The following excerpt is taken from Nani Palkhivala’s essay, “Crushing Burden of Taxation,” published by the Forum of Free Enterprise in 1958. In this piece, Palkhivala critiques India’s tax laws and the unchecked power of the Executive, advocating for a balanced approach that promotes fairness, equity, and economic growth.
Under the Constitution of India, the balance of powers is very well preserved between the Legislature, the Executive, and the Judiciary. However, in the eighth year of the Republic, it is clear to any student of constitutional law or public affairs that the Executive has become predominant, and the Legislature and Judiciary are not given the importance necessary to preserve this balance. The Executive’s power is unchecked by any effective opposition inside Parliament or by any mobilized public opinion outside it.
One of the consequences of this state of affairs is that the Executive is able to rush through the Legislature any piece of legislation. While there is comfort in knowing that the Supreme Court and the High Courts still serve as the bulwark of civil liberties, the courts’ incorruptibility is of little avail if the statutes and executive regulations are numerous, frequently changing, complex, and loosely drawn. These laws often give excessive discretion to administrative authorities.
Recent tax laws in India illustrate this problematic legislation. For instance, the Gift Tax Act, 1958, was rushed through with the Select Committee being given less than a week to report on the Bill. No revenue would have been lost had more time been allowed. This haste has two major drawbacks: loose drafting gives rise to problems that could have been avoided with better care, and the legislation often includes provisions that are unjust.
The recent tax laws reflect some unsettling trends. For example, after 1956, income tax is payable by a registered firm over and above the income tax payable by its partners, resulting in double taxation. The Wealth Tax Act of 1957 imposes wealth tax both on companies for their assets and on shareholders for their shares, even though this is not justified by fairness or equity. These policies not only burden the taxpayer but also disincentivize investment and business growth, stifling economic progress.
Another concerning aspect is the hyper-technical administration of these laws. The law governing the registration of firms under the Income-tax Act is so ambiguous that even leading firms of advocates and attorneys, with expertise in tax matters, face challenges. A law that demands registration be refused on minor technicalities, such as the precise way a firm lists its partners’ shares, becomes an instrument of oppression rather than governance. When laws fail to account for the spirit of justice and fairness, they lose their moral legitimacy and encourage widespread evasion.
Beyond the complexities and technicalities, there is a fundamental need to rethink the philosophy underpinning these laws. Palkhivala argues that the very principles on which taxation is based should promote economic growth and fairness, rather than simply serve as tools for revenue extraction. The current approach, which is driven by short-term gains and arbitrary levies, is detrimental to the long-term economic health of the nation. A more balanced approach would consider not only the immediate needs of the government but also the broader implications for economic development and public trust.
Furthermore, the pernicious doctrine of ‘business connection’ under Section 42 of the Income-tax Act has had adverse consequences on India’s trade with foreign countries. Few other nations tax on the basis of a mere business connection, and this policy has dissuaded foreign investors from bringing capital and expertise into India. The long-term impact of such policies can far outweigh any short-term revenue gains, undermining India’s efforts to develop its trade and industrial base.
Tax laws need to be responsive to rational arguments and public opinion. Unfortunately, many modern tax provisions appear aimed more at trapping the tax-evader than ensuring fairness to honest taxpayers. If the income-tax, wealth-tax, and expenditure-tax returns of some of the wealthiest in India were made public, the nation would see how ineffective these laws have been in curbing evasion.
It is high time attention was paid to the fact that there are also honest taxpayers in this country, and laws should not be so harsh that they bear unfairly on them. The essence of democracy lies in a government that is responsive to rational arguments and public opinion, not one that creates policies that undermine the basic principles of justice and fair play.
Palkhivala’s argument is clear: taxation should be an instrument of public welfare, not a tool of oppression. The laws must reflect a balance between the state’s need for revenue and the citizen’s right to fairness and equity. The goal should not merely be to fill the coffers but to foster a system where both governance and business can thrive in harmony, creating a prosperous and equitable society.
