Various issues arise for consideration in the present batch of one thousand three hundred and forty six (1346) writ petitions, yet in essence, the questions of law that arise for consideration are whether the Government/ Executive can make or change law of the land by way of Explanations to Notifications without specific Authority from the Legislature to do so and whether the Government/Executive can impede the implementation of law made by the Legislature.
All the present cases pertains to cases where notices for reassessment are issued after 31.03.2021. Various sections which have been discussed in the judgement are as under: Section 147, 148, 149 and 151.
Due to the onset of Covid-19 pandemic followed by nationwide lockdown in March, 2020, the citizens and authorities inter alia faced difficulties in complying with the statutory time limits. To provide relaxation as well as to avoid any adverse consequence to either party, the Government of India announced various relaxations by way of The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (hereinafter referred to as the ‘Relaxation Ordinance, 2020’).
As the pandemic and problems arising therefrom did not show any sign of abatement, the Legislature enacted Relaxation Act, 2020 in September, 2020. By way of Relaxation Act, 2020, various due dates/time limits/limitations prescribed in different Central Acts, including the Income Tax Act, 1961, were relaxed. Additionally, Section 3 of Relaxation Act, 2020 enabled the Central Government to issue Notifications for further relaxing the time limits/limitations prescribed in the ‘Specified Acts’.
The Explanations to the Notifications dated 31st March, 2021 and 27th April, 2021 issued under Section 3 of Relaxation Act, 2020 also stipulated that the provisions, as existed prior to amendment by Finance Act, 2021, shall apply to the reassessment proceedings initiated thereunder.
Parliament introduced reformative changes to Sections 147 to 151 of the Income Tax Act, 1961 governing reassessment proceedings by way of the Finance Act, 2021, which was passed on 28th March, 2021.
As, despite the substituted Sections 147 to 151 of the Income Tax Act, 1961 coming into force on 1st April, 2021, the respondents issued reassessment notices to the petitioners-assessees under the erstwhile Sections 148 to 151 of the Income Tax Act, 1961 relying on Explanations in the Notifications dated 31st March, 2021 and 27th April, 2021, the petitioners filed the present writ petitions challenging the legality and validity of the said Explanations as well as the reassessment notices issued pursuant thereto.
Learned counsel for the petitioners submitted that as the Finance Act, 2021 had substituted / replaced the earlier provisions, being Sections 147, 148, 149 & 151 of the Income Tax Act, 1961, with the new provisions, the same would result in repeal of the earlier provisions and, therefore, the earlier provisions could not be relied upon or referred to. In support of their submission, they relied upon the judgment passed by the Supreme Court in PTC India Limited Vs. Central Electricity Regulatory Commission, Through Secretary, (2010) 4 SCC 603.
The relevant portion of the said judgment is reproduced hereinbelow:-
“91. In this connection, it may be seen that Section 121 of the original Act stood substituted by Amendment Act 57 of 2003. Substitution of a provision results in repeal of the earlier provision and its replacement by the new provision. Substitution is a combination of repeal and fresh enactment. (See Principles of Statutory Interpretation by G.P. Singh, 11th Edn., p. 638.) Section 121 of the original Electricity Act, 2003 was never brought into force. It was substituted by new Section 121 by Amendment Act 57 of 2003 which was brought into force by a Notification dated 27-1-2004. Substitution, as stated above, results in repeal of the old provision and replacement by a new provision. Applying these tests to the facts of the present case, we find that the Electricity (Amendment) Act, 2003 (57 of 2003) was brought into force by Notification dated 27-1-2004. That, notification was issued under Section 1(2) of the Electricity (Amendment) Act, 2003 (57 of 2003). If one reads Section 1(2) of the Electricity (Amendment) Act, 2003 (57 of 2003) with Notification dated 27-1-2004 issued under Section 1(2) of the amended Act, 2003, it becomes clear that on coming into force of the Electricity (Amendment) Act, 2003 (57 of 2003) all provisions amended by it also came into force. Hence, there was no requirement for a further notification under Section 1(3), consequently, Section 121 in its amended form came into force with effect from 27-1-2004.”
