Implication of Amendment in Article 370 on Income Tax Act & GST Act

  • August 6, 2019
  • CA Chandan Agarwal's Office
CA Chandan Agarwal

CA Chandan Agarwal

Is the Constitutional Amendment in Article 370 of the Constitution of India has any Implications on Income Tax Act & GST Act?

1. Background:

On 5 August 2019, the Hon’ble Union Home Minister Sh. Amit Shah has moved a resolution to amend Article 370 of the Constitution of India in the Rajya Sabha, so as to do away with some of the ‘privileges of special autonomous status’ being granted to the State of Jammu & Kashmir by the said Article 370 and to reorganize the State of Jammu & Kashmir into two separate Union Territories i.e. Jammu and Kashmir and Ladakh. The Ministry of Law & Justice has issued the ‘Constitution (Application to Jammu & Kashmir) Order 2019’ stipulating for the applicability of all the provisions of the Constitution of India to the State of Jammu & Kashmir. The said Order has received the consent of the Hon’ble President of India.

2. What did the pre-amended Article 370 say?

The pre-amended Article 370 of the Constitution of India coming under part XXI, granted ‘special autonomous status’ to the State of Jammu and Kashmir.

For ready reference the text of the pre-amended Article 370 of the Constitution of India is reproduced as under:

“370. Temporary provisions with respect to the State of Jammu and Kashmir 

(1) Notwithstanding anything contained in this Constitution,—

(a) the provisions of article 238 shall not apply now in relation to the state of Jammu and Kashmir;

(b) the power of Parliament to make laws for the said state shall be limited to—

(i) those matters in the Union List and the Concurrent List which, in consultation with the Government of the State, are declared by the President to correspond to matters specified in the Instrument of Accession governing the accession of the State to the Dominion of India as the matters with respect to which the Dominion Legislature may make laws for that State; and

(ii) such other matters in the said Lists as, with the concurrence of the Government of the State, the President may by order specify.

Explanation: For the purpose of this article, the Government of the State means the person for the time being recognized by the President on the recommendation of the Legislative Assembly of the State as the Sadr-i-Riyasat (now Governor) of Jammu and Kashmir, acting on the advice of the Council of Ministers of the State for the time being in office.

(c) the provisions of article 1 and of this article shall apply in relation to that State;

(d) such of the other provisions of this Constitution shall apply in relation to that State subject to such exceptions and modifications as the President may by order specify:

Provided that no such order which relates to the matters specified in the Instrument of Accession of the State referred to in paragraph (i) of sub-clause (b) shall be issued except in consultation with the Government of the State:

Provided further that no such order which relates to matters other than those referred to in the last preceding proviso shall be issued except with the concurrence of that Government.

(2) If the concurrence of the Government of the State referred to in paragraph (ii) of sub-clause (b) of clause (1) or in the second provision to sub-clause (d) of that clause be given before the Constituent Assembly for the purpose of framing the Constitution of the State is convened, it shall be placed before such Assembly for such decision as it may take thereon.

(3) Notwithstanding anything in the foregoing provisions of this article, the President may, by public notification, declare that this article shall cease to be operative or shall be operative only with such exceptions and modifications and from such date as he may specify:

Provided that the recommendation of the Constituent Assembly of the State referred to in clause (2) shall be necessary before the President issues such a notification.

Thus, the pre-amended Article 370 embodied six special provisions for the State of Jammu and Kashmir:

i. It exempted the State from the complete applicability of the Constitution of India. The State was allowed to have its own Constitution.

ii. Central legislative powers over the State were limited, at the time of framing, to the three subjects of defence, foreign affairs and communications.

iii. Other constitutional powers of the Central Government could be extended to the State only with the concurrence of the State Government.

iv. The ‘concurrence’ was only provisional. It had to be ratified by the State’s Constituent Assembly.

v. The State Government’s authority to give ‘concurrence’ lasted only until the State Constituent Assembly was convened. Once the State Constituent Assembly finalised the scheme of powers and dispersed, no further extension of powers was possible.

vi. The Article 370 could be abrogated or amended only upon the recommendation of the State’s Constituent Assembly.

3. Autonomy of the State of Jammu and Kashmir: How Much Absolute?

India’s Constitution is a federal structure. The subjects for legislation are divided into a ‘Union List’, a ‘State List’ and a ‘Concurrent List’. The Union List of ninety-six subjects, including defense, military and foreign affairs, major transport systems, commercial issues like banking, stock exchanges and taxes, are provided for the Union government to legislate exclusively. The State List of sixty-six items covering prisons, agriculture, most industries and certain taxes, are available for States to legislate on. The Concurrent List, on which both the Centre and States may legislate include criminal law, marriage, bankruptcy, trade unions, professions and price control. In case of conflict, the Union legislation takes precedence. The ‘residual power’, to make laws on matters not specified in the Constitution, rests with the Union. The Union may also specify certain industries, waterways, ports etc. to be ‘national’, in which case they become Union subjects.

In the case of Jammu and Kashmir, the ‘Union List’ and the ‘Concurrent List’ were initially curtailed to the matters ceded in the Instrument of Accession, but they were later extended with the concurrence of the State Government. The ‘residual power’ continues to rest with the State rather than the Union. According to the State Autonomy Committee, ninety-four of the ninety-seven items in the Union List currently apply to Jammu and Kashmir. The provisions of the Central Bureau of Intelligence and Investigation and preventive detention do not apply. Of the ‘Concurrent List’, twenty-six of the forty-seven items apply to Jammu and Kashmir. The items of marriage and divorce, infants and minors, transfer of property other than agricultural land, contracts and torts, bankruptcy, trusts, courts, family planning and charities have been omitted, i.e., the State has exclusive right to legislate on those matters. The right to legislate on elections to state bodies also rests with the State.

