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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.[1] 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.[2] 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assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor.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.

Issue 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.
Capital Gains 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.
Non-profit Organisations 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.
Non-resident Companies 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 No provision 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.
Wealth Tax 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

[1] See PRS Legislative Brief on Draft Direct Taxes Code (version of August 2009) at  http://prsindia.org/index.php?name=Sections&id=6 [2] Available at http://finmin.nic.in/Dtcode/index.html

   

Yesterday, Parliament passed a Bill to increase the number of judges in the Supreme Court from 30 to 33 (excluding the Chief Justice of India).  The Bill was introduced in view of increasing pendency of cases in the Supreme Court.  In 2012, the Supreme Court approved the Scheme of National Court Management System to provide a framework for case management.  The scheme estimated that with an increase in literacy, per capita income, and population, the number of new cases filed each year may go up to 15 crore over the next three decades, which will require at least 75,000 judges.  In this blog, we analyse the pendency of cases at all three levels of courts, i.e. the Supreme Court, the Highs Courts, and the subordinate courts, and discuss the capacity of these courts to dispose of cases.

Pendency in courts has increased over the years; 87% of all pending cases are in subordinate courts

Sources:  Court News, 2006, Supreme Court of India; National Data Judicial Grid accessed on August 7, 2019; PRS.

Overall, the pendency of cases has increased significantly at every level of the judicial hierarchy in the last decade.  Between 2006 and now, there has been an overall increase of 22% (64 lakh cases) in the pendency of cases across all courts.  As of August 2019, there are over 3.5 crore cases pending across the Supreme Court, the High Courts, and the subordinate courts.  Of these, subordinate courts account for over 87.3% pendency of cases, followed by 12.5% pendency before the 24 High Courts.  The remaining 0.2% of cases are pending with the Supreme Court.  The primary reason for growing pendency of cases is that the number of new cases filed every year has outpaced the number of disposed of cases.  This has resulted in a growing backlog of cases.

In High Courts and subordinate courts, over 32 lakh cases pending for over 10 years

 

 

 

 

 

 

 

Sources:  National Data Judicial Grid accessed on August 7, 2019; Court News, 2006-17, Supreme Court of India; PRS.

In the High Courts, over 8.3 lakh cases have been pending for over 10 years.  This constitutes 19% of all pending High Court cases.  Similarly, in the subordinate courts, over 24 lakh cases (8%) have been pending for over 10 years.  Overall, Allahabad High Court had the highest pendency, with over seven lakh cases pending as of 2017.

Despite high pendency, some High Courts have managed to reduce their backlog.  Between 2006 and 2017, pendency of cases reduced the most in Madras High Court at a rate of 26%, followed by Bombay High Court at 24%.  Conversely, during the same period, the pendency of cases doubled in the Andhra Pradesh High Court, and increased by 2.5 times in Karnataka High Court.

As a result of pendency, number of under-trials in prison is more than double that of convicts

Sources:  Prison Statistics in India, 2015, National Crime Record Bureau; PRS.

Over the years, as a result of growing pendency of cases for long periods, the number of undertrials (accused awaiting trial) in prisons has increased.  Prisons are running at an over-capacity of 114%.  As of 2015, there were over four lakh prisoners in jails.  Of these, two-thirds were undertrials (2.8 lakh) and the remaining one-third were convicts. 

The highest proportion of undertrials (where the number of inmates was at least over 1,000) were in J&K (85%), followed by Bihar (82%).  A total of 3,599 undertrials were detained in jails for more than five years.  Uttar Pradesh had the highest number of such undertrials (1,364) followed by West Bengal (294). 

One interesting factor to note is that more criminal cases are filed in subordinate courts than in High Courts and Supreme Court.  Of the cases pending in the subordinate courts (which constitute 87% of all pending cases), 70% of cases were related to criminal matters.  This increase in the pendency of cases for long periods over the years may have directly resulted in an increase in the number of undertrials in prisons.  In a statement last year, the Chief Justice of India commented that the accused in criminal cases are getting heard after serving out their sentence.

Vacancies in High Courts and Subordinate Courts affect the disposal of cases

Sources:  Court News, 2006-17, Supreme Court of India; PRS.

Vacancy of judges across courts in India has affected the functioning of the judiciary, particularly in relation to the disposal of cases.  Between 2006 and 2017, the number of vacancies in the High Courts has increased from 16% to 37%, and in the subordinate courts from 19% to 25%.  As of 2017, High Courts have 403 vacancies against a sanctioned strength of 1,079 judges, and subordinate courts have 5,676 vacancies against a sanctioned strength of 22,704 judges.  As of 2017, among the major High Courts (with sanctioned strength over 10 judges), the highest proportion of vacancies was in Karnataka High Court at 60% (37 vacancies), followed by Calcutta High Court at 54% (39 vacancies).  Similarly, in major subordinate courts (with sanctioned strength over 100 judges), the highest proportion of vacancies was in Bihar High Court at 46% (835 vacancies), followed by Uttar Pradesh High Court at 42% (1,348 vacancies).