The draft Direct Taxes Code Bill seeks to consolidate and amend the law relating to all direct taxes and will replace the Income Tax Act, 1961. The draft Bill, along with a discussion paper, was released for public comments in August 2009. Following inputs received, the government proposed revisions to the draft Bill in June 2010. The table below summarises these revisions. The government has not released the changes proposed in the form of a revised draft bill however, but as a new discussion paper. The note is based on this discussion paper. The Code had proposed a number changes in the current direct tax regime, such as a minimum alternate tax (MAT) on companies’ assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor. Under the new amendments, some of these changes, such as MAT, have been reversed. Personal savings in specified instruments (such as a public provident fund) will now continue to remain tax-free at all times. The tax deduction on home loan interest payments, which was done away with by the Code, has now been restored. However, the discussion paper has not specified whether certain other changes proposed by the Code (such as a broadening of personal income tax slabs), will continue to apply.
|Income Tax Act, 1961
|Draft Direct Taxes Code (August 09)
|Revisions Proposed (June 2010)
|Minimum Alternate Tax (MAT)
|MAT currently imposed at 18% of profits declared by companies to shareholders.
|To be imposed on assets rather than profits of companies. Tax rate proposed at 2% (0.25% for banks)
|MAT to be imposed on book profit as is the case currently. Rate not specified.
|Personal Saving / retirement benefits
|Certain personal savings, such as public provident funds, are not taxed at all.
|Such savings to be taxed at the time of withdrawal by the investor.
|Such savings to remain tax-exempt at all stages, as is the case currently.
|Income from House Property
|Taxable rent is higher of actual rent or ‘reasonable’ rent set by municipality(less specified deductions). Rent is nil for one self-occupied property.
|Taxable rent is higher of actual rent or 6% of cost /value set by municipality (less specified deductions). Rent is nil for one self-occupied property.
|Taxable rent is no longer presumed to be 6% in case of non-let out property. Tax deductions allowed on interest on loans taken to fund such property.
|Interest on Home loans
|Interest on home loans is tax deductible
|Tax deductions on home loan interest not allowed.
|Tax deductions for interest on loans allowed, as is currently the case.
|Long term and short term gains taxed at different rates.
|Distinction between long and short term capital gains removed and taxed at the applicable rate; Securities Transaction Tax done away with.
|Equity shares/mutual funds held for more than a year to be taxed at an applicable rate, after deduction of specified percentage of capital gains. No deductions allowed for investment assets held for less than a year. Securities Transaction tax to be ‘calibrated’ based on new regime. Income on securities trading of FIIs to be classified as capital gains and not business income.
|Applies to organizations set up for ‘charitable purposes’. Taxed (at 15% of surplus) only if expenditure is less than 85% of income.
|To apply to organizations carrying on ‘permitted welfare activities’. To be taxed at 15% of income which remains unspent at the end of the year. This surplus is to be calculated on the basis of cash accounting principles.
|Definition of ‘charitable purpose’ to be retained, as is the case currently. Exemption limit to be given and surplus in excess of this will be taxed. Up to 15% of surplus / 10% of gross receipts can be carried forward; to be used within 3 years.
|Units in Special Economic Zones
|Tax breaks allowed for developers of Special Economic Zones and units in such zones.
|Tax breaks to be done away with; developers currently availing of such benefits allowed to enjoy benefits for the term promised (‘grandfathering’).
|Grandfathering of exemptions allowed for units in SEZs as well as developers.
|Companies are residents if they are Indian companies or are controlled and managed wholly out of India.
|Companies are resident if their place of control and management is situated wholly or partly in India, at any time in the year. The Bill does not define ‘partly’
|Companies are resident if ‘place of effective management’ is in India i.e. place where board make their decisions/ where officers or executives perform their functions.
|Double Taxation Avoidance Agreements
|In case of conflict between provisions of the Act, and those in a tax agreement with another country, provisions which are more beneficial to the taxpayer shall apply
|The provision which comes into force at a later date shall prevail. Thus provisions of the Code would override those of existing tax agreements.
|Provisions which more beneficial shall apply, as is the case currently. However, tax agreements will not prevail if anti-avoidance rule is used, or in case of certain provisions which apply to foreign companies.
