The Hindu Business Line : Recast, don’t repeal, the Income-Tax Act

Should the existing I-T Act be replaced by an altogether new Act or should changes be brought in the present Act itself? The latter may be preferable to avoid transitional problems.

T. N. Pandey

Ever since the Finance Minister, Mr P. Chidambaram, assumed office, he has been talking about giving the country a brand new Income-Tax Act. The latest announcement is that the new I-T Bill would be introduced in the Winter Session of Parliament. Except for talk about reform and rationalisation, there is hardly any indication about the likely shape of the new Act. It would have been better if, like the Companies Act, a discussion paper on the contents of the new Act had be en issued and reactions invited from various quarters to the proposed changes.

Transition issues

There are certain important issues with regard to the implementation of the new law. The first is whether the existing I-T Act should be repealed and replaced by an altogether new Act or should changes be brought in the present Act itself. The latter may be preferable to avoid transitional problems.

For years after the coming into force of the I-T Act, 1961, problems relating to switch over from the I-T Act of 1922 continued. The section that led to complicated litigation and dragged on for years was Section 297 relating to ‘Repeals and Savings’, which contained numerous clauses catering to the various issues coming up consequent to repeal of the 1922 Act. For years, the implementation of the 1961 Act remained a nightmarish exercise. Such a situation can be avoided if changes are made in the existing Act itself rather than repeal it.

Updating the literature

The other major problem likely to emerge by repealing the existing Act would be the need to bring the vast amount of literature and publications in sync with the provisions of the new Act. Also, if new numbering is introduced, the voluminous I-T Rules, 1962, supporting the I-T Act with various Rules and forms will have to be re-written. This exercise can be minimised if the present Act is continued with relevant amendments.

Then, there would be the problem of law reports spanning over nearly 45 years. In all such reports, references to the provisions of 1961 Act would have been made. The cross-referencing such reports with the provisions of the new Act having different numbering would be stupendous task. Those dealing with tax laws would suddenly find the tax books in their libraries requiring updating on a massive scale.

Similar difficulties would be faced with regard to the numerous Instructions/Circulars/ Notifications issued by the CBDT in the last 45 years. All such literature will need changes to make their reference possible and easy in the context of the new Act.

The officers and staff in the I-T Department will need extensive training to get them familiar with the new Act and its links with the existing law.

Doing the aforesaid exercises would be time consuming and financially burdensome not only for the tax administrators but also for taxpayers and tax consultants.

Easing the problems

Such problems can be reduced if the following suggestions are implemented:

Do not repeal the I-T Act. It should only be amended to bring in the desired changes. This would mean a provision such as Section 297 will not be required, and considerable litigation can be avoided in regard to pending proceedings on the date of coming into force of the new Act.

The existing numbering of the various heads and provisions for taxation of income which are of a substantive nature should be retained. Only the language should be tinkered with to reflect the change.

The new sections to be brought in can be given the numbers of those sections that are proposed to be deleted. Newly introduced provisions may be given new numbers.

This may lead to gaps between some sections as at present, but that should not be a matter of worry. The are, for instance, many gaps in the IRC of the US. That is inevitable if the continuity in the administration of I-T law is to be the goal.

If a discussion paper on the new law had been circulated, there would have been scope for considering such suggestions. The proposed new law is likely to affect a large cross-section of people and, therefore, it should be simple, taxpayer friendly and easy to implement.

(The author is a former Chairman of CBDT.)