Section 536 - “Repeal and Savings”
is the last and one of the most significant provisions of the Income Tax Act,
2025. This section is broadly divided into four
parts: The first part pronounces the repeal of Income Tax Act, 1961; the
second part enumerates a long list of 22 situations calling for clarification;
the third, clarifies that a mention of tax year up to 31,03,2026 refers to the
previous year under the repealed Act; and the fourth part concedes overriding
effect of Section 6 of the General Clauses Act, 1897. It acts as a transition provision, ensuring a
smooth shift from the Income Tax Act, 1961 to the Income Tax Act, 2025. While
it formally repeals the Income Tax Act, 1961, it simultaneously protects all
rights, liabilities, proceedings, and benefits that arose under the repealed
law.
Objective
The primary objectives of Section
536 are to:
§ Repeal the Income Tax Act, 1961.
§ Preserve all actions taken under the repealed Act.
§ Ensure that pending proceedings continue under the
old law.
§ Protect taxpayers’ vested rights and Government's
powers.
§ Avoid legal uncertainty during the transition to the
new Act.
Repeal of the Income Tax Act, 1961 [Section 536(1)]
Section 536(1) repeals the Income Tax Act, 1961 with effect
from 01.04.2026. That repeal is prospective. This sub-section (1) simply
provides that “The Income-tax Act, 1961
(43 of 1961) is hereby repealed”. Thus, from 01.04.2026, the Income Tax Act, 2025 becomes the governing
legislation for income-tax in India.
Previous Operation of the Repealed Act Protected [Section 536(2)(a)]
Section 536(2)(a)
ensures that the repeal of the Income Tax Act, 1961 does not disturb or
invalidate anything that was validly done under the repealed law before the
Income Tax Act, 2025 came into force. The expression “previous operation”
covers the legal effect of the Income Tax Act, 1961 during the period it was in
force.
Accordingly, all actions lawfully taken under the repealed Act - such as assessments, reassessments, searches, surveys, notices, approvals, registrations, exemptions, refunds, recovery proceedings, and judicial or appellate orders - continue to remain valid and enforceable. Likewise, any rights, obligations, liabilities, penalties, or legal consequences that had already arisen under the Income Tax Act, 1961 are preserved.
Suppose an assessment
order for Assessment year 2025-26 was passed under the Income Tax Act, 1961
before 01.04.2026. Even after the Income Tax Act, 2025 comes into force, that
assessment order continues to remain valid and enforceable. Its legality is not
affected merely because the Income Tax Act, 1961 has been repealed.
Accrued Rights, Privileges, Obligations and Liabilities under the Income Tax Act, 1961 continue unaffected (Preserved) by its Repeal [Section 536(2)(b)]
The following shall continue to remain effective:
§ Rights
– such as the right to claim a refund, carry forward eligible tax credits or
other statutory entitlements accrued under the Income Tax Act, 1961.
§ Privileges
– exemptions, approvals or benefits validly acquired under the repealed Act,
subject to the other savings provisions.
§ Obligations
– statutory duties such as furnishing information, maintaining records, or
complying with conditions imposed under the Income Tax Act, 1961.
§ Liabilities
– tax, interest, penalty or any other legal liability that arose under the
repealed Act remains enforceable.
Continuation of pending and future proceedings under the repealed Income Tax Act, 1961[Section 536(2)(c)]
Section 536(2)(c) provides that the provisions of
the repealed Income Tax Act, 1961 shall continue to apply to - any proceeding
pending on the date the Income Tax Act, 2025 comes into force; and any
proceeding initiated on or after 01.04.2026, if such proceeding relates to a
tax year beginning before 01.04.2026. Such proceedings shall be conducted in
accordance with the procedure prescribed under the repealed Income Tax Act,
1961.
Penalty Proceedings saved under the Repealed Act [Section 536(2)(d)]
Section 536(2)(d) provides that any proceeding for
the imposition of a penalty in respect of any tax year beginning before
01.04.2026 may be initiated, and any such penalty may be imposed, under the
repealed Income Tax Act, 1961, as if the Income Tax Act, 2025 had not been
enacted.
Continuation
of Pending Appeals, Revisions and Court Proceedings [Section 536(2)(e)]
Section
536(2)(e) provides that any proceeding pending on the commencement of the
Income Tax Act, 2025 before any income-tax authority or any other authority
constituted under the repealed Income Tax Act, the Appellate Tribunal, or any
court, by way of application, appeal, reference, revision or by any other
means, shall be continued and disposed of as if the Income Tax Act, 2025 had
not been enacted.
