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Business Standard |
Pranay Bhatia, International Liaison Partner
Partner - Tax & Regulatory Services

24 January 2016

The attempt to clarify some of the controversial issues is a positive step, especially since some of these issues are today before some of the judicial forums, and, therefore sub-judice. If recommendations in relation to the issues outlined are clarified through the legislative process, the ongoing litigation will certainly be put to rest. We have already seen that the approach of the government seems to be to cut down on the pending tax litigations and these recommendations are a step in that direction. The decision not to litigate the taxability of share premium decision of the Bombay High Court is an indication of the positive approach. Not only has the litigation on this issue has come to rest, the tax officers at the ground level are also not making any disallowance in this regard. Accordingly, these recommendations will go a long way in positively impacting India's image as providing a predictable tax regime.

As a fair play on the ground of tax, the report has also suggested putting in place onus/accountability on the revenue authorities to adequately record satisfaction on applicability of Section 14A, providing higher interest in case of delayed tax refund etc. Proposal to defer the ICDS provisions is also a welcome step given its nascent stage as well as clarity and implementation issues.

It would not be out of place to mention that in addition to the issues already attempted to be addressed, there are other critical areas, which also need clarification and resolution, and which are impacting the tax payers at large. Some of these issues include taxability of software payments, admissibility of AMP (advertisement, marketing and sales promotion) expenses, guidelines for creation of an AOP (association of persons) and taxation thereof. I am banking on Part II of the recommendations to be released to see if some of these issues are also part of the overall recommendations.

The 'easy to understand and comply' tax system, rational and fair provisions, minimum pain and cost of compliance (including time) will enhance the tax compliance culture. Some of the recommendations, especially in relation to small entrepreneurs and foreign companies, are relevant and will encourage dealing with the tax compliances. It is important to note that globally compliances are on the rise, whether in the form of CRS (common reporting standard) or the proposed CBCR (country-by-country reporting). An attempt to simplify the processes shows that the government is focused on important compliances rather than every compliance. This is a pragmatic shift of approach encouraging transparent dealing with the tax payers.