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Can the tax preparers deliver?
November, 09th 2006


It would be too much to expect tax preparers to deliver results which dyed-in-the-wool tax sleuths have not been able to for decades now.

Way back in 1957, the Supreme Court, in CIT vs Raja Benoy Kumar Sahas Roy (32 ITR 466), made a telling observation that "there is no warrant for further extension of the term `agriculture' to all activities in relation to land or having connection with land, including breeding and rearing of livestock, dairy farming, butter and cheese making, poultry farming etc."

It has taken someone in the government more than half a century to set in motion the machinery, or what appears to be one, to give effect to the verdict of the Supreme Court. Speaking to newspersons on the launch of the Tax Return Preparers Scheme ushered in by the Finance Act, 2006, the Finance Minister, Mr P. Chidambaram, said as much as 45 per cent of the rural income is in fact not agricultural at all which alone enjoys tax exemption under our income-tax law.

The Finance Minister's heart is at the right place income-tax should not be and indeed was not intended to be urban-centric. The rural rich running the businesses of poultry, live stockbreeding, etc., have been thumbing their noses at the tax authorities secure in the knowledge that the Income-Tax Department rarely, if ever, stirs out to the dust and squalor of rural areas. And for a good measure, despite the sagacious words of the Supreme Court, there has been a considerable amount of ignorance in the Department itself as to the true nature of agricultural income, for otherwise it would have definitely heeded the apex court's advice long ago.

Rural rich bastion

But can a handful of tax preparers, 5,000 to start with, brainstorm the rural rich bastions and bring their taxable income to book? Even the blandishment of 3 per cent commission out of the tax thus garnered will not be able to do the trick.

First, these new kids on the block are by no means tax sleuths well versed in the nuances of taxation and the wiles and guiles of the rural rich. If anything, they are tyros. By the Finance Minister's own admission, the tax preparers need training and indeed they are going to be trained for a nominal fee.

It would be too much to expect from such novices, results which dyed-in-the-wool tax sleuths have not been able to deliver for decades now. It is also not as if the admission to the training programme would be thrown open only to the rural unemployed. The scheme would target the unemployed and partially employed graduates as well. Would they fan out into rural areas as assumed by the Finance Minister, assuming somehow they are imparted excellent training in the crash course on the art of sifting the grain from the chaff income from dairy farming, for example, camouflaged as income from wheat cultivation.

The Rural Employment Guarantee Scheme comes out as a far better thought-through scheme than the tax preparers scheme, and admittedly the latter is nowhere near the former either in design or coverage.

It is nobody's case that the rural rich should escape tax with impunity as hitherto. But at a time when the share of Rural India to GDP is skewed 23 or 24 per cent against the fact that the rural population accounts for nearly 65 per cent of country's population, the move is bound to invite both yawn and cynicism.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)

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