4. Is the Income Tax Act applicable on the State of Jammu & Kashmir?

The general and layman’s perception in this regards is that by virtue of the special autonomous status of the State of Jammu & Kashmir, as granted by Article 370 of the Constitution of India, the provisions of Income Tax Act are not applicable to the State of Jammu & Kashmir.

However, it is not a correct perception. Section 1 of the Income Tax Act, 1961 provides as under:

“Short title, extent and commencement.

1. (1) This Act may be called the Income-tax Act, 1961.

(2) It extends to the whole of India.”

Thus, it is amply clear from the above express legislative provision in the Income Tax Act that the said Act is applicable on whole of India including the State of Jammu & Kashmir.

It is pertinent to mention here that the applicability of the provisions of the Income Tax Act, was extended to the State of Jammu & Kashmir by “The Taxation Laws (Extension to Jammu & Kashmir) Act, 1954, an Act promulgated by the Indian Parliament on 8th October 1954, and since then the Income Tax Act is applicable on the State of Jammu & Kashmir.

However, there is one exception contained in section 269S of the Income Tax Act, which stipulates that the provisions of ‘Chapter XXA of the Income Tax Act, 1961 concerning “Acquisition of immovable properties in certain cases of transfer to counteract evasion of tax” shall not extend to the State of Jammu and Kashmir.

Now after the promulgation of ‘The Constitution (Application to Jammu & Kashmir) Order 2019’ stipulating for the applicability of all the provisions of the Constitution of India to the State of Jammu & Kashmir and proposing to remove the existing restriction on the purchase or acquisition of an immovable property by a non-Kashmiri in the State of Jammu & Kashmir, it can be foreseen with reasonable amount of certainty that the said exception to the applicability of Chapter XXA of the Income Tax Act, 1961, concerning the “acquisition of immovable properties in certain cases of transfer to counteract evasion of tax”, as contained in section 269S of the Income Tax Act, 1961, will be done away with and the Revenue Authorities will be able to acquire/confiscate any immovable property owned by a tax defaulter resident in the State of Jammu & Kashmir.

5. Is the CGST/IGST Act applicable on the State of Jammu & Kashmir?

The provisions of the erstwhile Service Tax Act as contained in the Finance Act 1994, were not applicable to the State of Jammu & Kashmir. Also, uptill 7th July 2017, the provisions of Central Goods & Service Tax (CGST) & Integrated Goods & Service Act (IGST) were also not applicable in the State of Jammu & Kashmir.

However w.e.f. 8.7.2017, the provisions of CGST and IGST Act have also been extended to the State of Jammu & Kashmir.

CBEC Press Release dt. 8 July 2017

“Goods and Services Tax was launched in the country from the midnight of 1st July, 2017. However, because of the special provisions applicable to the State of Jammu and Kashmir extra steps had to be taken before the State could join the GST fold.

On 6th July 2017, the State of Jammu and Kashmir took the first step towards adopting the GST regime with the President of India giving assent to the Constitution (Application to Jammu and Kashmir) Amendment Order, 2017. Resultantly, the One Hundred and First Amendment Act, 2016 to the Constitution of India that paved the way for introduction of GST in the country, became applicable to the State of Jammu and Kashmir also. Following this, on 7th July, 2017 the Jammu and Kashmir Goods and Services Tax Bill, 2017 was passed by the State legislature, empowering the State to levy State GST on intra-state supplies with effect from 8th July, 2017.

Concomitantly, the President of India has promulgated two ordinances, namely, the Central Goods and Services Tax (Extension to Jammu and Kashmir) Ordinance, 2017 and the Integrated Goods and Services Tax (Extension to Jammu and Kashmir) Ordinance, 2017 extending the domain of Central GST Act and the Integrated GST Act to the State of Jammu and Kashmir, with effect from 8th July, 2017. With this, the State of Jammu and Kashmir has become part of the GST regime, making GST truly a “one nation, one tax” regime.”

Concluding Remarks:

The applicability of the provisions of the Income Tax Act was extended to the State of Jammu & Kashmir by “The Taxation Laws (Extension to Jammu & Kashmir) Act, 1954, an Act promulgated by the Indian Parliament on 8th October 1954, and since then the Income Tax Act is applicable on the State of Jammu & Kashmir, except the provisions of Chapter XXA concerning the “acquisition of immovable properties in certain cases of transfer to counteract evasion of tax”, by virtue of the exception contained in section 269S of the Income Tax Act, 1961. However, in the wake of present constitutional amendment in Article 370 including the removal of restriction on purchase or acquisition of an immovable property by a non-Kashmiri, the said immunity from the confiscation or acquisition of an immovable property owned by a tax defaulter in the State of Jammu & Kashmir, is bound to go.

Similarly with the President of India giving assent to the Constitution (Application to Jammu and Kashmir) Amendment Order, 2017 followed by promulgation of two ordinances, namely, the Central Goods and Services Tax (Extension to Jammu and Kashmir) Ordinance, 2017 and the Integrated Goods and Services Tax (Extension to Jammu and Kashmir) Ordinance, 2017, the applicability of the provisions of CGST & IGST Act has been extended to the State of Jammu & Kashmir also w.e.f. 8.7.2017.

Thus, the recent Constitutional Amendment in Article 370 of the Constitution of India, though having a very far reaching consequences and repercussions on the Country’s ‘Geo-Political environment’ but will not have any significant impact on the Income Tax Act and the GST Act, as the said Acts are already applicable in the State of Jammu & Kashmir.

Source: https://taxguru.in/goods-and-service-tax/implication-amendment-article-370-income-tax-act-gst-act.html

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