Q11. Dr X is a leading medical practitioner in a city. He has set up a charitable trust through which he plans to establish a super-specialty hospital in the city to cater to the medical needs of all sections of the society. Incidentally, that part of the state had been neglected over the years. The proposed hospital would be a boon for the region.
You are heading the tax investigation agency of that region. During an inspection of the doctor’s clinic, your officers have found out some major irregularities. A few of them are substantial which had resulted in considerable withholding of tax that should be paid by him now. The doctor is cooperative. He undertakes to pay the tax immediately.
However, there are certain other deficiencies in his tax compliance which are purely technical in nature. If these technical defaults are pursued by the agency, considerable time and energy of the doctor will be diverted to issues which are not so serious, urgent or even helpful to the tax collection process. Further, in all probability, it will hamper the prospects of the proposed hospital.
There are two options before you:
(1) Taking a broader view, ensure substantial tax compliance and ignore defaults that are merely technical in nature.
(2) Pursue the matter strictly and proceed on all fronts, whether substantial or merely technical. As the head of the tax agency, which course of action will you opt for and why? (250 words) 20
The primary job of a tax department is to collect taxes as legitimately due on any taxpayer. The government has, however, made certain procedures for the collection of taxes so that the taxes are assessed and paid on time. However, the violation of these procedures is of much lesser consequence than the evasion of taxes.
In this case, the taxpayer has owned up the tax liability and shown willingness to pay the taxes. It is also clear that the defaults are mainly technical in nature. Hence, the tax collector must take a broader view in this matter and ask the taxpayer to make payment of his tax liability. The tax agency can impose a minimum fine and penalty prescribed in the law for the technical violations, if necessary.
It is not advisable to strictly interpret the law and proceed on all fronts. The tax department should have a holistic vision and must not close its eyes to the charitable purpose of the assessee which can benefit a large number of people in the area. Dr X must not be forced to waste his time in fighting tax cases. He must rather be helped in a legal and proper manner to devote his time for charitable activities and serve the nation.
The tax department should not spend its time in activities that are unlikely to fetch any additional revenue. If the tax authorities choose to make a case against Dr X on technical grounds, he may refuse to pay the taxes till the issue is finally settled. This may actually cause loss of revenue to the tax department if the department loses the case in the higher forum. (273 words)