Need India change its financial year? - T. N. Pandey - Article published in Business Advisor, dated July 25, 2016 - http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/

1. Volume XVI Part 2 July 25, 2016 3 Business Advisor
Need India change its financial year?
T. N. Pandey
It is becoming pastime with the Govts. to make changes,
which, prima-facie, do not seen imperative or called for
but are made with extraneous considerations such as
political expediencies without considering the impact of
the same on the people, who have to cope up and adjust
themselves to the changed situations at great costs and
inconvenience.
Years back, a wave emerged to change the names of the
cities. In this wave, Bombay became Mumbai, Poona
became Pune, Banaras became Varanasi, Calcutta became Kolkata,
Pondicherry became Puducherry, Madras become Chennai, Bangalore
became Bengaluru and various other cities‟ names were also similarly
changed. Such decisions put the country‟s citizens to considerable
inconvenience and expense – not for any imperative reasons but to
implement the wishes and fancies of the Govts. in power.
Signboards of business entities had to be re-made; new stationery had to be
printed; persons, especially those abroad – business clients and others, had
to be informed about the changes; rubber stamp, etc. got re-made about the
changes; and, for quite some time, a state of uncertainty and confusion
prevails.
And all this was done in the name of removing the British legacy and
reverting to earlier Indian names for cities.
Consequently, the recent move is to change the names of Bombay and
Madras High Courts coming down as such since decades as Mumbai &
Chennai High Courts to keep parity with the change in the names of cities.
2. Change of name of roads, etc.
Occasionally, the move comes to change the names of roads, building,
airports, etc., according to the wishes and fancies of the Govts. of the time.
This is not done for any pressing economical, ecological or social reasons/
necessity. Recently, the name of a prominent road in Delhi – Aurangzeb
Road – has been changed to the name of late Ex-President of India, Shri
Abdul Kalam. One can appreciate the feeling for doing so, i.e., to perpetuate
the memory of late President of India, whom people loved so much. But the
better way to do it is to make a nice new road and then name it as A. Kalam

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Road – not by erasing an existing name of a road coming down from
umpteen years and then putting a new name on it.
3. Change of income-tax year
Then, in the year 1988, a move came for having a uniform previous year for
income-tax assessments. Earlier, section 3 of the I.T. Act, 1961 (Act) gave an
assessee the freedom to have a previous year of his choice for the purpose of
the assessment of his income such as a Samvat year, Dashara year, Diwali
year, calendar year, financial year (FY), etc. A new section 3 was substituted
in place of the then existing section. According to the scheme of the I.T. Act,
income earned in a year is taxable in the next year. The year in which
income is earned is known as „previous year‟ and the next year, in which the
income is taxable, is known as „assessment year‟. In other words, it can be
said that the income earned in the previous year 2015-16 is taxable in the
AY 2016-17. From the AY 1989-90 onwards, all taxpayers are required to
follow the FY [April 1 to March 31] as the previous year. If an assessee does
not prepare his accounts on FY basis, he will have to rework out his profit
or loss for income-tax purpose on FY basis. This change in the previous year
created a host of transitional problems; for example, in some cases, the
previous year became of 21 months. It took considerable time before the
position got finally settled. There is no provision now which gives an
assessee to change the previous year as was available earlier because of
uniformity of having only FY as the previous year. Section 2(21) of the
General Clauses Act, 1897 defines FY to mean the year commencing on the
first day of April [and ending on 31st March].
4. Move to change from FY to some other year
Suddenly, the Govt. seems to have come to the conclusion that the present
FY beginning on 1st April since long time needs to be changed to some other
period of 12 months. No reasons have been stated for carrying out the
proposed change. Immediately, to give effect to this sudden move, the Govt.
has constituted a committee to study the feasibility of adopting a new FY.
India currently follows the April-March FY as opposed to the calendar year
in some countries. The committee, headed by former Chief Economic
Advisor, Shankar Acharya, has to submit is report by December 31, 2016.
The Committee will examine the merits and demerits of various dates for the
commencement of the FY, including the existing date (April to March),
taking into account the various relevant factors, the finance ministry said in
a statement. Former Cabinet Secretary, K.M. Chandrasekhar, former
finance secretary of Tamil Nadu Cadre, P.V. Rajaraman and Rajiv Kumar,
senior fellow at the Centre for Policy Research are the other members of the

