Now that the din over Budget 2011 and the myriad analyses of its macro and micro numbers is subsiding, perhaps it is time to look at some of the hidden gems and devils in the fine print of the documents tabled in Parliament with the Budget speech. One of the gems quietly tucked is in Clause 30 of the Finance Bill 2011. This simply reads "Section 282B of Income Tax Act shall be omitted. On the surface this appears to be an innocuous, in fact a rather coy, statement hardly meriting a second look leave alone discussion.
Doing away with DIN
The following explanation in the "Notes on Clauses" also does not offer much by way of an explanation for the above amendment - "Clause 30 of the Bill seeks to omit section 282B of the Income-tax Act relating to allotment of Document Identification Number. Under the existing provisions contained in the said section 282B, every income-tax authority shall, on or after the 1st day of July, 2011, allot a computer generated Document Identification Number in respect of every notice, order, letter or any correspondence issued by him to any other income-tax authority or assessee or any other person and such number shall be quoted thereon. It is proposed to omit the aforesaid section. This amendment will take effect retrospectively from 1st April, 2011."
Alert readers may recall that Section 282B was introduced in the Income Tax Act by the Finance (No.2) Act 2009 requiring all documents received by the Income Tax department or issued by it, to carry a unique identification number called Document Identification Number or DIN. This was meant to "improve service standards of Income Tax department and bring transparency in its functioning". This Section provided that -
(1) Every income-tax authority shall allot a computer generated Document Identification Number in respect of every notice, order, letter or any correspondence issued by him to any other income-tax authority or assessee or any other person and such number shall be quoted thereon.
(2) Where the notice, order, letter or any correspondence, issued by any income-tax authority, does not bear a Document Identification Number referred to in sub-section (1), such notice, order, letter or any correspondence shall be treated as invalid and shall be deemed never to have been issued.
(3) Every document, letter or any correspondence, received by an income-tax authority or on behalf of such authority, shall be accepted only after allotting and quoting of a computer generated Document Identification Number.
(4) Where the document, letter or any correspondence received by any income-tax authority or on behalf of such authority does not bear the Document Identification Number referred to in subsection
(5), such document, letter or any correspondence shall be treated as invalid and shall be deemed never to have been received."
Need for DIN then
The reasons then given to Parliament in the "Notes on Clauses" to Finance (No.2) Bill 2009 make interesting reading - Introduction of Document Identification Number and facility for electronic communication It is now well accepted that "tax administration is tax policy". A tax administration designed to foster voluntarily compliance yields higher revenue than a sound tax policy administered by an inefficient tax administration. Therefore, it has always been the endeavour of the Income-tax Department to improve the standards of its service and transparency in its functioning. Therefore, it is proposed to introduce a computer based system of allotment and quoting of Document Identification Number (DIN) in each correspondence sent or received by it so as to enable tracking of documents and minimise taxpayers' grievances. With a view to giving effect to the aforesaid section, it is proposed to insert a new section 282B so as to provide that every income tax authority shall allot a computer generated Document Identification Number in respect of every notice, order, letter or any correspondence issued by him to any other income-tax authority or assessee or any other person and such number shall be quoted thereon.
It is further proposed that where the notice, order, letter or any correspondence issued by any income-tax authority does not bear a Document Identification Number, such notice, order, letter or any correspondence shall be treated as invalid and shall be deemed never to have been issued. It is also proposed to provide that every document, letter or any correspondence, received by an income-tax authority or on behalf of such authority, shall be accepted only after allotting and quoting of a computer generated Document Identification Number. It is also proposed to provide that where the document, letter or any correspondence received by any income-tax authority or on behalf of such authority does not bear Document Identification Number, such document, letter or any correspondence shall be treated as invalid and shall be deemed never to have been received.
This amendment will take effect from October 1, 2010."
Introduced in a hurry?
