Professional opportunities and social obligation of tax professionals

I deem it a privilege to deliver Presidential address on this historic and memorable occasion when the Tax Consultants from various parts of the country are celebrating its 55th Anniversary of the Association in Association with All India Federation of Tax Practitioners. I congratulate you all and offer my best wishes on this happy occasion.

Tax as understood in common parlance is a compulsory contribution, usually of money, that is required for the support of a government. Tax laws and principles existed even during Vedic periods, therefore it can be safely stated that tax is as old as life itself. Manu describes that the king should realize taxes, "little by little, as a leech, calf or bee, sucks blood, milk or honey" and the rates of tax should be reasonable and affordable to the people. Kautilya in his 'arthshashtra' suggests detailed taxation policies including tariff rates of direct and indirect taxes. Kautilya stated that the rates of taxation vary with the type of trade and business generating profits, the focus should always be on taxing net profits that too at moderate level. Kalidasa in his 'Raghuvamsha' says that the king gathers taxes from the subjects only to be utilized on their welfare, just as the sun gathers water only to return it a thousand fold.

Modern taxation is based on the same principles that were set by the scholars of the past centuries. Therefore it can be stated that taxation policy in any democracy aims to end poverty, ignorance and inequality by using the revenue obtained efficiently and effectively for the benefit of the citizens. Justice Holmes has said that, "taxes are what we pay for a civilized society". However, the modern taxation system has considerably departed from the ancient system in more ways than one.

The National Tax Conference, 2006 is organized by All India Federation of tax Practitioners at Jaipur, the capital of the biggest State of the Country, for these two days is likely to discuss the burning and current topics relating to the field of taxation indirect and direct taxes, like budget proposals of 2006-2007 making various amendments to the Income Tax Act, Central Excise Law and newly found large source of revenue in the form of Service Tax. The topics relating to VAT, Entry Tax and Special Economic Zones with particular reference to the State of Rajasthan are going to be discussed thoroughly in this National Tax Conference which, I am told, is being attended by eminent galaxy of experts from all corners of the country. The issues relating to FEMA, Tax Treaties and Right to Information Act, are also likely to be covered in the Technical Sessions over these two days.

The theme of this National Tax Conference 2006 is the "Professional opportunities and Social Obligations of the Tax Professionals". It is well known that the tax laws in both direct taxation and indirect taxation field are the most complex and difficult subjects and it really takes a lot of time and understanding for fully comprehending and understanding the tax laws in order to properly comply with the various obligations under the taxing statutes. The help, consultancy and advice of the tax experts is a sine qua non for any tax payer be it under the Income Tax Act or under the Central Excise Law or even the Service Tax Laws. A constant and rigorous study of the basic taxing statutes and up to date amendments for Chartered Accountants and Tax Experts is very necessary for properly advising their clients big or small. Since, the penalties and fines are heavy for various non-compliances, a timely and correct approach for complying with the obligations of the taxing statutes is a must for any industry or trading concern or even individuals in service sectors.

While these complications in the taxing statutes throw up several opportunities for the tax professionals in our country and even at the international level with liberalization and globalization of the trade and outsourcing of the Services, there is an ever growing need of constant introspection, and need for updating the knowledge of latest laws and clearer comprehension of the taxing statutes for the tax advisors. In this perspective holding of such National Tax Conferences at country level and that continuing education pattern going down to the state level, District level, even Academic Clubs Meetings in smaller group is a professional need involved in the dispensation and administration of the taxing statutes.

The area and fields which this National tax Conference, 2006 will be touching upon and various grey areas are likely to be lightened up by the experts, coming from all sides of the country, this academic debate will definitely enure to the benefit of all present in this Conference and even outside when the papers discussed and debated here will throw light on the finer points of law in forthcoming Technical Sessions. While I feel privileged to inaugurate this August National Tax Conference,2006 for all the delegates, I deem it my duty to convey my heartfelt message to all tax experts who are participating in this 'Kumbh Mela' of tax experts that the practice in the field of taxing statutes for advising their clients and dealing with various controversies is not merely a lucrative and rewarding profession for them but at the same time, they owe a more weighty duty towards the Nation and they are to understand, comprehend and advise their clients on the various provisions of the tax laws with which they are concerned, keeping in view, the objective for which those provisions have been enacted by the Parliament or the State Legislatures.

Taxation has always been considered to be a complex and brain tinkling subject. The length and width of tax laws, the use of pin pointing language in the provisions of taxing statutes and constant legislative effort to plug the loop holes in order to gather more tax revenues for the larger public interest is a constant exercise which makes the job of the tax consultants and tax lawyers more and more fruitful over the day and complex for we, the Judges.

