- Beyond Endurance - Comments on CBDT's Draft Instruction

Beyond endurance - Comments on CBDT's Draft Instruction

By Shiva Kant Jha

INSTRUCTION No 1827 dated August 31, 1989, had merely summarized the propositions laid down by the Supreme Court to distinguish between shares held as stock-in-trade and shares held as investment. The CBDT is incompetent to override the law declared by the Supreme Court. As guidelines to decide this mixed question of fact have already been given by the courts, the executive is incompetent to arrogate to itself any power to “provide further guidelines”.

As to the content of the draft instruction: Guidelines (i) to (iv), (vi) to (viii), and (xiv) and (xv) are what the courts have prescribed. Point (v) is totally irrelevant. Borrowings can go to both the segments, whether trade or investment. The lenders are seldom concerned how the borrower utilises his borrowings. The point (ix) is again irrelevant . Should the authorities be on wild goose chase to discover a particular person's ‘means of livelihood'? Are they to join the fraternity of the speculators polluting the stock market by speculating about such nonsense? How will you discover the ‘means of livelihood' of persons shrouded in the dark corners of this terra firma laundering their ill-gotten wealth through intricate and foggy layering? How can any effort to explore that succeed when our government is all for an opaque system. We are now faced with a problem, which the Romans had faced in their decadent days: Who will watch the watchmen? (Quis Custodiet Ipsos Custodes). Whilst thousands of instances are in public domain to illustrate this indictment only one is referred here to drive home the point. The CBDT was made to issue Circular No 789 dated 13th April 2000, the effect of which is to let the foreign interlopers loot our revenue, and the domestic crooks to launder their ill gotten wealth parked outside the country, whilst the authorities, under duty to keep vigil and protect revenue, are bidden to remain inert onlookers of the waxing scandal. The Hon'ble Delhi High Court had found out how the Government of India had lost Crores and Crores of rupees by allowing an opaque system to operate. No democracy, which still believes in the ‘rule of law', can ever doubt what the High Court said: “No law encourages an opaque system to prevail.” Our government had undertaken obligations under the Uruguay Round Final Act to ensure ‘Domestic Transparency' (The Trade Policy Review Mechanism, being Annex 3 to the Final Act). Our government signed the U.N. Convention against Corruption which requires complete transparency at all levels. Yet that most abominable Circular is surviving because the wielders of power have forgotten their duties thereby providing massive scope to the scamsters, fraudsters, tricksters, and other law-breakers to wreak havoc on our national interests through their art of deception and craft of corruption. Point (x) is again irrelevant as nothing much turns on the self-serving accounting entries. It is, at best, an ancillary factor to be evaluated in the light of the conspectus of facts of a given case. How is the factum in point (xi) relevant? Are we again going to derive a criterion with reference to the Stock Market where neither truth triumphs, nor dharma succeeds? It is possible for crooks to devise insidious protocols of operations under studied connivance of the persons in power. Point (xii) is totally misconceived, as fraud would have a gala time in contriving situations for the benefit of the corporations, which now, to our shock, rule the World. Point (xiii) shifts with sinister design focus from the actual transactions to what is a non-issue. Point (xv) contemplates an extraneous factor. The creatures operating in both the segments can freely repatriate their income, or can amass through book-entries. How does this factor help deciding this mixed question of fact and law? Do you make the Assessing Officers wiser by telling them what even the most laggard amongst the creatures knows well that ‘no single criterion …is decisive and total effect of all these criteria should be considered to determine the nature of activity'? Was someone, while drafting this draft Instruction, inspired by some oracle from the Olympus? This encoring makes one smell a rat. We have a right to know. In short, the draft Instruction is, to the extent right, redundant. Moreover, the Instruction, to the extent it sets forth extraneous factors, is clearly mischievous. Please consign this draft to a dustbin to be emptied at once; and desist from seeking people's views on dressed-up matters. The CBDT is under a legal duty to instruct the Assessing Officers to evaluate transactions in shares ( whether by the FIIs or the domestic players; whether they operate from Mauritius or from the U.S.A.) in the light of the judicially settled principles, which are of general relevance, and to determine their taxability in the light of emerging facts and the governing law.

We all know the fallacy of ex nihilo nihil fit (nothing comes out of nothing). Nevertheless, our Stock Market and its mentors can make many things out of nothing. Their figments of delight can rock even our democratic (?) Government! It is said that this ‘rogue circular' triggered the nightmare in the Stock Market on Thursday. What is yet not even an ‘instruction' is imagined as circular. To crown this knavery, it was spread that the income of the FIIs would be subjected to a hefty taxation. The F.M. tried to assuage the Stock Market by telling, in the evening of the black Thursday, that the draft instruction was a mere democratic way of eliciting people's views. He said that no FII could be taxed, as they do not maintain Permanent Establishments in India. The Stock Market rules: it is a core institution of Pax Mercatus. King Parikshit, states the Srimad Bhagavad Mahapurna, had granted sanctuary to the kaliyuga in five evils of which the stock market is one.

