XI LOK SABHA DEBATES,   Session IV (Budget) 

Friday, May 9, 1997 / Vaisakha 19 , 1919  (Saka)



Type of Debate: BUDGET (GENERAL)

Title: Discussion on the motion for consideration of the Bill moved by 
Shri P.  Chadambaram on the 7th May,1997.(Contd.-Concluded)

TEXT :
 THE MINISTER OF STATE IN THE  MINISTRY  OF  FINANCE  (SHRI  M.P.    VEERENDERA
KUMAR):  Sir, he should get up before 5 a.m.  ...(Interruptions)

SHRI P.C.  THOMAS (MUVATTUPUZHA):  Sir, I appeal to the hon.  Finance Minister
to  give  some excise duty relief with regard to use of latex rubber for small
scale industry.  ...(Interruptions)

MR.  SPEAKER :  I think it is enough.  Let the hon.  Minister reply.

 FINANCE BILL,1997-Contd.


12.19 hrs.

THE MINISTER OF FINANCE (SHRI P.  CHIDAMBARAM):   Mr.    Speaker,  Sir,  I  am
deeply grateful to the hon.  Members who have participated in this debate over
the last  two  days.  Even while criticising some aspects of the Finance Bill,
even while pointing out what they believe are errors and departures from  good
policy,  I note with some satisfaction that they broadly support the direction
and thrust of this Budget and which is reflected in the Finance Bill.

	I am grateful to the Leaders of the parties who led the discussion and
who spoke at great length like Dr.  Murli Manohar  Joshi,  Shri  Nirmal  Kanti
Chatterjee, Dr.   Debi Prosad Pal and all other Members who made very valuable
suggestions.

	The Finance Bill  only  reflects  the  legislative  changes  that  are
required  to implement the Budget. The Budget itself was discussed extensively
and I have already replied to the Budget discussion. Naturally, there will  be
some overlap between that discussion and this discussion. There is, of course,
a  time interval which results in such a overlap in the two discussions. There
is also the political crisis which overtook us for 30 days which means that we
tried to go back to what we fairly were prior to March, 30 and tried to revive
the continuity of the Government of India.

	Specific suggestions have been made about  specific  issues,  both  of
indirect  taxes  and  direct  taxes.  Normally,  the Finance Minister receives
hundreds of representations. This year also we  received  a  large  number  of
them,  but  I am told by my office that the number is much smaller than in the
previous years which are being scrutinised.

	Secondly, as I took pride to mention, we introduced the innovation  of
post-Budget consultations. These post-Budget consultations gave an opportunity
to exchange views and to understand each other's point of view and try to find
a  meeting  ground  on  some issues. Wherever it is possible to concede to the
points raised by hon. Members, I have in fact made thse  concessions  and,  in
fact, Rs.111 crore worth of concessions have been announced both in Excise and
Customs.  I  have  also  accepted  a  number  of  suggestions  on the taxation
proposals and the legislative proposals. Yet a large number of complaints will
remain. The best example is, of course, the one put forward  by  Prof.  P.  J.
Kurien  a  few  minutes  ago. How does the Finance Minister respond to this? I
believe he should respond to this rationally based on facts  which  can  stand
challenge,  both  inside  the court room and outside the court room. We cannot
act arbitrarily. Every decision must be based on economic rationale  plus,  of
course,  any  other relevant considerations like social necessities, political
necessities and even  sometimes  regional  aspirations.  But  the  fundamental
consideration  must  be  an  economic  rationale  for taking a decision. A few
minutes later, I will deal with the specific  issue  raised  by  Prof.  P.  J.
Kurien  as illustrative of a situation where an hon. Member of Parliament puts
himself in a position which is squarely opposed to  what  the  Government  has
decided  for  the  time being and charges the Government or the Minister being
completely unresponsive. I want the hon. Members to ponder  over  how  such  a
situation  should  be  resolved. I think, I am resolving it in the only manner
that it should be resolved. But I will place the facts  before  the  House  to
decide  whether  the  kind of response which the Minister gives to a demand of
that kind, is correct or not. Let the  House  decide  whether  I  am  fair  or
unfair,  partial or impartial, just or unjust. But that is for the latter part
of my intervention.

	First to deal with some matters relating to direct  taxes,  in  direct
taxes,  as  I  said,  none  of  the  political parties which met me raised any
serious objections except one political party which said that the top rate  of
duty  should  remain  40  per  cent  and that it should not be reduced. I have
explained why I am unable to accept  that  suggestion.  I  said  this  when  I
presented  the Finance Bill day before yesterday. I believe that India's rates
must be competitive with Asian rates.

