Besides, there is Chapter-VII relating to Banking Transaction Tax, which had 20 clauses (clauses 93 to 112). Thus, the total clauses in the Bill that have relevance in the context of Income-tax are 96. After the Finance Bill became an Act, the number of sections did not increase but its size was affected by changes in some sections after debate in Lok Sabha.
The question is: should so many changes be made through the Finance Act
When taxpayers expected some relief from tax doses administered through annual Finance Acts, the FM, before the Finance Bill as passed by both the houses of Parliament could receive the Presidents assent on the last working day of Parliament, introduced a new tax bill - The Taxation Laws (Amendment) Bill, 2005 further to amend the Income Tax Act, 1961, which when enacted, will have retrospective effect from 01.04.05. This Bill has 16 clauses, which when passed will amend various sections of the IT Act.
The introduction of this new Bill in this manner has hardly any rationale when FM is on record saying that Government would come with a brand new Income Tax Bill by December end or early January next year.
The changes proposed by the new Bill could have waited till then. Such actions make the taxation laws complicated and create problems both for the taxpayers and the tax department besides giving an impression that the Government fiddles with tax laws without giving due weight to the seriousness with which such laws are to be enacted.
The changes contained in the new Bill are not of a nature that needed immediate attention and could not have waited till the new Income Tax legislation is ready. The new Bill immediately after the passing of the Finance Bill, 2005 does not indicate that tax changes are the result of a well thought out plan.
The changes proposed relate, among others, to:-
Approval and monitoring process for certain charitable institutions and scientific research associations;
Prescribing filing of returns by certain charitable trusts, etc, with aggregate annual receipts below Rs 1 crore;
Requiring payment exceeding Rs 20,000 by way of an account payee cheque or account payment bank draft;
Withdrawal, in a phased way, of exemption to North-Eastern Finance Development Corpn over the next 5 years;
To increase (from AY 2006-07) the existing limit of Rs 25,000 to Rs 50,000 as gifts, etc, for the purpose of inclusion under income from other sources;
Many of the changes now proposed, would not have been necessary if proper thinking was done when the original law was formulated. For example, limit of Rs 25,000 for gifts, to be exempt, was not introduced by the July 04 budget exercises. Instead of raising the limit to Rs 50,000 now, this limit could have been prescribed in section 56 when it was amended by the earlier Finance Act itself.
Similarly, it could have been said earlier itself that donations/funds received from a charitable entity or a local authority, without consideration, would be outside the ambit of income from other sources.
Unfortunately, the practice regarding the IT changes since past few years had been to rush through the tax changes without adequate home work or planning. It is a situation of legislate in hurry, repent at leisure.
Further, it could be seen from the Bill that there are varied dates for the coming into force of the various amendments. Some are to be operative from the date the President gives assent to the Bill as passed by the Parliament, some are to apply retrospectively from 01.04.05 and some prospectively from 01.04.06 or even 01.06.07.
Such varying dates create considerable confusion and make the law complicated. One uniform date for all changes needs to be prescribed for simplicity, even if there is some loss of revenue.
The foregoing account regarding the way the tax changes are made reminds one about the observations that (late) Shri NA Palkhiwala has made in the preface to his book Income Tax. These very aptly apply to the existing situation. In the preface to the 7th edition of the book, he wrote:-
The radiating potencies of direct taxes go far beyond mere raising of revenue. They propel tendencies, which can obstruct effort, deflect enterprise and constrict growth, and can prevent the bringing forth of the maximum gifts of each for the fullest enjoyment of all.
By the time, his eighth edition came, he got more frustrated by the ways the changes in the IT Law were being made and said in the preface to this edition on 21st February, 1990:
Today the IT 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 no less than fifty amendments.
The position has worsened since Shri Palkhiwala wrote the above lines.
The writer is former chairman, Central Board of Direct Taxes