Clause 265 Return by whom to be verified.

Income Tax Bill, 2025

Introduction

The verification of income tax returns is a critical aspect of the Indian income tax regime, ensuring the authenticity and accountability of the information furnished by taxpayers. The authority and manner in which returns are to be verified have significant implications for compliance, enforcement, and the overall integrity of the tax administration system. Clause 265 of the Income Tax Bill, 2025, seeks to codify and update the provisions relating to the verification of returns, marking a pivotal reform in the procedural aspects of tax law. This commentary provides a comprehensive analysis of Clause 265, juxtaposing its provisions with Section 140 of the Income-tax Act, 1961, and Rule 12AA of the Income-tax Rules, 1962, to elucidate the continuities, departures, and practical implications for stakeholders.

Objective and Purpose

Clause 265 of the Income Tax Bill, 2025, aims to specify the persons competent to verify the returns of income required to be furnished u/s 263 of the proposed legislation. The legislative intent is to provide clarity, reduce ambiguities, and align the verification process with contemporary business and legal realities, including the advent of the Insolvency and Bankruptcy Code, 2016, and the proliferation of new business structures such as limited liability partnerships (LLPs).

The historical context traces back to Section 140 of the Income-tax Act, 1961, which has, over decades, prescribed the persons authorized to verify returns for various entities. As tax administration evolves and the complexity of business organizations increases, there is a need to update and streamline these provisions, ensuring that the law keeps pace with practical exigencies and judicial developments.

Detailed Analysis of Clause 265 of the Income Tax Bill, 2025

Clause 265 is structured as a tabular provision, specifying, for each category of taxpayer, the corresponding person(s) authorized to verify the return. The analysis below breaks down each item, compares it with the corresponding provision u/s 140, and discusses the interplay with Rule 12AA.

1. Individuals

• Clause 265: Permits verification by the individual, or, if mentally incapacitated, by a guardian or competent person; if otherwise unable, by a duly authorized person via power of attorney.
• Section 140(a): Similar structure, but also explicitly covers the situation where the individual is absent from India, allowing verification by the individual or a person authorized by him, provided a valid power of attorney is attached.
• Analysis: The Bill omits explicit reference to absence from India, potentially narrowing the scope compared to the 1961 Act. However, the catch-all provision for inability to verify and use of power of attorney may subsume such cases. The requirement for a valid power of attorney is retained, ensuring that the delegation of authority is formal and documented.
• Potential Ambiguity: The omission of "absence from India" as a specific ground may create interpretational issues for non-resident individuals. Judicial clarification or administrative guidance may be needed to ensure continuity of practice.

2. Hindu Undivided Family (HUF)

• Clause 265: Verification by the Karta; if Karta is absent from India or mentally incapacitated, by any other adult member.
• Section 140(b): Identical provision.
• Analysis: The provision is materially unchanged, preserving the traditional authority of the Karta while providing a fallback for incapacity or absence. This reflects the unique legal status of the HUF in Indian law.

3. Companies (General)

• Clause 265: Verification by the managing director; if none or if unavailable, by any director or other prescribed person.
• Section 140(c): Similar, but includes "any other person, as may be prescribed for this purpose," with further sub-clauses for special situations (winding up, government takeover, etc.).
• Analysis: The Bill's language modernizes the provision, clarifying that "any other person as prescribed" is permitted. This is consistent with Rule 12AA, which prescribes certain persons in insolvency contexts. The Bill's structure, separating special situations into distinct entries, enhances clarity.

4. Non-Resident Companies

• Clause 265: Verification by a person holding a valid power of attorney from the company.
• Section 140(c) (Proviso): Similar, with the requirement that the power of attorney be attached to the return.
• Analysis: The Bill maintains the substance of the current law but does not explicitly require the power of attorney to be attached. This could be seen as a relaxation or may be addressed in procedural rules.

5. Companies under Winding Up or Receivership

• Clause 265: Verification by the liquidator as referred to in Section 322(1) (presumably of the new Bill).
• Section 140(c) (Proviso (a)): Verification by the liquidator u/s 178(1) of the 1961 Act.
• Analysis: The Bill aligns with the 1961 Act, updating the cross-reference to the new Bill's section. The principle that the liquidator, as the person in control of the company's assets, is responsible for tax compliance, is retained.

6. Companies under Government Management

• Clause 265: Verification by the principal officer.
• Section 140(c) (Proviso (b)): Same.
• Analysis: No substantive change; the principal officer is the appropriate person in such scenarios.

7. Companies under Corporate Insolvency Resolution

• Clause 265: Verification by the insolvency professional appointed by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 (IBC).
• Section 140(c) (c): Same, with definitions of "insolvency professional" and "Adjudicating Authority" as per the IBC.
• Rule 12AA: Specifies that the "prescribed person" for verification purposes in insolvency cases is the person appointed by the Adjudicating Authority (interim resolution professional, resolution professional, or liquidator).
• Analysis: The Bill codifies the practice established by amendments to Section 140 and Rule 12AA, ensuring that in insolvency scenarios, the appointed professional is responsible for tax compliance. This is crucial for coordination between tax authorities and insolvency proceedings.

8. Firms

• Clause 265: Verification by the managing partner; if unavailable, by any partner not being a minor.
• Section 140(cc): Same.
• Analysis: No substantive change. The managing partner, as the person in charge of the firm's affairs, is the natural choice. The fallback to any adult partner ensures continuity.

