Naming & Shaming May Not Work! But One Unheard of Power with CCIT Can Do Wonders to Recover the Outstanding Tax

This post is being written after reading a news in yesterday’s edition of Times of India that income tax department is going to expand the Name and Shame list to include all kinds of tax defaulters having in excess of 1 Crore of demands. The news reads as under :


  • IT department has been publishing the names of tax defaulters in leading national dailies since last year and has named 67 such defaulters till now
  • It has decided to ‘name and shame’ all category of taxpayers including personal and corporate taxpayers who have a default of Rs 1 crore and above by March, 31

I have serious doubt that in a country where the publicly known criminals and  corrupt persons are enjoying powers of all sorts shamelessly  , this name and shame list  will work on them.  But this post is placing a suggestion to the government and the tax administrators to use an unheard power of chief Commissioner of income tax to put more pressure on listed tax defaulters. This power , I believe , once used by religiously following law and rules, will place a lot of anxiety , specially on tax defaulters who are wealthy otherwise and enjoying all the goodness of life despite having huge tax demands. One example is of Oh La La tune persons who is twiting from UK . IS it not a public knowledge that more than 100 crores of tax demand related to TDS is on his company. Well  I am not going to argue whether he is person responsible for tax demand. That is matter of examination of fact. Let us continue on the topic about “one Unheard Power fo CCIT……….”

Power of CCIT to Stop Any Defaulter from Going Abroad

In good old days , every Indian who were going abroad , had to get themselves assessed , pay the tax and obtain the tax clearance certificate. This law was changed vide Finance Act 2003 as India opened its economy and wanted its citizen to travel abroad without any hindrance .Another provision named section 230 (1A) was introduced vide FA 2003 that  first made a rule that domiciled Indians need not apply for a tax clearance certificate , but a notified domiciled person shall have to apply for the tax clearance certificate (TCC)  . In other words, if a tax defaulter is notified by a prescribed authority for obtaining the  tax clearance certificate , he/she wll  have to obtain the TCC. In effect , his /her passport is rendered useless indirectly and he will be confined to the country till the dues are paid .

Let us see what the section 230(1A) introduced from 01/04/2003 states :

(1A) Subject to such exceptions as the Central Government may, by notification in the Official Gazette, specify in this behalf, every person, who is domiciled in India at the time of his departure from India, shall furnish, in the prescribed form to the income-tax authority or such other authority as may be prescribed

(a) the permanent account number allotted to him under section 139A:
Provided that in case no such permanent account number has been allotted to him, or his total income is not chargeable to income-tax or he is not required to obtain a permanent account number under this Act, such person shall furnish a certificate in the prescribed form;
(b) the purpose of his visit outside India;
(c) the estimated period of his stay outside India:

Provided that no person—

(i) who is domiciled in India at the time of his departure; and
(ii) in respect of whom circumstances exist which, in the opinion of an income-tax authority render it necessary for such person to obtain a certificate under this section,

shall leave the territory of India by land, sea or air unless he obtains a certificate from the income-tax authority stating that he has no liabilities under this Act, or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Expenditure-tax Act, 1987 (35 of 1987), or that satisfactory arrangements have been made for the payment of all or any of such taxes which are or may become payable by that person :

Provided * that no income-tax authority shall make it necessary for any person who is domiciled in India to obtain a certificate under this section unless he records the reasons therefor and obtains the prior approval of the Principal Chief Commissioner or Chief Commissioner of Income-tax.

As the provision u/s 230(1A) prescribed Rules and Forms , CBDT notified Rule 42 in the Income Tax Rules w.e.f. 21-11-2003 that  reads as under :

42 . (1) ……

(2) For the purposes of sub-section (1A) of section 230, the prescribed authority shall be the Chief Commissioner of Income-tax having jurisdiction over the persons domiciled in India or any other income-tax authority authorized by him in this behalf :

Provided that in the case of a person domiciled in India referred to in the first proviso to sub-section (1A) of section 230, the application shall be made to the Assessing Officer who has jurisdiction to assess such person.

CBDT Instruction on Section 230(1A)

After the Finance Act 2003 introduced the new regime of obtaining tax clearance certificate by only non-domiciled persons and only certain other domiciled persons , Central Board of Direct Taxes came out with Instruction No. 1/2004, dated 5-2-2004 in which it directed the authorities below how to notify certain persons ( tax defaulters in fact ) to be notified for compulsorily notified persons who must obtain tax clearance certificate u/s 230(1A) of the Income Tax Act . The instruction is very clear

Circumstances in which tax clearance certificate, as required under the first proviso to section 230(1A), may be required to be obtained by persons domiciled in India

1. Section 230 relating to tax clearance certificates was amended by the Finance Act, 2003. The section was amended, inter alia, by way of insertion of a new sub-section (1A) which provides for the information to be furnished by persons domiciled in India at the time of leaving India. As per the said sub-section, persons who are domiciled in India are only required to furnish permanent account number, purpose of visit outside India and estimated period of stay outside India.

2. However, persons, in respect of whom circumstances exist which, in the opinion of an income-tax authority, make it necessary for such person to obtain a tax clearance certificate, will be required to obtain such certificate. A person can be asked to obtain a tax clearance certificate only after taking approval from the Chief Commissioner of Income-tax.

3. In this regard, the Board hereby directs that tax clearance certificate, as required under the first proviso to sub-section (1A) of section 230, may be required to be obtained by persons, domiciled in India in the following circumstances :

 (i) where the person is involved in serious financial irregularities and his presence is necessary in investigation of cases under the Income-tax Act or the Wealth-tax Act and it is likely that a tax demand will be raised against him, or

(ii) where the person has direct tax arrears exceeding Rs. 10 lakh outstanding against him which have not been stayed by any authority.

4. The Chief Commissioner of Income-tax, after satisfying himself that the departure of such persons from India will prejudicially affect the interest of revenue, may authorise the Assessing Officer to require that such persons obtain a tax clearance certificate. The Assessing Officer, thereafter, shall inform the immigration authorities accordingly

Task Under Section 230(1A)

It is suggested that all individuals who are having tax defaults in excess of 1 Crore and who are going to be in list of Name & Shame must be first notified under section 230A(1A) . In fact the instruction also empower that a person against whom there is serious investigation going on, can also be notified .

This will help in not letting them go outside the country unless the tax dues are paid . At least , they need to approach. Since section 230(1A) virtually makes the passport ineffective , it will work against the defaulters.

For companies , the CBDT must instruct the officers to first properly charge the relevant directors of the closely held companies under section 179 of the Income Tax Act and then apply section 230(1A) .

I am not suggesting that this step will certainly make the tax recovered from defaulters , but it will certainly put pressure of those wealthy defaulters who are enjoying all his wealth and mocking the government .

Good Luck to Government !

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