Smarak Swain is a graduate in Electrical Engineering from IIT Kharagpur and a post graduate in business and taxation law from NALSAR University, Hyderabad. He is the author of three works of non-fiction. Genetics, cosmology, international law and financial forensics are some of his areas of interest.
Since writing does not support him full-time yet, he wages himself with the Indian Revenue Service as a deputy commissioner of income tax.
Interviews
INTERVIEW: Smarak Swain’s Book ‘Loophole Games’ Hopes to Make Tax Law Lively! And Oh! He’s the Joint Commissioner of Income Tax
By Aprajita Karki
Loophole Games discusses how advocates interpret, re-interpret, and misinterpret statutory provisions to arrive at an understanding different from the original legislative intent behind the statutes.
Smarak Swain, the author, tells us more about the journey of this book.
Tell us a bit about yourself.
I love books. I spent my entire childhood reading books and cycling down trekking routes in a forest behind the colony I lived in. I spent my childhood in a hill station in Koraput district of Odisha. I loved comics and books on astronomy. But as I grew older, my parents forced me into a rat-race of competitive examinations.
I had to let go of my passion as I suffered through the grill of preparing for IIT JEE examinations. Subsequently, I tolerated through engineering tutelage at IIT Kharagpur. Immediately after graduation, I prepared for the Civil Service Examinations and cleared the examination in my first attempt in 2007.
After wasting long years in a rat-race of sorts, I decided its high time for me to pursue my passion. I got down to reading and writing with a vengeance. I wrote pulp fiction, The Legend of Yuck-Man, which was critically acclaimed. I published a bunch of short stories and opinion pieces.
However, I also developed a deep liking for the law as a subject. Law came naturally to me. Engineering did not. Engineering came naturally to some of my batchmates in IIT Kharagpur (I used to call them ‘nerds’). It was not for me. But law was for me. I loved the way logic and arguments are used in law.
I wrote a highly technical book (Tangible Guide to Intangibles: Identification, Valuation, Taxation, and Transfer Pricing) in 2015. It was well received.
Loophole Games is my second book in the field of tax laws. My ambition behind writing Loophole Games was to narrate tax laws in an interesting and lively way.
My father Mayadhar Swain is a career engineer and an acclaimed writer in Odia language. He has authored more than fifty books in Odia language.
My mother worries a lot. She forced me into the rat-race of entrance examinations and keeps coercing me (quite unsuccessfully) to get into a new rat-race of making a career. Since I love what I do, I do not budge. My wife is also in the Indian Revenue Service.
You are a Joint Commissioner of Income Tax. What does a day in your life look like?
It is quite active and interesting. We have many verticals in the income tax department.
When in-charge of tax administration, I ensure proper service delivery to taxpayers.
I also supervise a team that undertakes verification of IT returns filed by corporates, businesses, and professionals. Tax collection and recovery is also done by the team. Enforcement action in the form of penalty and prosecution for violation of tax laws are also done by my team.
When in-charge of international taxation and transfer pricing commissionerate, I have to conduct transfer pricing audits of multinational corporations and verify the legality of various cross-border transactions.
Intelligence related to cross-border transactions is collected and analysed. Based on that, intrusive actions, on-spot verifications, etc are carried out.
When posted in the investigation directorate, I have to maintain surveillance over ‘risk elements’ involved in serious or clandestine evasion. Upon satisfaction of the DG – Investigation, we draw warrants and mount search & seizure operations.
When on Tribunal duty, I play the role of the department’s counsel. I contest cases on behalf of the department in front of the judge/bench of the Income Tax Appellate Tribunal (ITAT).
Then there are many other functions that Joint Commissioners have to perform in the discharge of their enforcement roles.
They have to supervise correct deduction of TDS on transactions, correct claim of tax exemption by charitable trusts, schools, colleges, hospitals, and other NGOs, collect actionable intelligence from various sources etc.
You completed B Tech in 2006 and then Masters in Tax Laws from NALSAR in 2011. How did this interest in tax laws develop? How was your experience of the course like?