3. Volume XVI Part 2 July 25, 2016 5 Business Advisor
panel. Apparently, such a move, without mentioning the need for a review or
change of the existing FY, is greatly surprising, taken by fits and starts. The
change in the FY is a major decision, with a considerable impact, and
therefore, a white paper needed to have been circulated on the prime
question, justifying the need for change and public views ought to have been
solicited before constituting the committee.
5. Past precedents
The L. K. Jha Committee was appointed in May, 1984 to look into the
matter and had recommended in 1985 for switching over to the calendar
year. The committee gave many reasons for backing its recommendations.
An important one was the position regarding monsoon. The committee felt
that by October, the impact of monsoon is known and hence, the budget for
the next year could be presented in this month. The present situation when
the budget is presented in February is without knowledge of the monsoon
position. The committee suggested that the change could be implemented
from 1st January, 1987. However, the Govt. did not accept the committee‟s
recommendations and continued with April-March FY.
6. FYs in some other countries
The practices followed in other countries regarding FYs are:-
[i] 1st January to 31st December – China, Russia & Brazil
[ii] 1st April to 31st March – India, Japan, UK and South Africa
[iii] 1st July to 30th June – Australia, Pakistan & Bangladesh
[iv] 1st October to 30th September – USA & Thailand
Thus, there is no uniformity in the different countries in the matter of
adoption of FY. Earlier, India was following May-April FY from 1867. It
changed to April-March FY to align it with British system, which was
following April-March as the FY.
7. Countries which changed their FY
These are:-
[i] USA – Its fiscal year before 1976 was July 1 to 30th June. It changed to
1st October to 30th September after that.
[ii] Ireland shifted from FY 01.04 to 31.03 to calendar year – 1st Jan to 31st
Dec.

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[iii] Afghanistan has recently changed from 21st March to 20th April to Dec
21 to Dec 20.
8. Appraisal of the proposal
Change is the law of nature and, therefore, there cannot be any rigidity that
a fiscal year, once adopted, becomes sacrosanct and cannot be changed.
But, change cannot be on toss of a coin. It has to be backed by solid
grounds. It would be wrong to shift from one year to another year on just
whims. In announcing the decision for change, the Govt. has not even
drafted any terms of reference for the committee. All that has been said is
that „a committee will examine the merits and demerits of various dates for
the commencement of the FY, including the existing date (April-March)
taking into account the various relevant factors.‟
8.1 This is hardly the way to constitute a committee and assign it the work
of designing a new FY. There is apparent lacuna in making a reference to
the committee in not telling it:-
[i] Why a need has been felt to review the existing FY, working satisfactorily
since long years.
[ii] What have been the problems faced in working with the present FY?
[iii] Have there been any demands for its change? If so, for what reasons?
[iv] What have been the problems faced in working with the present system?
8.2 Further, there is already a report of the L. K. Jha Committee which,
after considering the various aspects, had given a report, suggesting
„calendar year‟ as the FY. If the FY is necessarily to be changed, why the
Govt. does not agree with the recommendation of the Jha Committee,
having a calendar year as the FY?
9. Concluding comments
Of late, it is noticed that the Govt. has been constituting committees on the
slightest pretexts. This can hardly be conducive for good governance. It
merely indicates escapist attitude of the Govt. not to take a decision itself
and having an alibi in case any controversy arises. Constituting committees
and commissions without any apparent justification for the same costs the
nation‟s money, time and energies. Further, constituting committees in the
manner of the one for change of FY does not benefit the country except that
it provides retired bureaucrats some assignments.
(T. N. Pandey is Former Chairman, Central Board of Direct Taxes.)