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Archive for July, 2010

Renaming of States

July 20th, 2010 No comments

The Chief Minister of Kerala has made a statement in the Assembly this week agreeing to look into the demand to change the name of the state to Keralam to make it conform to the state’s name as pronounced in Malayalam.  A few major cities in Kerala have already been renamed in the recent past in an attempt to erase the Anglican influence in their naming.

Another proposal to rename the state of Orissa to Odisha has recently been approved by the Union Cabinet.

This is part of a trend that gained momentum after the renaming of Bombay, Madras and Calcutta.  Bombay was renamed Mumbai – derived from name of Goddess Mumbadevi – in1995 when the Shiv Sena – BJP combine won the state Assembly elections.  In the following year Madras was renamed to Chennai and in 2001 Calcutta was renamed Kolkata.

The renaming of a state requires Parliamentary approval under Article 3 and 4 of the Constitution, and the President has to refer the same to the relevant state legislature for its views. However, the change in name of official language would require a constitutional amendment since it requires a change in the 8th schedule.

In the case of Orissa, the state legislature has approved in August 2008, change to the name of Orissa to Odisha and the name of its official language from Oriya to Odia. The central cabinet approved the proposal, and 2 bills The Orissa (Alteration of name) Bill, 2010 and the Constitution (113th Amendment) Bill has been introduced in Parliament.

Amendments Proposed to Draft Direct Taxes Code

July 15th, 2010 3 comments

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assets (currently imposed on book profits), and the taxation of certain types of personal savings at the time they are withdrawn by an investor.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

Honour Killings: Are we prepared to tackle the problem?

July 13th, 2010 3 comments

The issue of honour killing grabbed headlines with the death of Nirupama Pathak, a Delhi-based journalist, who was alleged to have been killed by her family because she was pregnant and was planning to marry a person outside her caste.  This was followed by two more cases of suspected honour killing (see here and here) in the capital.

While incidences of honour killing are a rarity in the capital, such incidences are common in the northern states of India such as Punjab, Haryana and Uttar Pradesh.  The basic reason behind honour killings is the idea that a family’s honour is tied to a woman’s chastity.  Thus, a wide range of causes can trigger honour killing such as marital infidelity, pre-marital sex, having unapproved relationships, refusing an arranged marriage or even rape.

In India, honour killings take place if a couple marries outside their caste or religionKhap panchayats also oppose and mete out punishments to couples who marry within the same gotra (lineage) or transgress other societal norms.  A recent judgement by a sessions court in Karnal for the first time awarded the death penalty to five men for murdering a young couple who had married against the diktats of a khap panchayat.  It gave life sentence to a member of the khap panchayat who declared the marriage invalid and was present when the killing took place.

On June 22, the Supreme Court issued a notice to the centre and eight states to explain the steps taken to prevent honour killing.  Taking a cautious approach the government rejected Law Minister, M. Veerappa Moily’s proposal to amend the Indian Penal Code and rein in the khap panchayats (caste based extra constitutional bodies).  It however decided to constitute a Group of Ministers to consult the states and look into the scope for enacting a special law that would treat honour killing as a social evil.

Experts are divided over the proposed honour killing law.  Some experts argue that the existing laws are sufficient to deter honour killing, if implemented properly while others feel that more stringent and specific provisions are required to tackle the menace of honour killings.

Existing Penalties under Indian Penal Code:

  • Sections 299-304: Penalises any person guilty of murder and culpable homicide not amounting to murder.  The punishment for murder is life sentence or death and fine.  The punishment for culpable homicide not amounting to murder is life imprisonment or imprisonment for upto 10 years and fine.
  • Section 307: Penalises attempt to murder with imprisonment for upto 10 years and a fine.  If a person is hurt, the penalty can extend to life imprisonment.
  • Section 308: Penalises attempt to commit culpable homicide by imprisonment for upto 3 years or with fine or with both.  If it causes hurt, the person shall be imprisoned for upto 7 years or fined or both.
  • Section 120A and B: Penalises any person who is a party to a criminal conspiracy.
  • Sections 107-116: Penalises persons for abetment of offences including murder and culpable homicide.
  • Section 34 and 35: Penalises criminal acts done by several persons in furtherance of common intention.
Arguments favouring new law Arguments against new law
  • Making the crime of honour killing a separate offence would help bring more clarity for law enforcement agencies.
  • One of the proposals is to amend the Indian Evidence Act to put the burden of proof on the accused.  Thus, the khap panchayat or the family members would be responsible for proving their innocence.
  • There would be joint liability under the proposed new law.  The khap panchayat (or any group ordering honour killings) and the person who carries out the killing would be jointly liable for punishment.
  • The existing penalty for the offence of murder is sufficient if they are implemented strictly and effectively.
  • A new set of laws would not deter honour killings because the basic issue is social sanction for acts committed to curtail same gotra marriage, inter-caste marriage, inter-religion marriage.
  • Need for creating awareness among traditional communities through education.
  • Holding khap panchayats  collectively accountable can be detrimental to members who do not support such killing.  Also, it could be misused for vindictive agendas.
Sources: “Define honour killing as ‘heinous crime’: Experts”, Hindustan Times, May 12, 2010; “Legal experts divided over proposed honour killing law,” Indian Express, Feb 16, 2010; “Legal Tangle,” Indian Express, July 10, 2010; and “Honour Killing: Govt defers decision on Khap Bill,” Indian Express, July 8, 2010; “Honour Killing: Govt considers special law,” Indian Express, July 9, 2010.

