Following panic gripping leading industrial and trade houses that arrests were imminent in tax default cases, the Government on Tuesday evening came out with a clarification denying the same. A statement issued by the spokesperson of the Central Board of Direct Taxes Meenakshi J Goswami said, “Certain sections of the Press have been carrying news reports today that Income Tax Department is going to arrest willful tax defaulters. In this regard, it is clarified that no such statement has been authorized by the Income-Tax Department.”
The statement denying the report was surprising as the same was being run through the day even on government-controlled Doordarshan and All India Radio.
The reports said that challenged by increasing cases of defaulters who smartly evade paying taxes, the Income Tax department has asked its officers not to shy away from invoking the rare provisions of arrest, detention and auctioning of attached assets of the accused.
The clarification issued in the evening may have denied any move towards immediate arrests and went onto add that “the provisions for arrests and detention by the Tax Recovery Officers in respect of non-compliant tax defaulters are contained in the Income-Tax act, these are used sparingly.”
The report of imminent arrest gained currency following the discovery that the Central Board of Direct Taxes, in a strategy paper for the current fiscal, has directed the tax department to use this provision, used rarely till now, stated under Section 276C (2) of the IT Act that stipulates action to ensure rigorous imprisonment for a period between three months and three years which may also
carry a fine.
The IT department has a designated official to execute these rare powers, called the Tax Recovery Officer (TRO) within its establishment.
“The machinery of the TRO should be strengthened by providing more infrastructure and manpower. The TROs should be further trained specifically for their work in order to increase their effectiveness. In respect of non-compliant defaulters, the provisions of arrest and detention as per the provisions of Rules 73 to 81 of Schedule II should be invoked by the TRO.
“Stringent action can be taken in suitable cases including use of the provision for prosecution under section 276C(2) of the Act,” it said. The strategy papers act as a guiding light for the taxman for the financial year, in this case 2016-17.
The directives also asked the supervising authority of the TROs (Principal Commissioner of IT) to “monitor” their work “especially in the area of attachment and sale of property to ensure that the attached properties are sold within one year.”
“The role of a TRO comes at the fag end in a tax evasion case when the demand raised by the department gets converted into wilful default. A TRO executes his power of arrest and detention when there is a chronic default. That is why we see these provisions have been rarely invoked in the past. But now, more action on this front will be undertaken as defaults are becoming a menace now,” an IT official explained.