Continuity of Elections, Declarations and Options [Section 536(2)(f)]
Section 536(2)(f) provides that any election,
declaration or option validly made by an assessee under the repealed Income Tax
Act, 1961, and remaining in force immediately before the commencement of the
Income Tax Act, 2025, shall be deemed to have been made or exercised under the
corresponding provision of the new Act.
Interest for the period commencing on or after 01.04.2026 shall be governed by the provisions of the Income Tax Act, 2025 [Section 536(2)(g)]
Section 536(2)(g) ensures that, in transitional
cases, interest on refunds payable by the Government and interest for defaults
committed by the assessee is governed by the Income Tax Act, 2025 for the
period from 01.04.2026 onwards, even though the underlying proceedings relate
to tax years governed by the repealed Income Tax Act, 1961.
Continuation of taxability of earlier deductions and exemptions [Section 536(2)(h)]
The clause (h) provides that where
:
- any sum had been allowed as a deduction, or
- not included in the total income,
for any tax year before 01.04.2026,
either -
- because specified conditions were fulfilled, or
- for any other reason,
and such amount would have become
taxable in a later year under the repealed Income Tax Act had that Act
continued to operate, then the amount shall:
- be deemed to be the income of that subsequent
tax year; and
- be taxed under the same head of income under
which it would have been taxed under the repealed Act.
Illustration
Suppose an assessee claimed a deduction
of ₹ 20,00,000 in Year 2025-26 under the Income Tax Act, 1961. Under the 1961
Act, that deduction was required to be brought to tax in Tax Year 2028-29
because of a specified statutory event (such as cessation of the qualifying
conditions or any other event prescribed by law).
Even though the Income Tax Act,
1961 has been repealed with effect from 01.04.2026, Section 536(2)(h) ensures
that :
§ the ₹ 20,00,000 will be deemed to be the income of
Tax Year 2028-29;
§ it will continue to be taxable under the Income Tax
Act, 2025; and
§ it will be assessed under the same head of income
under which it would have been taxed under the repealed Income Tax Act, 1961.
Repeal of the Income Tax Act, 1961 does not affect the recovery of outstanding tax demands [Section 536(2)(i)]
Section 536(2)(i) provides that any sum payable under the
repealed Income Tax Act, 1961 may be recovered under the Income Tax Act, 2025,
without prejudice to any action already taken for the recovery of such sum
under the repealed Act.
Existing Approvals, Notifications,
Circulars, Rules, etc. Continue to Remain Valid [Section 536(2)(j)]
Section 536(2)(j) provides that
any agreement entered into, appointment made, approval given, recognition
granted, circular, direction, instruction, notification, order, rule or scheme
framed under the Income-tax Act, 1961 shall be deemed to have been made or
issued under the corresponding provision of the Income-tax Act, 2025, so long
as it is not inconsistent with the provisions of the Income Tax Act, 2025.
Expired limitation not revived [Section 536(2)(k)]
Section 536(2)(k) provides that where the statutory time
limit for filing any application, appeal, reference, or revision under the
repealed Income Tax Act, 1961 had already expired on or before the commencement
of the Income Tax Act, 2025, such expired right is not revived merely because
the new Act prescribes a longer limitation period or permits extension of time
in certain cases. If the limitation period for filing an appeal, revision or
application had already expired under the 1961 Act before commencement of the
new Act, the taxpayer cannot take advantage of any longer limitation available
under the new Act. The new Income Tax Act, 2026 does not revive barred remedies.
Carry Forward and Continuation of MAT/AMT Tax Credit under the Income Tax Act, 2025 [Section 536(2)(l)]
Section 536(2)(l) provides that
any amount of tax credit eligible to be carried forward under section 115JAA
(MAT credit) or section 115JD (AMT credit) of the repealed Income-tax Act,
1961, relating to a tax year beginning before 01.04.2026, shall be deemed to be
the corresponding tax credit under the new Income Tax Act, 2025; and
Continue to be available for
set-off under the new Act for the same balance period for which it would have
been available under the repealed Act, provided the assessee continues to
satisfy the conditions prescribed under the corresponding provisions of the Income
Tax Act, 2025.
Thus,
no accumulated tax credit is lost because of repeal.