Meanwhile, khap panchayats are up in arms defending their stance against same gotra marriage.  They have demanded an amendment to the Hindu Marriage Act, 1955 disallowing same gotra marriage.  While condemning honour killings, some politicians such as Naveen Jindal and Bhupinder Singh Hooda have extended support to the demands of the khap panchayats.

It remains to be seen if India is effectively able to address this tug of war between tradition and modernity.

Parliamentary oversight of intelligence agencies

July 8th, 2010 1 comment

Parliamentary approval of the creation, mandate and powers of security agencies is a necessary but not sufficient condition for upholding the rule of law. A legal foundation increases the legitimacy both of the existence of these agencies and the (often exceptional) powers that they possess.” Though mechanisms for ensuring accountability of the executive to the Parliament are in place for most aspects of government in India, such mechanisms are completely absent for the oversight of intelligence agencies.

In India, various intelligence agencies such as the Research and Analysis Wing, and the Intelligence Bureau are creations of administrative orders, and are not subject to scrutiny by Parliament. This is in direct contrast to the practise of the Legislature’s oversight of intelligence agencies in most countries.  Though different countries have different models of exercising such oversight, the common principle – that activities of intelligence agencies should be subject to Parliamentary scrutiny, remains uniform.

In the US for example, both the House and the Senate have a Committee which exercises such scrutiny.  These are House Permanent Select Committee on Intelligence, established in 1977, and the Senate Select Committee on Intelligence, created in 1976.  Both committees have broad powers over the intelligence community.  They oversee budgetary appropriations as well as legislation on this subject.  In addition, the House Committee can do something which the Senate can not:  “tactical intelligence and intelligence-related activities.”  This gives the Committee the power to look into actual tactical intelligence, and not just broader policy issues.  Intelligence agencies are also governed by a variety of laws which clearly lay out a charter of responsibilities, as well as specific exemptions allowing such agencies to do some things other government agencies ordinarily cannot. (For source, click here)

In UK, the Intelligence Services Act of 1994 set up a similar framework for intelligence organisations in the UK, and also set up a mechanism for legislative oversight.  The Act set up a Committee which should consists mostly of Members of Parliament.  The members are appointed by the Prime Minister in consultation with the leader of opposition, and the Committee reports to the Prime Minister.  The Prime Minister is required to present the report of the Committee before Parliament. (For the Act, click here)

Recently, the Committee has expressed concerns in its 2009-10 report over the fact that it is financially dependent on the Prime Minister’s office, and that there could be a conflict of interest considering it is practically a part of   the government over which it is supposed to express oversight. (For the report, click here)

A study titled “Making Intelligence Accountable: Legal Standards and Best Practice” captures the best components of Parliamentary oversight of intelligence bodies.  Some of these are:

  1. The entire intelligence community, including all ancillary departments and officials, should be covered by the mandate of one or more parliamentary oversight bodies.
  2. The mandate of a parliamentary oversight body might include some or all of the following (a) legality, (b) efficacy, (c) efficiency, (d) budgeting and accounting; (e) conformity with relevant human rights Conventions (f) policy/administrative aspects of the intelligence services.
  3. The recommendations and reports of the parliamentary oversight body should be (a) published; (b) debated in parliament; (c) monitored with regard to its implementation by the government and intelligence community.
  4. The resources and legal powers at the disposal of the parliamentary oversight body should match the scope of its mandate.
  5. Parliament should be responsible for appointing and, where necessary,
    removing members of a body exercising the oversight function in its name.
  6. Representation on parliamentary oversight bodies should be cross-party, preferably in accordance with the strengths of the political parties in parliament.
  7. Government ministers should be debarred from membership (and
    parliamentarians should be required to step down if they are appointed as ministers) or the independence of the committee will be compromised. The same applies to former members of agencies overseen.
  8. The oversight body should have the legal power to initiate investigations; Members of oversight bodies should have unrestricted access to all information which is necessary for executing their oversight tasks.
  9. The oversight body should have power to subpoena witnesses and to receive testimony under oath.
  10. The oversight body should take appropriate measures and steps in order to protect information from unauthorised disclosure.
  11. The committee should report to parliament at least yearly or as often as it deems necessary.
  12. The oversight body should have access to all relevant budget documents, provided that safeguards are in place to avoid leaking of classified information.