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V Swaminathan B.Sc. B.L., FCA

 Finance (No. 2) Bill 2014 – A study


The Finance (No. 2) Bill 2014 makes for the maiden fiscal enactment of the newly installed government.

The point of intriguing point of poser, for an insightful scrutiny is this: – Is it the bill  absolutely free from ‘retroactivity’ as sought to be made out in officialdom , besides among the legal and other circles?


Almost everyone, including active and proactive professional tax advisers- mainly, lawyers and CAs, having something to do or other with the Budget proposals of the newly installed government, have sought and brought to focus the ‘highlights’. Even so, it is sad to observe that, in so doing, in one’s conviction, some of the deficiencies, hidden or otherwise, it is noted, have not been even touched upon, for reasons not known. One such aspect that appears to have been simplistically glossed over, despite it being of the most concern to the tax payers relates to ‘retrospective’ changes in the law. So much so, by and large, the impression floated around, unwittingly or otherwise, in learned circles is that if were to go by the effective dates specified, the empowered ministries in general, and the Revenue in particular, have done their best to live up to the repeated assurance to do away with the age old obnoxious weakness of retrospective legislation – which the towering legal luminary/tax expert of our own times (’Nani’) was never tired of referring to and ridiculing remorsefully as, ‘change mania’, ‘obsessive attitude’, the historical fact of successive governments failure to save the tax payer from being made the victim of ‘palpable injustice’, and so on. But, it seems that is not a well-founded impression.

REASONING for saying so :

With reference to the specific amendments made in the 2014 fiscal budget (since enacted) , of section 54 and 54 F of the IT Act, a view has been floated around in certain quarters . That is to the effect that the Finance Minister has now tweaked ‘this section’ (reference is to section 54) to specify that only “ONE residential house in India” would be eligible for the tax break, and not more than one. (BOLD FONT SUPPLIED)

According to a seemingly well reasoned analysis in a published article, the recent amendments made are with a view to set at rest the till now on-going controversy, and the mutually contradicting judicial opinion, on the erstwhile (before amendment) provisions, on two facets, not just one; That is, in order to set at rest the raging controversy on, –

(1) the meaning of ‘a’ ; and

(2) whether residential house, even if situate ‘outside India’, should qualify for the CGT exemption..

Be that as it were, the amendment, to reiterate, in own individual perspective, seemingly suffers from a malady, – rather a thus far remaining unidentified and being ignored fallacy:

That has something to do with the vexing battle of wits, being tirelessly fought for decades, on the issue of amending any enactment with retrospective effect.

To explain:

(A) Having sold an asset held earlier, in the financial year ended 31-3-2014, tax payer could possibly have, in order to availing of tax exemption as per the THEN law, taken positive steps to accomplish his intention; such as, entering into/concluding a deal with promoter, and / or seller, for purchase or construction of a new asset. According to a strict reading of the unamended section itself , the time limit allowed for his doing so is 2/3 years; which is to be continued thereafter as well. Imaginably, such a time limit could conceivably expire anytime ONLY later; that is, in no case OR not in all cases, before 31-3-2014. On that premise, the point in mind is this: Will not, because of the subject two- fold amendment (s) , in such cases the effect of the proposed amendment(s) would have a retroactive impact in its legal sense of the concept, seemingly unfair by any logic; perhaps, though not intended.

Can there be any scope for a different thinking /line of reasoning, with ‘fair play’ in the backdrop?

Looking at from another angle , as well:

(a) The tax exemption pertains to / is of income arising from transfer of asset held in a year anterior to the year ending 31-03-2015;

(b) albeit amendments referred to are of section 54 and 54F, and said to be prospectively from April 1, 2015, those pertain/would, in terms, apply also to income from a transaction effected at an earlier point time, that is prior to 31-03-2014; that is , not only to income accruing or arising after that date ;

(c) the denial of exemption under the amended section (s) is, in essence, of income accruing or arising in a year also anterior to the one in which exemption is, as per the law, entitled to be allowed; and

(d) thus, consequence of the proposed amendment attaches/dates back to an earlier year- that is, retroactively.

