they forego their LEAVE TRAVEL CONCESSION entitlement for the Block 2018-2021.

In addition, every CG employee, irrespective of rank, is entitled to a prepaid Rupay card loaded with Rs.10000 interest-free advance.Swipe it for any expenseby 31/03/2021 (no cash draw) and repay the advance in 10 monthly instalments.No interest,no tax on deemed benefit.

Under LTC scheme, CG employees getreimbursement of the cost of some personal travels undertaken by them and their family members. For civilian employees, it is travel to hometown once in 2 years and to anywhere in India in next block of 2 years. For defence personnel, it is annual hometown and alternative year to anywhere in India in lieu of hometown travel. There are similar provisions of LTC benefit for judicial and legislative branch of the State with different set of entitlements and rules.

The current LTC Block year is 2018-2021. During this 4 calendaryears’ period, a civilian CG employee can avail reimbursement of fare for two travels from his place of duty, one travel in 2018-19 and another in 2020-21.Both travels can be to Hometown or one to Hometown and the other to anywhere in India.

The concession admissible for a particular block of two years, which is not availed during that block, can be availed of in the first year of the next block. So if someone hasn’t availed LTC during Jan 2018-Dec 2019, he can do so by Dec 2020. Likewise, the LTC due for 2020-21 can be availed by Dec 2022, subject to certain conditions.

To promote tourism to remote areas, the government has been allowing employees to use their Hometown LTC to visit specified remote areas and also allowing air travel to these areas to even those employees who are not normally permitted to travel by air at government cost. This has been a hugely popular move.

This special scheme is now extended upto 25th September 2022. Conversion of hometown LTC is allowed for travel to North-Eastern States, Sikkim, Jammu & Kashmir, Ladakh, Andman & Nicobar Islands. Air travel to these destinations is permitted for all employees. Also, such travels in lieu of Hometown LTC are permitted even by private airlines as an exception because normal rule is that a travel at government cost must be by Air India only. (The government servants whose hometown and place of posting is the same are not allowed this conversion.)

Whenever LTC journey is undertaken, government allows 10 days’ earned leave to be encashed. Total 60 days earned leave encashment with LTC is allowed during whole service. Employees get earned leave of 30 days every year and the earned leave not availed cannot be accumulated beyond 300 days.]

The Finance Ministerhas announced that an employee can choose not to travel on LTC for block year 2018-21 and instead get some tax-free cash in lieu.

Cat I/II/II employees entitled for business class air travel/economy class air travel/Rail travel will get uptoRs.36000, Rs.20,000 and Rs.6000, respectively for each family member who foregoes one LTC subject to following conditions.

(i) The employeemust produce proof of having spent Rs.108,000/Rs.60,000/Rs.18,000 by 31/03/2021 through digital means on buying GST-invoiced goods/services with minimum GST of 12%.

(ii) The employee must also produce proof of having spent the entire amount of 10 days earned leave by 31/03/2021 through digital means on buying GST-invoiced goods/services with minimum GST of 12%.

Less spending means pro rata cut in actual cash benefit to be disbursed.

Most processed/packaged food items, healthcare/medicinal, toiletries, cosmetics items attract 12% GST. Telecom services bills, insurance premia both life insurance and general insurance, ULIPs etc. attract 18% GST. Then of course there are addictive ‘sin goods’ in high GST bracket. So even without buying any expensive white goods/gadget/car, it should be possible – except for some very frugal living souls – to produce eligible GST invoices for monthly average spending of less than Rs 21600/12000/3600 for Cat I/II/III employees from now to March 2021. The few who might struggle to get sufficient invoices may buy stuff for others. Petty invoices don’t even carry buyer name and there are limits to how many checks can be there to check misuse.

There have been intermittent suggestions in the past that the government should give some lumpsum cash in lieu of LTC benefit and save itself the hassle of processing the LTC claims, not all of them are genuine. Long ago, many employees in an office were found to have submitted fake LTC claims for long distance travel by road. The travel was actually not performed as there was no entry of the quoted private bus have crossed various toll booths. Dozens were dismissed from service in severe disciplinary action. After that the government made a rule that road travel by private bus will not be eligible for LTC reimbursement. Cases of LTC claims based on fake air travel – some even by high public functionaries – forced some offices to introduce provision for submission of proofs of actual travel in case of air travel like some photographs etc, all of which can also be manipulated in this age of technology. It was found that LTC claims were processed on tickets that were later cancelled.

Some private airlines used to misuse the LTC to include even hotel stay etc. in packaged fare because only ‘fare’ is reimbursed. All other costs of boarding/lodging at destination is expected to be borne by employees. To overcome this fraud, government introduced standard LTC fares and restricted travel to Air India only (except for North East etc.).

