Supreme Court: While deliberating over the instant appeals focusing over the interplay of the , the (TOLA), and the ; the Court had to consider the following issues:
Whether TOLA and notifications issued under it will also apply to reassessment notices issued after 1 April 2021?
Whether the reassessment notices issued under Section 148 of the new regime between July and September 2022 are valid?
The 3-Judge Bench of Dr DY Chandrachud, CJ*, JB Pardiwala and Manoj Misra, JJ., held the following:
After 1-4-2021, the Income Tax Act has to be read along with the substituted provisions.
TOLA will continue to apply to the Income Tax Act after 1-4-2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between 20-3-2020 and 31-3-2021.
Section of overrides Section of the only to the extent of relaxing the time limit for issuance of a reassessment notice under Section 148.
TOLA will extend the time limit for the grant of sanction by the authority specified under Section 151.
The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(i) has extended time till 30 June 2021 to grant approval.
In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20-3-2020 and 31-3-2021, then the specified authority under Section 151(2) has extended time till 31-3-2021 to grant approval;
The directions in Union of India v. Ashish Agarwal, will extend to all the 90,000 reassessment notices issued under the old regime during the period 1-4-2021 and 30-6-2021;
The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1-4-2021 and 30-6-2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by the Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices; and
The assessing officers were required to issue the reassessment notice under Section 148 of the new regime within the time limit surviving under the Income Tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside;
Background:
Sections to of deal with the procedure of reassessment. The scheme of reassessment under these Sections was substantially overhauled by the with effect from 1-4-2021.
Following the announcement of the Covid-19 lockdown in March 2020, the Central Government sought to implement various relief measures to redress the challenges faced by the taxpayers in meeting the statutory requirements due to the pandemic. On 31-3-2020, the President promulgated the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020 to extend time limits for completion or compliance of actions under the specified Acts falling for completion or compliance between 20-3-2020 and 29-6-2020 till 30 June 2020. On 24-6-2020, the Central Government issued a notification under Section 3(1) of the TOLA Ordinance to extend the time limit for completion or compliance of actions under the specified Acts till 31-3-2021.
On 29-9-2020, Parliament enacted TOLA, which came into force with retrospective effect from 31-3-2020.
The effect of TOLA and the notifications issued under the legislation was that: (i) if the time prescribed for passing of any order or issuance of any notice, sanction, or approval fell for completion or compliance from 20-3-2020 to 31-3-2021; and (ii) if the completion or compliance of such action could not be made during the stipulated period, then the time limit for completion or compliance of such action was extended to 30 June 2021.
The substituted the entire scheme of reassessment under Sections to of the with effect from 1-4-2021.
The notifications dated 31-3-2021 and 27-4-2021 issued by the Central Government under Section of contained an explanation declaring that the provisions under the old regime shall apply to the reassessment proceedings initiated under them.
Thus, the notifications directed the assessing officers to apply the provisions of the old regime for reassessment notices issued after 1-4-2021. The assessing officers accordingly issued reassessment notices between 1-4-2021 and 30 June 2021 by relying on the provisions under Section 148 of the old regime.
These reassessment notices were challenged by the assesses before various High Courts. The High Courts allowed the writ petitions and quashed all the reassessment notices issued between 1-4-2021 and 30-6-2021 under the old regime on the ground that: (i) Sections 147 to 151 stood substituted by from 1-4-2021; (ii) In the absence of any saving clause, the Revenue could initiate reassessment proceedings after 1-4-2021 only in accordance with the provisions of the new regime since they were remedial, beneficial, and meant to protect the rights and interests of the assesses; and (iii) the Central Government could not exercise its delegated authority to “re-activate the pre-existing law.
The Supreme Court in Union of India v. Ashish Agarwal, , exercised its discretionary jurisdiction under Article 142 in order to balance the interests of the Revenue and the assesses and directed that the reassessment notices issued under the old regime shall be deemed to have been issued under Section 148-A(b) of the new regime.
