The Hindu Business Line : Unwarranted hurry to amend law

THE President issued an Ordinance under Article 123 of the Constitution, making certain changes to the Income-Tax Act, 1961. Briefly, the changes are:

Benefits conferred by sub-sections (6BB) and 15A of the Act, concerning aircraft business, have been extended up to assessment year (AY) 2006-07.

Three new sub-sections — 39, 40 and 41 — have been added to Section 10 to provide income-tax exemption (subject to conditions) in respect of (i) income from any international sporting event held in India; (ii) income of a subsidiary company from an Indian holding company engaged in the business of generation, transmission or distribution of power, if such receipt is for settlement of dues in connection with reconstruction or revival of an existing business; and (iii) income from transfer of capital assets in the case of business of the nature referred to in (ii) above.

Extension of Section 80-IA benefits in the case of Indian companies set up for reconstruction or revival of power generating plants (subject to conditions).

Exempting political parties (as defined in Section 13A of the Act) from the fringe benefit tax (FBT).

Exempting banks and co-operative societies from banking transaction tax for inter se cash withdrawals.

The changes do not seem justified for the following reasons:

The changes made by the Amendment Bill earlier and the Ordinance now could have been avoided if the issues concerning the matters covered by the two pieces of legislation were given thought to during the preparation of the Finance Bill, 2005 or even when the Bill was pending consideration of Parliament.

Use of Article 123 for correcting the errors, omissions and inadequacies creeping in the main provisions was not contemplated by the framers of the Constitution.

An analysis of Article 123, authorising the President to issue Ordinances, clearly shows that this power has been given only to deal with unforeseen and urgent matters when Parliament is not in session — and not to correct errors, omissions and lapses made in the ordinary course of functioning of the Executive — which render it necessary to take immediate action.

None of the changes made by the Ordinance seems to have been prompted by unforeseen or emergent situations, which could not have been visualised by the Executive when making the initial law.

An Ordinance is an emergency or a stopgap measure, which should be used only to sub-serve, conserve and enhance the constitutional process and not for purposes which, prima facie, do not seem emergent, have not cropped up because of occurrence of unforeseen events or could not have waited till the presentation of the next Finance Bill.

For example, the changes relating to FBT and the banking cash transaction tax could have been made by the Finance Bill, 2006 with retrospective effect and, in the meantime, the Government could have clarified that political parties would not be subjected to these taxes. The same course could have been followed for enlarging the coverage of exemptions.

Also, the Ordinance does not seem justified especially when the Finance Minister, Mr P. Chidambaram, has said that the Government would introduce a new Income-Tax Bill by end-December or early January.

The changes proposed by the Ordinance could have waited till then, to enable the Government come out with a consolidated legislation taking an overall view of the law.

Such hasty actions make the taxation laws complicated and create problems both for the taxpayers and the Department.

Moreover, the changes made are not ones that needed immediate attention. Tax changes in the Ordinance, issued immediately after the passing of the Finance Bill, 2005 and introduction of the Amendment Bill, 2005 (supra), have not been well-thought-out.

In this context, one is reminded of the preface to the 7th edition of N. A. Palkhiwala's book The Law and Practice of Income Tax, wherein the author says:

"The radiating potencies of direct taxes go far beyond mere raising of revenue. They propel tendencies, which can obstruct effort, deflect enterprise and construct growth, and can prevent the bringing forth of the maximum gifts of each for the fullest enjoyment of all."

In the preface to the 8th edition of the book, he states thus: "Today the I-T Act, 1961 is a national disgrace. There is no other instance in Indian jurisprudence of an Act mutilated by more than 3,300 amendments in less than thirty years. Simple provisions like Sections 11 to 13 (which deal with exemption of the income of charitable trusts) have suffered not less than fifty amendments."

Such criticism can be avoided if hurried legislation is not resorted to and proper thought given to the changes proposed to be made.

Hurriedly drawn up changes should be made only when they cannot be avoided and after thorough examination of all the pros and cons.

(The author is a former Chairman of the CBDT.)

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