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Exclusive jurisdiction of Special Courts centralises tax prosecutions, with cognizance only on authorised complaints.
Clause 496 mandates exclusive trial of income tax offences by designated Special Courts, subject to actual designation for relevant areas or classes of cases, and contains a non obstante provision giving it overriding effect over the general criminal procedure code. Cognizance by a Special Court is restricted to complaints filed by authorities authorised under the Act. Transitional rules preserve continuity by allowing designated courts to continue existing and future trials and permitting non designated courts to finish pending matters; the clause cross references the Bill's procedural provision to align competence within the reorganised statute.
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Special Courts designation enables focused, consolidated trials for tax offences and aligns procedure with the new criminal code.
Clause 495 empowers the Central Government, after consultation with the Chief Justice of the High Court, to notify one or more courts of Judicial Magistrate of the first class as Special Courts for specified areas, cases or classes of cases to try offences under the Income Tax Bill, 2025; it permits these Special Courts to try related offences joined at the same trial under the applicable criminal procedure and updates procedural references to the Bharatiya Nagarik Suraksha Sanhita, 2023, while preserving the core scheme of Section 280A.
Act Rules Bills
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Unauthorized disclosure by public servants criminalised; prosecution requires Central Government sanction and carries imprisonment and fine.
Clause 494 criminalises unauthorized furnishing of taxpayer information or production of documents by a public servant in contravention of the Bill's secrecy provision, prescribes imprisonment and fine, and requires prior sanction of the Central Government before prosecution.
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Admissibility of official tax records: certified copies allowed as evidence, easing prosecution while preserving challenge rights.
Clause 493 mandates that entries in records or documents in the custody of an income-tax authority "shall be admitted in evidence" in prosecution proceedings under the chapter and permits proof either by production of the original records or by production of a certified copy signed by the custodian stating it is a true copy and that the originals are in its custody. The clause covers varied formats of records, limits application to criminal proceedings under the chapter, and preserves courts' power to test genuineness and require originals where fairness demands.
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Non-cognizable classification of specified tax offences requires magistrate sanction before arrest or investigation, limiting summary enforcement.
Clause 492 of the Income Tax Bill, 2025 designates specified income tax offences as non-cognizable for purposes of the Bharatiya Nagarik Suraksha Sanhita, 2023 by means of a non-obstante provision. As a result, arrest cannot be effected without a magistrate-issued warrant and investigations into those offences require prior magistrate authorization, imposing judicial gatekeeping at the threshold of criminal proceedings and constraining unilateral police action in tax enforcement.
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Prior sanction for tax prosecution centralises oversight, enables compounding, and restricts arbitrary criminal initiation against taxpayers.
Clause 491 makes prior sanction by designated senior officers a precondition to prosecution for specified tax offences, authorises senior regional heads and the Board to issue directions, permits compounding of offences at any stage by senior officials, bars prosecution where specified penalties have been reduced or waived, and affirms that statements or documents given to tax authorities remain admissible notwithstanding an expectation of penalty reduction or compounding.
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Presumption of culpable mental state shifts evidentiary burden to accused to disprove intent beyond reasonable doubt.
Clause 490 mandates that once the prosecution establishes the actus reus, the court shall presume the existence of a culpable mental state-broadly defined to include intention, motive, knowledge, belief and reason to believe-and permits the accused to rebut that presumption only by proving absence of such mental state beyond reasonable doubt.
Act Rules Bills
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Presumption regarding assets and documents found in searches shifts evidentiary burden, now including virtual digital assets.
Clause 489 creates a rebuttable presumption that assets (including virtual digital assets) and books or documents found in a person's possession during an authorised search, or received via requisition, are presumed to belong to that person and that documents' contents are true when tendered in prosecution, applied "so far as may be" by reference to the Bill's presumption provision and extending to other persons identified by the Bill's connected-person provision.
Act Rules Bills
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Presumption of karta guilt shifts evidential burden, requiring demonstration of due diligence to avoid prosecution.
Clause 488 places primary criminal responsibility on the karta of a Hindu Undivided Family by deeming the karta guilty of an offence by the HUF, subject to statutory defences of lack of knowledge or proof of having exercised all due diligence. It further deems any member guilty where the offence is proved to have been committed with that member's consent or connivance or is attributable to their neglect, creating independent member liability while preserving the karta's available exculpatory defences.
Act Rules Bills
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Corporate officer liability: deeming provision shifts initial burden to accused, with due diligence defence for tax offences.
Where a company commits an income-tax offence, the company and every person who was in charge of, and responsible to, the company for the conduct of the business at the time are statutorily deemed guilty and liable to prosecution, subject to a defence that the individual lacked knowledge or exercised all due diligence to prevent the offence; separate liability arises where the offence occurred with the consent, connivance, or neglect of officers, companies are punishable by fine while individuals may face full penal consequences, and definitions explicitly include firms and associations of persons.
Act Rules Bills
