• MARCH 2, 2001

"In fact the government has amended this provision with retrospective effect from 1st of April 1962!"

Anil Harish is one of the leading legal experts on matters relating to taxation, property transactions, and the Foreign Exchange Regulation Act.

He is a partner of D. M. Harish & Co, one of India's leading legal firms. Anil has addressed conferences on a wide-range of subjects such as the budget, foreign exchange laws, property laws, and taxation in Bombay, Delhi, Dubai, Madras, Muscat, Pune, and Singapore.

In an interview with equitymaster.com Mr. Harish spoke at length on the various aspects of the budget. The favourable points, where caution is warranted and clearing some of the ambiguities that existed.

EQM: The finance minister has announced a reduction in the surcharge of income tax. Is there any fine print, which the taxpayers need take heed of especially with respect to perquisites?

Mr.Anil:    There is no fine print in relation of the surcharge. That is very clear. The surcharge will only be 2% of the tax that one has to pay and therefore the maximum tax payable by an individual will be 30.6% and in the case of a company 35.7%. So there is no ambiguity there. The ambiguity that might come is in relation to perquisites. There has been a controversy for a long time on the valuation and taxation of perquisites. And therefore on the tax deduction at source (TDS) on the perquisite.

Now companies do give perquisites/facilities to employees, which are intended for the benefit of the company, not necessarily for the benefit of the individual. One example is the club membership. Another example is newspapers and magazines. An employee can always say that I do not want to be a member of the club and that I am already putting in long hours. The employer however can say that you need to go there as your being there and meeting those kinds of people will be better for the company as it will be a business promotion measure. Many companies do have functions, do have parties and employees have to go whether they like it or not.

Now the government has said that perquisites need to be taxed properly and the tax is to be deducted at source. But merely saying that perquisites have to be taxed on the basis of cost to company does not mean that there is clarity as to whether a particular amount/item is a perquisite or not. Suppose an employee were to say that since I am earning only say Rs 10,000 per month, I do not have the money to go and buy expensive magazines. If you want me to read these magazines, then you will have to pay for them. And if the employer pays for them, then is it a perquisite to the individual.

I do not think so. So the question that what is a perquisite and what is not a perquisite needs to be determined. This problem persists. In fact the government has amended this provision with retrospective effect from 1st of April 1962!

EQM: The government has imposed a service tax on a wide range of services. What problems do you foresee in the imposition of such a tax?

Mr.Anil:    There will not really be a difficulty for the government because this is something where the individual has to take the trouble to register. Any person liable to pay service tax has to register himself and file returns and pay the tax. Therefore, if it happens that a person does not register then he is in default. The burden lies on the assessee.

EQM: How would you rate the budget on a scale of 1 to 10?

Mr.Anil:    I would rate the budget speech a perfect 10. I would rate the budget in terms of allocation 8 on 10, as there is room for improvement. In terms of the finance bill I would rate it 6 on 10.

The government has made more than 60 amendments to the income tax and wealth tax act. I am not very happy with the nature of these amendments. Some of these amendments are beneficial to the assesses, some are not. But what I am distressed about is the fact that there are retrospective amendments going back to 1962. The government still feels that it has the power to go back. The second thing that I am distressed about is the language in which these amendments are couched because it is the same usual type of language in which there are restrictions and qualifications. For instance, it says that the interest deduction for loan on house property has been raised to Rs 150,000, which the finance minister mentioned in the speech. Now when you read this you find that the loan should have been taken after 1st of April 1999; the house should be acquired or constructed before 31st March 1993. Suppose the loan was taken earlier or the person was not able to take possession before the stipulated date. Is it his fault? There could be a number of factors that prevented him from taking possession like a national calamity, strike or shortage of cement. To me this does not make sense at all. Housing is going to be required as long humans live. Therefore, why should the benefit be restricted to 2003?

There are other provisions, which are totally senseless and very unfair. For instance, the minister has said that if a matter is before a tribunal and if the assessee asks for a stay of recovery then if the tribunal does not decide within six months then the stay gets vacated. That means the assessee has to pay. But it could be that it is not the assessee’s fault. Maybe the judges are too busy or the department asks for an adjournment.

On the whole the budget is still good for reasons, other than tax, like the labour laws and the Sick Industrial Companies Act (SICA). The finance minister seems to be getting out the socialist mindset, which has plagued India for the last 50 years.

EQM: Please can you elaborate on SICA?

Mr.Anil:    SICA was a law, which was perhaps brought in with good intentions. If a company is suffering, there is a need to give it moratorium for paying back loans and protecting the labour. However, the act has not worked well at all. The cases first go to the BIFR and then there are the appeals. Matters go on for such a long time that people siphon off funds from their companies and make their companies sick to take advantage of the BIFR (by seeking concessions). It has not resulted in the rehabilitation of many units. Its time we get this out and let the market take its own route.

EQM: What is the one thing that you liked in the budget?

Mr.Anil:   In terms of the taxes, the fact that the tax surcharge has been removed is an incredible step. And I think it makes a lot of fiscal sense, as every time taxes have been reduced there has been a growth in tax revenues. The other two positives are the developments pertaining to the labour laws and SICA.

EQM: What is the one thing that you do not like in the budget?

Mr.Anil: I would say that the retrospective amendments in the budget. This is because it shows that there is not much clarity at the detailing level.

EQM: How would you compare this budget with the earlier ones?

Mr.Anil:    Some of the budgets that have been very good from the tax point of view were the 1985 budget (V P Singh) in which the estate duty was removed. Then, Manmohan Singh’s budget was good from an economic point of view but not so good from the tax point of view. Chidambaram's budget was very good, as he brought down the tax rate to 30%. I would say that Yashwant Sinha’s Financial Acts (which factored in the roll backs) were very good in 1998 and 1999. He was the first finance minister who was receptive to criticism. He was criticized about some provisions and he rolled them back.

So I would say that the 1985 budget was excellent, 1991 budget was good as it gave a new direction, 1997 of Chidambaram was very good, 1998-99 of Yashwant Sinha finally turned out to be very good and the this year's budget would be at par with these budgets.

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