15 January 2008

My Experiences with the Income Tax Department -- 5
[A single-page version of this blog can be seen here]

On 6 February 2003, Mr Sebastian sent me a show-cause notice. The germane part of it is as follows:

"... In view of the above, you are requested to explain within 7 days of the receipt of this letter, why the sale or transfer of the Internet Portal software and data should not be treated as sale of a capital asset belonging to Mr Philip George, having absolute ownership over the same, within the meaning of section 45 of the IT Act, 1961 and charged to tax as capital gains in your hands instead of business income as treated by you in your return of income."

The reader will note that though Mr Sebastian's threat was to disallow the entire payment made to the software developer, there is no mention of this everywhere. But the threat is there all right in the above statement. Think of it as a grenade with the pin left in.

On 25 February 2003 I was summoned by Mr Sebastian to record my statement. It was explained to me that though statements to the police could later be denied in court the same was not true of a statement to the Income Tax Department. And that although I was accompanied by my accountant and tax consultant I could not consult them during the course of the questioning.

Thus began an interrogation lasting about two and a half hours. At several points Mr Sebastian seemed annoyed that I was not quite giving him the answers he wanted. I then told him that if he wanted to put words into my mouth, he was free to ask the questions, dictate the answers, and sign the statement himself. After this the questioning proceeded pleasantly enough.

At the end I asked him for a copy of the statement that I had just signed. He said that I was entitled to a copy only if the assessment turned out to be adverse. This seemed a little odd, but I let it go; one never knew what obscure rules governed the income tax department.

More in the next

Category: Income-Tax


Philip George
Debunker of Keynesian, monetarist and Austrian economics

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