The Master’s course in taxation and business laws was interesting. I learnt about Contract Law, Companies Act, Partnership Law, Law of Evidences, other than Tax Laws. After the course, I was able to appreciate the inter-linkages of various laws on trade & commerce. NALSAR faculty were seasoned and had many practical perspectives.
Tax laws are, frankly speaking, very boring. Tax law is the toughest of all laws. Probably that’s why advocates practising in Income Tax Appellate Tribunal (ITAT) or tax bench of High Courts are considered most successful among all advocates.
In my initial days in the Indian Revenue Service, I dreaded tax laws. Law came naturally to me, but not tax laws. But then I started attending hearings in ITAT.
It aroused my interests. I also started applying legal provisions to live business cases that came up to me. This way I developed an interest in tax laws.
Tell us about your new book ‘Loophole Games’.
Loophole Games discusses how advocates interpret, re-interpret, and misinterpret statutory provisions to arrive at an understanding different from the original legislative intent behind the statutes.
It also discusses ways that advisors use to circumvent a provision of law.
There are infinite clandestine ways of indulging in tax evasion. But tax avoidance has to happen within the constraints of accounting principles and law. Tax avoidance preys on loopholes available within the ambit of law.
Hence, the number of techniques at the disposal of an accountant for avoiding taxes is limited (while techniques for Evading tax are infinite).
I have discussed key rulings of Indian as well as foreign Courts and brought out the modus operandi discussed in major Court rulings.
Tell us about the two most interesting ‘loopholes’ which you have discussed in your book?
I don’t find any of the loopholes interesting.
The loopholes that I am most concerned about are capital loss harvesting and bonus stripping.
The law says that a person earning capital gains in a year has to pay tax on it.
However, capital gains can be set off against any capital loss earned in the year. Many individuals and companies artificially generate capital loss by purchasing a token asset from a related party at a high price and selling back the asset to the same related party at a low price.
This is called capital loss harvesting.
The artificial capital loss generated can then be set off against capital gains earned from genuine business transactions.
Bonus stripping is a more complex way of doing the same thing. In this, capital loss is generated by purchasing the stock of a listed company just before the listed company announces bonus, and selling the stock immediately after announcement of bonus.
The price of a listed share goes down proportionately when bonus shares are issued. When you sell shares after fall in price, you gather capital loss. This capital loss can be set off against capital gains made from genuine deals.
What would your advice be to future authors?
My advice is limited to authors of non-fiction books. Build a niche for yourself in any specific domain – be it intellectual property law, family law, or tax law. Then understand what knowledge or reference material is not available in the market.
What is that topic for which demand is there, but good sources are not available? Then decide on the topic.
Once you decide on the topic, link the topic to other inter-disciplinary topics. This makes your coverage holistic.
For example, I have covered tax laws. I have also covered the tax treatment of intellectual properties, copyright, and other intangibles. I have made appropriate references to the geopolitics of IP rights, IP law, and business aspects of IPs.
Similarly, when I have discussed hawala, I have explained the sociology of Hawala, the politics underlying hawala, and how hawala is used for drug financing and money laundering.
The third point I want to raise is, you have to be good at two things: writing and marketing. If you are a good writer, but a bad communicator, you won’t get readers. If you are a good marketer, but your book does not have value, you will have some initial success, but your book will not survive over time.
Marketing is not a big constraint if you are writing a book for professionals; as professionals can be easily reached through LinkedIn and trade forums.
Any advice to law students who want to make a career in tax law?
The sky is the limit in tax laws. However, keep your eyes on the sky: that is, aim to practice in High Courts and Supreme Courts.
If you practice in tax offices, you have to compete with chartered accountants and Income Tax Practitioners (ITPs). The questions raised in tax offices are usually questions of fact. Questions of law come as the case moves up to the tribunal and higher courts.
Secondly, develop a conceptual understanding of international laws. Understand the basics of tax treaties, international conventions, and law relating to cross-border transactions. These are emerging areas in taxation; major litigation in high courts and the apex court pertain to this field.
If you want to get into advisory services instead of practice, learn accounts well. You should be good at reading balance sheets and P&L accounts.
You should have a good understanding of how legal entities are incorporated. Your knowledge of company law and partnership law should be good if you want to get into Merger & Acquisition practice.
