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TMI BlogAre we required to read mind of tax authorities and ignore the law? - Renting of commercial properties- Punjab and Hariyana Court in fact allows rectification of mistakes in drafting of law - a wrong trend which will to allow carelessness, gross mistakes and inefficiencies in government to continue.X X X X Extracts X X X X X X X X Extracts X X X X ..... Are we required to read mind of tax authorities and ignore the law? - Renting of commercial properties- Punjab and Hariyana Court in fact allows rectification of mistakes in drafting of law - a wrong trend which will to allow carelessness, gross mistakes and inefficiencies in government to continue. - By: - C.A. DEV KUMAR KOTHARI - Service Tax - Dated:- 6-12-2010 - - Link: M/s Shubh Timb Steels Limited Versus Union of India and another 2010 -TMI - 78578 - PUNJAB AND HARYANA HIGH COURT Scope of this write-up: This write-up is limited only to the aspect of retrospective amendment which has been held valid. Observations of the high court in paragraph 23 is analyzed by way of highlights: 23. We now come to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aspect of retrospectivity. It is well settled that competent legislature can always clarify or validate a law retrospectively. It cannot be held to be harsh or arbitrary. Object of validating law is to rectify the defect in phraseology or lacuna and to effectuate and to carry out the object for which earlier law was enacted. The court has taken a very lenient view on retrospective amendment and in fact allowed amendment to take effect as it is to rectify the defect in phraseology or lacuna. However, this is a very wrong and serious trend. It is well settled that any law is to be considered as per words used in it. By changing law in name of rectification of defect in phraseology a new levy of tax should not be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the whole meaning should not be changed. A legal provision is to be read as per the words used in it. Generally any word cannot be added or omitted while interpreting law. Original provision and suggestion of author: When service tax on rent was proposed for the first time, an article of the author was published even prior to the enactment of the provisions. In that article the author has pointed out that only services in relation to renting of premises for specified purposes shall be taxable and not the renting itself. The language used was very clear and there was no ambiguity. The author had also suggested that in case renting and rent itself is intended to be taxed then the proposal in the bill should be amended. Earlier ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle: When the budget 2007 was announced, the author had written an article titled "Proposed service tax on renting of commercial premises-analysis, request to reconsider levy and some suggestions- make tenant, as service receiver liable to register and pay service tax". The article was Published in a renowned magazine the Service Tax Today ( A Taxmann) publication) in MARCH 22,2007 PAGE 55 (Mag.). In the article author had made detailed observations on the budget proposals about service tax on commercial premises and expressed that only some of services in relation to renting can be brought in tax net as per proposed section. The author had also made suggestions for consideration of the Finance Minister, with highlight of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant suggestion in this context, as follows: Request and suggestions to the Finance Minister: It is requested and suggested to the honorable Finance Minister to: a. Reconsider the proposal in view of constitutional validity and if found inconsistent with constitutional provisions and also inconsistent with the concept of service tax please drop the same. b. If found correct and desirable, to impose tax only on portions of buildings which are used for commercial purposes. c. To make the service receiver liable to pay service tax on service used. This will avoid revenue leakage. For example, suppose a building is owned by four persons who let out the same to a company each receiving rent of Rs.60000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per month amounting to Rs.7,20,000/- per year. In this case all owners may be exempt from service tax. Whereas the tenant, if made liable to pay service tax , will have to pay tax on entire amount of Rs.28,80,000/- paid to four owners. d. In case of business organizations several properties are taken on rent from several owners. It would be difficult to monitor owners, instead of that tenants who are organized persons can manage tax affairs easily and it would be easy to monitor them. e. To avoid confusion words "by renting " can be used in meaning of taxable service as follows: "taxable service" means any service provided or to be provided -- to any person, by any other person by renting of immovable proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for use in the course or furtherance of business or commerce". This is because the words 'in relation to renting' can be construed as service rendered to land lord or tenant in relation to renting of property and not the rent itself. Therefore, as per clause (e) of the above suggestions it is clear that the author had in clear terms indicated in his article that the scope of taxable services, as per proposed charging section can be construed to be restricted to services provided by any person to other person (likely to be land lords and tenants) only in relation to renting of properties and not renting of property itself. The author had also suggested proper language to be used in charging section. However, as usual our bureauc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rats being overconfident had not taken care of such an important suggestion at right time. If all the suggestions put forth by author were incorporated in the law, the revenue could have gained substantially and without doubt. It is worth to mention that by retrospective amendment, the changes have been made on the lines as suggested by the author when the proposals were under consideration and before the enactment of those proposals as law. Not a drafting mistake: In the circumstance as indicated above, it cannot be said that there was any mistake in drafting of the provisions. When the language used was very clear, and on a bare reading of the proposed provisions it was found that only services in relation to renting were covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and this aspect was published in a renowned magazines, prior to enactment of the proposal, yet a change was not made in the proposed provisions before enactment, it cannot be said that there was a mistake or lacunae in drafting. What was intended was to cover only services in relation to renting and not renting itself. Government must also suffer for its mistake, if at all there is any mistake: The government officers (draftsmen of law) are highly qualified, well paid, and not overburdened with work. They are paid out of public funds collected from public by way of taxes. In case due to mistake in drafting of provision, if a levy of tax fails, the government should not be shielded by judiciary. Therefore, a provision, even if conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins some lacunae , should not be amended with retrospective effect to regularize levy on the ground that there was a mistake in drafting. The tax payers have read the law as it stood, decided about their obligations, if any and paid tax accordingly, and then an amendment is made by branding language used in law as defective and to rectify mistake and if it get approved, what will happen? The answers are as follows: a. The tax payer will suffer by levy of tax, interest, penalty etc. with retrospective effect for no fault of tax payer. b. The taxpayer will always be un-certain as to law can be amended any time in name of removal of defect in drafting. There will therefore be never certainty about law. c. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The rule of interpretation that law is to be read as it is will fail. d. The efforts made by the taxpayer in determination of legal position and saving his burden will go to a sheer waste. e. There will be simply brain drain and also wastage of public money and money of tax payer in pursuing cases prior to amendment. f. Government officers will have easy going tendency of who care , we can amend law any time. g. It will promote inefficiency in government. h. It will hamper the intellectuals amongst taxpayers and professionals and will lead to tendency to surrender to the wishes of the tax authorities. Before Supreme court: On this issue the counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of taxpayers can refer to published materials like article of the author and other authors on the same or similar issue to point out that possible view on the subject matter was a matter of public discussions, and it cannot be said that the language used in provisions as originally enacted were wrong or there was defect in the drafting. Had it been a defect, it should have been amended before enactment, particularly because possible view of taxpayers was already in public arena through published material in renowned magazines. Keeping eyes shut on views of taxpayers and then amending law should not be allowed just by calling it as defect in drafting. Are we required to read mind of tax authorities and ignore the law? If we go by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trend about retrospective amendment and the leniency shown by judiciary, to approve them is quite clear that we need to surrender to the wishes of tax authorities and stop reading tax laws then we need not need institutions providing education of tax laws and tax courts. - Reply By Shyam Naik as = Sir, The High Court has taken a very pedantic view, far from the practical impact it would have on the landlords. With the background of litigation on the tax on "Renting of immovable property", most of the tenants have stopped payment of the tax. The tenants includes the Governments, its agencies and Government owned PSUs. Coercing the landlords to cough of tax from their own pocket is certainly harsh, arbitrary, whimscical. Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d: 8-12-2010 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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