The well-worn cliché about the inevitability of death and taxes has outlived its utility in India. As Will Rogers said, “The only difference between death and taxes is that death doesn’t get worse every time Congress meets.” And now we have the spectre of tax raids around us.
In India, the power to conduct a tax survey was first introduced in the year 1964 with an innocuous explanation in the memorandum to the budget – “…to inspect any books of account or document, to take extracts there from and to place marks for identification…”. This, in sum and substance, is the simple intent behind the law. Currently, the convenience of the powers that be dictates the devious manner of implementation of this innocent provision.
Are search, survey and raid the same thing?
People often confuse surveys with ‘search and seizure’. Nothing could be further from the truth. For starters, the Income Tax Act, 1961 doesn’t provide for any “raid”. If there is any information/asset/income which is not forthcoming or is undisclosed, the tax department has the powers to conduct either a “search” or a “survey”. It can also issue “summons” to requisite information.
Section 133A controls the remit of the power to conduct a survey. A survey by tax authorities is a less invasive/intrusive exercise, giving limited jurisdiction/powers to the officers. The language used by the said provision offers some clue about the nature of the powers to be used. In essence, it obligates the taxpayer to “afford…necessary facility” for inspection, checking, verification and other related purposes. In this context, the powers of officers are naturally co-terminus with the nature of the act. A survey is a less aggressive form of examination by the tax department. Section 133A(3) provides a list of permissible and impermissible acts on behalf of the tax department.
As per law, impounding or seizure per se in the first instance is impermissible. It is only on recording of reasons that a tax official can ‘impound’ books of accounts and other documents. This limited concession (subject to a reasoned and speaking order) doesn’t extend to any article, thing, asset, cash or stock present on the premises. Moreover, Section 133A(4) expressly bars removal of any article, thing, asset, cash or stock present on the premises by the tax officials. Even the impounding is time bound for a period of 15 days, beyond which an approval of higher officials is necessary.
Contrast the above with Section 132, which provides the procedure for search and seizure. A search is an entirely different jurisdiction which comes with more draconian powers and it is exercised as an extreme measure with appropriate safeguards. It empowers seizure of assets/ things and prohibitory orders as well. The language used in Section 132 essentially empowers the department to “search”, “break open”, “seize”, etc. – none of which is present in a survey. A search is more aggressive than a survey.
Can devices be seized and premises be sealed during a survey?
In the context of the BBC survey, it is now widely reported that a few employees were stopped from leaving the premises and some mobile phones and laptops have been seized by the tax department.
It is important to note that no indiscriminate seizure of mobiles, laptops and digital gadgets can be done at will by the tax officials during a survey. Only books of accounts and documents can be impounded subject to a reasoned order. Balancing the interest of the tax department, a copy of the data from those laptops and digital devices could have been taken or impounded, which relate to accounting or relevant documentation in question like ledgers, financial software and agreements. Even this requires recording of reasons and compliance with the Information Technology Act, 2000.
An indiscriminate seizure of mobiles/digital gadgets without recording reasons during a survey is not only contrary to Section 133A(3) and Section 133A(4) but is also a disproportionate exercise which impinges upon the privacy of the taxpayer and its employees. None of this could have been done unless the survey is converted into a search by way of a speaking order, and an approval with all its safeguards in place.
As far as the sealing of the premises prohibiting entry and exit of people is concerned, the law is fairly well settled in tax jurisprudence: Section 133A does not permit the sealing of the business premises.
Survey for the purpose of adjudicating transfer pricing non compliance?
A message purportedly from government “sources” justifies the survey upon BBC on the ground that the survey has been done to investigate BBC’s violation of the transfer pricing (TP) rules and diversion of profits. It also alleges that BBC has not followed the arms’ length arrangement and is a repeat offender.
There was no official press release from the tax terrorists on the raids on #BBC offices in Delhi and Mumbai. But journalists on the beat received instructions on how to spin the shameless (and brainless) exercise of power via WhatsApp. @PIBFactCheck @BBCIndia pic.twitter.com/J9wuPiymNk
— churumuri (@churumuri) February 14, 2023
Taking the above on face value and to be true, the most appropriate course of action available with the department is to launch a fresh assessment of income or to complete the pending assessments with these findings. This will necessitate issuance of show cause notices, conducting personal hearings with the assessing officer/transfer pricing officer and then passing a reasoned order making a demand of outstanding taxes. This process is similar to the ordinary assessment of income of any taxpayer.
It is important to note Section 92 to 92F which, inter alia, mandates the taxpayer to submit a Transfer Pricing Report and supporting agreements, invoices, ledgers, method of computation of arms’ length, etc. to the tax officials during a routine assessment. All the books of accounts, documents, agreements, invoices, etc. are already before the AO/TPO, based on which notices for further enquiry can be issued and the TP compliance be adjudicated upon. It is because of this reason that there is ordinarily no occasion to conduct a survey for TP compliances.
TP assessments are the normal course and have been routinely followed, without the sword of a survey or a search. Whether arms’ length price has been followed or not is a matter of assessment. The nature of documents which could be impounded or seized is similar to the ones which are already on record before the TPO. The law also prescribes penal consequences for non-submission of the required documents.
This begs a serious question regarding the appropriateness and necessity of a survey action against BBC when other avenues were open. The answer perhaps lies in the timing of the action and the purported justification to conjure public support. The spectacle of a “raid” or a survey on an entity involved in “diversion of profits” in a highly technical sounding “transfer pricing” issue ties in very well with the so-called anti-national BBC narrative. This episode doesn’t bode well for the freedom of speech and freedom of press that we so zealously cherish. It signals the death of democratic values at the hands of a government afraid of dialogue or free exchange of ideas that are detrimental to its image and perception, done through a malafide implementation of tax laws.
Deepak Joshi is an advocate based in Delhi.
Edited by Jahnavi Sen.