The simplification of tax laws is the real need of the day and the efforts of the present Finance Minister Mr. P. Chidambaram for the last two years deserves to be appreciated. He has not only opened the new sources of revenue for the Central Government in the form of ever spreading net of Service Tax but the new levies in the form Fringe Benefit Tax has opened up new horizons on tax laws. Of course, in the process of such legislative exercise, some controversies, doubts and discrepancies are bound to arise and forums like the present National Tax Conference are the appropriate forums to discuss, debate and resolve such controversies so that the legislative debates, reforms and amendment procedure is supported and guided by the tax experts of the country but at the same time, it is felt that merely on account of such controversies and deficiencies, the legislative wisdom and resolve to gather more and more tax revenue for larger public good cannot be questioned.

The Economic Survey conducted just before the budget proposals announced in the Parliament on 28th February, 2006 also shows a buoyant picture of the economy and the markets for industries and consumers are always looking up with the trade becoming the barrier less internationally and the tariff laws made more and more in accordance with GATT and TRIPS etc., the internationally binding agreements between the member countries of the UNO , new changes and new forms of tax levies are bound to crop up. Today, the debate is also going on for combination of tax on goods and service popularly known as GST and also the debate is going on for tapping the revenue from service sector involved in cyber technology. The VAT, internationally accepted substitute of Sales Tax is a major source of indirect taxes and almost all the States of country have adopted VAT form of taxation on sale of commodities. The tax on addition in the value of the goods is a unique concept and it removes the cascading effect of indirect taxes and like MODVAT or CENVAT under the excise law, under the VAT regime, consumers are likely to be benefited on the one hand while the tax revenues are also going to be up for the States.

A significant question that arises in this connection is the role of the tax practitioner, in and the justification for tax planning. This essentially depends on the taxing power of the State in the context of the welfare of the community and reasonableness of the levy. Though the power of the State to levy tax has been recognized from ancient times, the smirities have unequivocally stressed the necessity for a good tax policy.

Lord Templeman in IRC v. Fitzwilliam (House of Lords) dealing with the obligations of a solicitor states as follows, "In my opinion a solicitor owes his client a duty not to embroil the client in a tax avoidance scheme or any other substantial transaction without full prior explanation and express instructions. A taxpayer who is kept in ignorance by his own solicitors when taking part in transactions which when completed form a pre-ordained series of transactions for his benefit cannot thereafter claim that the transactions did not constitute a pre-ordained series of transactions because of his initial ignorance."

Lord Simon in Lattila v. IRC, [(1943) AC 377] referred to the role of the tax professionals in formulating tax planning schemes as follows, "Thus, Judicial dicta may be cited which point out that, however elaborate and artificial such methods may be, those who adopt them are 'entitled' to do so. There is, of course, no doubt that they are within their legal rights, but that is no reason why their efforts, or those of the professional gentlemen who assist them in the matter, should be regarded as a commendable exercise of ingenuity or as a discharge of the duties of good citizenship. On the contrary, one result of such methods, if they succeed, is, of course, to increase pro tanto the load of tax on the shoulders of the great body of good citizens who do not desire, or do not know how, to adopt these manoeuvres."

The tax professional acts as an agent of the tax payer. Hence the rights and obligations of the tax counsel are circumscribed by the rights and obligations of the asses-see. The courts have considered the duties of an assessee in the context of Sec. 147 of the Income Tax Act, which provides for re-opening of an assessment. In the above context, courts have consistently held that the just obligation of an asses-see is to place on record before the assessing authority all material and relevant facts to enable him to make a proper assessment. But this obligation does not extend to educating the assessing authority on what he should do in the facts and circumstances of the case.

India is no longer a developing country, but is, today, a developed nation rubbing shoulders with other developed countries in the world like USA and Japan in the Global market. Globalization is not restricted to trade but extends to all spheres of activity of a nation. Unless services allied to trade and industry like accounting, auditing and legal services grow in tandem with the growth of trade and industry; the economy cannot attain a sustained growth. The statistics given by the Ministry of Commerce and the Ministry of Finance clearly establish today enjoys a comfortable foreign exchange reserve and balance of payment position. There has been all round economic growth and, in many respects, particularly in the fields of Information Technology, India is a recognized leader in the comity of nations. This necessarily requires that there is a globalization of professional services. Professional services are a major input in the economic development of a nation.

