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Business Commentary/ Dilip Thakore

Income tax department: petrified by sharks, fishing for minnows

One of the cardinal unwritten rules of Indian journalism is that journalists should not use personal experience to illustrate a point or shore up an argument.

For some obscure reason the majority view within the fourth estate is that the invocation of personal experience to support an argument is an abuse of one's position in the media. Arguments based on personal experiences are widely interpreted as efforts to settle personal scores.

I have never been able to quite understand the reasoning behind this unwritten rule of Indian journalism. One would have thought a journalist's personal experience is a valuable asset in as much as it serves to buttress -- though not conclusively prove -- an argument or point of view.

Moreover, if an experience is wrongly or motivatedly narrated by a journalist, it can always be rebutted by an aggrieved party by way of a letter to the editor or in extremis by a defamation suit in a court of law.

Anyway here is one journalist who is happy to read personalised case histories in support of a line of argument. This is why I intend to break this unwritten rule of journalism in the next paragraph, leaving the reader to judge whether this breach is justifiable.

Almost a decade ago, enamoured of the then exciting new medium which was television, I produced a pilot programme of a chat show for Doordarshan in its heyday of monopoly of this medium.

The half-hour pilot which cost me a cool Rs 100,000 disappeared without a trace in the labyrinths of Doordarshan, New Delhi and not a single one of the dozen or so letters I wrote to the babus of the organisation merited a reply. But that's not the burden of my song.

A few months later I filed my annual income tax return wherein I provided details of the expenditure I had incurred on this pioneer but abortive venture.

Despite a plethora of vouchers and receipts, the assessing ITO (income tax officer) disallowed the entire expenditure and added the amount to my taxable income. According to him, all the receipts were concocted forgeries and I had shown this expenditure to conceal my income.

My defence was that I had borrowed the money from Citibank of which there was documented proof. Moreover, surely the video cassette itself was proof that the chat show had actually been produced? Sorry, inadmissible evidence.

Ignoring hints that a private settlement was possible, I went in appeal and won.

Example 2: Three years ago, I sold my flat in Bombay and purchased one in Bangalore. The Income Tax Act mandates that the proceeds of such a sale have to be deposited in a nationalised bank. Unfortunately, I don't like the service standards of nationalised banks and not having an account in one of these establishments, I deposited the sales proceeds in my usual account with a foreign bank.

And though I took the precaution of voluntarily paying capital gains tax of Rs 650,000 to the department , because of uncertainty about the price of my Bangalore flat, the payment was made a month late. The consequence: a demand for penal interest aggregating Rs 1.2 million has been slapped on me. Status of the case: appeal pending.

This somewhat lengthy prologue illustrating the nit-picking and detailed scrutiny of my financial affairs by the income tax department in spite of my having consistently filed my tax returns and having paid my income tax, contrasts sharply with its casual and neglectful attitude towards the financial affairs of one Romesh Sharma who has suddenly been outed as the front man in Delhi of the notorious Dubai/Karachi-based gangster Dawood Ibrahim.

According to media reports, a Central Bureau of Investigation-initiated raid on several properties owned by Sharma yielded 15 motor cars including a BMW and three Mercedeses, gold ornaments and utensils valued at Rs 5 million, Rs 1.1 million in cash, shares valued at Rs 10 million and fixed deposit certificates worth Rs 2.35 million.

Moreover, he owned a large luxury farm on the outskirts of the national capital where he entertained lavishly and upon which was discovered -- wait for it -- a helicopter.

Suddenly, the CBI has discovered that Sharma also owns/controls real estate valued at Rs 25 billion -- most of which he ''forcibly occupied'' (a telling commentary on the state of the law enforcement and justice systems in the country) and converted to his own use.

Yet, in spite of Sharma living in such grandeur (and having allegedly promoted a political party with the improbable name of the Bharatiya Congress Party) in the heart of India's capital city, his name never appeared on the radar screen of the income tax department.

Although the department is tight-lipped about the subject, the indications are that Sharma who was selling clothes-hangers on the pavements of Delhi 25 years ago, has never filed a tax return.

Surely the public interest demands an explanation as to why the IT department which comprises half-a-million highly qualified gazetted officers, sleuths, informers and ITOs, has failed and neglected to question Sharma about his failure to file a single income tax return?

This lapse of the sleuths is particularly glaring when one bears in mind that the department, with the objective of broadening the nation's tax base, has made it mandatory for all those owning a telephone, motor car, or who have travelled abroad and/or live in a home with a floor space area of over 800 square feet to file an income tax return.

This in spite of a wealth of evidence which indicates that the levy of income tax upon low-income earners is an exercise in futility. The Delhi-based economist Surjit Bhalla has repeatedly -- and convincingly -- argued that the objective of filling the national coffers would be more purposively served if the IT department concentrated its attention upon getting high-income earners into the department's net.

The Romesh Sharma case demonstrates that the department is doing just the opposite.

This invested priority of the IT department is hardly surprising. It is much easier to target, harass and shakedown law-abiding citizens than to take on big-time crooks and politicos.

Some 20 years ago, the IT department took a very soft line when Union minister the late Jagjivan Ram ''forgot'' to file his income tax returns for 10 consecutive years. The Sharma case illustrates that this vastly overrated service lacks the capability to reform itself.

Therefore, for a start, the wide discretionary settlement power that ITOs have to impose a fine and close a case against a tax defaulter should be abrogated. Secondly, they should be made answerable to courts of law when big fish like Sharma are outed as not having filed their tax returns.

A half century ago, when all law enforcement agencies failed to pin a criminal charge on the infamous American gangster Al Capone, he was finally imprisoned because the internal revenue service or the IT department, gathered the necessary evidence and prosecuted him to a long-term in jail. No chance of the time servers in the IT department back home ever winning such laurels. Petrified by sharks, they prefer to fish for minnows.

Dilip Thakore

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