In an unprecedented attempt to reach back in time, the Union Budget for 2007-08 contains an unusually high 29 amendments in direct taxes that are proposed to be introduced with retrospective effect. One such amendement actually goes all the way back to June 1976.
Tax experts say most of this year’s amendments that have been made retrospectively, particularly with regard to direct taxes, have been done to overrule judgements in various courts that have gone against the government.
“The move to introduce so many amendment retrospectively could erode the confidence of the individual citizen in the effectiveness of the judicial system,” said one independent tax expert, who did not wish to be named, given the sensitive nature of the issue. “Since citizens have only the courts to turn to for legal interpretation, change in the law with back dates nullifies what the court rules.”
Of these 29 retrospective amendments, three pertain to wealth tax while the remaining are changes in the Income-tax Act.
While it is not unusual for finance ministers to reach back in time with their Budget proposals, previous budgets of the United Progressive Alliance, also presented by finance minister P. Chidambaram, contained fewer amendments that had a retrospective effect.
Asked to examine previous Budgets by Min t, PricewaterhouseCoopers noted that the Finance Act, 2006-07, contained 10 amendments made with retrospective effect, while the Finance Act of the year before contained six amendments to the Income-tax Act with retrospective effect.
On the indirect tax side, while this year’s Budget contained no amendments with retrospective effect, last year’s Union Budget contained two amendments in customs and the Union Budget for 2005-06 had three amendments in excise, which were made effective from earlier years.
The 29 amendments cover a wide range of income and wealth-tax provisions.
One of them is the amendment in Section 80-IA, where the government has now proposed that, with effect from 1 April, 2000, tax benefits of that section would not apply to a person who executes a works contract with another person. Tax experts say the provision has been brought about to overrule the effect of the decision of the Mumbai Tribunal in the case of Patel Engg Ltd vs. the income tax department.
Similarly, an amendment has been introduced in Section 17 (2), with effect from April 1, 2004 to include a provision in respect of a perquisite on account of concessional rent. This provision has been introduced to overrule the effect of the decision of the Supreme Court in the case of Arun Kumar vs. the Union of India.
The one that goes back over 30 years pertains to income deemed to accrue or arise in India for matters such as interest, royalty or technical services fees.
The Budget proposes that such income now be included in the total income of a non-resident, regardless of whether the non-resident has a residence or place of business or even a business connection in India. That was done to overrule a Supreme Court decision in favour of Japanese manufacturing conglomerate Ishikawajima-Harima Heavy Industries Co. Ltd.