March of the Professional

Valedictory Session Speech on 18-10-2008 at National Tax Conference at Mumbai

Bharat Ji Agrawal
Sr. Advocate

I welcome Hon’ble M. Katju. We had been friends at the Bar for several years. A bright student, a successful lawyer and a judge who always balanced law and equity with an acute sense of justice. I have been a beneficiary of his respect and kindness during his tenure as Judge and then Acting Chief Justice of Allahabad High Court and again as Chief Justice of Madras High Court, Chief Justice of Delhi High Court and now as Judge of Supreme Court.

States needs revenue for which taxes are levied. Activities of the State are no more confined to governance and administration only. It is now running business, companies, corporations, banks and is engaged in various trading activities, which may at times suffer losses or other setbacks. The problem arises as to who is to pay for those losses and setbacks otherwise also who is to pay for those activities which are resorted to, in the name of welfare and service of the State.

Is the State entitled to fall back on the taxes collected or find out some other ways of collecting additional revenue. The desire to find new items or sources to tax is ever-growing to augment the revenue of the State. Taxes are imposed by resorting to deeming provisions which the State always find justification for the purposes of the welfare of the State.
Tax can be imposed by laws enacted by competent legislature and in no uncertain terms within the limits of specific power conferred upon it under the Constitution. The laws has to be clear, specific and unambiguous. There is no scope for presumptions and implications.

Rowlett J in Cape Brandy Syndicate vs. Ireland (1921) 1 KB 64 propounded the theory that equity and taxes are strangers by observing –

“In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment, there is no equity of a tax. There is no presumption as to the tax. Nothing has to be read and nothing is to be implied. One can only look fairly at the language used.”

This view was approved by Lord Simson. Similar principle has been adopted by our Supreme Court. In the process a theory grew up that there is no necessary co-relationship between logic and taxation. Both equity and logic lost ground in law of taxation but Supreme Court of India in the case of Nawab Sir Mir Osman Ali Khan’s case, ITR 1986 (162) 888 slightly softened the theory by observing that :–

“It is well to remember that in the scheme of administration of justice, Tax laws like any other law will have to be interpreted reasonably and whenever possible in consonance with equity and justice.”

The ever growing need of the State of collect more and more revenue gave rise to the instinct of the citizen to save its income from the ever growing net of tax gatherers and in the process grew the doctrine that there is nothing immoral in the attempt of a citizen to avoid taxation if he can by appropriate interpretation and construction of statute itself. Justice P.B. Mukerjee says :–

“If a taxing statute shows that the legislation closes only one of the two doors, it is then no evasion to use the other door, which may have been left open.”

Lord Summer was more emphatic in his speech in House of Lords when he said :–

“It is trite law that His Majesty’s subjects are free, if they can, to make their own arrangement so that their case may fall outside the taxing Acts. This incurs no legal penalty, and strictly speaking, no moral censure, if having considered the lines drawn by the legislature for the imposition of taxes, they make it their business to work outside them.”

The legitimate avoidance of tax has been and still is a good law. The tussle between the tax collectors and the citizen has been continuously going on Shri N.A. Palkhiwala said :-

“Unending competition in ingenuity between tax gathers and tax-payers has rendered the taxation statute increasingly complicated. But in this battle with the revenue a citizen has been fighting losing battle.”

Sri Lew Money told the Royal Commissioner of Income Tax that taxation was the best expenditure he made and he got more satisfaction from it than from any other expenditure laid out by him.

Justice Holms of the United States of America while deciding the case about the taxability of Judges salary observed that every citizen has an obligation to contribute for the governance of the State. On another occasion he says, “Taxes are what we pay for a civilized society. I like to pay taxes, with them I buy civilization.”

In the prevailing condition in our country today whether the tax-payers would subscribe to the views of these learned and hon’ble men of law.

In this introduction of the book on Income Tax Mr. Palkhivala said :–

“Though it may be conceded that taxes are an inevitable overhead of civilization, public dissatisfaction becomes equally inevitable when this overhead is excessive or not fairly distributed. In such a situation, he says, “Justice Holmes dictum would be more quotable than convincing.”