Preserve the continuity of tax benefits relating to carried forward losses [Section 536(2)(m)]
Section
536(2)(m) ensures that the repeal of the Income Tax Act, 1961 does not
extinguish the taxpayer's accrued right to carry forward and set off losses. It
maintains continuity by allowing pre-2026 losses to be utilised under the Income
Tax Act, 2025 in accordance with the corresponding provisions of the repealed
Act.
Carry forward and Set-off of brought forward capital losses [Section 536(2)(n)]
Section
536(2)(n) of the Income Tax Act, 2025 is a transitional (saving) provision that
ensures capital losses determined under the repealed Income-tax Act, 1961 are
not lost merely because the 1961 Act has been repealed. Instead, such losses
continue to be available for carry forward and set-off under the new Act,
subject to the same conditions that applied under the repealed Act.
ILLUSTRATION
Suppose an
assessee incurred a long-term capital loss in Financial year 2024-25, which
remained eligible for carry forward on 01.04.2026. That loss can continue to be
carried forward under the Income Tax Act, 2025 and set off against eligible
capital gains in subsequent tax years, but only for the unexpired portion of
the original eight-year period and in accordance with the rules contained in
section 74 of the Income Tax Act, 1961.
Withdrawal of the benefit of carry forward and set-off of accumulated losses and unabsorbed depreciation allowed under section 72A of the Income Tax Act, 1961, where the prescribed conditions are subsequently violated [Section 536(2)(o)]
Section 536(2)(o) provides that
The provision applies where a
set-off of accumulated business loss or unabsorbed depreciation was allowed under
section 72A of the Income Tax Act, 1961, such set-off was availed in a tax year
beginning before 01.04.2026; and after the commencement of the Income Tax Act,
2025, the beneficiary fails to satisfy any condition prescribed under section
72A –
In such a case, the benefit earlier
allowed is withdrawn by treating the amount previously set off as the income of
the successor entity in the year of default (i.e. for the tax year in which any
of the conditions specified in section 72A are not complied with).
Taxability on breach of conditions for carry forward of Co-operative Bank Losses [Section 536(2)(p)]
Section 536(2)(p) provides that
where a successor co-operative bank has been allowed the benefit of set-off of
accumulated losses or unabsorbed depreciation under section 72AB of the
repealed Income Tax Act, 1961, and subsequently fails to comply with any of the
conditions prescribed under that section, the benefit earlier allowed will be
withdrawn. The amount so withdrawn shall be deemed to be the income of the
successor co-operative bank and shall be chargeable to tax under the Income Tax
Act, 2025 in the year in which the breach of the conditions occurs.
ILLUSTRATION
Suppose a successor co-operative
bank, pursuant to an approved business reorganisation, had claimed a set-off of
₹8 crore of accumulated losses under section 72AB of the Income Tax Act, 1961.
If, after 01.04.2026, it breaches one of the mandatory conditions of section
72AB (for example, by failing to satisfy the prescribed continuity
requirements), the ₹8 crore previously allowed as a set-off will be treated as
the bank's taxable income in the year of such breach under the Income Tax Act,
2025.
Deemed Capital Gains on Breach of Exemptions - Taxability of Capital Gains on Subsequent Non-Compliance with Conditions of Tax-Neutral Transfers [Section 536(2)(q)]
Section 536(2)(q) is a transitional provision. It ensures
that if a tax-neutral transfer took place under the repealed Income Tax Act,
1961 before 01.04.2026, and the conditions for that exemption are violated
after the commencement of the Income Tax Act, 2025, the deferred capital gains
will still become taxable under the Income Tax Act, 2025. The provision covers
transfers that were exempt under the following provisions of the repealed
Income Tax Act, 1961:
§
Section 47(iv) – Transfer of a
capital asset by a holding company to its wholly-owned Indian subsidiary.
§
Section 47(v) – Transfer by a
wholly-owned Indian subsidiary to its holding company.
§
Section 47(xiii) – Conversion of a
partnership firm into a company.
§
Section 47(xiiib) – Conversion of a
private company or unlisted public company into an LLP.
§
Section 47(xiv) – Succession of a
sole proprietary concern by a company.
ILLUSTRATION
Suppose a partnership firm converted into a company in Financial
year 2025-26 and claimed exemption under Section 47(xiii) of the Income Tax
Act, 1961 because all prescribed conditions were initially satisfied.
If, in Financial year 2027-28, one
of those conditions is violated (for example, the partners fail to maintain the
required shareholding for the stipulated period), the exemption is withdrawn.