	I believe  that  is  necessary  to  promote  domestic  investment,  to
encourage  domestic  entrepreneurship, to encourage domestic capital formation
and to encourage people to invest more in industries.

	Since 1994-95, there has  been  a  sluggishness  in  India's  economic
growth.  The  7.2  per  cent that we saw in 1994-95 was as a result of earlier
reform measures. But as the Economic Survey points out, since  1994-95,  there
has  been  a  slowing  down  resulting  in  a tight money situation, very high
interest rates and a sharp decline in investment. I am not blaming anyone  for
this. But in 1996-97, when this Government came into office, it was faced with
this  problem  of tight money, high interest rates of about 21 or 22 per cent,
PLR was 18 per cent and the sharp slow down in investment.  The  disbursements
of  financial  institutions picked up. But the new sanctions slowed down. What
we have done has brought about a qualitative change. The tight money situation
has virtually vanished. Interest rates have started moving down. PLR today for
most banks is 14 per cent. I believe, now investment will pick up.  It  is  at
this  point of time that we need to give a big boost to those who can save and
those who can invest. I respectfully submit that the best savers in India  are
the  households.  Their  savings rate is close to 18 per cent. Private savings
rate in India is about 23 per cent. Public Sector savings rate  is  very  very
modest  and  the  Government  sector  dis-saves.  Therefore, we must encourage
savings and the best way to encourage savings is  to  tax  less  leaving  more
money  in  the  hands  of people who can save and invest wisely. I believe the
trend that was commenced in 1991 of lowering tax rates is a correct  approach.
Give  an  opportunity to what I have tried this year. Let us see its impact on
direct revenues and we can always make corrections, if necessary.

	A question was raised about double taxation of  dividends.  I  am  not
entering  into  a philosophical argument whether it is double taxation or not.
That is not the point. Shri Nirmal Kanti Chatterjee can put forward a powerful
argument that it is not double taxation; one income is earned by the corporate
and one income is earned by the individual. How can  it  be  double  taxation?
Purely as a theoretical proposition that is right. But that is not the way the
taxes  are  looked  upon  by  people. The question is: what do most Members of
Parliament see in the case of taxation of dividend? What do most  people  see?
What  they  see is, here is a corporation which has made profit. It has paid a
corporate tax. When  that  part  which  is  retained  by  the  corporation  is
distributed  as dividend, why should it be taxed again? The popular view of it
is the same income is being taxed twice. The sense that I got last  time,  the
sense  that  I  get  this  time is that an overwhelming majority of Members of
Parliament thinks it is double taxation, whatever  the  meaning  of  the  word
"double" there is and that the taxation should go. I have conceded that point.
I  think  the debate which has been going on for the last sever or eight years
must end here once for all.

	Then, the question arises: what about Mutual  Funds  and  the  UTI?  I
think  the  point is raised by Dr. Murli Manohar Joshi. The point is valid. If
UTI and the Mutual Funds were only distributing  dividend  income  which  they
receive  from  their  investments,  the  point  is  valid.  But  the facts are
otherwise. Take the UTI, for example. The UTI has three kinds of  income:  one
is from dividends from its investments on shares of other companies; the other
is  interest  income from fixed instruments and the third is capital gains. It
is nobody's case that the capital gains  part  should  not  be  taxed.  It  is
nobody's  case  that  the interest income should not be taxed. So. what is the
proposition? We did some analysis and what we found in the case of the UTI  is
that  92 per cent of the UTI's income which is distributed to the unit holders
comes from capital gains and interest. It is only eight per cent  which  comes
from  dividends  which  it  receives  from  shares held by it. Therefore, if I
exempt all that income from further taxation,  it  would  mean  exempting  the
capital  gains,  exempting  interest and that is not , I believe, the argument
which found favour while we exempted the dividend income.

I think so long as UTI, Mutual Funds' income  composition  -  at  least  UTI's
composition  of  income  -  remains,  as I said, as it is, there is no case of
extending that benefit to dividends distributed by UTI or by Mutual Funds.

	A point was raised about the Sick Industries Act and  why  should  MAT
apply  the  moment  it  comes out of the sickness. I think it is an inadequate
understanding of the provisions. A company declared sick under Section  17  is
out  of  the  purview of MAT. It becomes liable to MAT only when its net worth
becomes equal or exceeds the accumulated losses. Under  the  present  proposal
MAT  will  not  apply  until  all the book losses are wiped out. Only when the
company returns a book profit, MAT would become applicable. Therefore,  merely
because  its  net  worth equals or exceeds the accumulated losses, it will not
become liable to MAT unless it is able to wipe out all the accumulated  losses
and  it returns a book profit. So, I do not think there is any serious problem
in the way MAT is structured regarding sick industries.