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Reasonable cause defence limits criminal liability for certain tax compliance failures, protecting bona fide taxpayers from prosecution.
Clause 486 creates a non obstante statutory reasonable cause defence prohibiting punishment for failures under the specified sections of the Income Tax Bill, 2025 when the accused proves reasonable cause. The provision places the burden of proof on the accused, preserves judicial fact specific assessment of reasonable cause, and operates to limit prosecutions for bona fide or uncontrollable lapses while directing enforcement attention to willful or egregious defaults.
Act Rules Bills
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Enhanced penalties for repeat tax offences impose mandatory imprisonment and fine upon subsequent convictions under specified tax provisions.
A prior judicial conviction under any specified income tax offence triggers enhanced punishment: a person again convicted under any of those listed offences is subject to mandatory rigorous imprisonment and a mandatory fine, regardless of whether the subsequent conviction is for the same or a different listed offence; judicial discretion governs the precise sentence within the prescribed range, and the provision applies only after a prior conviction, not mere charge or prosecution.
Act Rules Bills
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Abetment of false returns: broadened criminal exposure for facilitators with mandatory imprisonment and fines for culpable conduct.
Clause 484 criminalises abetment or inducement in making or delivering false tax-related statements, requiring that the abettor know the falsity or not believe the statement to be true. Punishment is tiered by the quantum sought to be evaded, with mandatory minimum imprisonment terms and fines, while procedural details and definitions such as "induce" are not specified, raising interpretive and evidentiary challenges. The clause mirrors prior law's structure but broad wording could implicate advisors and intermediaries absent judicial or legislative clarification.
Act Rules Bills
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Falsification of accounting records: criminal liability for wilful false entries intended to enable another person to evade tax.
Clause 483 makes it an offence to wilfully make or cause false entries in books of account or other documents with intent to enable another person to evade tax, interest, or penalty; it requires proof of wilful conduct and intent but not proof that the beneficiary actually evaded liability, covers physical and electronic records relevant to tax proceedings, and prescribes rigorous imprisonment and a fine.
Act Rules Bills
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False verification offences: criminal liability requires proved knowledge or recklessness, with graded imprisonment and mandatory fines.
The provision criminalises making false statements in any statutory verification or delivering false accounts where the person knows or believes the statement to be false or does not believe it to be true. Prosecution must prove this mental element beyond reasonable doubt. A graded penalty applies according to the financial impact of the falsity: substantial evasion attracts a higher term of rigorous imprisonment while other cases attract a lower term, and a fine is mandatorily imposed in addition to imprisonment.
Act Rules Bills
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Willful failure to produce accounts triggers criminal liability including imprisonment and mandatory fine under the new tax provision.
Clause 481 establishes a penal offence for willful failure to produce accounts and documents called for by a notice under section 268(1), or willful non compliance with a direction under section 268(5), punishable by rigorous imprisonment for up to one year and liability to fine, with criminal prosecution requiring proof of willfulness beyond reasonable doubt and adherence to procedural safeguards; the clause mirrors prior law while leaving the fine quantum unspecified and raising interpretative issues regarding the threshold for willfulness and potential overlap with other provisions.
Act Rules Bills
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Wilful failure to furnish return in search cases creates criminal liability, exposing taxpayers to imprisonment and fines.
Clause 480 penalises a person who, following a search and pursuant to a notice under section 294(1)(a), wilfully fails to furnish a return of income within the prescribed time. The provision requires proof of deliberate non compliance, treats the offence as criminal, and prescribes imprisonment along with a court levied fine, while prosecutions remain subject to ordinary criminal procedure and due process safeguards.
Act Rules Bills
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Willful failure to file returns attracts graded criminal penalties including imprisonment and fine; an extended cure period limits prosecutions.
Clause 479 criminalizes the willful failure to furnish returns of income, applying to statutory filing obligations and notice-triggered duties, and establishes a graded criminal penalty regime tied to the tax that would have been evaded. It preserves a mens rea requirement, mandates imprisonment and fine across tiers, and provides exemptions including a one-year cure period to avoid prosecution and a de minimis exception for non-corporate taxpayers, while raising interpretative issues on the definition of wilfulness and calculation of evaded tax.
Act Rules Bills
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Wilful tax evasion criminalisation: updated offence framework tightens penalties and preserves additional monetary sanctions for deliberate under-reporting.
Clause 478 establishes an offence of wilful attempt to evade tax, penalty, or interest, including under-reporting, distinguishing evasion of liability from evasion of payment. It prescribes graded sentences with discretionary fines and makes offenders liable to any other penalties under the Act. The provision's inclusive definition-false entries, false statements, wilful omissions, and other enabling circumstances-broadens prosecutorial scope while retaining the requirement to prove mens rea and preserving procedural safeguards for prosecution.
Act Rules Bills
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Failure to remit tax collected at source: criminal liability retained with a filing linked safe harbour to encourage timely compliance.
Clause 477 criminalizes failure to remit tax collected at source, adopting a strict liability approach that imposes custodial sentence and fine while offering a statutory safe harbour where TCS is deposited on or before the time prescribed for filing the TCS statement, thereby aligning penal consequences and procedural exemption with the existing framework.

