OCTOBER 22, 2014

By Pavan Ved, Advocate

INCOME TAX Settlement Commission is an important institution for settling complex disputes relating to income tax assessment. It has four benches in four metros. Each bench consists of three members. All the three Members are recruited from amongst serving Chief Commissioners of Income tax.

Now, new posts of Principal Chief Commissioner of Income tax have been created and as per extant rules, Chief Commissioners are eligible to be recruited; but not the Principal Chief Commissioners who are supposed to be more knowledgeable, experienced and more eligible. It is understood that after the creation of the post of Principal CCIT, rules for recruitment of Member ITSC are being reframed to provide scope for Principal CCIT / Members of CBDT.

ITSC is an important organization to settle the disputes of income tax. Disputes are generally on complex legal and accounting matters. The stakes are usually very high because threshold limit itself for admission of a case by ITSC is very high.

It is very strange that the Commission is to decide on complex legal issues and there is no Member in the Commission with judicial background. Outside ITSC, all tax fora have some Judicial Member. ITAT bench consists of one Judicial and one Accountant Member. HC and SC are pure judicial institutions. Logic demands that in ITSC also, there must be at least one Judicial Member so that complex legal issues can be properly decided. Versions of tax advocates can be properly appreciated by the bench.

Further, the creation of the institution of ITSC is also for settling issues on complex accounting facts. Still there is no Member in ITSC with accounting background. Hence, at least one Member of ITSC must be a CA /ICWA /Company secretary/ officers of IAAS with experience of income tax audit or like.

It is further found that only senior officers of income tax department are recruited as Member of ITSC. This is also not proper. An officer who has spent substantial career outside on deputation gets selected while an officer having specialized knowledge of working in core sector e.g. officer with experience of working in ITAT, ITSC is not selected. This is apparently illogical.

It appears that rules have been framed to suit the interests of senior Chief Commissioners without regard to merits of the persons to be selected.

It is a matter of common knowledge that expert knowledge of tax laws is not the monopoly of taxmen. Rather, outsiders have better knowledge and experience. Selection of Accountant Member of ITAT substantiates this fact. Taxmen lag much behind Chartered Accountants in selection for the post of Accountant Member of ITAT. Even senior taxmen remain behind much junior Chartered Accountants.

Section 245B(3) of IT Act provides that members of ITSC shall be from amongst persons of integrity and outstanding ability, having special knowledge of and experience in problems relating to direct taxes and business accounts.

This requirement of Act is not met by extant rules of recruitment in the sense that present rules presupposes that special knowledge and experience are the prerogative of Chief Commissioners of income tax only; that too of serving CCIT. Even if he retires one day earlier, he is not eligible. This is highly illogical and against the letter and intent of parent Act. If parent Act prescribes certain eligibility criteria, subordinate legislation cannot narrow down that criteria.

It is high time that ITSC recruitment rules are properly amended. ICAI, Tax practitioners association etc. should take up the issue so that the composition of ITSC bench becomes such that real experienced talent gets opportunity to become Member.

(The above would also be applicable to the Customs, Central Excise and Service Tax Settlement Commission.)