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Income Tax Bill 2025 Clause 496 grants Special Courts exclusive jurisdiction over tax offences replacing Section 280B The Income Tax Bill 2025's Clause 496 establishes exclusive jurisdiction for Special Courts to try tax offences, replacing Section 280B of the Income-tax Act 1961. The provision includes an overriding clause against the Bharatiya Nagarik Suraksha Sanhita 2023, requires authorized authority complaints for cognizance, and provides transitional arrangements for pending cases. Key changes include updated references to the new criminal procedure code and cross-reference to section 520 instead of section 292. The framework maintains policy continuity while modernizing procedural alignment, ensuring specialized adjudication of tax offences through designated courts with flexibility for geographical or case-specific designations.
Income Tax Bill 2025 Clause 495 creates Special Courts for tax offense trials with specialized magistrates The Income Tax Bill, 2025's Clause 495 establishes Special Courts for tax offense trials, continuing the framework from Section 280A of the Income-tax Act, 1961. The Central Government, after consulting with the Chief Justice of the High Court, may designate Judicial Magistrates of first class as Special Courts for specific areas or case categories. These courts can also try connected offenses under the Bharatiya Nagarik Suraksha Sanhita, 2023, which replaces the Code of Criminal Procedure, 1973. The provision aims to ensure specialized, expeditious adjudication of tax offenses while maintaining judicial oversight and procedural consistency with updated criminal procedure laws.
Income Tax Bill 2025 Clause 494 criminalizes unauthorized taxpayer information disclosure with six months imprisonment and fines Clause 494 of the Income Tax Bill, 2025 criminalizes unauthorized disclosure of taxpayer information by public servants, imposing imprisonment up to six months and fines for violations of section 258(3). The provision requires prior Central Government sanction for prosecution. This mirrors Section 280 of the Income-tax Act, 1961, maintaining identical punishment and procedural safeguards while updating cross-referenced confidentiality provisions. The legislation aims to protect taxpayer privacy and maintain tax administration integrity through deterrent criminal penalties. The comparative analysis reveals substantial continuity between the old and new provisions, with the primary change being reference to reorganized confidentiality sections in the modernized tax code.
Income Tax Bill 2025 Clause 493 allows tax authority records as evidence in prosecutions The Income Tax Bill 2025's Clause 493 addresses proof of official entries in tax prosecutions, mirroring Section 279B of the Income Tax Act 1961. The provision mandates that entries in records maintained by income-tax authorities shall be admitted as evidence in prosecution proceedings for tax offences. Evidence may be proved through either production of original records or certified copies signed by the custodian authority, stating authenticity and custody of originals. While substantively identical to existing law, the new clause restructures the provision into clearer sub-clauses for better readability, maintaining the same evidentiary framework for tax prosecutions.
Income Tax Bill 2025 Clause 492 makes specific tax offences non-cognizable requiring warrants for arrest The Income Tax Bill 2025's Clause 492 designates certain tax offences as non-cognizable, overriding the Bharatiya Nagarik Suraksha Sanhita 2023. This provision covers offences under sections 476, 478, 479, 480, 482, and 484, requiring warrants for arrest and judicial authorization for investigations. The clause succeeds Section 279A of the Income-tax Act 1961, which similarly classified specific tax offences as non-cognizable under the former Criminal Procedure Code. This legislative approach balances tax enforcement with procedural safeguards, protecting taxpayers from arbitrary arrest while maintaining prosecution capabilities through judicial oversight and encouraging voluntary compliance.
Income Tax Bill 2025 Clause 491 expands prosecution sanction authorities and strengthens oversight procedures The Income Tax Bill 2025's Clause 491 updates prosecution procedures from Section 279 of the Income Tax Act 1961. Both provisions require prior sanction from designated senior officers before initiating prosecution for specified tax offences. Key features include: empowering authorities to grant prosecution sanction, allowing compounding of offences before or after proceedings, prohibiting prosecution where penalties are waived or reduced, establishing evidentiary rules for statements made during proceedings, and granting the Board power to issue binding instructions. The 2025 provision expands sanctioning authorities to include appellate officers and strengthens centralized oversight while maintaining core safeguards against arbitrary prosecution.
Income Tax Bill 2025 Clause 490 shifts burden to accused proving no culpable mental state in tax prosecutions The Income Tax Bill 2025's Clause 490 establishes a presumption of culpable mental state in tax prosecutions, nearly identical to Section 278E of the Income Tax Act 1961. The provision requires courts to presume the existence of mens rea (including intention, motive, knowledge, or belief) in tax offense prosecutions. The accused may rebut this presumption but must prove absence of culpable mental state beyond reasonable doubt, shifting the evidentiary burden from prosecution to defense. This approach aims to address difficulties in proving intent in complex tax cases while maintaining balance through the defense opportunity, though it raises concerns about presumption of innocence.
