As the monsoon session of Parliament approaches, attention turns once again to the Income Tax Bill, 2025, and the anticipated report of the Parliamentary Select Committee. While the committee’s findings are still awaited, one hopes they reflect the care and deliberation that such a major fiscal overhaul demands. The Bill has been praised for its cleaner architecture and for shedding decades of legislative clutter.

Yet, in this process of statutory housekeeping, some essentials risk being swept away. Consider Clause 536 — the repeal and savings clause. Though it commendably preserves actions and accrued rights under the Income Tax Act, 1961, it omits one critical safeguard: the continuity of judicial precedents developed over decades of litigation.

This silence might be benign in many statutes. But income tax law is a different animal. Few legislative domains have generated as vast and granular a body of judicial interpretation, or commanded compliance from such a wide array of taxpayers. The law functions less as a static code and more as a continuing dialogue between the legislature, the courts, and the taxpayers. To discard or destabilise this accumulated jurisprudence would disrupt not just legal doctrine but the predictability essential for routine planning and compliance.

Judicial precedents

Consider CIT v. Woodward Governor India (2009), where the Supreme Court addressed whether unrealised foreign exchange losses on outstanding liabilities were deductible under Section 37 of the 1961 Act. The statute offered no express guidance on the treatment of mark-to-market losses in the absence of actual remittance. The court clarified that where such losses pertained to revenue items and were computed using closing exchange rates, they were deductible, as they reflected a real diminution in the value of a trading liability. This ruling aligned tax treatment with established accounting standards (Ind AS 21), which require such items to be recognised in the profit and loss account. Absent this clarity, taxpayers would have faced inconsistency in treatment and potential disallowances.

Likewise, in CIT v. Excel Industries (2013), the Supreme Court reaffirmed the ‘real income’ principle — ensuring that hypothetical accruals were not taxed unless their receipt was reasonably certain. Here, too, the statute was vague; it was the court’s interpretation that supplied coherence. Such rulings have filled critical gaps and offered taxpayers fair and predictable standards. Where the underlying provisions are materially unchanged, these precedents ought to carry forward.

But is this concern even warranted? Is it not well settled that judicial interpretations continue to apply where new legislation substantially reproduces old provisions? Generally, yes.

Presumed continuity

In Punjab v. Mohar Singh (1955), the Supreme Court held that unless a contrary intention appears, repeal does not erase settled judicial interpretations. But such continuity is presumed, not assured. In a statute as consequential and frequently contested as income tax, relying solely on implication risks avoidable uncertainty. It also bears recalling that income tax law has not evolved in a straight line. Its trajectory reflects an ongoing negotiation between judicial interpretation and legislative response. From McDowell & Co. to Vodafone, courts have clarified ambiguity, only to see Parliament respond with overriding amendments. In such a climate, silence on precedent is not a neutral drafting choice — it risks reopening settled positions and fuelling fresh rounds of litigation.

Perhaps a helpful analogy lies in company law. While not as vast in scope, the Companies Act is somewhat similarly intricate in design and dense in compliance. When the Companies Act, 2013, repealed its 1956 predecessor, Section 465 expressly preserved all legal principles, practice, and entitlements under the earlier law. The result was an arguably orderly transition and continuity in business planning. That clause did not freeze the law — it ensured it evolved without discarding what had already been settled.

In that spirit, the Income Tax Bill, 2025, could have expressly preserved judicial precedents under the 1961 Act. One hopes that the select committee, in its deliberations, has recommended such a clause.

The writer is an advocate before the Delhi High Court

Published on June 19, 2025