	Dr. Joshi raised a point about allowing income-tax  practitioners  the
same   facility   as   Chartered   Accountants  for  the  purpose  of  certain
certification. In fact, as the Income Tax  Act  stands  today,  accounts  have
always  to  be  certified  only  by  a  Chartered  Accountant.  An  income-tax
practitioner is allowed to appear before the authorities, but if  he  presents
accounts, those accounts must be certified by a Chartered Accountant. In fact,
there  is  no  provision in the Income Tax Act today which allows anyone other
than a Chartered Accountant to certify the accounts. Therefore in  the  retail
trade  estimated income that we have introduced where we say that the accounts
must be certified by a Chartered  Accountant,  that  is  consistent  with  the
existing  provisions.  An  Income  Tax  practitioner  can appear and argue the
matter; but if he carries a certified account, that account must be  certified
by a Chartered Accountant. It is consistent with the existing provision.

DR.  MURLI MANOHAR JOSHI (ALLAHABAD):  Can you  expect  a  small  retail  shop
keeper  to  obtain  certificates of a Chartered Accountant in all small towns?
There is the system of having mercantile accounts and cash accounts.

SHRI P.  CHIDAMBARAM:  The principle is whether accounts can be  certified  by
anyone other than a Chartered Accountant.

DR.   MURLI MANOHAR JOSHI :But you must look into the basic conditions of this
country.  How can you ask a person who deals in cash accounting  to  keep  his
accounts on the basis of mercantile accounting?

SHRI P.  CHIDAMBARAM:    I  have  understood  the  point.  That is a different
point.

SHRI NIRMAL KANTI CHATTERJEE (DUMDUM):    If  you  create  unemployment  among
Chartered Accountants, the problem would be solved!

SHRI P.  CHIDAMBARAM:  The method of accounting is a separate issue.  Whatever
is  the method of accounting, it is a sound principle that accounts have to be
certified by a qualified Chartered Accountant.

DR.  MURLI MANOHAR JOSHI :You have therefore to modify  your  income-tax  laws
also in  cases  where  there are cash accounts.  You cannot expect a person to
get them certified by a Chartered Accountant.  It is very very difficult.   It
is highly impractical, it will only lead to harassment and corruption.

SHRI P.  CHIDAMBARAM:    It  is  quite  right.    Until 1.4.1997 both kinds of
accounting were allowed - mercantile accounting as well  as  cash  accounting.
In both  cases  Chartered  Accountants were certifying.  There is no ground to
believe  that  a  Chartered  Accountant  cannot  certify  accounts  which  are
maintained on cash  basis.  In fact, they are.  ...(Interruptions) I heard him
say that cash accounting  cannot  be  certified  by  a  Chartered  Accountant.
Earlier  he  said  about  retailers  as  to  how  they  can  go to a Chartered
Accountant.  My answer is there are any number of young Chartered Accountants,
any number of people starting their  careers  and  they  will  surely  find  a
Chartered Accountant to certify those accounts.  But the principle whether

accounts  should be certified by anyone other than a Chartered Accountant is I
think a great principle.

SHRI HARIN PATHAK (AHMEDABAD):  They  cannot  afford  to  go  to  a  Chartered
Accountant.  That  is  the contention.  Because they are so small, they cannot
afford to go to a Chartered Accountant.  Their fees are very high.

SHRI P.  CHIDAMBARAM:  I have understood the  point.    Please  understand  my
answer.  ...(Interruptions)

MR.  SPEAKER:   I  think  he  has understood it.  You do not have to repeat it
again and again.

SHRI P CHIDAMBARAM: I do not agree. With great respect, I do not agree that  a
small businessman or a small retailer cannot go to a Chartered Accountant.

SHRI HARIN PATHAK :He cannot afford to go to him.

SHRI  P  CHIDAMBARAM:  I  do  not  agree  that  he  cannot  go  to a Chartered
Accountant, either. There are any number of Chartered Accountants;  there  are
any   number  of  people  who  start  their  careers.  There  are  income  tax
practitioners and lawyers. There are young lawyers who  start  their  careers;
and there are young Chartered Accountants who start their careers.

SHRIMATI  SUSHMA  SWARAJ  (SOUTH  DELHI):  You  may  not agree, but the ground
reality is this, about which Dr. Murli Manohar Joshi has said.

SHRI P CHIDAMBARAM: Madam, the next point is graver. The next point  is  about
the principle, that is, should accounts be certified.

DR.   MURLI  MANOHAR  JOSHI :You only deal with big companies and big persons.
But the tragedy is that we have to deal with small persons.  That is the  only
difference between you and me.

SHRI  P  CHIDAMBARAM: I reject. I resent and reject such an insinuation; and I
will ignore it. I maintain my ground that - the principle - accounts should be
certified by Chartered Accountants is a sound principle and I  do  not  think,
accounts should be certified by anyone other than a Chartered Accountant.

