In the Rajya Sabha, the Hon’ble Union Home Minister Sh. Amit Shah has passed a resolution to amend the Article 370 of the Indian constitution that offers ‘privileges of special autonomous status’ to the State of Jammu & Kashmir. By making amendments in Article 370, the special state right of Jammu & Kashmir has been scrapped, and it has been reorganized into two separate union territories, i.e., Jammu and Kashmir, and Ladakh.
In order to make this decision effective, a ‘Constitution (Application to Jammu & Kashmir) Order 2019’ has been passed by The Ministry of Law & Justice that specify the applicability of all the amended provisions of the Constitution of India to the State of Jammu & Kashmir. This Order has also been received by the Hon’ble President of India.
Provisions of Pre-amended Article 370
The pre-amended Article 370 of the Indian Constitution under part XXI gives ‘special autonomous status’ right to the State of Jammu and Kashmir under Temporary and Transitional Provisions.
For exact reference to the pre-amended Article 370 of the Constitution of India, the text from it has been taken and mentioned underneath to explain it:
“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[1][14][b]
- (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:
As per the Article 370, the State of Jammu Kashmir has been exempted from the complete applicability of Indian Constitution. The central legislative powers to the State has been limited, as per the pre-amended Article 370, in the matters related to defence, foreign affairs and communications. The other constitutional powers held by the Central government could also be extended to the State only with the concurrence of the State Government of Jammu & Kashmir. This term “concurrence” was only provisional and was upheld by the State’s constituent assembly mainly. The State’s constituent assembly had the power to limit the “concurrence” applicability. State’s constituent assembly was mainly responsible for finalizing different schemes and applying them to the State. No further extension of powers was allowed by the State. Article 370 abrogation or amendment was only possible with the recommendation of the State’s Constituent Assembly.
The Autonomy of the State of Jammu and Kashmir
Those who don’t know, the Indian Constitution has a federal structure. As per this federal structure, the subjects for Indian legislation are split into three-a ‘Union List‘, a ‘State List‘ and a ‘Concurrent List‘. The Union list has 96 different subjects, including military & foreign affairs, defence, transport systems, commercial issues like baking, taxes, and stock exchanges. These areas fall under the radar of the Union Government, and it has the authority to make legislation in all the respective areas.
Coming to the State List, it includes 66 different subjects or areas, including agriculture, prisons, certain taxes, and most industries. All such state list subjects or areas are available to the State government for making legislation.
Lastly, the Concurrent List includes areas which give authority to both the Centre and State to make legislation. These subjects or areas include bankruptcy, trade unions, criminal law, marriage, and price control. In conflict cases between the two, i.e., Centre and State, the Union legislation takes a leap. Central or Union government of India holds the “residual power” to form legislation for areas or matters, not specified in legislation. In certain cases, specific industries, ports, waterways, etc. can also be declared as “national” by the Union government; hence, they become Union subjects.
In case of State of Jammu & Kashmir, both the lists, i.e., ‘Union List’ and the ‘Concurrent List’, have been curtailed from the matters embedded in the Instrument of Accession, but later they have been added to the “concurrence” of the State Government. Although “the residual power” continued to rest with the State rather than the Union. As per the State Autonomy Committee, 94 out of 97 rules of Union list are applied to the State of J&K.
The rules or laws of the Central Bureau of Intelligence and Investigation and preventive detention do not apply to the State. In the case of “Concurrent List” applicability to the State, 24 out of 26 rules get applied to Jammu & Kashmir. In matters like marriage and divorce, contracts and torts, bankruptcy, trusts, infants & minors, property transfer, courts, family planning and charities, the State holds the sole power to draw legislation. The Election-related legislation drawing rights are also held by the State.
Is the Income Tax Act Applicable to the State of Jammu & Kashmir?
The general or laymen perception among taxpayers is that the Income Tax Act is not applicable to the State of Jammu and Kashmir as it has been granted the status of special autonomous State by virtue of Article 370.
Although this perception is not accurate. This is because section 1 of the Income Tax Act 1961 explicitly mentions the applicability of the Act to the whole of India as given below:
“Short title, extent and commencement.
(a) This Act may be called the Income-tax Act, 1961.
(b) It extends to the whole of India.”
Hence, from the above provisions embedded inside the Income Tax Act, it is very clear that the provisions of this Act get automatically applied to the whole of India, including the State of Jammu & Kashmir.
