Sunday 23 August 2015

How much of the High Courts' pendency pertains to tax cases?

Legal reform debates and discussions need to be substantiated by a rigorous analysis that is supported by data. And the first step in that process is to ensure that related data and information is available for a meaningful analysis out. I look at tax litigation at the High Court as a case in point.

In 2003 a law was passed setting up the National Tax Tribunal (NTT) to replace the High Courts as an appellate body between the Income Tax Appellate Tribunals and the Supreme Court. Such tribunalisation is not rare – a number of tribunals set up under other laws exclude jurisdiction of other courts and allow appeals directly to the Supreme Court against their orders. The setting up of the NTT was challenged and was ultimately struck down by the Supreme Court as being unconstitutional – mainly on the grounds that the composition and appointment of the bench did not give it to the charactersitics of a court (Madras Bar Association vs Union of India).

While there are other interesting aspects of this judgement, in this post let us restrict ourselves to the data related aspects. Para 12 of the judgement reads thus:
“As regards arrears of tax related cases before High Courts is concerned, it was submitted, that the figures indicated by the Department were incorrect. In this behalf it was asserted, that the stance adopted at the behest of the Revenue, that there were about 80,000 cases pending in different courts, was untrue. It was the emphatic contention of the learned counsel for the petitioners, that as of October, 2003 (when the National Tax Tribunal Ordinance, was promulgated), the arrears were approximately 29,000. Of the total pendency, a substantial number was only before a few High Courts, including the High Court of Bombay and the High Court of Delhi. In the petition filed by the Madras Bar Association, it was asserted, that in the Madras High Court, the pending appeals under Section 260A of the Income Tax Act, were less than 2,000. It was also sought to be asserted, that the pendency of similar appeals in most southern States was even lesser. It was pointed out, that the pendency of such appeals in the High Court of Karnataka and the High Court of Kerala, was even lesser than 2,000.”

On reading this portion some questions that came to me were:
1)     How many tax related cases are pending at the High Courts currently?
2)     What percentage is it of the pendency at the High Courts?
3)     What proportion of the time of the High Courts are actually taken up for tax matters

The Daksh database currently has information relating to 10 of the 24 High Courts. Challenges in analysing data due to High Courts’ information system hurdles have been very well analysed here and here.  Within this framework I attempt to answer the questions with the help of information available in the Rule of Law database and compare with information already in the public domain.

1) How many tax cases are there?
The first port of call for this information is the Ministry of Finance’s annual reports. In its report for FY 2014-15 the numbers disclosed for Customs, Excise and Service Tax (page 133) cases are 15134. Income Tax Related cases are not disclosed in this years Annual Report but have been included in prior years reports. The number of income tax related cases for 2014 was 31844. That’s totally around 47000 cases.

From the Daksh database the number of tax related matters in the 10 High Courts that came up for hearing atleast once during the last 18 months comes to about 11000. A simple extrapolation of 11000 *  (24/10) gives us a 26500 cases. This extrapolation may not be appropriate as data with respect to Bombay High Court which reportedly has the maximum number of tax cases has not been considered. As the Daksh database coverage expands we will be able to validate the number of 47000 cases with greater accuracy. 

2) What percentage is it of the pendency at the High Courts?

The Supreme Court newsletter Court News puts the number of cases pending at the High Court as at March 2014 (page 7) to be 44.80 lacs. The total number of tax cases from the Finance Ministry’s Annual Report is around 47,000 as seen above. That means to say that tax matters make up just around 1% of the total workload of the High Courts!

This is also the proportion as per data from the Daksh database and looks to be reasonable.

A state-wise comparison of the same metric shows us that it is in the same range across the states:
Note: Numbers above include VAT related matters

3)     What proportion of the time of the High Courts are actually taken up for tax matters

We really do not have enough information in the public domain currently to answer this question. In fact this metric is not available for the other types of cases – civil, criminal, writ petitions, etc.  A detailed time & motion study is required to be carried out for us to begin to understand how our judiciary functions.

As we have seen above tax related cases are not substantial in number at the High Court level. How was this area of litigation chosen for ‘reform’ ahead of other areas? Even granted that the number of cases alone do not drive prioritisation and that the value of tax under dispute should be considered, such a number should not be viewed in isolation. It needs to be compared with amount under litigation and social impact of cases piling up in other areas.

The capacity of the State to dispense justice is a limited resource. Any attempt to re-distributing this scarce resource should require a complete cost-benefit analysis for the society.

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