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Comparison of section 327 "Change in constitution of a firm." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

11 September, 2025

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Section 327 Change in constitution of a firm.

Income-tax Act, 2025

At a Glance

Clause 327 of the Income Tax Bill, 2025 (Old Version) - provision dealing with change in constitution of a firm. It prescribes how an assessing officer should treat a partnership firm for purposes of assessment u/ss 270 or 271 when the firm's constitution changes. It affects taxpayers in partnership form and the tax department. Effective date/decision date: Not stated in the document.

Background & Scope

Statutory hooks: The provision is placed as Clause 327 under the Bill heading "Change in constitution, succession and dissolution" and references assessments u/ss 270 and 271 (these sections are cited as the assessment provisions triggering the rule). The scope covers the treatment of a partnership firm for assessment purposes "where at the time of making an assessment u/s 270 or 271, it is found that a change has occurred in the constitution of a firm." Definitions: The clause sets out, for the purposes of the provision, what constitutes a "change in the constitution" of a firm by enumerating three circumstances. No separate definitions of "firm", "partner", "admitted", or "ceased" are provided in the clause itself. The clause does not supply definitions of "assessment" beyond reference to sections 270 and 271.

Statutory Provision Mode

Text & Scope

The provision contains three operative parts: (1) an overarching rule that the assessment shall be made on the firm as constituted at the time of making the assessment; (2) an enumerated list defining "change in the constitution" comprising (a) one or more partners ceasing to be partners, (b) admission of one or more new partners subject to a continuity condition that at least one pre-existing partner remains after change, and (c) where all partners continue but there is a change in their respective shares (or the shares of some); and (3) a proviso that sub-section 2(a) shall not apply to a case where the firm is dissolved on the death of any of its partners. The clause is expressly tied to assessment proceedings u/ss 270 and 271 only.

Interpretation

The clause reflects a legislative intent to fix the taxable entity for assessment at the point of assessment-making rather than retrospectively when the facts prompting assessment occurred. The operative instruction - "assessment shall be made on the firm as constituted at the time of making the assessment" - indicates that the constitution existing at the assessment time determines who is assessed as the firm. The enumerated circumstances illustrate the types of changes that will trigger application of this rule. The continuity condition that requires at least one continuing pre-change partner when a new partner is admitted signals the legislature's concern to distinguish reorganisations that preserve firm continuity from complete transfers of business or successor entities. The death-dissolution exception indicates that a firm's dissolution by reason of a partner's death should not be treated as a partner-cessation under clause (a) for assessment allocation purposes.

Exceptions/Provisos

The only proviso is that sub-section 2(a) does not apply where the firm is dissolved on the death of a partner. There are no other carve-outs, thresholds, temporal rules, or conditions in the clause. The clause does not state whether other forms of succession, amalgamation, or assignment fall within its scope; nor does it address issues of liability of outgoing partners, successor liability, or the tax treatment of unrealised gains on change.

Illustrations

  • Example 1: Partners A, B, C are assessed u/s 270. Before the assessment is made, partner C ceases to be a partner and leaves; the assessment will be made on the firm constituted at the assessment time (i.e., A and B where they remain partners). This is consistent with clause (a). (The document supplies no numerical example; this is a schematic illustration consistent with the text.)
  • Example 2: Partners A and B admit D as a new partner but A continues in the firm. Because at least one pre-existing partner (A) continues, clause (b) applies and the assessment will be made on the firm as constituted when the assessment is made (A, B, D). Note: The document does not address tax consequences for outgoing or incoming partners. Not stated in the document.
  • Example 3: Partners A, B, C keep the same personnel but reallocate profit shares between them; such a change is expressly a change in constitution under clause (c) and the assessment will be on the firm as constituted at assessment time. The clause does not indicate if share changes affecting only profit distribution are to be treated differently for tax attribution between partners. Not stated in the document.