According to the petitioner, under Section 149 clause (a) prescribing three years’ time limit, reassessment from Assessment Year 2018-19 onwards could only be reopened on or after 1st April, 2021 and prior years were barred. Further, for initiation of reassessment proceedings for any Assessment Year prior to Assessment Year 2018-19, exceptional conditions of Section 149 clause (b) were required to be satisfied by the Revenue. Importantly, satisfaction of the aforesaid preconditions prescribed by clause (b) could be ascertained only when the procedure prescribed under Section 148A had been followed prior to issuance of notice under Section 148 of the Income Tax Act, 1961.
They submitted that the entire law stood substituted and was specifically made applicable from a particular date. Accordingly pursuant to the Legislature occupying the field governing initiation of reassessment proceedings, no authority was vested in Government to issue the Notifications dated 31st March, 2021 and 27th April, 2021, so as to disturb/intrude into the field occupied by the Legislature.
Learned counsel for petitioners also submitted that the impugned Notifications were subservient to the substituted Sections 147 to 151 by the Finance Act, 2021 and the Notifications to the extent they contradicted Section 149 were deemed to have been impliedly repealed by operation of the Finance Act, 2021.
Learned counsel for petitioners further submitted that Notifications dated 31st March, 2021 and 27th April, 2021 were ultra vires the Income Tax Act, 1961 as amended by Finance Act, 2021 and in excess of the enabling powers prescribed under Section 3 of Relaxation Act, 2020.
Learned counsel for petitioners submitted that the impugned Explanations of the Relaxation Act, 2020 had attempted to revive and keep in existence two different schemes governing the initiation of reassessment proceedings, which were substantially different from each other and thus could not co-exist at the same time.
Learned counsel for the petitioners submitted that the impugned reassessment notices issued between 1st April, 2021 and 30th June, 2021 had been issued in violation of the mandatory procedure prescribed under Section 148A of the Income Tax Act, 1961, as substituted by the Finance Act, 2021.
They emphasised that in the present batch of cases, the Revenue had not followed the procedure prescribed under Section 148A and no books of accounts/ evidence/ documents had been revealed to be in possession of the Assessing Officer. Additionally, the other preconditions prescribed for invoking clause (b) had not been stated to be satisfied and thus, it was clear that the Assessing Officer had no ground to invoke clause (b) of the newly incorporated Section 149 of the Income Tax Act, 1961.
In the alternative, learned counsel for the petitioners submitted that Sections 147 to 151 were procedural provisions, inasmuch as, they primarily amended limitation period and therefore applied retrospectively i.e. to reassessment notices deemed to have been issued within the limitation period.
Learned counsel for the respondents, contended that the present batch of writ petitions challenged the legality and validity of only the Explanations to the two Notifications, being Notification No.20/2021 dated 31st March, 2021 and Notification No.38/2021 dated 27th April, 2021, issued by Central Government in exercise of powers vested under Section 3(1) of Relaxation Act, 2020. They emphasized that petitioners had not challenged either the main Clause of the said Notifications to which ‘Explanations’ were appended or the Relaxation Ordinance, 2020 or Relaxation Act, 2020, which enabled the Central Government to extend dates as a measure of relief contingent upon on-ground analysis of Covid-19 situation.
They stated that the arguments advanced by the petitioners were in complete ignorance of the background of once-in-hundred years emergency called Global Covid-19 pandemic and the fact that all the three organs of the State and also the world at large were unanimous in their perception of the threat to human life which was continuing with severe intensity [second wave] at the time when the impugned Notifications were issued. They pointed out that the Supreme Court by way of a series of orders in ‘Cognizance of Limitation’ extended limitation and Legislature by promulgating Relaxation ordinance in March, 2020 and conversion of Relaxation Ordinance into Relaxation Act, 2020 had extended dates for compliance and issuance of notices. They submitted that management of Covid-19 was akin to a war-time emergency measure and therefore had to be construed more liberally in favour of the State than peace time legislations.