Income Tax Bill 2025 Clause 489 creates rebuttable presumptions for assets found during searches including virtual digital assets The Income Tax Bill, 2025's Clause 489 updates presumptions in tax offense prosecutions, replacing Section 278D of the Income-tax Act, 1961. The provision creates rebuttable presumptions regarding ownership and authenticity of assets, books, and documents found during searches under section 247 or requisitions under section 248. Key updates include explicit coverage of virtual digital assets, reflecting modern economic realities. The presumption applies to persons in possession and those referenced in section 484. Like its predecessor, the provision shifts evidentiary burden to facilitate prosecution while maintaining rebuttable nature to protect due process rights.
Clause 488 Income Tax Bill 2025 maintains karta liability for HUF tax offences with due diligence defence Clause 488 of the Income Tax Bill, 2025 addresses criminal liability for tax offences committed by Hindu Undivided Families, essentially replicating Section 278C of the Income-tax Act, 1961. The provision creates a statutory presumption that the karta is guilty of offences committed by the HUF, with defences available for lack of knowledge or due diligence. Other family members may also face liability if they consented to, connived in, or neglected duties leading to the offence. The clause maintains the existing framework's balance between ensuring accountability and preventing unjust punishment, with no substantive changes from current law.
Income Tax Bill 2025 Clause 487 creates corporate tax liability for directors and officers The Income Tax Bill 2025's Clause 487 establishes liability for corporate tax offences, mirroring Section 278B of the Income-tax Act 1961 with minimal changes. The provision creates deemed guilt for persons in charge of companies when offences occur, while allowing defenses for lack of knowledge or due diligence. It also imposes liability on directors, managers, and officers for offences committed with their consent, connivance, or neglect. Companies face fines while individuals may receive imprisonment and fines. The clause covers all business entities including firms and associations, ensuring comprehensive coverage against tax evasion through corporate structures.
Income Tax Bill 2025 Clause 486 narrows reasonable cause defense compared to current Section 278AA coverage The Income Tax Bill 2025's Clause 486 and the Income-tax Act 1961's Section 278AA both provide a "reasonable cause" defense against criminal liability for tax-related failures. Clause 486 applies to failures under sections 476 and 477 of the new Bill, while Section 278AA covers failures under sections 276A, 276AB, 276B, and 276BB of the current Act. Both provisions require the accused to prove reasonable cause existed for non-compliance. The defense operates as a non obstante clause, overriding penal consequences when successfully invoked. While sharing similar objectives of balancing deterrence with fairness, Clause 486 has a narrower scope than Section 278AA, potentially limiting its protective coverage for taxpayers.
Income Tax Bill 2025 Clause 485 imposes six months to seven years imprisonment for repeat tax offenders The Income Tax Bill 2025's Clause 485 introduces enhanced penalties for repeat tax offenders, mirroring Section 278A of the Income-tax Act 1961. The provision mandates rigorous imprisonment of six months to seven years plus mandatory fines for individuals convicted of second or subsequent offenses under specified sections (476, 477, 478(1), 479, 480, 482, 484). Key similarities include the trigger mechanism requiring prior conviction, identical punishment ranges, and mandatory minimum sentences. Primary differences involve the covered offense sections, with the new clause consolidating and potentially modernizing the approach. The provision reflects legislative intent to deter recidivism through stringent penalties while maintaining policy continuity from the existing framework.
Taxpayer challenges constitutional validity of abetment provisions criminalizing assistance in filing false tax returns A taxpayer challenged the constitutional validity of abetment provisions in tax legislation. The Income Tax Bill 2025's Clause 484 criminalizes abetting or inducing false tax returns, maintaining similar structure to existing Section 278 of the Income-tax Act 1961. Both provisions prescribe rigorous imprisonment of six months to seven years for amounts exceeding twenty-five lakh rupees, and three months to two years for lesser amounts, plus mandatory fines. The offence requires knowledge of falsity or disbelief in truth. The new provision excludes fringe benefits references, reflecting policy shifts while maintaining quantum thresholds and sentencing structures for deterring tax evasion facilitators.