|General Anti-Avoidance Rule
|Commissioner of Income Tax can declare any arrangement by a taxpayer as ‘impermissible’, if in his judgement, its main purpose was to have obtained a tax benefit.
|CBDT to issue guidelines as to when GAAR can be invoked; GAAR to be invoked only in cases of tax avoidance beyond a specified limit; disputes can be taken to Dispute Resolution Panel.
|Charged at 1% of net wealth above Rs 15 lakh
|To be charged at 0.25% on net wealth above Rs 50 crore; scope of taxable wealth widened to cover financial assets.
|Wealth tax to be levied ‘broadly on same lines’ as Wealth Tax Act, 1957. Specified unproductive assets to be subject to wealth tax; nonprofit organizations to be exempt. Tax rate and exemption limit not specified.
|Source: Income Tax Act, 1961, Draft Direct Taxes Code Bill (August 2009), New Discussion Paper (June 2010), PRS
On June 13, 2022, the West Bengal government passed a Bill to replace the Governor with the Chief Minister, as the Chancellor of 31 state public universities (such as Calcutta University, Jadavpur University). As per the All India Survey on Higher Education (2019-20), state public universities provide higher education to almost 85% of all students enrolled in higher education in India. In this blog, we discuss the role of the Governor in state public universities.
What is the role of the Chancellor in public universities?
State public universities are established through laws passed by state legislatures. In most laws the Governor has been designated as the Chancellor of these universities. The Chancellor functions as the head of public universities, and appoints the Vice-Chancellor of the university. Further, the Chancellor can declare invalid, any university proceeding which is not as per existing laws. In some states (such as Bihar, Gujarat, and Jharkhand), the Chancellor has the power to conduct inspections in the university. The Chancellor also presides over the convocation of the university, and confirms proposals for conferring honorary degrees. This is different in Telangana, where the Chancellor is appointed by the state government.
The Chancellor presides over the meetings of various university bodies (such as the Court/Senate of the university). The Court/Senate decides on matters of general policy related to the development of the university, such as: (i) establishing new university departments, (ii) conferring and withdrawing degrees and titles, and (iii) instituting fellowships.
The West Bengal University Laws (Amendment) Bill, 2022 designates the Chief Minister of West Bengal as the Chancellor of the 31 public universities in the state. Further, the Chief Minister (instead of the Governor) will be the head of these universities, and preside over the meetings of university bodies (such as Court/Senate).
Does the Governor have discretion in his capacity as Chancellor?
In 1997, the Supreme Court held that the Governor was not bound by the aid and advice of the Council of Ministers, while discharging duties of a separate statutory office (such as the Chancellor).
The Sarkaria and Puunchi Commission also dealt with the role of the Governor in educational institutions. Both Commissions concurred that while discharging statutory functions, the Governor is not legally bound by the aid and advice of the Council of Ministers. However, it may be advantageous for the Governor to consult the concerned Minister. The Sarkaria Commission recommended that state legislatures should avoid conferring statutory powers on the Governor, which were not envisaged by the Constitution. The Puunchi Commission observed that the role of Governor as the Chancellor may expose the office to controversies or public criticism. Hence, the role of the Governor should be restricted to constitutional provisions only. The Statement of Objects and Reasons of the West Bengal University Laws (Amendment) Bill, 2022 also mentions this recommendation given by the Puunchi Commission.
Recently, some states have taken steps to reduce the oversight of the Governor in state public universities. In April 2022, the Tamil Nadu Legislative Assembly passed two Bills, to transfer the power of appointing the Vice-Chancellor (in public universities) from the Governor, to the state government. As of June 8, 2022, these Bills have not received the Governor’s assent.
In 2021, Maharashtra amended the process to appoint the Vice Chancellor of state public universities. Prior to the amendment, a Search Committee forwarded a panel of at least five names to the Chancellor (who is the Governor). The Chancellor could then appoint one of the persons from the suggested panel as Vice-Chancellor, or ask for a fresh panel of names to be recommended. The 2021 amendment mandated the Search Committee to first forward the panel of names to the state government, which would recommend a panel of two names (from the original panel) to the Chancellor. The Chancellor must appoint one of the two names from the panel as Vice-Chancellor within thirty days. As per the amendment, the Chancellor has no option of asking for a fresh panel of names to be recommended.