They further submitted that Section 3(1) of Relaxation Act, 2020 creates a legal fiction by virtue of which the Revenue was entitled to invoke Section 148 of the Income Tax Act, 1961, as it existed prior to 31st March, 2021 during the extended period between 1st April, 2021 and 30th June, 2021. They submitted that the fiction under Section 3(1) of Relaxation Act, 2020 was evident from its object namely, ‘In view of the spread of pandemic Covid-19 across many countries of the world including India, causing immense loss to the lives of people, it had become imperative to relax certain provisions, including extension of time-limit’. They submitted that the limited fiction which came into play by virtue of Section 3(1) of Relaxation Act, 2020 was that ‘such action’ which was due for completion or compliance between 20th March, 2020 and 31st December, 2020 or such other date after 31st December, 2020 as the Central Government may by Notification specify, which in this case is 31st March, 2021 [later modified to 30th April, 2021] stood ‘extended’ for the purpose of compliance or completion of ‘such action’ [which could not be completed] to a date beyond 31st March, 2021, which was finally specified by the Central Government to be 30th June, 2021. They submitted that it was this liminal period of 1st April, 2021 till 30th June, 2021 that the fiction came into play.
They also submitted that there was no conflict between Relaxation Act, 2020 and Finance Act, 2021 due to their specific text, context, scheme and object. They submitted that the principles of harmonious construction and ut res magis valeat quam pereat lead to an inexorable conclusion that if there was some conflict, alleged or real, between two provisions of law, the Courts were enjoined to make all out efforts to save both the provisions, rather than declaring any of them as a useless lumber.
Consequently, according to them, in case of conflict between the Relaxation Act, 2020 and the Income Tax Act, 1961, Relaxation Act, 2020 would prevail.
Petitioner had also relied on Allahbad High court’s judgement wherein notice u/s 148 issued after 01.04.2021 were quashed.
Various reasoning/ discussion made by Delhi High Court are as under:
AS THE LEGISLATURE HAS PERMITTED RE-ASSESSMENT TO BE MADE ONLY IN ACCORDANCE WITH THE SUBSTITUTED PROVISIONS, IT CAN ONLY BE DONE IN THIS MANNER, OR NOT AT ALL.
SECTION 3(1) OF RELAXATION ACT EMPOWERS THE GOVERNMENT/EXECUTIVE TO EXTEND ONLY THE TIME LINES. CONSEQUENTLY, THE GOVERNMENT/EXECUTIVE CAN NEITHER MAKE OR CHANGE LAW OF THE LAND NOR CAN IT IMPEDE THE IMPLEMENTATION OF LAW MADE BY THE PARLIAMENT.
THIS COURT IS RESPECTFULLY NOT IN AGREEMENT WITH THE VIEW OF THE CHHATTISGARH HIGH COURT IN PALAK KHATUJA (SUPRA), BUT WITH THE VIEWS EXPRESSED BY THE ALLAHABAD HIGH COURT IN ASHOK KUMAR AGARWAL (SUPRA) AND RAJASTHAN HIGH COURT IN BPIP INFRA PRIVATE LIMITED VS. INCOME TAX OFFICER, WARD 4(1), S.B. CIVIL WRIT PETITION 13297/2021.
FINANCE ACT, 2021 HAS MERELY CHANGED THE PROCEDURE OF ISSUING NOTICE. CONSEQUENTLY, THE “POWER” OF REASSESSMENT THAT EXISTED PRIOR TO 31ST MARCH, 2021 CONTINUES TO EXIST EVEN THEREAFTER.
IT IS A PRINCIPLE OF LEGAL POLICY THAT CHANGES IN THE SUBSTANTIVE LAW SHOULD NORMALLY NOT TAKE EFFECT RETROSPECTIVELY EXCEPT IN RELATION TO PROCEDURAL MATTERS.