Globalization is considered to be the most advanced in banking, financial and the legal services sectors. It also poses questions about the ability of nation states to regulate international capital. It is believed that the nation-state remains a key player in shaping regulation of international capital. In the face of globalization, the nation-states have sought to regulate the mobility of capital by placing increasing reliance upon accounting technologies, including external audits and legal advisors. Yet the state or the banking stakeholders do not directly appoint external auditors. In practice, rather than exclusively acting as agents of the state, auditors also act as advisers and consultants to the banks.

The Constitution of India specifically legitimizes tax avoidance and tax planning because the right to property is the rule and tax is the exception and it is well accepted in law that the rule is always read wider than the exception.

However, the social obligation of a tax professional is to ensure that he does not overstep the limits of Law. The Supreme Court has now impressed its seal of approval to lawful transactions entered into by tax professionals notwithstanding that the effect of such transactions is to reduce the incidence of tax.

Thus, a tax professional should always be careful that such planning does not overlap with tax evasion. A tax professional can plan the income of his/her client so as to attract less tax but his/ her duty is to see that there is never evasion of tax.

Now coming to another aspect, a major defect in Indian taxation system is the absence of a systematic and sustained fiscal policy. Other problems that plague the Indian taxation system are constant change owing to endless amendments in the legislations and lack of continuity. Therefore the need of the hour is to develop an appropriate taxation policy which is simple, stable, continuous, certain, reasonable and easy to comply with. Thus, the effort of every tax professional should be to attain this end. In the words of Nani Palkhiwala, "a stable fiscal policy is to a nation what a stable family is to an individual, and the efforts of every tax practitioner should be to attain such stability."

Another challenge of the new millennium is the changing technological scenario. This will envelop the profession of Tax Professionals also. The Tax Professionals also will have to keep pace with the fast developing technological arena. There have been spectacular developments in the fields of computers, micro-electronics and communication that have given rise to a wholly new age for humanity - the age of informatics. Tax Professionals undoubtedly will have to update themselves to utilise maximum use of computers and other electronic devices. Today, information can be stored electronically in computers and worked upon. This will lead to an enormous increase in efficiency as well as in the speed of processing any amount of data.

Last but not the least aspect is the erosion of values in the profession. The Advocates Act, 1961 has prescribed high standards in the profession and laid down code of conduct to regulate and maintain the status and standard of the profession. A Tax Professional has to assume onerous responsibilities involved in the discharge of the public duties by abiding to the requisite standard of discipline and conduct. Therefore it is my earnest request to all learned fraternity involved in the practice of tax laws to keep earnestly working giving greatest amount of compliance to moral standards and values to uphold the dignity of the profession and the purity of our constitution.

Friends, You have chosen an apt and appropriate theme to deliberate in the Conference. The theme "Professional Opportunities and Social Obligations of Tax Professionals", will help us to retrospect as well as look forward to the coming century with a vision. We have reached the twilight zone of the new Millennium. The bright rays' of the dawn of the 21st century have already begun to shine. The birth of new millennium will bring along new challenges and problems for us to face. Old systems will give way to new ideologies. The birth pangs of a new order and a bright morrow have already begun to felt. The profession of Tax Professionals and Chartered Accountants will have to cope up with the multitude challenges of the new millennium. The role of the Tax Professional and Chartered Accountants in a changing society assumes much significance in the light of their contributions towards development. Chartered Accountants hold the key to the coffers of the nation. They play a pivotal role in the destiny of a country. They are the part of the machinery of economic upliftment of the nation. Hence, the Tax Professional and Chartered Accountants will have to gear themselves up to face the challenges of the new millennium.

Coupled with the technological advances, the impact of globalization on trade and commerce will have its repercussions on the profession of Chartered Accountants. Liberalization and free market policy will give rise to new problems and challenges in the area of trade and commerce.

The complicated tax structure and policies of the country and the plethora of judicial decisions on tax laws have given rise to uncertainty and confusion in the minds of the assessees. To add to these are the frequent amendments to law relating to Company and Public Sector Undertakings, Stock Exchanges, Income Tax, Financial Investments and allied laws. A Tax Professional and Chartered Accountant should be a guide and ready reckoner to the fast changing tax laws and has to update and equip himself with all the necessary knowledge. Maintenance of a well equipped library and publication of books and periodicals on relevant subjects can in a way help one to update knowledge of law and tax policies. Continuing professional education through conferences, workshops and seminars is the need of the hour.

On this occasion, I exhort the members of the Institute to strive hard to maintain the public confidence in the economic system of our country. For this, you will have to maintain a strong sense of identity, solidarity and commitment. A better public image can be built up through hard work and sense of values. I conclude with an earnest hope that the members of the Institute will rise to the occasion and meet the challenges of the new millennium with vigour and enthusiasm.

Thank you.