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Amendments to help or hurt particular individuals
August, 09th 2007

Numerous amendments have battered the Income-Tax Act, 1961, over the years. Bizarrely, some of these changes were meant to help or hurt particular individuals.

Dr V. Gaurishanker narrates two such instances in Principles of Taxation ( www.cchindia.co.in ).

The first is about the change brought about in Section 23 (which is about annual value of house property), solely as a result of the hardship pointed out by the then Prime Minister of India, Jawaharlal Nehru.

Nehrus ancestral house was in Allahabad. It was not let out, but its notional value was relevant for the taxman. Nehru felt that it was most unjust to tax a house, which is a residential building and cannot be occupied by the owner because of his employment elsewhere!

Pandit Nehru summoned the Chairman of the Central Board of Direct Taxes to ask him for the reason for such an anomaly. When the Chairman explained how taxation relied on notional value in this case, the PM is said to have wondered why the taxman considered no notional income for a gold bar though it had great value.

And so it happened that the I-T Act was amended to state that where the property consisted of only one residential house and it could not actually be occupied by the owner owing to employment, business or profession carried on at another place in a building not belonging to him, the annual value of such a house would be nil. (Section 23(2))

The other example of targeted amendment that the book mentions is what T. T. Krishnamachari introduced as the Finance Minister with surprising alacrity to tax the value of a concession or benefit received by a person not by virtue of employment.

TTK found that the word perquisite defined in the Act applied only to salaried persons and not to others like directors of companies who were not employees of the company. C. C. Desai and A. K. Chanda, two eminent officials who had occupied the position of Secretary of Commerce Department and Comptroller and Auditor General of India respectively were occupying bungalows given to them by the companies in which they were non-salaried Chairmen.

When TTK found that they were claiming exemption of tax which was allowed by the law ministry, he introduced an amendment saying that the value of such perquisite was to be taxed as income from business.

Tax is a tough word for most people. To the taxman, however, income is the hard word to crack. Because, the most difficult word in the Income-Tax Act is income, as the author observes. Not being defined, it has lent itself to several interpretations according to the context. It is a broad, comprehensive, flexible, inclusive or generic term.

A happy thought, in the concluding chapter of the book, is that the taxpayer is described as the font of public revenue. This stream of revenue is relatively pure to begin with.

Problems begin thereafter: Silt gradually builds up in the form annual deposits of confusing amendments, which obfuscate further the already complicated provisions of the Income-Tax Act. Corruption further clogs the system, until at last the revenue stream is reduced to a trickle, and the system fails completely. We do not appear to be very far from this point.

Instructive inputs from someone who had participated in the drafting of the 1961 Act, even as we get ready for the new I-T code, promised to be tabled by December.

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