TAX EVASION VS.

TAX AVOIDANCE
A taxation Law Project Under supervision of Mr. Mani
Pratap Sir (SLG) CUSB.
Submtted By
Abhishek Kishan (CUSB1813125004),
Section B, Semester 7th
 ACKNOWLEDGMENT

I hereby pay my sincere regards to Mr. MANI PRATAP sir who found me eligible
to carry out this task. I revere his dedication and appreciate his modes and
methodes of learning that he offers. I sincerely want to thank my friends and
colleagues without whom this journey would not have been possible.
Abhishek Kishan
CUSB1813125004
SEMESTER:- 7th
CENTRAL UNIVERSITY OF SOUTH BIHAR, SCHOOL OF LAW &
GOVERNANCE
 Introduction to Tax Evasion
■ Tax evasion is an unlawful act which attracts both criminal as well as civil
liabilities under Income Tax Act. The defaulter is either slapped with a hefty fine
or even jail which might extended to 7 years of Imprisonment or both subject to
the gravity Of the offence.
■ Some of the instances of act amounting to Tax evasion are:- 1. Forging a wrong
PAN card, 2. Willingly escaping the taxation time frame. 3. Concealment or
forging of slary heads and balance sheets. 3. Escaping liability under form 26AS.
4. Turning deaf ear at the income tax notice. 4. Failure to Pay Dividend
Distribution Tax. 5. Failure to Retain Information & Documents as per Income
Tax Act. 6.
■ Besides these liability obstruction or resistence or non compliance during the
investigation by the Authority of IRS attracts sever consequences such as
criminal liabilities.
 Introduction to Tax avoidance
■ Tax avoidance is generally the legal exploitation of the tax regime to one's own
advantage, to attempt to reduce the amount of tax that is payable by means that are
within the law whilst making a full disclosure of the material information to the tax
authorities. Examples of tax avoidance involve using tax deductions, changing one's
business structure through incorporation or establishing an offshore company in a tax
haven. Tax deduction under Section 80CC is an example of tax avoidance.
■ Tax avoidance is the legitimate minimizing of taxes, using methods approved by the
IRS. Businesses avoid taxes by taking all legitimate deductions and by sheltering
income from taxes by setting up employee retirement plans and other means, all legal
and under the Internal Revenue Code or state tax codes.
■ Whereas tax avoidance implies a situation in which the taxpayer reduces his tax
liability by taking advantage of the loop-holes and ambiguities in the legal provisions,
in the case of tax evasion, facts are deliberately misinterpreted and the tax liability is
understated. Thus, while tax avoidance is perfectly legal and is, at times, referred to as
‘tax planning’, law evasion is illegal and, therefore, carries with it the risk of penalties
and prosecutions under the tax laws.
 THE MEASURES TO CURB THE TAX
EVASION
There are three kinds of measures to curb the tax evasion in India which are as follows-
 Legislative Anti- Avoidance Measures.
 Judicial Anti- Avoidance Measure.
 Administrative Anti- Avoidance Measures.
■ As a general practice, the avoidance procedure have become so complex to be segregated
between evasion and avoidance that the statutes are often interpreted interchangeably
especially considering the foreign companies. As observed in case of Vodafone India
Services Pvt. Ltd vs Union Of India, Ministry Of Finance and Anr. herein we call it
The VODAFONE case.
 Continue… …

■ The Vodafone case is the classic example of Judicial Interpretations of

Anti-Avoidance Laws. Further hon’ble the Supreme court observed that section
9 (1) (i) does not recognize the indirect transfer of fixed assets to India and
therefore the court cannot cover the indirect transfer of fixed assets to India
under this section. Therefore, the shares which have been transferred to CGP
cannot be considered as a transfer of fixed assets in India and therefore the
Indian tax authorities cannot apply taxes to them. Here by the Vodafone intr.
Exonerated from the liability of tax evasion.
 The silver lining.
■ It is often becomes a complex to distinguish or to determine the extent the assessee
would cross the extent of legality of tax planning or avoidance and commits tax
evasion in this regards there are multiple authorities in the US supreme Court.
■ In case of BULLEN v. Wisconsin (240 U.S 625,1996). It was observed that;
“We do not speak of evasion, because, when the law draws a line, a case is on one side
of it or the other, and if on the safe side is none the worse legally that a party has
availed himself to the full of what the law permits. When an act is condemned as an
evasion what is meant is that it is on the wrong side of the line indicated by the policy
if not by the mere letter of law.
The question must be answered that: has the taxpayer stayed within the legal
framework? If he doesn’t and adopting any camouflage, concealment, some attempt to
colour Obscure events, or to make things other than actually they are, it shall be held
evasion.
■ In the above case three essentials of evasion have been pointed out: (1) attempt, (2)
Willfulness, (3). Additional tax due and owing.
 Reform Proposed
■ GAAR model General Anti-avoidance Rule (GAAR) is a concept which generally
empowers the Revenue Authority in a country to deny tax benefit of transactions or
arrangements which do not have any commercial substance and the only purpose of such
a transaction is achieving the tax benefit.
■ Since 1988,British tax regime has incorporated the general anti-avoidance rule (the
“GAAR”), housed within section 245 of the Income Tax Act has represented
Parliament's attempt to distinguish between acceptable tax planning and inappropriate
tax avoidance.
■ The Best India can extract out of this taxation model is in checking abuse of Double
Taxation Avoidance Agreement and in turn protecting the tax Interest of India.
 Continues…….

■ GAAR will certainly provide a statutory Rights to tax authorities to question any
transaction which is not made in “Good Faith”. This model draws its authority from
Vienna Convention. The vienna convention clearly emphasises that a treaty should
be interpreted and must be performed by parties to it In “ good faith.
■ The recommendations made by Chelliah Committee does provides horizontal
equity in tax regime of India but now the reforms are needed to cater the vertical
equity as well.
■ Vertical Equity is a method of collecting income tax in which the taxes paid
increases with the amount of earned income. The driving principal behind the
vertical equity is that those who have the ability to pay more taxes shall contribute
more .
 CONCLUSION
Measure suggested that can be counter evasive such as;
1. Reduction/benefits on tax deductions.
2. Simplified taxation regime.
3. Increasing awareness among masses.
4. A bulletproof political will.
5. A simplified grievance redressal system with autonomous
infrastructures.
6. Stringent penalties if requires for non compliances.
7. Introduction of vertical equity.