	Then  the  last  point  that  was  raised  was  about  the  method  of
accounting; I think, Shri Suresh Prabhu raised it. It is true that Section 145
of the Income Tax Act was amended in 1995 and that came into force on  1.4.97,
that  is,  assessment  year  1997-98.  Now, in fact, what has happened is that
although the assessment year begins on 1.4.97, the effect of  this  came  into
force  even  on  1.4.96.  Since  1.4.96, they are all required to choose their
method of accounting. They have chosen their method  of  accounting  and  they
have either kept it under the Mercantile Account or the Cash Account; and I do
not  think,  it  will be quite right for me to reverse what has happened since
1.4.96. They have already chosen it; they have lived with it; they have gained
or learnt some experience. The assessment year begins today,  but  the  effect
came  even  last year. I do not think it is correct for me to reverse what was
approved by Parliament in 1995 and which  came  into  effect,  effectively  on
1.4.96.

	Then,  there  was a question about sports. There was some demand which
was made about encouragement to sports. I share that support for  sports.  The
Income  Tax  Act  contains  provisions  relating  to  exemption  for income of
notified sports bodies and also allows deduction for contributions made to  an
eligible  project  or  scheme  for  promotion  of  sports. Sportsmen including
athletes receiving income from outside India are eligible for a  deduction  of
75  per  cent  of  the  foreign  exchange  brought  into  India,  besides  any
expenditure incurred for  sponsoring  sports  activities  is  allowable  as  a
deduction, being in the nature of business expenditure.

	Various suggestions have been received that Government should lay down
a  Sports  Policy,  so  far  as the financial aspects are concerned, to enable
encouragement of sports activities.  I accept these suggestions in  principle;
and  I  propose  to  hold  detailed discussions with the office bearers of the
Indian Olympic Association and other recognised  national  sports  bodies,  so
that when industry or trade sponsors various sports activities at the national

or international  level,  such  sponsorship  gets  fiscal  incentives.  I will
invite them to the discussions.

SHRI SONTOSH MOHAN DEV (SILCHAR):  You may include Members of Parliament  also
who are sportsmen.

SHRI P CHIDAMBARAM:  ...  who are sportsmen or who were sportsmen?

DR.   MURLI  MANOHAR  JOSHI  :There  are  certain equipments which are used in
gymnasium for general health purposes.  They were  hitherto  considered  as  a
part of sports.  Now, you are separating the two.

SHRI P CHIDAMBARAM:  I do not believe that you raised it in your speech.  I do
not have an answer now.

DR.  MURLI MANOHAR JOSHI :You may please consider this.  Whenever you consider
sports  and  health, you should consider giving incentives for equipments used
in gymnasium also.

SHRI P CHIDAMBARAM:  Okay.

	The last point which Shri Chatterjee mentioned is about  VDS.    As  I
said,  none  of  the political parties which met me during the meeting opposed
VDS.  That is a fact.  I have detailed notes of the meetings  and  that  is  a
fact.  It  is  true  that  a  section  opposes VDS.  As I explained, I have no
particular fascination for people who accumulate black money and who  wish  to
convert it into white money.

	Now, the point is our tax policies pursued in the past have encouraged
generation of black  money.   That is a hard fact.  There is no way of running
away from that fact.  We can pat ourselves on  the  back  about  tax  policies
which tax people of 97.5 per cent.

I  believe  that  they were wrong and there is no shame in admitting that they
were wrong. Today, we are changing  over  to  a  tax  regime  which  makes  us
competitive  with  the  Asian  nations.  We  have had, in this country, a long
history of non-compliance with tax laws. I want  to  introduce  a  culture  of
compliance  with  tax  laws.  I have to start somewhere. I, therefore, believe
that while we switch over to a competitive tax rate,  we  must  simultaneously
give  one chance to everyone to come clean, come on board and say, "All right,
here are my accumulated undisclosed income and wealth and hereafter, there  is
no  justification  to  hold back on tax basis." I am not saying that this will
convert  everyone  into  an  honest  man  overnight  but  I  believe  that  an
opportunity must be given for people to come clean, come on board and 77.5 per
cent  of  whatever  money is raised is going to the States. I pointed out last
time and I quoted  from  the  speech  of  Shri  Jyoti  Basu  in  the  National
Development  Council  as  well  as the BJP's manifesto. I pointed out and said
that both, in a way, support what I have done. In fact, both go further.  Both
say that what is disclosed should not be taxed at all. But what I have said is
that  it  should  be  taxed  at  30 per cent. Therefore, we should give them a
chance....(interruptions)




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