IT Act simplification to cut down litigation in a big way, to aid future reforms: Baijayant Panda

The select committee was set up for the purpose of scrutinizing the bill.

The first draft of the bill tabled in the House in the Budget session of the House this year had sought to reduce the volume of words by nearly half while the Select Committee wanted to make sure the simplification exercise does not lead to wordings that are open to different interpretations, Panda said.

The number of words has been lowered from over 500,000 to about 260,000.

Override access code proposal accepted

The chairperson said that the committee accepted the proposal in the draft bill regarding tax officials’ powers to override access code in computers in the case of non-cooperating assesses under certain circumstances, as this did not entail any change in the law as it exists today, including judicial pronouncements and internal circulars of the Income Tax Department.

The provision allowing tax officials to access computers and digital systems, even overriding their access code, when request for information is not complied with, in certain cases of undisclosed income or foreign assets, had caused concern among professionals. 

“New India deserves a simple, easy-to-comprehend, easy-to-comply Income Tax Act and this is the first big step of simplifying the Act as it exists. The draft which the government had introduced in Parliament had already seen a huge simplification in terms of reduced word count, better clarity in language and removal of obsolete language in favour of more modern and concise wordings and tables and formulas to clarify certain aspects rather than describing them in words,” Panda said.

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Panda explained that the bill was not meant to make substantive changes to the law and the committee’s mandate was to vet it for simplification. 

“Our mandate was to make the Act as it exists, clear, simple and easy to comply,” he said, adding that the committee received a lot of suggestions which were beyond the scope of its mandate and were seeking policy changes. Those could be taken up in different forums such as the annual Finance Bill every year. “But what we have achieved is within our mandate.” 

Panda explained that a lot of liberal and pro-taxpayer policy changes were being introduced from time to time by the government but many such measures were getting caught up in the complications of the tax law. 

“Now, when this bill becomes a law and replaces the old Act, it will reduce ambiguity and it will reduce litigation dramatically because complexity is reduced vastly.”

“The existing Act had become so complex that sometimes even very senior professionals with decades of experience could not give you a clear answer about the taxability of certain items. In the new bill, it becomes far simpler to understand what is taxable, what is not taxable and what is taxable at what rate,” Panda said.

“Our mandate was to ensure that simplifying of the Act is internally consistent to avoid inadvertent errors that can creep in while language is changed.” 

Examined extensively

He explained that confusion about the search and seizure powers of tax officials as provided for in the bill was on account of “misinformation”. The committee had examined it extensively, he said. 

“Let me make it very clear, there is no change in the law,” Panda said, adding that some people were comparing the wordings in the existing law and the wording in the draft bill and thought there is a difference. 

“The Income Tax Act dates back to 1961. On the issue of privacy and on the issue of search and seizure, there have been several judgments of High Courts and the Supreme Court. There have also been internal circulars about checks and balances; search and seizure cannot be subjective, cannot be whimsical. When you take the existing Act and court judgments leading to circulars–that is the existing law and that has been faithfully reproduced in the new bill.” 

The law was written when there were no computers and when they came, accounts became electronic documents, Panda explained, adding that the same principle of search and seizure was extended and courts have ruled on it and the department has issued internal circulars on it. 

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Tax officials’ powers to access documents of non-cooperating assessees under certain circumstances are the same whether these are digital or otherwise. “To sum it up, the wording in the new draft bill faithfully reproduces the Act as it has been modified by court judgments and internal circulars. One thing is very clear, there is no policy change,” said Panda.

The committee held interactions with a wide range of stakeholders including large as well as small and medium enterprises, industry associations—not just the big ones, but even regional ones—lawyers and chartered accountants representing big and small firms and individual practitioners as well as taxpayers’ associations and nonprofit organizations.

“I will emphasize this point that this is a huge step for simplification, clarity, ease of compliance, reduced litigation, and it will make possible many more ongoing reforms in the years to come,” Panda said.

Also read |  Nirmala Sitharaman reviews Income Tax Act 1961

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