Frauds by a few dishonest end up making life miserable for everyone with stricter regulations. Checking LTC fraud is an administrative hassle and some argue that it is better to unconditionally give cash in lieu of LTC. So far, this argument has not carried weight for two reasons.

Firstly, the government wants employees to rejuvenate themselves through travel and promote domestic tourism. Secondly, LTC is not availed by everyone. There are many who don’t find time and many others who find that they cant afford non-fare expenses entailed by travel. If governmentdecides to give cash in lieu of LTC,itwould give to everyone, even to those who would have not availed LTC on their own. For them, cash equivalent is a bonanza.

Central government hopes that the State governments and private sector will take a cue and offer similar schemes with Centre promising not to tax the cash equivalent of LTC. Many States limit their LTC scheme to travel within the State and so the financial impact would also be limited.

For private sector employees, tax concession on Leave Travel Allowance can be a big incentive. Al they have to do is to produce GST invoices (min 12% GST) for 3 times LTA. Spending 3 times LTA by March 2021 may not be burdensome for most. Typically, LTA is equal to one month’s salary and so one is being asked to spend 3 months’ salary by March to save income tax on LTA. Of course, there is option for buying for others. Governments put riders and creative minds invent workarounds.Invoices of online orders have to guarded against refund/cancellation.

Giving cash in lieu of LTC or giving tax concession on LTA subject to certain minimum spending of certain type will certainlyboost short-term consumption demand. Some of it would be mere displacement of expenditure that would have happened with or without the concession. This surrender outbound LTC travel till December 2022 would negatively impact travel/tourism. It is a demand swap; present with future, FMCG with travel/tourism.

Faceless Income Tax Assessment - Dr. Subhash Chandra Pandey

Date : 03 October, 2020

Progressive whittling down the physical interface between the tax officials and the taxable entities has been part of tax reforms agenda for long. It reduces the scope of harassment of taxpayers and corruption and also the cost of tax collection, leaving more resources to the government.

Statutory requirements have been progressively imposed on banks etc. to share more and more information through Annual Information Returns. Requirements of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are ever increasing. The TDS/TCS/AAR systems institute systemic controls on tax evasion and reduce the need of ‘raid raj’ - search and seizure. With increasing digitalisation of banking and financial services and the demonetisation forcing unaccounted cash to be routed through bank accounts, there are more digital trails than ever before of money flow trackable by tax authorities.

More than 90% income tax is collected through voluntary compliance by the taxpayers who are forced, through a combination of technology and psychology, not to try evading due taxes. A major milestone in whittling down the physical interface was announced on 13 August 2020: Near universal FACELESS assessment and appeal by the Income Tax Department.

At present, every assessee is ‘assigned’ to a particular jurisdictional officer of income tax department. His office maintains full file and case history and he may theoretically select any tax return to conduct detailed scrutiny but not anymore.

Bulk of the income tax returns are filed online. The returns for detailed scrutiny are selected, based on a risk-based profiling of returns - aided by any intelligence the department may have or linking with annual information returns etc. Subjectivity cannot be entirely ruled out but nevertheless a computer system can pick up a risk-based random sample of returns according to some program logic for detailed scrutiny. The scrutiny of tax return (whether on self-assessment basis or after receiving a notice from the tax department) could now be randomly assigned to ANY officer in a double blind manner. ITR will be made available for scrutiny after anonymising the identity of the taxpayer. The taxpayer does not know who is scrutinising the return and the scrutiniser does not known whose return he is scrutinising. Such ‘double blind’ scrutiny is gaining currency in several areas. All queries and replies to/from assesse under scrutiny will be routed through IT centres.

The e-assessment scheme was proposed in Budget 2019-20 and launched as a pilot project in October 2019. Only such cases were selected where the taxpayer had failed to file IT return on his own and filed it only on receiving a notice. 58,322 cases were selected for scrutiny assessment for AY 2018-19. The tax department has disposed of about 14 per cent of these cases.

From 13 August 2020, the pilot scheme has been restructured / expanded with access through a dedicated web portal having three elements: ‘faceless assessments’, ‘faceless appeal’ and ‘taxpayer charter’.

Under faceless assessment, all correspondence with the taxpayer during assessment phase takes place only through electronic means. There is no physical, face-to-face meeting with taxpayer or his lawyer/accountant/representative. Recorded video conferencing is permitted in some special circumstances. Similarly, appeals by taxpayers are be allotted to any officer randomly on all-India basis and his identity would not be known to the taxpayer. Faceless appeals will start from 25th September 2020. Therefore, the scope of any deal-making in assessment-appeal is eliminated. Of course, once the assessment is completed electronically, the case would then be transferred to the jurisdictional Assessing Officer for follow-up action.

Now almost ALL assessments selected for scrutiny would go through e-assessments except certain special categories. The faceless assessment/appeal will not apply in cases of serious frauds, major tax evasion detected during search and seizure, cases under Black Money Act or Benami Property Act. In these cases, deeper knowledge about the taxpayer is needed by the department.

