Evaluating the Mechanism for Income Tax Recovery via State Governments in India : Clause 417 of the Income Tax Bill, 2025 Vs. Section 227 of the Income-tax Act, 1961

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....tion 227 of the Income-tax Act, 1961 and Clause 417 of the proposed Income Tax Bill, 2025-deal specifically with the recovery of tax through State Governments. These provisions are rooted in the constitutional power conferred by Article 258(1) of the Constitution of India, which enables the Union to entrust functions to States. This commentary provides a comprehensive analysis of Clause 417 of the Income Tax Bill, 2025, examining its objectives, operative mechanics, and practical implications. It also offers a detailed comparative analysis with Section 227 of the Income-tax Act, 1961, highlighting continuities, departures, and the evolving policy context. The analysis is structured to elucidate the legislative intent, interpretative nuance....

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.... 227 of the Income-tax Act, 1961, codified this approach, and its replication in Clause 417 of the Income Tax Bill, 2025, signals continuity in policy while providing an opportunity for legislative refinement in light of contemporary administrative realities. Detailed Analysis of the Clause 417 of the Income Tax Bill, 2025 Textual Breakdown and Interpretation Both Section 227 and Clause 417 are succinct, yet their implications are significant. The operative text can be broken down as follows: If the recovery of tax in any area has been entrusted to a State Government under article 258(1) of the Constitution, the State Government may direct, with respect to that area or any part thereof that tax shall be recovered therein with, and as an....

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....ctor) and in the same manner as those local taxes. * Addition to Municipal Tax/Local Rate: The income tax is to be recovered "as an addition to" the local tax, implying that it may be included in the same demand notice, bill, or recovery proceeding. 4. Legal and Administrative Implications * Legal Status: The provision creates a legal fiction whereby central taxes are treated, for the purpose of recovery, as part of local taxes, thereby enabling the use of local recovery machinery (including coercive measures such as distraint, attachment, or sale of property). * Administrative Coordination: The provision necessitates close coordination between central and state authorities, especially in the identification of areas, issuance of dire....

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....ions, or subordinate legislation. * Administrative Practice: Since the enactment of Section 227, advances in technology, digitization, and inter-governmental coordination may affect how Clause 417 is implemented in practice, even if the statutory language is the same. * Interpretative Opportunity: The re-enactment of the provision in a new statute provides an opportunity for courts and administrators to revisit interpretative questions and address ambiguities that may have arisen under the 1961 Act. Ambiguities and Potential Issues * Scope of Discretion: The provision uses the word "may," indicating discretion for the State Government. This could lead to non-uniform application across states or within different areas of a state, pote....

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....oved recovery rates, particularly in areas where its direct presence is limited. * Local Authorities: Local tax collectors may be entrusted with additional responsibilities, necessitating training, oversight, and possibly changes in administrative processes. Compliance and Procedural Issues * Notification and Implementation: The actual implementation depends on formal entrustment under Article 258(1) and subsequent directions by the State Government. The process requires clear communication, notification, and possibly the issuance of subordinate rules or guidelines. * Accounting and Remittance: Mechanisms must be established to ensure that amounts recovered as central taxes are properly accounted for and remitted to the Central Gover....