On 11-5-2022, the Central Board of Direct Taxes issued an Instruction for the implementation of the decision Ashish Agarwal (supra). The Instruction “clarified” that Ashish Agarwal (supra) will apply “to all cases where extended reassessment notices have been issued […] irrespective of the fact whether such notices have been challenged or not”.
Subsequently, notices under Section 148 of the new regime were issued to the assesses by the assessing officers between July and September 2022 for the assessment years 2013-2014, 2014-2015, 2015-2016, 2016-2017, and 2017-2018.
Court’s Assessment:
Perusing the matter, the Court pointed out that the power to levy tax is an essential and inherent attribute of sovereignty. The expression “assessment” comprehends the entire procedure for ascertaining and imposing liability upon taxpayers. An assessment acquires finality on the making of an assessment order by the assessing officer. It creates a vested right in favour of the assessee. Section of the defines “assessment” to include reassessment. Reassessment is nothing but a fresh assessment. The effect of reopening the assessment is to vacate or set aside the order of assessment and to substitute in its place the order of reassessment. The procedure of reassessment of tax is quasi-judicial because it prejudicially affects the vested rights of the assessee. Since the assessing officers perform a quasi-judicial function during reassessment, the powers vested in them are regulated by law.
Delving into the interpretation of taxing statutes, the Court pointed out that the dominant purpose in interpreting a taxing statute is to ascertain the intention of the legislature to impose a charge. Taxing statutes are interpreted by following the principles of strict interpretation.
Deliberating over the reading of TOLA and Income Tax Act, the Court said that Notices have to be judged according to the law existing on the date the notice is issued. Section 149 of the old regime primarily provided two time limits: (i) four years for all situations and (ii) beyond four years and within six years if the income chargeable to tax which escaped assessment amounted to Rupees one lakh or more. After 1 April 2021, the time limits prescribed under the new regime came into force. The ordinary time limit of four years was reduced to three years. Therefore, in all situations, reassessment notices could be issued under the new regime if not more than three years have elapsed from the end of the relevant assessment year.
Without the proviso to Section 149(1)(b) of the new regime, the Revenue could have had the power to reopen assessments for the year 2012- 2013 if the escaped assessment amounted to Rupees fifty lakhs or more. The proviso limits the retrospective operation of Section 149(1)(b) to protect the interests of the assesses. Furthermore, the proviso specifically refers to the time limits specified under Section 149(1)(b) of the old regime.
Considering the substitution of old tax regime by the , the Court stated that the legislative practice of amendment by substitution is often used by the legislatures. After the substitution, the legislation must be read and construed as if the altered words have been written into the legislation “with pen and ink and the old words scored out”. Therefore, after amendment by substitution any reference to a legislation must be construed as legislation as amended by substitution. Furthermore, an amendment by substitution can have a retrospective effect and affect the vested rights of the parties, if the provision is made retrospective either expressly or by necessary intendment.
Therefore, the Court noted the following:
(i) The substituted Sections to of the with effect from 1-4-2021;
(ii) Sections 147 to 151 of the old law ceased to operate from 1-4-2021;
(iii) After 1-4-2021, any reference to the Income Tax Act means the Income Tax Act as amended by the ;
(iv) The time limits prescribed for issuing reassessment notices under Section 149 operate retrospectively for three years for all situations and six years in case the escaped assessment amounts to or is likely to amount to more than Rupees fifty lakhs.
The Court further pointed out that the purpose of Section 3(1) of TOLA is to provide relaxation of time limits prescribed under the specified Acts, which fell for completion or compliance from 20-3-2020 to 31-3-2021. TOLA was enacted in the backdrop of the COVID-19 pandemic, which impeded the functioning of the government at all levels. The imposition of national and local lockdowns created difficulties for the common people, including litigants and assesses, to comply with their legal obligations. The COVID-19 pandemic and the ensuing lockdowns required legislatures across the world to dynamically adapt their laws and policies to redress the difficulties faced by persons, entities, and governmental authorities.
