Unnatural expansion of definition of "income" seems beyond power conferred to tax income under the Constitution of India. A new chapter of REAL TAX TERRORRSIM by NAMO Sarkar to counteract judicial pronouncement to include capital receipts in meaning of income.

[CA DEV KUMAR KOTHARI]

Vide the Finance Act, 2015, the definition on income has further been expanded by inclusion of sub-clause (xviii) in clause (24) of section 2 of the Income-tax act, 1961.

It appears that in the original Finance Bill 2015, there was no proposal to amend meaning of income, the amendment was thus mooted later on and therefore there was not much attention and discussion on the proposal.

The amendment in section 2 (24) has effect of further increasing scope of income, by expanding already an inclusive definition consisting of many artificial aspects added in the meaning of income.

The moot question is whether by inserting a clause in definition of income, and item of receipt which is a ‘capital receipt ‘and which cannot be called income in any manner can be taxed as income?

The answer to this must be a big NO, because a capital receipt cannot be made income just by including it in meaning of income 

Effective part of amendment in definition of income is as follows: 

Definitions.

     2. In this Act, unless the context otherwise requires,-

(24) "income" includes-

⁹¹[(xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43;]

 91. Inserted vide THE FINANCE ACT, 2015 w.e.f. 1st day of April, 2016

An analysis:

Income will deemed to have include the following:

1. assistance in the form of:

1. a subsidy or
2. grant or
3. cash incentive or
4. duty drawback or
5.  waiver or
6.  concession or
7.  reimbursement

…. by whatever name called.

If it is given by :

1. the Central Government or
2.  a State Government or
3. any authority or
4. any body or
5. any agency

it can be given in any form like:

1.  in cash or
2.     in kind

to the assessee

But the following will not be included in income:

 Any subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43;

It is clear that any subsidy, grant .. etc. will be taxable as above, if it is given by the Central Government or any state government. However it is not clear as to what is meaning and scope of

                      any authority or  , any body or  any agency

Considering contextually, the scope should be restricted to any authority, anybody or any agency of the Central Government and any state government. And not any other person, authority, body or agency.

Capital subsidy for business / industries exempted – if deducted from actual cost of asset:

Capital subsidy received   by any business or industry for business purposes  will not be effected by the amendment, if the subsidy is deducted from the actual cost of asset, on which depreciation is to be claimed. Therefore, if an assessee claims that subsidy should not be deducted from actual cost, then he will have to include amount of subsidy in income and  pay tax on it as income.

The provision appears to be ultra virse the Constitution of India:

As discussed by author in many other articles, the Central Government has power to impose tax on income , other than agricultural income.

The difference between capital receipt and revenue receipt/ income is well known in all applicable senses- economic sense, accounting sense and taxation sense. There is not anything to doubt difference between capital receipt and income. In fact the amendment itself recognises the aspect that such receipt is capital receipt, therefore, an exception has been made as discussed above.

 It is the government authorities, who un-necessarily raises disputes on this aspect. After such un-necessary disputes, now position is well settled   by many judgment of the Supreme Court. Once disputes have been settled, now amendment has been made to counteract those judgments.

Gifts received, though of capital nature have been deemed as income, in most of situations barring some  exceptions. There should not be presumption, if the assessee has actually introduced his income by way of gift, and the AO is able to prove that it is his income and not gift, then only it should be taxed and not by including by statutory presumptions.

Now, gifts, grants, subsidy etc. source and nature of which are well established will also be presumed to be income. 

Is it not a new chapter of tax terrorism?

Surely this is tax terrorism. If this is accepted, then days are not far away when every capital receipt like loan taken even from banks may be deemed as income, with rider that any repayment will be allowed as expenditure.

Statutory presumptions to deem any receipt as income must be avoided.

The amendment will effect general public:

As per the very wider inclusion in income of any subsidy etc. general public will be effected. One can say that any kind of assistance – even food assistance to school going children, scholarship to students, grant, aid etc. to schools, hospital will be taxable as income.

Even subsidy on gas cylinders will be taxable as income because such subsidy is not for any assets acquired for business, but for consumption by individuals. 

The amendment is not to rectify any drafting error or omission, it is not to clarify any intention of legislators. The amendment is totally beyond the concept of income. It is not within the object of the Income-tax Act, 1961 and it is not within the scope of taxation of income. Therefore, the above clause inserted w.e.f. 01.04.2016 (applicable to accounting year beginning 01.04.2015) must be challenged in courts as ultravise the Constitution of India and beyond the objects of IT act.

Such sort of amendments in the Income Tax Act, are not expected by very learned honourable FM Shri Arun Jaitley. This amendment must be withdrawn.

Courts must take action:

Considering tendency of the Central Government (same tendency was adopted by earlier governments and now continued by NAMO government) to amend tax laws to counteract with judicial pronouncements courts must take action in public interest, Particularly when amendments made are apparently beyond powers under the COI.