Interpretation of tax laws in India 'main problem': Kapadia

Kapadia also said that there should be clear distinction between rules and standards when it comes to tax matters.

Last Updated: May 16, 2013, 16:32 PM IST

Port Louis: Amid concerns over Indian government's certain taxation proposals, former Supreme Court Chief Justice S H Kapadia on Thursday said interpretation of rules is the "main problem" and emphasised the need for having clear language on various provisions.

Kapadia also said that there should be clear distinction between rules and standards when it comes to tax matters.

"Today the main problem is the interpretation. A tax officer can interpret a rule in a way that suits him for meeting the revenue collection target.

"Unless the language is made very clear on various provisions, it will be very difficult and everyone including lawyers, accountants and tax consultants need to work on this," he said here.

Kapadia, who has delivered many key judgements on taxation issues including in the Vodafone case, noted interpretation of the rules needs to be done very carefully by authorities as well as courts.

He was speaking at an international taxation conference organised by the International Fiscal Association (IFA) here.

According to Kapadia, rules have to be followed, but standards at times are vague with scope for many different interpretations.

He also gave an example that a traffic rule calling for maximum speed of 60 kmph is definitive but a standard calling for "drive carefully" can mean anything when it comes to violation.

In recent times, investors had raised concerns about various tax proposals including GAAR (General Anti-Avoidance Rules).

Kapadia said that transfer pricing jurisprudence needs to evolve in India and that the professionals have to help in this evolution process.

The former Supreme Court Chief Justice also noted that GAAR should ideally be an anti-abuse rule on tax matters and not on anti-avoidance. A principle of reasonableness needs to be applied on these matters, he added.

Even if a taxpayer fails to comply with the rules, the law requires that the authorities follow a fair procedural framework, Kapadia said.

Further, he said that people in India are not as such opposed to investments from Mauritius, but are concerned about possible money laundering activities.

There are also fears that money routed through Mauritius could be used for illegal activities like bomb blasts, he said and called for proper checks and balances.

"India needs investment for employment generation and advancement of its economy. Everyone needs to keep in mind that investment is important and I saw it myself when thousands of youth told me that there jobs were saved after Vodafone judgement," he said.