TIOL - COB( WEB) - 964
MARCH 20, 2025

By Shailendra Kumar, Founder Editor

AT TIOL Congress 2025 in Mumbai, the tone and the flavour for the first technical session on "Decoding New Income Tax Bill 2025" was set by the former CBDT Member, Shri Akhilesh Ranjan, who delivered a special address prior to the panel discussion. To answer the question - Why does India need a new law?, he observed that the key function of a tax law is to enable governments to raise revenue but it is to be done by avoiding economic and administrative inefficiencies and artificial tax differentiation between different classes of taxpayers or economic activities. However, it is a gnarly task for drafters to maintain a harmonised balance. He said that it is more desirable in an emerging economy like ours where we see changing economic realities all the time - digital technology triggering disruptions in the economy and new business models creating new streams of income. Therefore, he said that there is a solemn need for constant evolution of the tax laws. Though the desire to reinvent the Income Tax law is pretty ancient a la Raja Chelliah and Kelkar Committees and more recently, the DTC Bill, Easwar Committee and finally the 2019 Task Force headed by him. What entails such a reform are the amendments made in a piece-meal fashion based on the recommendations of these committees at different points of time. Owing to a slew of such amendments, our Income Tax law has lost its character of being a comprehensive code.

Mr Ranjan observed that the nature of a tax law is to evolve and remain complicated. Many countries have reviewed and reformed their tax codes such as Australia and the UK in 1990. Now the question is - how to approach this pivotal exercise in India? There are two competing considerations - one is to maintain the continuity of the tax structure; predictability of the tax policy and certainty in its ramifications. It ought not to result in fresh avenues for litigation. The new law needs to overcome the fault lines in the tax structure and also serve the future needs of the country. Though a large number of experts may be despaired by the present avataar of the Bill but, he qualified, it is as per the announcement of the Finance Minister in July budget in 2024. The mandate given to the drafting committee was to tend to textual simplification of the legal language but certainly not at the cost of carving out a new direction for the law. There are many new words, terms and phraseologies in the Bill and the CBDT is under obligation to clarify them, he concluded.

The baton was, thereafter, picked up by the Moderator of the Session, Shri Pramod Kumar, the former Vice-President of the ITAT. In his opening remarks, he stated that since 1961, the canvas of ground realities has undergone a sprawling change in terms of transparency, technology, boxing of discretions and the limits for filing appeals. With such remarks he volleyed his first question towards Mr Pratap Singh, DG (Inv), Income Tax, - How do you see the New Bill vis-a-vis the taxpayers' expectations? Mr Singh said that an ideal law is the one which is simple to understand and easy to administer; improves voluntary compliance and reduces routine disputes. He further observed that the existing law is of 1961 and since then, our economic landscape has undergone a tectonic shift in terms of the number of taxpayers and the complexities of business models. After taking inputs from the professionals and the industry, the new bill has been drafted, and it is all about simplification of the language of the law and putting the shipwreck of obsolete provisions in the 'bone pit'. Since some sections had become bulkier, provisos and explanations have been erased and the goal of rationalisation has been achieved through a number of intelligible tables. Though all efforts have been made to bridge the canyons but the law keeps evolving and one cannot rule out future amendments in the new law.

Shooting the second question at Mr Ajay Vohra, Senior Advocate, Supreme Court of India, Shri Kumar asked - Since there is no change in the tax policy except for the textual changes, how do you see it? Mr Vohra observed that the first step to reform the law is certainly in the right direction which is simplification of the language. However, the law needs to keep pace with the changing ground realities. He also quipped that a few harmless changes in the language may, however, have to go through the testy drill of legal interpretations. Agreeing with him, Shri Rajkumar Basak, Tax Head of M/s Hindustan Zinc Ltd, observed in the context of certain changes made in the case of search and seizure that the Department has acquired powers to rely on emails, data seized from cloud servers and other digital assets to rely on for undergirding its case but such evidences gathered are to be scrutinised whether they chime with the provisions of the Bhartiya Sakshya Adhiniyam, 2023. The next speaker, Mr Vivek Gupta, Partner, Deloitte, however, preferred to embrace a different take by calling it a case of 'missed opportunity'! He opined that it was indeed a golden opportunity for the government to reframe certain parts of the law which warrant to be conceptually assailed and guillotined. Ideally, what is needed is a change in the fundamental framework of the law, he added.

The moderator, Shri Kumar, also quipped that there was a need for a paradigm change - not only cosmetic polishing. There are certain changes in the wordings of AE for TP provisions and he asked Shri Vohra - how do you see its impact on litigation? He referred to Section 80HHC, which were subjected to almost annual amendments and the Apex Court had asked the then ASG to let the law settle down rather than hemming it with new phraseologies which end up stemming more litigation. Simplification of language without changing interpretations given by the court may help but if new wordings tend to unsettle cemented judicial views, future litigation cannot be ruled out. He also commented on the new provision which states that if certain terms are not defined in the new law, they will carry connotations contained in any domestic laws - this is a firecracker explanation as it is going to be disputed up to the Apex Court level! Explaining this change embedded in Section 159(7) of the Bill, Shri Pratap Singh said that the mojo behind this change about certain terms if not defined either in tax treaties or domestic laws, is that to bring certainty, reliance is to be placed on the domestic laws. He also clarified that as regards the data seized from the virtual digital assets, there are going to be internal protocols for the officers like the prevailing practice, to store and keep the data safely and secretly to respect the privacy of the taxpayers. He further articulated that incremental reform has been preferred to disruptive reform as it causes minimal pain to the businesses.

Joining the aggressive pitch of the debate, Shri Vivek Gupta observed that though provisos have been sliced away from the main text of the law but they would perhaps now be embedded into the Rules which are to be framed. Secondly, he explained, the new bill has now delegated powers to the CBDT which may have to ensure that the rules are not disruptive. On the issue of M&A, he commented that most family offices are now LLPs, which are going to be subjected to 18.5% tax and they would lose about 6% vide capital gains tax. Replying to his observations, Mr Pratap Singh remarked that such a provision has been incorporated in the bill to neuter the present trend of mergers taking place within a Group of companies and the provision of carry forward of losses was being abused as part of tax avoidance. Such a practice cannot be allowed in perpetuity, he concluded. Joining the conversation, Shri Basak said that when profits are taxed annually, why should there be time limit to set off losses. He also highlighted that the expression 'Notwithstanding' has been replaced by 'Irrespective of' but there is no legal jurisprudence available for such an expression and some provisos are required to simplify it.

In his wrapping up comment, Shri Pramod Kumar said that the present bill is a bold effort in the right direction and it shows the political willingness to do something meaningful. However, this is not to say that not much more could have been done to bring sanity in the law. On my part, I would like to agree with Shri Vivek Gupta that it is explicitly a glaring case of lost opportunity for a government which has diligently carved out a public image of being audacious enough to go to any extent to do what is right to do. All the speakers on the panel were genuinely disappointed that the government had missed the opportunity to recast the foundational edifice of the new law, which is once again going to be subjected to piece-meal amendments with the rapid evolution of the business models driven by speedy emergence of new technology. However, such pessimism may not sound illegitimate if one goes by the past trend of the Modi Government vis-a-vis the income tax law as it has always put to gallows recommendations of expert committees set up in the past a la DTC Bill, Easwar Committee and the Task Force of 2019. I sincerely hope that the Parliamentary Committee makes use of its autonomy and makes sweeping recommendations to the Government to keep its door ajar for new suggestions and do justice to the urgent needs of the economy rather than using its scalpel for minimal cosmetic surgery which fails to treat the deep-rooted malaise!