'Responsibility of Govt to design convenient tax system for individuals'

New Delhi: The Supreme Court on Thursday said that in a taxation regime there is no room for presumption and it is the responsibility of the government to design a tax system which is convenient and simple so that an individual or a corporate can budget and plan.

The top court also said that if a proper balance is achieved, unnecessary litigation can be avoided without compromising on the generation of revenue.

The court, which allowed a batch of appeals filed by banks against an order of the Kerala High Court, held that the proportionate disallowance of interest is not warranted under Section 14A of Income Tax Act for investments made in tax free bonds/securities which yield tax free dividend and interest to assessee Banks in those situations where interest free own funds available with them exceeded their investments. Section 14A deals with expenditure incurred in relation to income not includible in total income.

With this conclusion, we unhesitatingly agree with the view taken by the ITAT favouring the assessees," said a bench of Justices Sanjay Kishan Kaul and Hrishikesh Roy in its 22-page judgement.

Referring to the work of 18th century economist Adam Smith in The Wealth of Nations', the bench said it needs to be observed here that in taxation regime, there is no room for presumption and nothing can be taken to be implied .

The tax an individual or a corporate is required to pay, is a matter of planning for a taxpayer and the Government should endeavour to keep it convenient and simple to achieve maximization of compliance. Just as the Government does not wish for avoidance of tax equally, it is the responsibility of the regime to design a tax system for which a subject can budget and plan, it said.

In view of the foregoing discussion, the issue framed in these appeals is answered against the Revenue (department) and in favour of the assessee. The appeals by the Assessees are accordingly allowed with no order on costs."

The bench said that its conclusion is reached because a nexus has not been established between expenditure disallowed and earning of exempt income.

The respondents (Revenue department) have failed to substantiate their argument that an assessee was required to maintain separate accounts. The counsel for the revenue department has failed to refer to any statutory provision which obligate the assessee to maintain separate accounts which might justify proportionate disallowance , it added.