We should know that even in economics we merely reap the consequences of our deeds. We find that the political realm is subjugated by the economic realm: Now it is the Market which rules, not the Government. Therefore every decision must be market friendly. Our Constitution stands defaced and defiled. It is strangely believed that there is nothing wrong if the Consolidated Fund is depleted so long the private coffers of high net worth persons are enriched: for him it matters not whether the coffers are in our country or Mauritius or on the Sea of Tranquility! Our government's policies towards the FIIs must change. There should be complete transparency. All earnings of all assesses earned with a territorial nexus with India, must be taxed. Exemptions from taxation must not violate Art 14 of the Constitution of India, as our government, a creature of the Constitution, must not be allowed to transgress constitutional limitations: it matters not whether it works in Delhi or Detroit, or decides for domestic realm or at the international plane.

It is cruel joke to call this seeking of comments on the draft Instruction as an instance of the democratic style of functioning. We all know that we have now in our country a sponsored state effectively ruled by the corporate imperium under the U.S leadership. Under this system, democracy is dying. To have a government of elected people is in itself no assurance for democracy, if after forming the government, the wielders of power abandon their brief given by our people. Earlier the press was fair to people, now even they promote the vested interests by becoming one with the pressurizers and the persuaders against democracy. The editorial of the Times of India in his note entitled ‘Market Unfriendly', after vexing us with half-truth and Faustian logic, shocks us with his comment on the Finance Minister's plea; “since there is no compensation for losses, a 41 per cent tax on gains will cause investors to pull out, democracy or no democracy”. When we had given ourselves this great Constitution, could anybody think of such sly and mischievous comment from any creature, howsoever vile? Every Indian must have been shocked, on the day after the Finance Bill was presented in Parliament, on seeing the big portrait of the Finance Minister as Visnu lying on the coil of Shesh Nag the hood of which showing three of our biggest capitalists whom everyone could easily recognize. As there is no ceiling on excellence, there is no bottom to degradation.

How can a democratic government discriminate between the domestic taxpayers and the foreigners equally placed. The clear policy of the government is not to tax the FIIs. They can come through Mauritius to reap massive profits, and carry their funds through an area of darkness, paying no tax in India, and no tax in Mauritius. If they are from the USA, they are masters to choose their ways. If they want to pay a pittance of tax as charity they file returns showing capital gains; if they decide to eat up this poor country's rightful claim, they file returns claiming their income as business income on which they pay no tax on the plea that they do not have “permanent establishments in India”. PE is now a device to promote unjust enrichment. It would be better to entrust a UN body to impose tax on all international transactions so that from this revenue it could run its whole show without depending much on the U S largesse. Our law does not know this concept of PE. It is a brainchild of the capitalist exploiters, which has been introduced administratively in the tax treaties without legal foundation All our tax treaties are, as presently done, in breach of the Art 14 of our Constitution. Someday our Supreme Court will have to look into this.

Why should those who sink or swim with the destiny of this country pay tax on capital gains when those who would be the first to ditch are not taxed? This question deserves to be answered keeping in view the ideas of tax-equity and justice rather than on legalese and quibbling. Did not a judge of the Hon'ble Supreme Court say in a judgment: “It is the common man's sense of justice which sustains democracies and there is a fear that may outrage that sense of justice.” Adopting John Bright's saying, “that the trouble with great thinkers is that they usually think wrong”, and the historian will say, “Trouble with realistic appraisal is that it usually lacks reality.” The reality in country is that we have two Indias, justified by our compradors on the analogy of China, which works on the modality of one country but two systems, and further justified by these strange economists about whom Edmund Burke had rightly said in the “age of sophisters, economists, and calculators”, democracy of people is under the risk of being “extinguished for ever.” Our plight then is where:

Some are born to great delight,
Some are born to eternal light.

Why have we been asked to make comment on this sort of draft Instruction that has made our Finance Minister take up the brief of the stock market in shockingly grotesque ways? Why did the government not consult us when it rode roughshod on our Constitution by signing the most infamous Uruguay Round Final Act? Why we were not consulted when many sinister deals with the USA were entered into? Why the CBDT's Circular 789, which provided scope for the looters, swindlers and the anti-national conspirators, was issued even without our Parliament knowing anything about its import? Why does our government make common cause with the denizens of darkness in defending this sort of Circular? Why are we not consulted when the tax treaties are framed trampling down tax equity? Why is a tax treaty done in secret diplomacy? In all the major countries a tax treaty is always done with Parliamentary approval. Why should this be so done in our country. We demand clear answers from the government, not rigmaroles. We are also interested in knowing the reality: why was this sort of draft put into the public domain, and how could this trigger the melodrama of the black Thursday? This morbid synchrony invites a probe. Why does our Finance Minister's heart bleed for the Stock Market when our millions suffer abject poverty fed on his words, words, and words. The problem with our national motto, Satyameva Jayate, is that whoever succeeds tends to develop, in the moments of debasement, delusions that he must be right because he has have succeeded! Let us remember that nothing is ever settled until it is settled right. - Links on Shivakantjha - Links on Shivakantjha

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