Income Tax Bill 2025 Clause 483 criminalizes falsifying documents to help others evade tax with imprisonment up to two years The Income Tax Bill 2025's Clause 483 criminalizes falsification of books of account or documents with intent to enable another person to evade tax, interest, or penalty. The provision prescribes rigorous imprisonment for three months to two years plus fine. It requires proving willful conduct and intent to facilitate evasion but eliminates the need to prove actual evasion occurred. This clause substantially mirrors Section 277A of the Income-tax Act 1961, maintaining identical punishment and scope while targeting both direct offenders and facilitators of tax evasion schemes.
Taxpayer faces criminal prosecution for false tax statements under Section 277 and proposed Clause 482 with graded punishment A taxpayer faces criminal prosecution for making false statements in tax verifications or submitting false accounts under both the existing Income Tax Act, 1961 (Section 277) and the proposed Income Tax Bill, 2025 (Clause 482). The provisions require proof that the person knew or believed the statement was false. Punishment is graded based on potential tax evasion: where evaded tax exceeds twenty-five lakh rupees, rigorous imprisonment ranges from six months to seven years plus fine; in other cases, three months to two years plus fine. The 2025 Bill maintains nearly identical language and structure as the 1961 Act, ensuring continuity in enforcement and judicial interpretation while deterring deliberate tax evasion.
Income Tax Bill 2025 Clause 481 criminalizes willful failure to produce tax documents with one year imprisonment and mandatory fine The Income Tax Bill 2025's Clause 481 criminalizes willful failure to produce accounts and documents as required by tax authorities, prescribing rigorous imprisonment up to one year and mandatory fine. This provision largely mirrors Section 276D of the Income-tax Act 1961, maintaining similar penal consequences for non-compliance with statutory notices. The key difference lies in updated procedural references and slightly modified language regarding fine imposition. Both provisions require proof of willful default rather than mere negligence, serving as enforcement tools to compel taxpayer compliance and deter obstruction of assessment processes. The provision emphasizes maintaining proper documentation and timely response to official requisitions.
Income Tax Bill 2025 Clause 480 sets criminal penalties for willful failure to file returns after search operations The Income Tax Bill 2025's Clause 480 addresses criminal penalties for willful failure to file income tax returns following search operations. The provision prescribes imprisonment of three months to three years plus fines for deliberate non-compliance with notices issued under section 294(1)(a). This replaces Section 276CCC of the 1961 Act with similar penalties but removes transitional exemptions and aligns with the new legislative framework. The offense requires proving willful intent, providing safeguards against inadvertent lapses while maintaining strong deterrent measures against tax evasion in search cases.
Income Tax Bill 2025 Clause 479 extends compliance window for filing returns to avoid criminal prosecution The Income Tax Bill 2025's Clause 479 replaces Section 276CC of the Income-tax Act 1961, criminalizing willful failure to file income tax returns. Both provisions impose graded punishments based on tax evasion amounts: rigorous imprisonment of 6 months to 7 years plus fine if tax evaded exceeds Rs. 25 lakh, otherwise 3 months to 2 years imprisonment plus fine. Key change: Clause 479 extends the compliance window from "assessment year" to "one year from tax year end" for avoiding prosecution. Both exempt prosecution if returns are filed within specified timeframes or if tax payable by individuals doesn't exceed Rs. 10,000. The updated provision modernizes terminology while maintaining deterrent effect against deliberate non-compliance.
Income Tax Bill 2025 Clause 478 maintains criminal penalties for tax evasion with imprisonment up to seven years The Income Tax Bill 2025's Clause 478 largely replicates Section 276C of the Income-tax Act 1961, criminalizing wilful attempts to evade tax, penalty, or interest. Both provisions impose rigorous imprisonment of six months to seven years for evasion exceeding Rs. 25 lakh, and three months to two years for lesser amounts, plus fines. The provisions include identical Rs. 25 lakh thresholds, quantum-based punishment structures, and inclusive definitions of wilful attempt covering false entries, statements, and omissions. Minor modifications in Clause 478 include modernized language and clearer penalty provisions, while maintaining the core framework for prosecuting tax evasion with requirements for proving deliberate intent.
Income Tax Bill 2025 Clause 477 mirrors existing criminal penalties for non-deposit of collected taxes The Income Tax Bill 2025's Clause 477 maintains substantially identical provisions to Section 276BB of the Income Tax Act 1961 regarding criminal liability for failure to deposit tax collected at source. Both provisions prescribe rigorous imprisonment of three months to seven years plus fine for non-payment of collected taxes. The key exemption remains unchanged - no prosecution if payment is made before the deadline for filing the prescribed statement. The primary differences are structural, involving renumbering of cross-referenced sections rather than substantive changes. This continuity ensures smooth transition while maintaining deterrent effect against misappropriation of collected taxes, though interpretational issues regarding multiple offences and vicarious liability may require judicial clarification.
