SC for Advance Tax Ruling system to reduce tax disputes

The Supreme Court has recommended to the Central government to consider the efficacy of the Advance Tax Ruling system and make it more comprehensive, as a tool for settlement of disputes rather than battling it through different tiers in cases involving private or public sectors.

It said a council for Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward.

In view of "ever-increasing and backbreaking dockets", a bench of Justices Sanjay Kishan Kaul and Indu Malhotra said, in order to make the dispute resolution system function effectively, it may be appropriate to have a committee of legal experts presided by a retired judge to give their imprimatur to the settlement.

The court's recommendation came in a judgement dealing with a 44-year-old dispute between the National Co-operative Development Corporation and the Income Tax department.

"Which pocket of the government should be enriched has taken 44 years to decide – a classic case of what ought not to be!" the bench said.

"It is our pious hope that a serious thought would be given to the aspect of dispute resolution amicably, more so in the post-Covid period," the bench added.

The court said in most countries, mediation has proved to be an efficacious remedy.

India is now a signatory to the Singapore Convention on Mediation and we understand that serious thought is being given to bring forth comprehensive legislation to institutionalise mediation, in furtherance of this function to which India has committed itself.

One of the largest areas of litigation for the government is taxation matters. The petition rate of the tax department before the Supreme Court is at 87%, it said.

"An Advance Ruling System can facilitate not only such resolution of a dispute between the government and its departments but also avoid the tiers of litigation which such cases go through as in the present case," the court said.

It directed to send a copy of its judgment to the Ministries of Finance and Law and Justice, having noted the recent announcement of putting in place a "tax-friendly face-less regime".

The court pointed out the Indian legal system is reeling under a docket explosion. The government and public authorities are active contributors to this deluge. To top it, a number of litigations arise inter se the government and its bodies.

Though the Central government and the state authorities repeatedly emphasised on evolving a litigation policy, our experience is that it is observed more in breach. The approach is one of bringing everything to the highest level before this court so that there is no responsibility in the decision-making process – an unfortunate situation which creates an unnecessary burden on the judicial system, the court said.

With an aim to reduce litigation, a national litigation policy was formulated in 2010 and revised in 2015, 28 years after a recommendation made by the Law Commission in the 126th report.

However, one of the main impediments to resolution of disputes between the Central Public Sector Enterprise and government is that the bureaucrats are reluctant to accept responsibility of taking such decisions, apprehending consequences in future, the court rued.