It is also vital to know that the applicability of the Income Tax Act has been extended to the State through the Taxation Laws (Extension to Jammu & Kashmir) Act, 1954. This Act was formulated by the Indian Parliament on October 8, 1954. Since then, the Income Tax Act is applied to the State of Jammu & Kashmir.
Although, there is one major exception in the Income Tax Act, encoded in section 269S, which highlights that the provisions of “Chapter XXA of the Income Tax Act, 1961” regarding “Acquisition of immovable properties in certain cases of transfer to counteract evasion of tax” will not get applied to the State of J&K.
Now, after passing of President Decree through ‘The Constitution (Application to Jammu & Kashmir) Order 2019’, which allow the applicability of all provisions related to Indian Constitution in the State of J&K, the existing restriction of purchase of a non-movable property by a non-Kashmiri in the State is exhausted.
This also means that the exception given in Chapter XXA of the Income Tax Act, 1961, regarding the “acquisition of immovable properties in certain cases of transfer to counteract evasion of tax” under section 269S, will be scrapped. The taxmen will now have the power to sequestrate any immovable property that has been owned by a tax evader in the State of J&K.
CGST/IGST Act Applicability on the State of Jammu & Kashmir
Up until July 7, 2017, the laws embedded inside the erstwhile Service Tax Act, also part of the Finance Act 1994 were not applicable to the State of J&K. Similarly, the provisions of the Central Goods & Service Tax (CGST) & Integrated Goods & Service Act (IGST) were also not applied to the State.
Although, the provisions of both CGST and IGST Act, part of the GST regime, has been extended to the State of J&K w.e.f. July 8, 2017
Press Release CBIC Dated July 8, 2017
The new GST system has been rolled out in the country w.e.f. July 1, 2017. However, due to the special autonomous State provisions applied to the State of Jammu & Kashmir, extra steps were required to be taken for the applicability of the new GST regime to the region.
To adopt the new GST regime in a full-fledged manner, the State of J&K has taken first steps on July 6, 2017, when the President of India has passed the Constitution (Application to Jammu and Kashmir) Amendment Order, 2017. As a result, the One Hundred and First Amendment Act, 2016 of the Constitution of India has paved pathway for the new GST system applicability to the State.
Following this, the Jammu and Kashmir Goods and Services Tax Bill, 2017 has been passed by the state legislature on July 7, 2017, empowering the State authorities to levy State GST against intrastate supplies w.e.f. July 8, 2017.
Two ordinances, i.e., 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 has also been passed by the Indian President, allowing extension of Central GST Act and the Integrated GST Act to the State of J&K.
Following all such events, “the State of Jammu and Kashmir also becomes an integral part of the new GST regime to make it a true “one nation, one tax” regime.”
Final Words:
“The Taxation Laws (Extension to Jammu & Kashmir) Act, 1954,” formulated by Indian Parliament on October 8, 1954, is the primary rooting source that extends the applicability of provisions of the Income Tax Act to the State of Jammu & Kashmir. Since then, Income Tax Act is applied to the State directly, except the provisions of Chapter XXA pertaining to “acquisition of immovable properties in certain cases of transfer to counteract evasion of tax”, by virtue of the exception embedded inside section 269S of the Income Tax Act, 1961.
Although, the decision of the central government pertaining to a constitutional amendment in Article 370, including the removal of the restriction on the purchase of immovable property by a non-Kashmiri will have a deep impact on the existing tax system. The removal of the clause concerning the purchase of immovable property by a non-Kashmiri citizen will also eliminate the advantage held by tax defaulters regarding the acquisition of immovable property in the State of Jammu & Kashmir. Now, the taxman can scrutinize the tax defaulters (both Kashmiri and Non-Kashmiri citizens) and take control over their immovable property held by them in a wrongful way. This is beneficial for improvement in the entire GST system in the long run.
The extension of provisions of the Income Tax Act to the State has been paved by the President by giving assent to the Constitution (Application to Jammu and Kashmir) Amendment Order, 2017. Two ordinances, i.e., 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 has also been passed by the President for the same purpose.
Similarly, the applicability of the provisions of CGST & IGST Act has been extended to the State w.e.f. July 8, 2017. These were some of the major steps taken by the State and the Union government to make GST system much stronger in the region.
Finally, the recent Constitutional Amendment in Article 370 in the Indian Constitution is likely to have far-reaching consequences and repercussions on the Country’s ‘Geo-Political environment’. However, as far as the tax system is concerned, it will have no such great impact on the Income Tax Act and the GST Act, as they are already applicable in the State of Jammu & Kashmir.
