Opportunity Cost or Regrettable Oversight: Bangalore Club v. Commissioner of Wealth Tax & Anr.

Abstract

The operative order in the case, titled Bangalore Club v. Commissioner of Wealth Tax & Anr., is welcome. But the pleasant reception cannot possibly extend to the ratio it is premised in. This perplexing opinion is based on the repeated attempts by income and wealth tax authorities to invade the domain of what is traditionally reserved for indirect taxation, and the act of the Hon’ble Supreme Court in entertaining it. When the movement of money is such that there is no augmentation in one’s financial position, the question of direct tax statutes applying needn’t arise in the first place. The mere consideration of these misconceived attempts in assessment can drag the assessee through a layered judicial/quasi-judicial adjudication for years. But despite these being the precise circumstances governing this case, the Hon’ble Supreme Court elected to indulge the authorities in considering the impossible application of a provision belonging to the realm of taxation of the former’s choosing: direct taxation. If the Court wants to secure both the goals of pruning futile cases at the entry-level and to advance commercial certitude, it will have to adopt the test it has been toying with for decades: the filter of direct/indirect tax distinction. If the case has elements that make the taxable event exclusive to indirect taxation, the assertion of a direct tax provision, then, can be dismissed at the very outset. No case can be more unequivocal in evincing loss in wealth on account of a failed trade, such as this. More pertinently, no case had the factual matrix as fertile as it was in this case, for consolidating a better screening mechanism in tax disputes.