So far as could be seen/is intelligible or decipherable , there appears to be no scope for any different opinion on the foregoing aspects. Should, however, there be , from eminent law experts, welcome to share with the rest for the benefit of , not merely the taxpaying community, the Revenue as well.

Aside: One’s honest guess is that, the subject amendments, relate to and, more or less , are in line with corresponding proposals, though not exactly, intended to be effected through the DTC , but have come to be advanced, pending its long due enactment, for more than one reason. Not to be over sighted, – even if these were to have waited for, and brought in only through DTC, if and when ecacted, then also it would have become necessary to avoid the treacherous ‘retroactivity’, but through the mechanics of so called , – ‘Repeals and Savings’.


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  1. vswami says:

    Under para.- “Looking at from another angle , as well:”, in (b) , “in April, 2005”, to be corrected and read “in April, 2015”

  2. Vinay Joshi says:

    Hello Mr. V. Swaminathan,

    Greetings! How are you?

    Mr. Swaminathan & Mr.Sandeep, what are your views on NTT v. tax lawyers aspects? [national tax tribunal v. tax lawyers lobby.]

    The post by Mr. Swaminathan is absolutely misunderstood perception of the Fiscal Bill 2014, in respect to 54/54F/54EC or even debt funds [close ended].
    Highlighting retrospective / prospective!? SHOULD EXPLAIN WITH REF TO MY POST!

    Your aspect about Fiscal Bill 2014 – direct tax amendments for AY 2015-16, FY 2014-15. NO LAW OR TAXATION EXPERTS ARE REQUIRED! Comprehend.

    Just a fortnight back Bombay HC settled, combining two flats allowed, 54 LTCG. Several other cases decreed upon in other HC’s i can give.
    Some courts had also talked about grammar & the use of the definite article ‘the’ or ‘a.

    Hence no more ambiguity 54[1] – ‘THE WORDS’ – ‘CONSTRUCTED, ONE RESI HOUSE IN INDIA’ – SHALL BE SUBSTITUTED w.e.f the 1st day of April 2015.
    Similar amend to sec 54F[1].
    Similarly 54EC[1], states that in subsequent FY does not exceed 50L.



    So FY2013-14, ITR filed, that is final, let’s now discuss.
    Never the tax dept intended two properties.
    54/54EC/54F – as per ITR availed will not be expunged. The earlier tax provisions stands.

    As regards, debt mutual funds are concerned, CBDT is yet to issue a ntfn.
    They were meant for retail investors, not corporates hedging.
    There never can be retrospective tax in FY2014-15 to retail investors IMPOSED AFTER THE SAID AWAITED CBDT NTFN!
    The MF’s have already started rolling over if investor wishes so.


  3. C P CHUGH says:

    Correctly said, there are other areas where effect of amendments are retrospective (inspite of FM boldly claiming we shall not generally change the law retrospectively). One such example in in amendment to section 54EC.
    It is ususally said the FM has set at right the controversy with regard to ceiling in investments. However look at the fate of a tax payer who earned LTCG in the FY 13-14 (Post October) and as being well advised has invested
    Rs. 50.00 Lac prior to March 14 and another 50.00 Lac post March 14. Now the poor would have face the consequence of amendment, while he has locked his funds for three years and cannot even liquidate to pay taxxes…………?

    He (FM) has said roringly that Tax Terrosim should end, but looking/examining various amendments it seems he has said ” Tax Terrorism should not end”.

  4. s sudarshana says:

    The fact that the tax consideration in respect of debt mutual funds is being changed, by raising the holding period from 12 to 36 months to consider it as long term instrument, is a retrosepctive act. This should be effected in respect of investments made after the passage of finance bill and not to those units purchased before and getting matured now.

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