Addresses the tax liability of individuals in respect of income that is included in the income of another person in Clause 100 of the Income Tax Bill, 2025 vs. Section 65 of the Income Tax Act, 1961

Clause 100 Liability of person in respect of income included in income of another person.

Income Tax Bill, 2025

Introduction

Clause 100 of the Income Tax Bill, 2025, addresses the liability of individuals in respect of income that is included in the income of another person. It is a statutory provision aimed at delineating the tax obligations of individuals whose income, arising from assets or membership in a firm, is attributed to another taxpayer. This clause is situated within a broader legislative framework that seeks to ensure comprehensive taxation of income and prevent tax avoidance through the strategic allocation of assets and incomes. The significance of Clause 100 lies in its potential impact on taxpayers who have financial interests in assets or firms that generate income attributed to others, thus affecting how they manage and report such interests.

Objective and Purpose

The primary objective of Clause 100 is to establish a clear legal framework for taxing income that, while generated by a person other than the assessee, is included in the assessee's total income. This provision is intended to prevent tax avoidance strategies where individuals might attempt to shield income from taxation by attributing it to another party. The legislative intent is to ensure that the tax liability is fairly distributed among those who benefit economically from such income, thereby enhancing the integrity of the tax system. Historically, similar provisions have been used to close loopholes and ensure that income is taxed in a manner consistent with the economic realities of ownership and benefit.

Detailed Analysis

Clause 100 of the Income Tax Bill, 2025

Clause 100 is structured to address three primary scenarios:

1. Liability of the Named Person:- Sub-clause (a) establishes that the person in whose name the asset stands is liable for the portion of tax attributable to the income included in the assessee's total income. This provision ensures that the legal owner of the asset bears responsibility for the tax, aligning tax liability with ownership rights.

2. Joint and Several Liability:- Sub-clause (b) introduces joint and several liabilities for assets held jointly by more than one person. This means that each co-owner is individually responsible for the entire tax liability, not just their proportionate share. This provision is crucial in cases where multiple parties have ownership interests, ensuring that the tax authorities can recover the full amount of tax due even if one or more co-owners default.

3. Application of Chapter XIX-D:- Sub-clause (c) states that the provisions of Chapter XIX-D apply accordingly. Chapter XIX-D typically relates to the procedural aspects of tax recovery, suggesting that the mechanisms for enforcing tax liability under Clause 100 are consistent with existing procedures for recovering tax dues. The clause is crafted to override any contrary provisions in other laws, emphasizing its priority in determining tax liabilities related to income attribution. This ensures uniform application and prevents conflicts with other legal provisions that might otherwise exempt certain incomes from taxation.

Practical Implications

For taxpayers, Clause 100 has significant implications. Individuals with assets or firm memberships that generate income attributed to another must be prepared to meet tax liabilities associated with such income. This may necessitate careful financial planning and record-keeping to ensure compliance with tax demands. Businesses and partnerships must also be aware of the potential for joint and several liabilities, which could impact financial reporting and risk management strategies. For tax authorities, Clause 100 provides a robust tool for enforcing tax compliance among individuals who might otherwise evade taxation through strategic allocation of assets. It simplifies the process of attributing income for tax purposes and ensures that the tax liability is aligned with economic benefits derived from such income.

Comparative Analysis

Section 65 of the Income Tax Act, 1961, serves a similar function to Clause 100, addressing the liability of individuals in respect of income included in another person's total income. However, there are notable differences and similarities between the two provisions:

1. Scope and Structure:- Both provisions aim to attribute tax liability to the person in whose name the asset stands or who is a member of a firm. However, Clause 100 explicitly includes income from membership in a firm, while Section 65 refers to income from assets or firm membership more generally.

2. Joint and Several Liability:- Both provisions include joint and several liabilities for jointly held assets. However, Clause 100 explicitly states this in a separate sub-clause, potentially providing clearer guidance on its application.

3. Procedural References:- Clause 100 references Chapter XIX-D for procedural aspects, whereas Section 65 refers to Chapter XVII-D. This difference may reflect updates in procedural frameworks between the two legislative instruments.

4. Override Provisions:- Both provisions override contrary laws, ensuring their primacy in determining tax liabilities related to income attribution. This underscores the importance of these provisions in the broader tax framework.

5. Legislative Evolution:- The transition from Section 65 to Clause 100 may reflect an evolution in legislative thinking, potentially incorporating lessons learned from the application of Section 65 over the years. This evolution could involve clarifications, updates to procedural references, and adjustments to align with contemporary tax policy objectives.

Conclusion

Clause 100 of the Income Tax Bill, 2025, represents a critical component of the legislative framework governing the taxation of income attributed to another person. By establishing clear rules for tax liability in such cases, it aims to prevent tax avoidance and ensure fair taxation based on economic realities. The provision's focus on joint and several liabilities, procedural alignment, and overriding of contrary laws underscores its importance in achieving these objectives. Comparing Clause 100 with Section 65 of the Income Tax Act, 1961, reveals both continuity and change in legislative approaches to this issue. While the core principles remain consistent, updates in procedural references and structural clarity suggest a refinement of the legal framework to enhance its effectiveness. Taxpayers and tax authorities alike must be cognizant of these provisions to ensure compliance and effective tax administration. As tax laws continue to evolve, ongoing analysis and adaptation will be necessary to address emerging challenges and opportunities in the realm of income attribution and taxation.

Full Text:

Clause 100 Liability of person in respect of income included in income of another person.

Dated: 3-4-2025