The Income Tax Department is huge — thousands of officers, multiple divisions, specialized wings, & layers of responsibilities. Without a clear chain of command, this system would collapse overnight. To avoid that, the Act contains a special administrative provision: Section 118, a section most ordinary taxpayers will never read, but every income-tax authority must follow.
Section 118 deals with the control and hierarchy of income-tax authorities in India. It empowers the Central Board of Direct Taxes (CBDT) to define which income-tax authority is subordinate to another. It decides who reports to whom, how instructions flow, and how the system remains functional..
What Is Section 118 of the Income Tax Act?
Section 118 is like the blueprint of the Income Tax Department’s internal hierarchy.
In simple words, it:
- Allows the Board (CBDT) to determine the hierarchy within income-tax authorities
- Specifies who controls whom
- Provides structured administration
- Ensures smooth functioning of assessments, appeals, investigations, audits, and enforcement
The CBDT is the top body that frames policies, issues circulars, & gives directions. Section 118 gives CBDT the authority to organise the entire department under a clear, enforceable structure.
How Section 118 Defines Control of Income-Tax Authorities
One of the important aspects it clarifies is:
“Inspecting Assistant Commissioners shall be subordinate to the Commissioner.”
This is not random — it aligns internal control with experience, expertise, and complexity of responsibilities."
A few examples of typical hierarchy:
- Assessing Officer (AO) → Subordinate to Joint Commissioner
- Joint Commissioner → Subordinate to Commissioner of Income Tax
- Commissioner → Subordinate to Principal Chief Commissioner
- And so on…
The section ensures everyone knows where instructions come from & whom they must report to.
Also Read: Condonation of Delay, Tax Refunds, and Key Provisions
Why Is This Section Even Needed?
Imagine a system where thousands of officers work, but nobody knows who they’re answerable to.
Chaos.
Confusion.
Contradictory decisions.
Section 118 prevents that. It establishes:
- Accountability
- Consistency
- Responsibility
- Standardisation
This is the backbone behind how assessments get reviewed, how appeals travel upward, & how major tax decisions are approved.
Mandatory Publication in the Official Gazette
Another important part of Section 118 is that it mandates publication in the Official Gazette.
This means:
- Any change in hierarchy
- Any creation of new positions
- Any restructuring of authority
…must be notified publicly.
This ensures transparency. Ordinary taxpayers may not read the Gazette, but officers must adhere to whatever is officially published.
Amendment: Inclusion of New Director General of Income-Tax
Over the years, the tax department has expanded into specialized wings — international tax, investigations, TDS, systems, intelligence, criminal investigation, and more. To keep pace with these changes, Section 118 is amended to include a new Director General of Income-tax wherever required.
This gives CBDT flexibility to:
- Add new departments
- Create new leadership roles
- Expand jurisdiction or restructure responsibilities
Tax administration evolves constantly. Section 118 ensures the law adapts without needing major overhauls every time.
Also Read: Condonation of Delay for Filing Returns
A Common Confusion: Section-118 and Carry Forward of Losses
You may notice the phrase:
“Section-118 seeks to provide for carry forward and set off of losses and unabsorbed depreciation.”
This is a common misconception because older drafts & departmental summaries sometimes mix up procedural notes.
To clarify:
- Carry forward & set-off rules are NOT governed by Section 118
- They are handled under Sections 70 to 80, especially
- Section 72 (business losses)
- Section 32(2) (unabsorbed depreciation)
But this confusion appears occasionally because administrative provisions often influence how officers handle such cases. This blog stays aligned with the official structure.
How Section 118 Impacts Normal Taxpayers
Most taxpayers will never interact with Section 118 directly — but it affects your journey with the department.
- Smooth assessments
- Your case moves systematically because officers know their hierarchy.
- Faster resolution
- Escalation routes are clear — who hears your appeal, who reviews orders, etc.
- Consistency in decisions
- Higher authorities can issue guidance to lower officers."
- Accountability
- If an AO passes an unreasonable order, the supervision structure ensures corrective action.
In short, Section 118 is invisible to you but deeply important for your experience.
A Small Real-Life Moment
A client once asked me,
"Why did my appeal move from AO → JCIT → CIT (Appeals)? Who decides all this?"
It was the perfect moment to explain Section 118 — this one section quietly decides reporting lines, appellate structure, and control of income-tax authorities.
He smiled and said,
"So basically, it’s the traffic signal that prevents accidents inside the department."
I couldn’t have said it better myself.
Also Read: Powers of Tax Authorities During Investigation
Key Takeaways About Section 118
- Deals with the control & hierarchy of income-tax authorities
- Empowers CBDT to define which authority is subordinate to another
- Inspecting Assistant Commissioners shall be subordinate to the Commissioner
- Ensures clarity on control of income-tax authorities
- Requires publication in the Official Gazette for any changes
- Has been amended to include new Director Generals when needed
- Helps maintain smooth, efficient tax administration
Conclusion
Section 118 may not be a section taxpayers search for often, but it is one of the quietest, strongest pillars of India’s tax administration. It ensures discipline, clarity, proper hierarchy, and accountability within the department. Without it, assessments, appeals, and investigations would have no clear pathway.
And whenever you need help dealing with officers, notices, assessments or appeals, the expert team at CallMyCA.com is always there to guide you with clarity & genuine care.