Interplay

The clause explicitly references assessment u/ss 270 and 271, but it does not identify any rules, notifications, or circulars that further explain or implement the provision. It does not reference other provisions dealing with succession, transfer of business, or partner liability. Potential interpretive issues may arise in relation to:

  • Determination of the "time of making the assessment" - the clause does not define when assessment is "made" for these sections (for example, original assessment versus reassessment), so interplay with procedural provisions in sections 270/271 and their rules may be required to fix the temporal point.
  • Whether cessation by retirement, retirement by agreement, insolvency of a partner, or transfer of a partner's interest outside formal dissolution falls within clause (a) - the clause lists cessation generically; further statutory or case law guidance would be required.
  • Interaction with provisions concerning transfer of assets, successor liability, or clubbing of income is not addressed in the clause and remains to be read across other parts of the Code. Not stated in the document.

Comparison of Differences and Practical Impact

Clause 327 of the Income-tax Act, 2025 (labelled "Section 327") and Clause 327 of the Income Tax Bill, 2025 (Old Version) (labelled "Clause 327"). The two provisions are substantively similar but differ in the drafting and ordering of sub-clauses describing what constitutes a "change in the constitution" of a firm.

  • Difference in sub-clause structure: The Bill version (Clause 327) lists three distinct circumstances (partners ceasing to be partners; admission of new partners subject to a continuity condition; change in partners' shares) as separate paragraphs (a), (b), (c). The Act version (Section 327) consolidates the first two situations into paragraph (a) - "if one or more of the partners cease to be partners or one or more new partners are admitted, subject to the condition..." - and keeps change in shares as paragraph (b).
    • Practical impact: The consolidation in the Act text signals no substantive narrowing or broadening of coverage; rather it appears to be a drafting reorganisation. Both texts require at least one continuing partner when a new partner is admitted (continuity condition) and both treat changes in partners' shares as a change in constitution. The only practical effect likely to arise is on interpretive clarity: the Bill's separate enumeration may be marginally clearer when construing whether ceasing and admission are distinct events; the consolidated Act version ties cessation and admission together in the same limb. There is no express change to scope, exceptions (other than the death dissolution carve-out), or the operative assessment rule.
  • Other textual elements: Both texts contain identical provisions for assessment timing (assessment to be made on the firm as constituted at the time of making assessment) and identical proviso excluding dissolution on death from the operation of the partner-cessation limb. No additional conditions, thresholds, or procedural rules are present in either text.

Practical Implications

  • Compliance and risk areas: Taxpayers in partnership form should ensure that changes in partner composition or profit-sharing ratios are documented and that the constitution of the firm at the time of assessment is clearly ascertainable. The clause places emphasis on the constitution at the point of assessment rather than at the time of the underlying income; this may affect who is assessed and for what periods.
  • Record-keeping/evidence points: Partnerships should maintain contemporaneous records of partnership deeds, minutes evidencing admission/retirement of partners, dates of effect of share changes, and notices to tax authorities, so that the firm composition at assessment time can be proven. The clause does not specify particular documents or forms to be produced. Not stated in the document.

Key Takeaways

  • Clause 327 instructs that where a change in constitution of a firm is found at the time of assessment u/ss 270 or 271, the assessment is to be made on the firm as it exists at the time of assessment.
  • "Change in constitution" is defined to include partner cessation, admission of new partners (subject to at least one continuing partner), and changes in partners' shares.
  • The clause excludes dissolution on account of a partner's death from the operation of the partner-cessation limb.
  • The Bill version and the subsequently presented Act text differ only in the drafting arrangement of the enumerated circumstances; there is no substantive change to scope in the texts considered.
  • The clause is silent on detailed procedural implementation, timing nuances for assessment, successor liability, and treatment of outgoing partners' tax obligations - those matters would require reference to other statutory provisions or interpretive guidance. Not stated in the document.
  • Practical compliance requires careful documentation of partner changes and share allocations to establish the constitution at assessment time.

Full Text:

Section 327 Change in constitution of a firm.

Topics

Acts Income Tax