Friday, 5 August 2016

When Jagjivan Ram ‘forgot’ to file income tax returns - II

(From my Memoirs)

(To get a complete picture, must read Part I first. Link:

In response to the statutory notices issued to discuss the case with Jagjivan Ram or his legal representative, Rahmeshwar Thakur (who later became Minister of State for Finance) appeared. In addition to salary and allowances as Minister from which tax had been deducted at source, the only other income was interest of Rs. 15,000 or 20,000 per annum on fixed deposit with a private company. The source of the deposit was maturity value of a life insurance policy. At that time there was no provision for deduction of tax at source from interest income. The scrutiny of bank accounts did not reveal anything incriminating. The Income Tax Act required that in addition to filing the income tax return every year within the prescribed time limit declaring income from all sources – returns had to be filed even if the only source of income was salary from which tax was deducted at source – he should pay advance tax and, if necessary, tax on the basis of self-assessment within 30 days of filing the return. Jagjivan Ram had violated all these provisions. Along with the assessment orders I issued several notices to show cause why penalty should not be imposed on him for concealment of income (due to non-filing of return), for delay in filing returns of income and for failure to pay advance tax. Jagjivan Ram had paid all the dues with interest after filing the returns in 1969 but that did not absolve him of violations of the law in the past.

In response to the penalty notices, Jagjivan Ram filed a petition before the CIT, Delhi for waiver of penalty under Section 273A of the Income Tax Act. According to the provisions Section 273A (1) as prevailing in 1969, the CIT had power “in his discretion, whether on his own motion or otherwise” to reduce or waive penalty imposed or imposable on a person for all those offences for which penalty notices had been issued.  The conditions for reduction or waiver of the amount of penalty were that the Commissioner “is satisfied that such a person”

(a)      has filed the return of income voluntarily,

(b)   has voluntarily made full and true disclosure of income and no concealment has been detected,

(c)     has co-operated in any enquiry relating to the assessment of his income, and

(d)   has either paid or make satisfactory arrangements for the payment of any tax and interest payable by him.

(CIT’s powers to reduce or wave penalty were significantly reduced by amendments to the Income Tax Act in 1986 and 1989.)

In my report to the CIT, I confirmed that Jagjivan Ram fulfilled all the above-mentioned conditions required for the waiver of penalty.

For the next 10 days or so I had to face the music.  My CIT, I. P. Gupta (he is no more), known to be a very strict boss and hard task master, was very fond of me and extended full support to me whenever I faced any problem. However, he was not happy with my report. The main issue was whether the returns filed by Jagjivan Ram could be treated as having been filed ‘voluntarily’. If the returns were not filed ‘voluntarily’, fulfilment of other conditions was meaningless. According to my CIT and many others in the Department, Jagjivan Ram’s returns could not be treated as having been filed ‘voluntarily’ because he had done so after a Parliament question that made him aware of his default. On the other hand, my argument was that if a return of income filed because of Parliament question could not be treated as ‘voluntary’, no return filed  even without any notice from the Department could be treated as ‘voluntary’; every person having taxable income filed tax return and paid taxes because of fear of law; the filing of income tax return and payment of tax could not be treated as a charitable act; if the payment of income tax was made voluntary, hardly anybody would pay. In my opinion, Income Tax Act recognised only two situations: whether the return was filed in response to a statutory notice issued by the Department or without any statutory notice. Since the department had not issued any statutory notice to Jagjivan Ram, in the eyes of the law, the returns filed by him had to be treated as ‘voluntary’.

After a lot of discussion in the Department, my interpretation was accepted but that did not end the Commissioner’s problem. It was difficult for him to reject Jagjivan Ram’s application because in several similar cases the department had waived the penalty. At the same time, because of political overtones, it was not easy for the Commissioner to treat this case as a routine one.