Under Section 536(2)(q), the capital gains that were not taxed at the time of
conversion will now become taxable under the Income Tax Act, 2025 in accordance
with the transitional provisions.
Unabsorbed depreciation and scientific research expenditure continue as corresponding capital allowances under the Income Tax Act, 2025 [Section 536(2)(r)]
Section 536(2)(r) of the Income Tax
Act, 2025 is a transitional (saving)
provision that ensures continuity of tax benefits relating to:
§ Unabsorbed depreciation under section 32(2) of the repealed Income Tax Act, 1961;
and
§ Unabsorbed capital expenditure on
scientific research under section 35(4) of the repealed
Act.
It provides that where any such allowance
remains unabsorbed and is eligible to be carried forward to the tax year
beginning on 01.04.2026, such
allowance shall not lapse merely
because the Income Tax Act, 1961 has been repealed. Instead:
§ it shall be added to
the corresponding capital allowance under the Income Tax Act, 2025 for
the tax year beginning on 01.04.2026; and
§ if there is no
corresponding allowance for that tax year, it shall be deemed to be the allowance of that tax year
and carried forward accordingly.
Thus, unabsorbed depreciation
survives the repeal.
Preserves the continuity of amortised (deferred) revenue expenditure deductions [Section 536(2)(s)]
It
provides that deductions relating to the following provisions of the repealed
Income-tax Act, 1961 will continue to be available for tax years beginning on
or after 1 April 2026, provided all the prescribed conditions continue to be
satisfied:
§ Section 35ABA – Expenditure for obtaining a telecom
licence;
§ Section 35ABB – Expenditure for acquiring the right
to use spectrum;
§ Section 35D – Preliminary expenses;
§ Section 35DD – Expenditure on amalgamation or
demerger;
§ Section 35DDA – Payments under voluntary retirement
scheme (VRS);
§ Section 35E – Expenditure on prospecting, etc., for
specified minerals; and
§ The first proviso to section 36(1)(ix) – Certain
expenditure on family planning.
The balance deduction that would
have been allowable under the 1961 Act is deemed to form part of the
corresponding “deferred revenue expenditure allowance” under the Income Tax
Act, 2025. If there is no corresponding allowance for that tax year, the
balance amount is treated as the allowance for that year.
Preservation and Continuity of Provision for Bad and Doubtful Debts [Section 536(2)(t)]
Section 536(2)(t) is a transitional
(saving) provision that ensures continuity of the provision for bad and
doubtful debts on the repeal of the Income Tax Act, 1961. It provides that the
credit balance standing in the provision for bad and doubtful debts account
created under section 36(1)(viia) of the repealed Income-tax Act, as on the
last day of the tax year beginning on 01.04.2025, shall not lapse on the
commencement of the new Act. Instead, it shall be carried forward and treated
as part of the corresponding provision under the Income Tax Act, 2025 for the
tax year beginning on 01.04.2026. If no fresh amount is credited to such
provision in that tax year, the carried-forward balance itself is deemed to be
the amount credited for that year.
Existing faceless schemes shall continue in force [Section
536(2)(u)]
Any scheme notified under the Income Tax Act, 1961 for:
- Faceless
assessment;
- Faceless
appeal;
- Faceless
penalty;
- Other
digital proceedings
shall continue under the corresponding provisions of the
Income Tax Act, 2025 even after the repeal of the Income Tax Act, 1961.
Search and Requisition Proceedings continue under the Repealed Act [Section 536(2)(v)]
Section 536(2)(v) provides that where a search under section
132 or a requisition under section 132A of the Income-tax Act, 1961 was
initiated before the commencement of the Income Tax Act, 2025 (i.e., before
01.04.2026), all proceedings arising from such search or requisition shall
continue to be governed by the Income Tax Act, 1961, as if that Act had not
been repealed.
Reference to earlier Tax Years [Section 536(3)]
Wherever the Income Tax Act, 2025 refers to a tax year commencing on or before 01.04.2025,
it shall be interpreted as referring to the corresponding previous year under the Income Tax
Act, 1961. This bridges the terminology change from “Previous Year/Assessment
Year” to “Tax Year.”
Suppose a provision of the Income Tax Act, 2025 refers to “Tax
Year 2024-25.” By virtue of Section 536(3), this must be understood as Previous
Year 2024-25 under the Income Tax Act, 1961, which corresponds to Assessment
Year 2025-26. Thus, the legal consequences continue to be governed by the Income
Tax Act, 1961 for that period, despite the new terminology.
