Chapter XVIII
Tax administration
18.1 The object of any tax law—and indeed, therefore, of the Code—is to ensure compliance with the law. The Code seeks to promote voluntary compliance. The Code also contains provisions to enforce compliance in cases where there is an attempt to avoid or evade taxes.
18.2 It is our experience that voluntary compliance is promoted by stability in tax laws, moderate tax rates, and fair and non-discriminatory application of the laws. The quality of the service provided by the tax administration, especially in matters relating to receipt and acknowledgement of tax returns, quick assessment, prompt refunds, and fair and expeditious disposal of petitions and appeals, is also a factor that promotes respect for the law and hence greater voluntary compliance. Other factors such as social values, public morality and people’s perception about the fairness of the system also matter in shaping attitudes towards tax laws. The effectiveness of tax administration depends on the perceived ability of the tax authorities to detect non-compliance and penalize such non-compliance effectively, efficiently and equitably.
18.3 A tax administration may be broken down into the following components :
(i) Organizational hierarchy and design.
(ii) A taxpayer information system.
(iii) Procedural law for compliance and strategy to counter non-compliance.
(iv) A system of sanctions (penalties and prosecution) for non-complying taxpayers.
(v) Taxpayers’ grievances redressal system (appeals, administrative remedies, ombudsmen).
(vi) System to identify and correct or prevent errors by the tax administration (review).
18.4 The Code deals with the design of the various components of the tax administration enumerated above.
(A) Organizational hierarchy
18.5 The tax administration will be vested in a central body known as the Central Board of Direct Taxes. The Board will consist of a Chairperson and six Members who will be appointed by the Central Government in accordance with the rules made in this behalf.
18.6 The general superintendence, direction and management of the affairs of the Board shall vest in the Board which shall exercise all powers and do all acts and things which the Board may be authorised to do under the Code. The Board shall be responsible for collecting revenues in a fair and transparent manner and for this purpose it shall—
(a) formulate strategies from time to time for,—
(i) effectively and efficiently detecting and penalizing non-compli-ance ;
(ii) providing quality taxpayers’ service to promote voluntary compliance ;
(iii) educating taxpayers ;
(iv) promoting tax literacy ;
(v) redressal of taxpayers’ grievances ; and
(vi) performing such other functions as may be assigned to the Income-tax Department by the Central Government from time to time ;
(b) supervise and regulate the functions of the Income-tax Department ; and
(c) perform such other functions as may be prescribed.
18.7 Whether the Board should have powers to issue directions/instructions/orders/circulars to the income-tax authorities for the proper administration of the Act and whether such directions/instructions/orders/circulars are binding upon the income-tax authorities are vexed questions that have been agitated before the courts of law. The present position in law is that such directions/instructions/orders/circulars are binding upon the income-tax authorities but not upon the taxpayers. Normally, each case arising under the Code should be dealt with under the provisions of the Code having regard to the facts and circumstances of that case and the applicable legal provisions. It is only in a situation where there are a number of cases that involve the same issue or where a provision of law, because of its ambiguity or any other reason, may give rise to a number of cases, it would be desirable to lay down a general principle that would guide the income-tax authorities. Hence, it is felt that the power to issue directions/instructions/orders/circulars should be carefully circumscribed and should be invoked only in rare cases. Accordingly, the provision of law has been suitably drafted. Needless to say, once a direction/instruction/order/circular is issued, it would bind the income-tax authorities.
18.8 There are a number of income-tax authorities under the Code. Collectively, these authorities along with the ministerial staff assisting them will be referred to as the Income-tax Department.
18.9 The hierarchy of income-tax authorities under the Code will be as under :
(i) Chief Commissioner or Director General of Income-tax
(ii) Commissioner or Director of Income-tax
(iii) Additional Commissioner or Additional Director of Income-tax
(iv) Joint Commissioner or Joint Director of Income-tax
(v) Deputy Commissioner or Deputy Director of Income-tax
(vi) Assistant Commissioner or Assistant Director of Income-tax
(vii) Transfer Pricing Officer
(viii) Income-tax Officer or Tax Recovery Officer
(ix) Inspector of Income-tax
(B) Taxpayer information system
18.10 The Code envisages the creation of a modern taxpayer information system so as to provide deterrence against non-compliance. The principle underlying this system will be to collect information, in general, in an organized and non-intrusive manner. However, in exceptional circumstances, the Income-tax Department will have the legal power to obtain information from persons who are not likely to furnish the same in the normal course. Consistent with this, the power to issue summons, conduct surveys, conduct searches and effect seizures, and to collect information through the annual information returns will continue in the new Code with some rationalization.
18.11 The collation of the large volume of information will be based on the Permanent Account Number. The information collected will be stored in electronic form and a hierarchy of users will be allowed to access the information, on a need-to-know basis, through a national network. The existing taxpayer information network (TIN) will continue to be the foundation of the taxpayer information system.
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