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Report No. 12

Report No. 12

Income-Tax Act, 1922

1. Need for simplification and reference to the Law Commission.-

There is hardly any Act on the Indian Statute Book which is so complicated, so illogical in its arrangement, and in some respects so obscure as the Indian Income-tax Act, 1922. Courts and commentators have commented on the illogical arrangement of the provisions of the Act. It has been repeatedly pointed out that the amendments made from time to time to the Act, directed as they frequently are at stopping an' exit through the net of taxation freshly disclosed, are too often framed without sufficient regard to the basic scheme upon which the Act originally rested.

Provisions dealing with the same topic or subject-matter are scattered through the various Chapters of the Act, and only a thorough knowledge of the whole Act would enable any one to find out all the provisions bearing on a certain point. Added to the illogicality of the arrangement are two other defects, inaccuracy in the use of language and a degree of obscurity which make it difficult to have a glimpse of the real intention of the legislature. As Lord Wrenbury said (with reference to the corresponding Act of the United Kingdom), "No reliance can be placed upon an assumption of accuracy in the use of language in these Acts".1

1. Rex v. Kensington Income-tax Commissioner, 6 TC 613 (323) (HL).

2. The hopeless confusion into which the Income-tax law has fallen is mainly due to precipitate and continuous tinkering with the Act by the legislature. The amendments to the Income-tax Act have been so short-sighted and so short-lived as to rob the law of that modicum of stability which is essential to its healthy growth. Before the provisions of the Act can be sufficiently clarified by the judicial process, new provisions are substituted in their place. In legislation as in other fields of human activity, it is well to bear in mind the dictum of Bacon, "Tarry a little, so that we may make an end the sooner." Stability is most essential to the proper administration of a taxing statute, and if the tax structure of this country is to be put on a sound footing, it is essential that a halt should be called to the making of ill-digested amendments in a frenzy of hurry which has characterised the history of income-tax law of the last few years.

3. The Government has asked us to revise the Income-tax Act so as to make its provisions more intelligible without affecting its basic tax structure. The task is difficult, and, as the Codification Committee in England said, "to expect from us a codification of law of income tax which the layman could easily read and understand was a vain hope, which only the uninstructed could cherish".1 It is perhaps possible to make the provisions of the Act more logical and clearer without affecting the tax structure; but it is certainly not possible to make the Act simpler without encroaching upon at least the fringe and verge of the tax structure. However, we have made an attempt to arrange the provisions of the Act in a more logical manner and also to make them simpler and clearer. We have also codified some of the principles well-established by decisions but not contained in the provisions of the present Act.

1. Report of the U.K. Committee on Codification of Income-tax Laws Cmb/5131, para. 26, quoted in the Final report of the Royal Commission on the Taxation of Profits and Income , CMD/9434, p. 330, para. 1080.

4. In November, 1956, we issued a press communique and invited suggestions in this behalf. We received suggestions from various individuals and bodies. We have considered these suggestions in redrafting the Act.

5. Scheme of simplification.-

As the first step in the simplification of the Act, we have made a fairly logical rearrangement and re-grouping of the sections of the Income-tax Act. Each chapter deals with a particular topic.

6. The next step was simplification of the language of the Act. This was done by splitting up the present sections, which run into several pages, into independent sections. Wherever possible, provisos were removed and were converted into independent provisions of the Act.

7. As our terms of reference implied the restriction that the tax structure should not be altered, no major change affecting the substance of the law has been made in the substantive provisions.

8. We, however, felt that a few minor changes in the substantive parts and a few major changes in the present procedural provisions would make for simplification. These changes have been made and will be indicated in the appropriate places.

9. Alteration of tax structure essential to make for simplification.-We would like to say at the outset that there can be no real simplification of the Income-tax law without a simplification of the tax structure. As this was beyond the purview of our work, our task of simplification has been greatly hampered.

10. Analogous statutes.-

We have examined the Income-tax Acts of other countries to study the scheme of arrangement of the sections and the manner in which analogous provisions have been drafted in those Acts. We have derived considerable help from them. We wish the Indian Legislature would simplify the tax structure of this country on the lines adopted by some other progressive countries.

11. We may also add that in framing our proposals we have not been unmindful of the recent taxing statutes enacted in India, such as the Estate Duty Act, the Wealth Tax Act, the Expenditure Tax Act and the Gift Tax Act. We have examined these statutes, and where we thought desirable, drawn upon the provisions of these statutes in framing our proposals.

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