By the time the normal last date of filing income tax returns (ITRs) for AY 2019-20 lapsed on 31st August 2019, over 5.65 crore ITRs had been filed for AY 2019-20 as against 5.42 crore ITRs filed for AY 2018-19 and 5.47 crore ITRs for AY 2017-18. Out of the 5.65 crore ITRs filed for AY 2019-20, 3.61 crores had been verified including about 2.86 crores through e-verification, mostly using Aadhaar OTP. Sincethe deadline for filing belated or revised ITRs for AY 2019-20(with penalty) ended on September 30, 2020, final tally of ITRs filed for AY 2019-20 is not yet known. The CBDT has been relying more and more on the honesty of ITR filers. Every income tax return filed is not scrutinized. Earlier, the departmental officers had wider discretion in selecting a return for scrutiny. That discretion is being slowly reduced after it has emerged that the discretion is sometimes abused to harass particular tax payers. Now except for some special cases which come to department’s notice through special information channels, random selection of ordinary ITRs has been computerized.

The percentage of ITRs selected for scrutiny has being reduced. The percentage of total ITRs selected for scrutiny was 0.71% in AY 2015-16, 0.4% AY 2016-17, 0.55 per cent in AY 2017-18 and only 0.25% in AY 2018-19. The number of ITR files has increased by about 2.5 crores in the last 6-7 years but only 1.5 crore people pay tax. The tax department has to be vigilant for fake NIL filers who act as proxy for others. (The income may be split across a number of dummy / benami filers, each within tax exemption limit.)

Taxpayers are being educated about the need for linking their bank account with PAN to ensure direct credit of refund to taxpayer bank account through ECS and the requirement for linking PAN with Aadhaar. The CBDT has been doing great work in facilitating electronic filing, including provision of pre-filled auto-populated data though some problems remain with online utilities.

Government has also taken some other taxpayer friendly measures like increasing the monetary limits for income tax department filing appeals against orders in favor of tax payer. For appeals in Supreme Court, this limits has been revised from Rs.1 crore to Rs. 2 crores; for appeal in High Courts from Rs.50 lakhs to Rs.100 lakhs and for appeal before ITAT from Rs. 20 lakhs to Rs. 50 lakhs.

The harassment of taxpayers through fake, undocumented notices (which can be raised and settled for consideration) has been completely banned. From 1 October 2019, all notices have to come through a central electronic repository, the Document Identification Number (DIN).

Faceless assessment is a welcome measure but the tax reform agenda is far from over. The tax law is still rather complex, a source of livelihood for lawyers and chartered accountants. A fundamental restructuring going beyond mere tinkering with rates and slabs is long overdue.

A beginning has been made by offering lower tax rate to those individuals and corporates who choose to forego certain exemptions. The resulting complexity is temporary and hopefully the process of rationalization of rates and exemptions will get accelerated as soon as the taxpayers give the confidence to the government that the reforms will not lead to depletion of exchequer.

The faceless assessment system marks an important milestone in the long journey of over 20 years in computerization of the income tax department that has incrementally evolved module by module. It started to respond to the administrative problem of handling growing number of paper returns and refunds. Digitization of ITRs and electronic credit of refunds to bank accounts has improved taxpayer facilitation, ended harassment/ corruption and decluttered the departmental workload. Once bulk is taken care of by automatic information capture, CBDT can focus on the high risk tax evasion - getting on corporate transaction trail, shell companies, fraudulent transactions, money laundering, etc.

Non-salary/pension incomes carry higher risk of evasion. Admissibility of allowable deductions and exemptions claimed by businesses and professionals, corporates, LLPs, HUFs, Partnership firms, Societies, Trusts remain a major oversight area. Agriculture income is tax exempt but has to be reported. Siphoning off of taxable corporate profits through questionable business expenses and misuse of the exemptions given to charitable trusts are the other areas of enduring concern.

As more IT systems are linked to PAN/AADHAAR and connectivity of different IT systems improves, we will see CBDT capturing money trail of income, spending and investment. Pre-populated draft ITRs presently capturing salaries, may soon have pre-populated interest/dividend/capital gain data, seamlessly transferred by banks etc. We also wait for the real estate registries get fully automated. The data transfer to the department would be more automatic/ seamless and less dependent on disclosure by assessee.

Once tax base expands, we can hope to see lower rates. Just 1.5 crores paying income tax would not inspire government to fully trust in mere voluntary compliance by taxpayers. The government would like to reduce the tax burden and trust the taxpayers but for this to materialise, potential taxpayers have to match the expectation and not betray the trust. Wilful breach of trust has to invite exemplary punishment. ‘Trust, but occasionally verify’ would continue to be the motto of tax administration.