RATIONALE BEHIND THE PRINCIPLE THAT CHANGE IN PROCEDURAL LAW OPERATES RETROSPECTIVELY
In stating the principle that “a change in the law of procedure operates retrospectively and unlike the law relating to vested right is not only prospective”, the Supreme Court has quoted with approval the reason of the rule as expressed in MAXWELL.[MAXWELL: Interpretation of Statutes, 11th Edition, p. 216].
FOR DETERMINING WHETHER THE AMENDMENT IS A PROCEDURAL OR A SUBSTANTIVE LAW ONE WILL HAVE TO EXAMINE THE INTENT, PURPOSE AND SCOPE OF THE AMENDMENTS.
THE INTENT, PURPOSE AND SCOPE OF THE AMENDMENTS INTRODUCED BY THE FINANCE ACT, 2021 WAS TO PROTECT THE RIGHTS AND INTERESTS OF ASSESSEES AS WELL AS PROMOT PUBLIC INTEREST. IT IS SETTLED LAW THAT IF LEGISLATION IS INTRODUCED TO REMEDY THE DEFECTIVE RULE AND NO ONE SUFFERS THEREBY, IT IS SENSIBLE TO APPLY IT TO PENDING PROCEEDINGS.
THE ARGUMENT OF THE RESPONDENT THAT THE SUBSTITUTIONS MADE BY THE FINANCE ACT, 2021 IS NOT APPLICABLE TO PAST ASSESSMENT YEARS, AS IT IS SUBSTANTIAL IN NATURE IS CONTRADICTED BY ITS OWN CIRCULAR 549 OF 1989 AND ITS OWN SUBMISSION THAT FROM 1ST JULY, 2021, THE SUBSTITUTIONS MADE BY THE FINANCE ACT, 2021 WILL BE APPLICABLE.
IF THE ARGUMENT OF THE RESPONDENTS THAT THE EXPLANATION IN NOTIFICATION NO. 20 DATED 31ST MARCH, 2021 EXTENDED THE APPLICABILITY OF OLD PROCEDURE OF REASSESSMENT BEYOND 31ST MARCH, 2021 IS ACCEPTED, THE SAME SHALL LEAD TO MANIFEST ARBITRARINESS AND CONFLICT.
REVENUE CANNOT RELY ON COVID-19 FOR CONTENDING THAT THE NEW PROVISIONS SHOULD NOT OPERATE DURING THE PERIOD 1st APRIL, 2021 TO 30th JUNE, 2021.
NON-OBSTANTE CLAUSE HAS TO BE CONSTRUED STRICTLY. SECTION 3(1) OF RELAXATION ACT IS EXPRESSLY CONFINED TO AND ONLY SUPERSEDES THE TIME LIMITS. IT DOES NOT EXCLUDE THE APPLICABILITY OF PROVISIONS SUBSTITUTED BY FINANCE ACT, 2021.
THE “LEGAL FICTION” ARGUMENT IS WITHOUT ANY FOUNDATION. THERE IS NO PROVISION IN RELAXATION ACT STATING THAT IF THE “ACTION” IS TAKEN WITHIN THE EXTENDED TIME LIMIT, IT WOULD BE DEEMED TO HAVE BEEN TAKEN BEFORE THE EXPIRY OF THE ORIGINAL (UN-EXTENDED) TIME LIMIT.
IT CANNOT BE THAT A FICTION IS CREATED OR CLOCK STOPPED ONLY FOR REASSESSMENT AND NOT FOR ASSESSMENT AND/OR FACELESS PENALTY SCHEME.
THE PRINCIPLE THAT A SPECIAL ACT OVERRIDES A GENERAL ACT HAS NO APPLICATION TO THE PRESENT CASE BECAUSE RELAXATION ACT AND THE FINANCE ACT OPERATE IN DISTINCT AND SEPARATE SPHERES.
THE SUBMISSION OF THE REVENUE THAT SECTION 6 OF THE GENERAL CLAUSES ACT SAVES NOTICES ISSUED UNDER SECTION 148 POST 1ST APRIL, 2021 IS UNTENABLE IN LAW, AS IN THE PRESENT CASE, THE REPEAL IS FOLLOWED BY A FRESH LEGISLATION ON THE SAME SUBJECT AND THE NEW ACT MANIFESTS AN INTENTION TO DESTROY THE OLD PROCEDURE.