Finance Minister Morarji Desai was keenly monitoring the progress of the case. As ordered by him, Commissioner sent a report in which he mentioned all the developments in the case: Jagjivan Ram had filed all the pending income tax returns and had paid taxes due; income declared by him in each year had been accepted, income tax assessments had been completed and orders passed and penalty notices had been issued; Jagjivan Ram had submitted a petition for waiver of penalty; the assessing officer had sent a report that the assessee fulfilled all the conditions for the  waiver of penalty.

Morarji Desai got wild when he read the report. He gave two orders in writing: (a) impose maximum penalty on Jagjivan Ram and (b) take disciplinary action against the assessing officer for suggesting that Jagjivan Ram had fulfilled all the conditions for the waiver of penalty. I was summoned by the Central Board of Direct Taxes (CBDT) and shown Finance Minister’s order. I was told that Finance Minister was very angry with me. The CBDT and my CIT were very upset and feeling very sorry for me. My immediate reaction was that unwittingly Finance Minister had done a great to favour to Jagjivan Ram because after what he had ordered in writing, it was impossible to impose any penalty on Jagjivan Ram. My reasoning was that the Finance Minister had absolutely no legal power under the Income Tax Act to give any order and that if penalty was imposed after this order, it would be struck down by appellate authorities in no time. I even said that if Jagjivan Ram filed a writ petition in the High Court that the Finance Minister was interfering in a quasi-judicial process, he (Finance Minister) would be in trouble.

In my opinion – I could not say that before my seniors – Morarji Desai was a very arrogant as well as ignorant person. Perhaps, he believed that all the legal and executive powers vested in the mandarins of his Ministry were vested in him too because he was the Minister. He had neither knowledge of law nor common sense but believed that he had all the powers to give any order to his subordinates.

The CIT did not implement Finance Minister’s order. Jagjivan Ram’s petition was accepted and all penalties were waived.

After some time, a parliamentary committee raised this question. A member of the committee asked the then Finance Secretary whether the Finance Minister had issued any order to impose penalty on Jagjivan Ram. Finance Secretary denied the existence of any such order. The file in which Morarji Desai had given the order had vanished in thin air. Later, Morarji Desai himself was forced to resign from the government for conspiring against Indira Gandhi.

It is absolutely wrong to say, as some people claim, that Moraji Desai was sitting over the file while others were waiting for his order. In fact, he was in great hurry to see that penalty was imposed on Jagjivan Ram.

In the entire drama Indira Gandhi’s only role was that in reply to a question by a journalist whether Jagjivan Ram had ‘forgotten’ to file his income tax returns, she had said that ‘there was some such forgetfulness.’

After that episode, not only Jagjivan Ram but several other powerful persons also became regular and cooperative, not all though. A few defaulters, including a prominent socialist leader who had served as Deputy Chairman of the Planning Commission, continued to be defiant. During the course of telephonic conversation, the great socialist leader shouted at me and said that he would not file income tax returns because he owed nothing to the government. Later, he was in serious trouble because he was quite a rich person with taxable income as well as wealth but had not bothered to pay his taxes for several years. Unfortunately I could not get the opportunity to deal with his case because by that time I had gone to the Planning Commission as deputy secretary.

The moral of the story is that if the truth is not public knowledge, it is very easy to distort history and mislead people. If falsehood can be spread about what has happened during our lifetime, what is the guarantee that what has been written as history is true?

Devendra Narain, IRS (Retd.)
November 13, 2015


       17 opposition parties including the Congress have selected Late Babu Jagjivan Ram’s daughter Meira Kumar as their presidential candidate. Meira Kumar must know that more than 38 years ago a prominent Congress Leader and Finance Minister in Indira Gandhi government, Morarji Desai, had tried his level best to humiliate her father. Morarji Desai was an arrogant and self-opinionated politician who had no knowledge of Income Tax law but believed that as Finance Minister he could give any order to his officers. Indira Gandhi  was enjoying Jagjivan Ram's problem

June 24, 2017