The objectives of improving standards of taxpayer service and transparency, for which the Section 282B was avowedly brought in, are lofty ideals to which department presumably still remains committed. And yet the budget documents 2011 give no reason as to why a provision brought to implement these eminently desirable objectives has been unceremoniously junked without so much as even a trial implementation. After all, the change was introduced by this very Government by the Finance (No.2) Act 2009. It is not as if a new Government has come which does not happen to agree with the views of its predecessor on some policy matter.
Actually, underlying the unstated reason behind the introduction of this provision and its rather unceremonious deletion is the unsavoury practice of making important changes in fiscal legislation through the annual Finance Bills. This is generally done to bypass prior public discussion on such proposals by taking advantage of the secrecy involved in the budgetary exercise. Creating insurmountable troubles
Although the basic idea behind the late lamented Section 282B was laudable, there were two critical and known problems with this provision even when it was introduced. In the end these have proved fatal.
One, the Section was so widely worded as to create insurmountable problems for taxpayers, and tax practitioners as well as for the departmental functionaries. As per its sub-section(4) if a document, letter or any other correspondence filed by any person with any Income Tax authority does not bear the Document Identification Number the document shall be treated as invalid and shall be deemed to have never been filed. Yes that's right - the law said that if the document filed did not carry DIN it ceased to exist in the eyes of law. Now, DIN was not supposed to be a one-time assessee-specific affair as the PAN (Permanent Account Number) or TAN (Tax deduction Account Number) are. Instead, it was supposed to be a document specific number. In other words every document whether issued by any authority in the Income Tax Department or filed by a taxpayer before any authority in the Income Tax Department, was expected to carry a unique DIN by which that document was to be identified and treated valid. In practical terms it meant that if you or your employee went to an Income tax Office to file a paper which you are by law required to file there - say, a simple request for adjournment or a return of income or reply to a show cause notice for penalty or an appeal memo etc (which are generally required to be filed by a due date), and the clerk at the Receipt counter did not give you a receipt because the computer system was down or gave a receipt which did not carry the so-called computer-generated DIN, or which carried some number which the department does not recognise as DIN, then you will be deemed to have never filed that document. And naturally, all the statutory consequences of not filing that document will follow from this. No appeals and no mercy petitions provided for the taxpayer - for this lapse on the part of the department! Surely this would have given a big handle to the functionaries manning the Receipt Counters in the Tax department.
Similarly, if a departmental functionary issued a letter or notice or summon or an assessment order etc to a taxpayer or to anyone else without the DIN, then as per Section 282(2) it would be deemed to have never been issued - again with all the legal consequences of not issuing such a notice or order etc. With the standards of accountability in Government departments being what they are, all it would have taken an unscrupulous person to get an entire assessment/ penalty proceeding invalidated was to not mention DIN on just one notice/ order etc in the entire chain of documentation involved in these proceedings.
Two, implementation of such a provision would have required end-to-end computerisation of the entire Income Tax department and a complete shift to a paper-less office. Actually, the department will be nowhere near that goal for next several years. The critical IT infrastructure and other paraphernalia required for implementation of such a change across the department and the wider world of three crore taxpayers, tax deductors and tax practitioners etc simply does not exist. That the same could also not be created in the two year period between July 2009 and July 2011 is ample evidence that the legislative change was introduced in 2009 without making the necessary preparation at the ground level, and without understanding its ramifications.
Time for some soul searching
The original Section 282 was supposed to come into force with effect from October 1, 2010. The date of implementation was extended by the Finance Act 2010 to July 1, 2011. And now Finance Bill 2011 has junked the entire section altogether. The fact that the date of implementation was postponed by the Finance Act 2010 would indicate that the Department was well aware of the multiple problems involved in implementing this provision. Therefore, the question remains that why put provisions in the Act, which you know that you cannot implement?
One should be happy and grateful to the Finance Minister that such a taxpayer- unfriendly measure and one fraught with such large scale possibilities of mischief and harassment has been given a quite burial. But what should still worry policymakers is that how such half-baked changes find their way into the budgetary proposals and in the Finance Bills with such ease and nonchalance. That such proposals can routinely pass Parliamentary muster without any discussion should also be a matter of concern.