This Court is of the view that as the Legislature has introduced the new provisions, Sections 147 to 151 of the Income Tax Act, 1961 by way of the Finance Act, 2021 with effect from 1st April, 2021 and as the said Section 147 is not even mentioned in the impugned Explanations, the reassessment notices relating to any Assessment Year issued under Section 148 after 31st March, 2021 had to comply with the substituted Sections.
It is clarified that the power of reassessment that existed prior to 31st March, 2021 continued to exist till the extended period i.e. till 30th June, 2021; however, the Finance Act, 2021 has merely changed the procedure to be followed prior to issuance of notice with effect from 1st April, 2021.
This Court is of the opinion that Section 3(1) of Relaxation Act empowers the Government/Executive to extend only the time limits and it does not delegate the power to legislate on provisions to be followed for initiation of reassessment proceedings. In fact, the Relaxation Act does not give power to Government to extend the erstwhile Sections 147 to 151 beyond 31st March, 2021 and/or defer the operation of substituted provisions enacted by the Finance Act, 2021. Consequently, the impugned Explanations in the Notifications dated 31st March, 2021 and 27th April, 2021 are not conditional legislation and are beyond the power delegated to the Government as well as ultra vires the parent statute i.e. the Relaxation Act. Accordingly, this Court is respectfully not in agreement with the view of the Chhattisgarh High Court in Palak Khatuja (supra), but with the views W.P.(C) 6176/2021 & connected matters Page 105 of 106 of the Allahabad High Court and Rajasthan High Court in Ashok Kumar Agarwal (supra) and Bpip Infra Private Limited (supra) respectively.
The submission of the Revenue that Section 6 of the General Clauses Act saves notices issued under Section 148 post 31st March, 2021 is untenable in law, as in the present case, the repeal is followed by a fresh legislation on the same subject and the new Act manifests an intention to destroy the old procedure. Consequently, if the Legislature has permitted reassessment to be made in a particular manner, it can only be in this manner, or not at all.
The argument of the respondents that the substitution made by the Finance Act, 2021 is not applicable to past Assessment Years, as it is substantial in nature is contradicted by Respondents’ own Circular 549 of 1989 and its own submission that from 1st July, 2021, the substitution made by the Finance Act, 2021 will be applicable.
Revenue cannot rely on Covid-19 for contending that the new provisions Sections 147 to 151 of the Income Tax Act, 1961 should not operate during the period 1st April, 2021 to 30th June, 2021 as Parliament was fully aware of Covid-19 Pandemic when it passed the Finance Act, 2021. Also, the arguments of the respondents qua non-obstante clause in Section 3(1) of the Relaxation Act, ‘legal fiction’ and ‘stop the clock provision’ are contrary to facts and untenable in law.
Consequently, this Court is of the view that the Executive/Respondents/Revenue cannot use the administrative power to issue Notifications under Section 3(1) of the Relaxation Act, 2020 to undermine the expression of Parliamentary supremacy in the form of an Act of Parliament, namely, the Finance Act, 2021. This Court is also W.P.(C) 6176/2021 & connected matters Page 106 of 106 of the opinion that the Executive/Respondents/Revenue cannot frustrate the purpose of substituted statutory provisions, like Sections 147 to 151 of Income Tax Act, 1961 in the present instance, by emptying it of content or impeding or postponing their effectual operation.
Keeping in view the aforesaid conclusions, Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 are declared to be ultra vires the Relaxation Act, 2020 and are therefore bad in law and null and void.
Consequently, the impugned reassessment notices issued under Section 148 of the Income Tax Act, 1961 are quashed and the present writ petitions are allowed. If the law permits the respondents/revenue to take further steps in the matter, they shall be at liberty to do so. Needless to state that if and when such steps are taken and if the petitioners have a grievance, they shall be at liberty to take their remedies in accordance with law.
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