DIRECT TAX CODE 2010- CHARGING PROVISION- IS THERE AN Y ERROR? IF SO LET IT BE CORRECTED BEFORE ENACTMENT.

[C.A. DEV KUMAR KOTHARI]

Relevant links:

Direct Tax Code 2010 section 1 and 2.

Article titled "DIRECT TAXES CODE BILL, 2009 - preamble of the code must be modified to reflect correct objectives and scope".

Provision		Remarks/ suggestions.
Preamble	To consolidate and amend the law relating to direct taxes.	The preamble may be mentioned in detailed manner so as to avoid need to refer to earlier enactments relating to Direct Taxes and to avoid disputes on the scope of the enactment as reflected in the preamble or objects of the enactment.
S.1	Short title, extent and commencement. (1) This Act may be called the Direct Taxes Code, 2010. (2) It extends to the whole of India. (3) Save as otherwise provided in this Code, it shall come into force on the 1st day of April, 2012.	Effective date of the enactment is 01.04.2012 that means the code will apply from any Financial Year beginning on 01.04.2012 and any subsequent financial year. Thus the FY 2012-13 shall be the first year of assessment (base year) under the Code. There will be no concept of Previous Year (PY) and Assessment Year (AY) in the new Code. The previous year 2011-12 will be governed by the Income-tax Act, 1961 for which income will be assessable as income of Asst. year 2012-13. Thus, we will have FY 2012-13 as assessment year under I.T. Act and FY 2012-13 as Base year under the Direct Tax Code.
CHAPTER II BASIS OF CHARGE		Heading of Chapter
Liability to pay, and charge of, income-tax.	2. (1) In accordance with the provisions of this Code, every person shall be liable to pay income-tax in respect of his total income of the financial year.	Creation of liability: Every person shall be liable to pay tax on his total income of the financial year.
	(2) Subject to the provisions of this Code, income-tax, including additional income-tax, shall be charged in respect of the total income of a financial year of every person.	Charge of tax on total income of FY
	(3) Where the income-tax referred to in sub-section (2) is to be charged in respect of the income of a period other than the financial year, the income-tax for such period shall be charged accordingly.	Charge on income for any part of the FY or income of a period other than the FY.
	(4) The income-tax referred to in sub-section (2) shall be charged at the rate specified in the First Schedule in the manner provided therein.	This does not cover cases where income for any  part of the FY is charged under Sub-section (3)
	(5) In respect of the income chargeable under sub-section (2), income tax shall be deducted or collected at source or paid in advance, in accordance with the provisions of this Code.	This does not cover cases where income for any  part of the FY is charged under Sub-section (3)
	(6) The chargeability of income-tax on the income of a financial year under the foregoing provisions shall be determined in accordance with the provisions of this Code as they stand on the 1st day of April of that financial year.	The law as stand on the first day of the FY will be applicable as to chargeability of tax for income of any FY.

Observations:

Preamble:

Earlier an article with title "DIRECT TAXES CODE BILL, 2009 - preamble of the code must be modified to reflect correct objectives and scope". Was webhosted on this website. The views expressed in the said article are applicable to DTC 2010 also and it is suggested that the preamble and objects may be mentioned in detailed manner so as to avoid need to refer to earlier enactments relating to Direct Taxes and to avoid disputes on the scope of the enactment as reflected in the preamble or objects of the enactment.

We find that in sub-section (1) a liability is imposed on every person to pay income tax on his income of the FY. There is no liability creation when the income is for a period other than the FY though we find that separate charge is provided in sub-section (3)-  is this not a  case of anomaly likely to create litigation? When liability is not created for a period other than the FY, how charge can be made?

In sub-section (2) charge is created for income of the entire FY. Sub-section (3) creates charge when tax is payable on income of any part of the FY.

In sub-sections (4) and (5) also only cases falling under sub-section (2) that is entire FY are covered and the cases falling under sub-section (3) relating to part of the FY or a period other than the FY are not covered. Therefore, a question may arise as to what will be the rate of tax and provisions relating to TDS / TCS when income of a period other than the FY is to be charged to tax.

The issues may be examined and drafting errors, if any, may be corrected, to avoid disputes and then amendment in the law.

THE DIRECT TAXES CODE, 2010

A

BILL

To consolidate and amend the law relating to direct taxes.

BE it enacted by Parliament in the Sixty-first Year of the Republic of India as follows:—

CHAPTER I

Short title, extent and commencement.

1.   (1) This Act may be called the Direct Taxes Code, 2010.

      (2) It extends to the whole of India.

      (3) Save as otherwise provided in this Code, it shall come into force on the 1st day of April, 2012.

CHAPTER II

BASIS OF CHARGE

Liability to pay, and charge of, income-tax.

2.   (1) In accordance with the provisions of this Code, every person shall be liable to pay income-tax in respect of his total income of the financial year.

      (2) Subject to the provisions of this Code, income-tax, including additional income-tax, shall be charged in respect of the total income of a financial year of every person.

      (3) Where the income-tax referred to in sub-section (2) is to be charged in respect of the income of a period other than the financial year, the income-tax for such period shall be charged accordingly.

     (4) The income-tax referred to in sub-section (2) shall be charged at the rate specified in the First Schedule in the manner provided therein.

     (5) In respect of the income chargeable under sub-section (2), income tax shall be deducted or collected at source or paid in advance, in accordance with the provisions of this Code.

     (6) The chargeability of income-tax on the income of a financial year under the foregoing provisions shall be determined in accordance with the provisions of this Code as they stand on the 1st day of April of that financial year.