9. Limited Liability Partnerships (LLPs)

• Clause 265: Verification by the designated partner; if unavailable, by any partner or other prescribed person.
• Section 140(cd): Similar, with reference to "any other person as may be prescribed," which is defined in Rule 12AA.
• Rule 12AA: Specifies that the prescribed person is the one appointed by the Adjudicating Authority under the IBC.
• Analysis: The Bill maintains the current regime, ensuring that in insolvency or similar situations, the authorized professional may verify the return. This harmonizes tax procedure with insolvency law.

10. Local Authorities

• Clause 265: Verification by the principal officer.
• Section 140(d): Same.
• Analysis: No change. The principal officer is the logical verifying authority.

11. Political Parties

• Clause 265: Verification by the chief executive officer (CEO), regardless of designation.
• Section 140(dd): Same, referencing the CEO (secretary or other designation).
• Analysis: The Bill continues the practice of requiring the CEO to verify, reflecting the need for accountability at the highest level in political entities.

12. Other Associations

• Clause 265: Verification by any member or the principal officer.
• Section 140(e): Same.
• Analysis: No substantive change. This catch-all provision ensures that associations not otherwise specified are covered.

13. Any Other Person

• Clause 265: Verification by the person himself or any person competent to act on his behalf.
• Section 140(f): Same.
• Analysis: This ensures that all possible entities or persons are covered, maintaining the integrity of the verification framework.

Practical Implications

The re-enactment and clarification of verification provisions in Clause 265 have several practical implications:

• Clarity and Certainty: By providing a tabular, itemized list, the Bill enhances clarity for taxpayers and tax administrators, reducing disputes over who is competent to verify returns.
• Alignment with Insolvency Law: The explicit integration of insolvency professionals, as per the IBC and Rule 12AA, ensures that tax compliance is maintained even during insolvency proceedings, preventing legal vacuums.
• Procedural Flexibility: The ability to prescribe "other persons" by rule allows the law to adapt to unforeseen scenarios or new business forms without requiring statutory amendment.
• Compliance Burden: The requirement for valid power of attorney and the specification of responsible persons may increase compliance obligations, particularly for multinational entities and complex organizations.
• Risk of Procedural Lapses: Any ambiguity or omission in designating the proper verifying authority can lead to procedural defects, potentially invalidating returns and exposing taxpayers to penalties or litigation.

Comparative Analysis with Section 140 and Rule 12AA

Continuities

• The core structure and philosophy of Section 140 are preserved in Clause 265, ensuring continuity and minimizing disruption.
• The fallback mechanisms for incapacity or absence (e.g., Karta, managing partner, designated partner) are maintained.
• Integration with the IBC and the role of insolvency professionals, as introduced via amendments to Section 140 and Rule 12AA, are retained and clarified.

Departures and Innovations

• The Bill omits explicit reference to absence from India for individuals, which may be an inadvertent narrowing or may reflect an intent to subsume such cases under the broader "other reasons" clause.
• The tabular presentation and itemization by taxpayer category are more user-friendly and accessible than the narrative format of Section 140.
• The Bill does not explicitly require the attachment of the power of attorney in the case of non-resident companies, potentially simplifying compliance but also raising evidentiary concerns.

Rule 12AA and Prescribed Persons

• Rule 12AA, inserted in 2021, addresses the lacuna in Section 140 regarding who may verify returns in the case of insolvency. It specifies that the prescribed person is the one appointed by the Adjudicating Authority under the IBC.
• Clause 265, by referencing "any other person as prescribed," maintains the flexibility to incorporate such rules, ensuring that tax verification aligns with the realities of insolvency administration.
• The harmonization between the statute and the rules is essential to avoid procedural confusion and ensure that returns filed during insolvency are valid and enforceable.

Ambiguities and Issues in Interpretation

• The lack of explicit mention of "absence from India" for individuals may create confusion for non-resident taxpayers, especially those who frequently travel or reside abroad.
• The Bill's silence on the requirement to attach a power of attorney (for non-resident companies or authorized persons) could lead to evidentiary disputes unless clarified by subordinate legislation or guidance.
• The phrase "any other person as prescribed" is inherently open-ended, requiring careful rule-making to avoid misuse or uncertainty.
• The treatment of trusts, societies, and other non-corporate entities under the catch-all "other association" may require further clarification, especially as new organizational forms emerge.

Practical and Compliance Considerations

• Taxpayers must ensure that the person verifying their return is duly authorized as per the applicable provision. Failure to do so may render the return defective or invalid.
• Entities under insolvency or winding up must coordinate closely with insolvency professionals or liquidators to ensure timely and proper compliance.
• The use of digital signatures and electronic verification methods is not addressed in Clause 265 but is likely to be governed by procedural rules. The law must remain technologically neutral and adaptive.
• The transition from the 1961 Act to the new Bill may require transitional provisions to address ongoing proceedings or returns filed under the old law.

Conclusion

Clause 265 of the Income Tax Bill, 2025, represents a thoughtful and largely faithful restatement of the verification provisions in Section 140 of the Income-tax Act, 1961, with necessary updates to reflect changes in business law and insolvency practice. The integration with Rule 12AA ensures that the law remains responsive to the realities of insolvency proceedings. While the Bill enhances clarity and procedural certainty, minor ambiguities-particularly regarding non-resident individuals and the evidentiary requirements for power of attorney-may warrant further clarification through rules or administrative guidance. The provision's design balances the need for accountability, flexibility, and legal certainty, ensuring that the verification of tax returns continues to serve as a cornerstone of the Indian tax system.

Full Text:

Clause 265 Return by whom to be verified.