Clause 329 of the Income Tax Bill, 2025, and Section 188A of the Income-tax Act, 1961, both address the critical issue of the joint and several liability of partners in a partnership firm for tax dues of the firm. This statutory principle ensures that tax authorities are not prejudiced by the structure or changes in the constitution of a partnership firm, and that tax recovery is secured through a broad liability net encompassing both the firm and its partners. The significance of these provisions lies in the unique nature of partnership firms, which, while being recognized as separate tax entities for assessment purposes, are not distinct legal personalities in the same way as companies. This commentary provides a detailed analysis of Clause 329, explores its objectives and implications, and offers a comparative evaluation with the existing Section 188A of the Income-tax Act, 1961.
Objective and Purpose
The legislative intent behind both Clause 329 and Section 188A is to ensure that the Revenue's interest is safeguarded in the taxation of partnership firms. Partnerships, by their nature, are susceptible to changes in constitution, dissolution, or succession, which can complicate the collection of tax dues. The provisions for joint and several liability address the risk that, following such changes, the firm's assets may be insufficient or inaccessible for satisfying outstanding tax liabilities. By extending liability to every person who was a partner during the relevant period, and to the legal representatives of deceased partners, the law prevents partners from evading tax obligations by simply withdrawing from the firm or by dissolving it.
The historical context for these provisions arises from practical challenges faced by tax authorities in recovering dues from partnership firms, especially in cases of dissolution or frequent changes in partnership structure. Prior to the introduction of Section 188A (by the Direct Tax Laws (Amendment) Act, 1987, effective from 1-4-1989), there was a legal vacuum regarding the explicit liability of partners for firm-level tax dues. Clause 329 of the Income Tax Bill, 2025, continues this legislative approach, reaffirming and potentially updating the statutory framework for the new tax regime.
Scope of Liability: The provision covers "every person who was, during the tax year, a partner of a firm," as well as "the legal representative of any such person who is deceased." This creates a wide net, encompassing both current and former partners (for the relevant tax year) and their legal representatives.
Nature of Liability: Liability is "joint and several," meaning the Revenue can proceed against any one or more partners (or their legal representatives), or the firm, for the full amount due, without being required to exhaust remedies against the firm first.
Tax, Penalty, or Other Sum: The liability extends not only to tax but also to penalties and "other sums" payable by the firm, ensuring comprehensive coverage of all statutory liabilities.
Temporal Scope: The liability is for the "tax year," aligning with the terminology of the Income Tax Bill, 2025. This is a shift from the earlier "previous year"/"assessment year" terminology.
Applicability of Other Provisions: The clause states that "all the provisions of this Act, so far as may be, shall apply to the assessment of such tax or imposition or levy of such penalty or other sum." This ensures that procedural and substantive safeguards or obligations under the Act extend to the partners as well.
Interpretation and Legal Principles
The principle of joint and several liability is well-established in partnership law and tax jurisprudence. Under the Indian Partnership Act, 1932, partners are generally jointly and severally liable for the debts and obligations of the firm incurred during their tenure as partners. Clause 329 codifies this principle in the context of tax liabilities, ensuring that tax dues are treated on par with other debts.
The inclusion of "legal representative of any such person who is deceased" is significant. It prevents the escape of liability through the death of a partner, ensuring that the estate of a deceased partner remains answerable for the firm's tax dues for the relevant year. However, the extent of liability of a legal representative is typically limited to the value of the estate inherited.
The phrase "all the provisions of this Act, so far as may be, shall apply..." ensures that the machinery provisions for assessment, recovery, appeal, and penalty also apply to the partners and their legal representatives, subject to necessary adaptations.
Potential Ambiguities and Issues
Extent of Liability of Legal Representatives: While the provision makes legal representatives liable, it is a settled principle that such liability cannot exceed the value of the estate inherited. However, the clause does not explicitly state this limitation, which may require judicial clarification or administrative guidance.
Timing of Liability: The clause covers partners "during the tax year." Disputes may arise regarding the precise period of partnership and the apportionment of liability in cases of changes in partnership structure mid-year.
Recovery Proceedings: The clause does not specify the order or manner of recovery (i.e., whether the Revenue must first proceed against the firm's assets or may directly proceed against any partner). While joint and several liability implies the latter, clarity in administrative practice may be needed.