TOLA extended the time limits for completion or compliance of certain actions under the specified Act, which fell for completion during the COVID-19 outbreak. The use of the expression “any” in Section 3(1) indicates that the relaxation applies to “all” or “every” action whose time limit falls for completion from 20-3-2020 to 31-3-2021. Section 3(1) is only concerned with the performance of actions contemplated under the provisions of the specified Acts. Consequently, the amendment or substitution of a provision under the specified Acts will not affect the application of TOLA, so long as the action contemplated under the provision falls for completion during the period specified by TOLA, that is, 20-3- 2020 to 31-3-2021.
The purpose of the Income Tax Act is to levy tax on income and raise revenues for the functioning of the Government. On the other hand, the purpose of TOLA is to provide relaxation of the time for completion of any actions or proceedings falling for completion within a particular period. Thus, the two enactments operate in separate and distinct fields. “This Court must ensure that the provisions of the two enactments are interpreted harmoniously unless there is an irreconcilable conflict between them”.
Section of defines ‘specified Act’ to include the Income Tax Act. After 1 April 2021, Section 2(1)(b)(ii) must be read to mean the Income Tax Act as amended by the . The substitution of Sections 147 to 151 will not affect the purpose of TOLA, which is, to provide relaxation of the time limit for completion or compliance of any actions falling for completion between 20-3-2020 and 31-3-2021. TOLA will continue to apply to the Income Tax Act after 1 April 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between 20 March 2020 and 31 March 2021.
After 1-4- 2021, the Income Tax Act has to be read along with the substituted provisions. The substituted provisions apply retrospectively for past assessment years as well. On 1-4-2021, TOLA was still in existence, and the Revenue could not have ignored the application of TOLA and its notifications. The Revenue cannot extend the operation of the old law under TOLA, but it can certainly benefit from the extended time limit for completion of actions falling for completion between 20-3-2020 and 31-3-2021.
Harmonious reading gives effect to the legislative intention of both the Income Tax Act and TOLA. Moreover, Sections 147 to 151 are machinery provisions. Therefore, they must be given an interpretation that is consistent with the object and purpose of the Income Tax Act.
Vis-a-vis scope of Ashish Agarwal (supra) extended to all the reassessment notices issued between 1 April 2021 and 30 June 2021 under the old regime, the Court stated that a legal fiction was created by deeming Section 148 notices issued under the old regime as show cause notices under Section 148A(b) of the new regime. While creating the legal fiction in Ashish Agarwal (supra), the Court was cognizant of the fact that the assessing officers were effectively inhibited from performing their responsibility under Section 148A until the requirement of supply of relevant material and information to the assesses was fulfilled. This Court lifted the inhibition by directing the assessing officers to supply the assesses with the relevant material and information relied upon by the Revenue within thirty days from the date of the judgment.
Therefore, the logical effect of the creation of the legal fiction by Ashish Agarwal (supra) is that the time surviving under the Income Tax Act read with TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notices, including issuance of reassessment notices under Section 148 of the new regime. The surviving or balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30-6-2021. “The effect of the creation of the legal fiction in Ashish Agarwal (supra) was that it stopped the clock of limitation with effect from the date of issuance of Section 148 notices under the old regime [which is also the date of issuance of the deemed notices]”.
With the afore-stated assessment, the Court the appeals filed by the Revenue were thus allowed.
CASE DETAILS
| Citation: Civil Appeal No 8629 of 2024 Appellants : Union of India Respondents : Rajeev Bansal | Advocates who appeared in this case : N. Venkataraman, Additional Solicitor General of India; Mr Percy Pardiwalla, Mr V Sridharan, Mr Tushar Hemani, Mr Saurabh Soparkar, and Mr K Shivram, learned senior counsel, Mr Manish Shah, Mr Darshan Patel, Mr Suhrith Parthasarthy, Mr Dharan Gandhi, and Mr Ved Jain, Counsels. |
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CORAM :
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Manoj Misra, J.
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