COMMENT ON NEW IT CODE-CA SUDHIR HALAKHANDI

CA SUDHIR HALAKHANDI (PRACTICING CHARTERED ACCOUNTANT)   (13196 Points)

12 August 2009  

NEW IT CODE- LET US HOPE FOR THE GOOD- CA SUDHIR HALAKHANDI

The income tax Act, 1961 was introduced 50 Years back and there are so many confusions, complexities, litigation, controversies are there so there is a demand since several years to change it and bring a new and simple Act.
 
The taxation of income in our country is governed by the following:-
 

1. The Income tax Act, 1961:- 298 Section, XIV schedules and hundred of “provisos and explanations”.
2. The Income Tax Rules 1962-  Having Approx. 125 Rules and scores of Forms
3. Circulars and Notifications: - In the last 60 years the CBDT has issued lot of circulars and notifications.
4. Case laws: - You can not count.
5. The Finance Act- Every year the finance Act made lot of changes in the Income Tax Act.

 
 
I am reading the Income tax Act since last 20 years and written so many articles on  various provisions contained in the Act but still confused on so many provisions and every time I read it a new dimension comes up from it.
 
See there are so many “Provisos” and “explanations” are there and further the language is so difficult that there are so many meaning of a single Para which results in new confusions and controversies. We daily lot of decisions in various courts and this is the clear indication that every thing is not right in the Income tax Act, 1961.
 
If lawmakers want to tax a particular income then what is the problem in saying that this is taxable in clear and simple language but the policy was more the language is difficult , more the impact on positive and knowledgeable image of the lawmakers. Creating complexities means intelligence.  
 
Now to cater the need of simplicity it was promised that New IT code will be introduced and this was initiated by Mr. P. Chidambaram, who himself has the credit of bringing the most complex and illogical  provisions of Income tax law in the name of BCCT and FBT. The Hon.  FM Mr. Pranab Mukharjee will present today the Draft of “New IT code” in the presence of Mr. Chidambaram and hope that he will deliver the desired.
 
If the New IT code is only the “New Income tax Act without simplification” then it will be a futile exercise and see my intention is not to criticize the efforts before it is presented but see we have seen the Finance Bill-2009 and various provisions are introduced in the old fashioned complex manner. See Newly introduced section 44AD – there is so many meaning of these six or seven lines:-
 

(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

 
Imagine a case where an assessee has Rs.40 Lakhs sale and showing net profit @ 4% i.e. Rs.1.60 Lakh and ask you about his liability to get his accounts audit? What will be your reply? See his Net profit is less than 8% but simultaneously his total income is only Rs. 1.60 Lakhs and section 44AD specifies the requirement of audit on fulfilling the both conditions (See the underlines). The intention of the law is not clear here? What is the sense of such drafting?
 
 
Same things can be said for taxation of LLP where amendments are pending in with respect to remuneration to partners and interest to partners as per section 40(b) (iii) and Section 40(b)(v) there is a mention that it should be authorized by the partnership deed but in the case of LLP there cannot be a partnership deed but a “agreement of LLP” is required. See this is the Act and one has to follow it word by word.
 
“If the change is coming then winds of change should come first and at present these are missing.”
 
There may be a possibility that different set of Law makers have drafted the “New Income tax code” and if desired simplification is achieved through this NEW IT Code then 12th August will be written as “GOLDEN DAY” in the history of Taxation law in India. Let us hope for the Good.
-         CA SUHDIR HALAKHANDI
RAJASTHAN