Successor Firms: The provision does not expressly address liability in cases of succession of firms, which may raise interpretive issues in complex restructuring scenarios.
Practical Implications
For Partners
Partners must be acutely aware that their liability for firm-level tax dues is not extinguished by retirement, change in constitution, or even death (insofar as their estate is concerned). This has significant implications for due diligence, exit negotiations, and estate planning. Partners may seek indemnities or escrow arrangements when exiting firms to cover potential tax exposures.
For Legal Representatives
Legal representatives of deceased partners must recognize their potential exposure to historic tax liabilities of firms in which the deceased was a partner. This may affect probate proceedings and the administration of estates, requiring careful review of the deceased's business interests and potential contingent liabilities.
For Firms
Firms must maintain comprehensive records of partners, including periods of partnership, to facilitate compliance and to respond to tax authority queries or proceedings. Changes in firm constitution should be promptly reported to the tax authorities to avoid disputes about liability periods.
For Tax Authorities
The provision empowers tax authorities to pursue recovery from any partner or the firm, enhancing the effectiveness of tax administration. However, authorities must ensure due process and provide affected partners an opportunity to be heard, especially in cases where liability is sought to be enforced against retired or deceased partners' estates.
A close reading reveals that Clause 329 of the Income Tax Bill, 2025, is substantially similar to Section 188A, with the following key differences:
Terminology: Clause 329 uses "tax year," while Section 188A refers to "previous year" and "assessment year." This reflects the shift in the new Bill towards a more globally harmonized tax period terminology.
Structural Parity: Both provisions extend joint and several liability to partners and legal representatives for "tax, penalty or other sum" payable by the firm, and both apply the machinery of the Act to such assessments and recoveries.
Legislative Continuity: Clause 329 essentially carries forward the legislative policy of Section 188A, ensuring continuity in the treatment of partnership firm liabilities under the new tax regime.
Interpretative and Policy Comparison
Substantive Content: Both provisions are functionally identical in imposing joint and several liability. The change in terminology does not alter the substantive rights and obligations.
Policy Rationale: The underlying policy is unchanged: to prevent evasion or frustration of tax recovery by changes in the firm's constitution or by the death of a partner.
Legal Representative's Liability: Both provisions include legal representatives, but neither explicitly limits liability to the value of the estate inherited. Judicial precedents have read this limitation into the law, and it is likely to continue under the new regime.
Procedural Aspects: The application of "all the provisions of this Act, so far as may be" ensures that procedural rules for assessment, appeal, and recovery are available in both regimes.
Clarity and Modernization: The rephrasing in Clause 329 aligns with contemporary legislative drafting standards, using "tax year" for clarity and consistency, but does not fundamentally change the scope or effect of the provision.
Potential Areas for Reform or Judicial Clarification
Express Limitation for Legal Representatives: Future legislation or clarificatory circulars could expressly state that legal representatives' liability is limited to the value of the estate inherited, to avoid unnecessary litigation.
Specific Guidance on Recovery Order: Administrative instructions could clarify whether the Revenue must exhaust remedies against the firm before proceeding against individual partners or legal representatives.
Apportionment of Liability: In cases of multiple changes in partnership during a tax year, guidelines for apportioning liability among partners could be beneficial.
Special Provisions for Successor Firms: Where a firm is succeeded by another, clarifying the liability of incoming partners for prior year dues would enhance certainty.
Conclusion
Clause 329 of the Income Tax Bill, 2025, represents a continuation and modernization of the principle articulated in Section 188A of the Income-tax Act, 1961. By imposing joint and several liability on partners and legal representatives for firm-level tax dues, the provision secures the Revenue's interests and reinforces the responsibilities of those involved in partnership businesses. While the substantive framework remains largely unchanged, the updated terminology and reaffirmation of the principle in the new Bill ensure legislative continuity and clarity. Going forward, express clarification of certain aspects-particularly the extent of legal representatives' liability and the order of recovery-could further strengthen the efficacy and fairness of the provision.
Partners face joint liability for firm's tax dues under Clause 329 of new tax bill
The Income Tax Bill 2025's Clause 329 establishes joint and several liability of partners for firm tax dues, mirroring Section 188A of the Income-tax Act 1961. The provision holds every person who was a partner during the tax year, including legal representatives of deceased partners, liable for tax, penalties, and other sums payable by the firm. This prevents tax evasion through partnership changes or dissolution. The clause uses updated terminology ("tax year" instead of "previous year") but maintains identical substantive content and policy objectives. All Act provisions apply to partner assessments, ensuring comprehensive coverage while protecting revenue interests in partnership taxation.
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