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Extent of the Income Tax Act, 1961

Section 1 of almost every act starts with a short-title, an extent, and a commencement, and the Income Tax Act, 1961, (the Act) is no exception. In this article we will try to understand the significance of provisions relating to Section 1 of the Act with special emphasis to the extent of the Act.
Let us reproduce Section 1 of the Act.
“Short titles, extent and commencement.
1(1) This Act may be called the Income tax Act, 1961.
(2) It extends to the whole of India.
(3) Save as otherwise provided in this Act, it shall come into force on the 1st day of April, 1962.”

Short title of the Act states that this Act may be called the Income Tax Act, 1961. Again, in view of Section 28 of the General Clauses Act, 1897 any Central Act may be cited by reference to the title or short-title conferred to it, or by reference to the number and year thereof. The number and year of the Act, 1961, is 43 and 1961 respectively, therefore ‘43 of 1961’ also refers to the Act.

Before we discuss the provisions relating to the ‘extent’ of the Act, let us first discuss its ‘commencement’. In Sub-section (3) of Section 1, it states that the Act commences from 01/04/1962 with a condition prefixed as “Save as otherwise provided in this Act…”. This prefix signifies that if in any provision of this Act commencement of the any provision is specifically made to be different from the date of 01/04/1962 then that provision shall commence from that specified date.

Now let us discuss the ‘extent’ of the Act. Section 1(2) of the Act states “It extends to the whole of India.” We know that before the commencement of the Act, the Indian Income Tax Act, 1922 (11 of 1922) was in force which was repealed by section 297 of the Act. The 1922 Act extends to the whole of India, except the State of Jammu & Kashmir. By virtue of the Taxation Laws (Extension to Jammu & Kashmir) Act, 1954, in the provision of section 1(2) of the 1922 Act the group of words “except the State of Jammu & Kashmir” is omitted thereby extending the 1922 Act to the whole of India. In the 1922 Act the word ‘India’ was not defined, though the group of words “British India” finds place in many provisions of the said Act. However, section 3(28) of the General Clauses Act, 1897, defined the word ‘India’, and accordingly this definition applies to the 1922 Act as well. By the Adaptation of Laws Order 1950 the group of words ‘British India’ wherever they occurred in the Act, were substituted by the group of words ‘taxable territories’. Initially the word ‘India’ was not defined in the Act. By the Taxation Laws (Extension to Union Territories) Regulation, 1963, the word ‘India’ was first time defined in the Act by inserting clause (25A) to Section 2 of the Act, to include Union Territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, as respects any period for the purposes of Section 6, and as respects to any period included in the previous year, for the purposed of making any assessment for the Assessment Year 1963-64, or for any subsequent assessment years.

This definition of ‘India’ in the Act was substituted by the Finance Act, 2007, with retrospective effect from 25/08/1976. For better understanding let us reproduce the said definition

2. In this Act, unless the context otherwise requires, -
(25A) ‘India’ means the territory of India as referred to in Article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters;”

Now a pertinent question that arises is why from such a specific date the definition of "India" is substituted, which is more than 30 years old on the date of substitution? In some cases, we have seen that some provisions are given retrospective effect from the date of commencement of the Act, but it is not so. Let us see what the CBDT has to say in this respect. Vide Circular No. 3/2008, dated 12/03/2008, the CBDT states that the DTAAs entered into by India provide a wider definition of ‘India’ vis-à-vis the Act. Hence with a view to provide a comprehensive definition of India, the existing definition has been substituted by a new definition. Now the question that remained unanswered in the circular is how India as per DTAA could be wider than India as per the Act, when DTAA is made under the Act?

To understand its background let us see then existing international geopolitical positions. It is considered that all waters beyond national boundaries are international waters free to all nations but belonging to none of them. The United Nations Convention on the Law of the Sea defines the rights and responsibilities of nations with respect to their use of the world’s oceans, establishing guidelines for business, the environmental, and the management of marine natural resources. The convention took place from 1973 to 1982. Interim outcome of the convention has necessitated 40th amendment of the Constitution of India in which Article 297 was substituted on 27/05/1976 to enable the Parliament to make laws with respect to the Exclusive Economic Zone and vest the mineral wealth with the Union of India. After the said constitutional amendment, The Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (80 of 1976) was enacted with effect from 25/08/1976.

As per said Act of 1976, the sovereignty of India extends and has always extended to the territorial waters of India (12 nautical miles [22.22 KM] from the baseline) and the seabed, subsoil underlying and the air space over such waters. Contiguous zone of India (24 nautical miles [44.45 KM] from the baseline), The Continental Shelf of India (200 nautical miles [370.4 KM] from the baseline, Exclusive Economic Zone of India (200 nautical miles [370.4 KM] from the baseline. The maritime boundaries between India and any State whose coast is opposite or adjacent to that of India shall be determined by agreement between them, or to be equidistant.

India has sovereign rights for the purpose of exploration, exploitation, conservation,
management of the natural resources, both living and non-living as well as for producing energy from tides, winds and currents, scientific research and other rights as are recognised by the International Laws. In view of the above changed position of law it was necessary to substitute the definition of the term ‘India’ in the Act. Again, the Central Government, vide Notification No. GSR 304(E) dated 31/03/1983 has extended the Act to the Continental Shelf of India, and the exclusive Economic Zone of India with effect from 01/04/1983 with certain restrictions and modifications.

Now another pertinent and relevant development in this respect is the formation of Sikkim as a State within the Indian Union on 26/04/1975 by the Constitution (36th Amendment) Act, 1975. This amendment has inserted Article 371 F providing special provisions with respect to the State of Sikkim in terms of which not all the laws of India were extended to the State of Sikkim. In view of section 26 of the Finance Act, 1989, the provisions of the Act shall come into force in the State of Sikkim with effect from Assessment Year 1990-91 and onwards.

avinash kumar on June 07 2018 22:50:14

Very informative and in depth knowledge given in this article at same time very concise. Dada's presentation is unparallel.

vvgovil on June 08 2018 09:38:34

Dada, your explanation style is just superb and the topic choosen are also untouched by us. Sometimes we wonder why we did not see the things so deeply. But at least it is your articles that make us look into between the lines. May I request you to please write one such article daily..

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