Overriding Legal Backup [Section 536(4)]
Section 536(4) is an overriding legal safeguard that
incorporates Section 6 of the General Clauses Act, 1897 (unless the repealing
statute expressly provides otherwise) to ensure that, even beyond the specific
savings in Section 536(2), all accrued rights, liabilities, proceedings,
penalties, and legal consequences under the repealed Income-tax Act, 1961
continue unaffected unless the Income-tax Act, 2025 expressly provides
otherwise.
The expression “all the provisions of this Act shall apply accordingly” in section 297(2)(d)(ii) means that, after a valid notice under section 148 is issued, the reassessment proceedings are to be conducted in the same manner as any reassessment ordinarily initiated under sections 147 and 148 of the Income Tax Act, 1961, subject only to the limitations and relaxations contained in sections 149 and 150.
Brief facts of the case
The case related to an
assessment year governed by the repealed Income Tax Act, 1922. After the
Income-tax Act, 1961 came into force, the Income-tax Officer sought to reopen
the completed assessment by issuing a notice under section 148 of the 1961 Act.
The assessee challenged the validity of the reassessment proceedings,
contending that the notice and the subsequent proceedings were not maintainable
because the assessment pertained to a period governed by the repealed 1922 Act.
The principal controversy
was the interpretation of the saving clause contained in section 297(2)(d)(ii)
of the 1961 Act, particularly the concluding words “and all the provisions of
this Act shall apply accordingly.”
Core Issue
The core issue before the Supreme Court was :
Whether the concluding words of section
297(2)(d)(ii) of the Income-tax Act, 1961 – “and all the provisions of this Act
shall apply accordingly” - mean that, once reassessment proceedings are
initiated under section 148, the entire reassessment machinery of the 1961 Act,
including the limitation provisions in sections 149 and 150, governs such
proceedings, even though they relate to assessment years governed by the
repealed 1922 Act ?
Revenue’s Arguments – Mahadeo Prasad Bais v. ITO
The Revenue advanced the following principal
arguments before the Supreme Court:
- Section 297(2)(d)(ii) expressly authorises
reassessment under the 1961 Act.
The saving clause permits the reopening of assessments relating to years governed by the repealed 1922 Act by issuing a notice under section 148 of the Income-tax Act, 1961. - The concluding words “all the provisions of
this Act shall apply accordingly” must be given full effect.
Once a notice under section 148 is issued, the reassessment proceedings are governed by the entire scheme of the 1961 Act, not by the repealed 1922 Act. - Sections 149 and 150 regulate limitation.
The validity of a notice under section 148 must be examined with reference to the limitation provisions contained in sections 149 and 150 of the 1961 Act, including any statutory relaxations provided therein. - The reassessment machinery under the 1961 Act
is a complete code.
After proceedings are initiated under section 148, all procedural and substantive provisions relating to reassessment—including assessment, reassessment, appeal, and other consequential provisions—must operate as they would in an ordinary reassessment under the 1961 Act. - The repeal of the 1922 Act does not restrict
the operation of the 1961 Act.
Section 297 was enacted to ensure a smooth transition from the repealed Act to the 1961 Act. Therefore, reassessment proceedings relating to earlier assessment years should continue under the machinery of the new Act rather than under the repealed statute.
The Revenue contended that section 297(2)(d)(ii) incorporates the entire reassessment mechanism of
the Income-tax Act, 1961, so that once proceedings are initiated under
section 148, all provisions of the 1961
Act - including sections 149 and 150 - govern the reassessment proceedings.
Decision of the Supreme Court
The Supreme Court dismissed the assessee's appeal and upheld the validity of the
reassessment proceedings,
thereby deciding the case in
favour of the Revenue.
The Court held that the concluding words of section 297(2)(d)(ii) – “and all the provisions of this Act shall apply accordingly” - must be given their plain and full meaning.
Accordingly, where reassessment proceedings are initiated by issuing a notice
under section 148 pursuant to the saving clause, the entire reassessment machinery of the Income-tax Act, 1961
applies, just as it
would in an ordinary reassessment under that Act.
The Supreme Court further clarified that :
§ The validity of a notice issued
under section 148 must be tested with reference to the
provisions of the 1961 Act.
§ The reassessment proceedings are subject
to the limitation provisions and statutory relaxations contained in sections
149 and 150 of the 1961 Act.
§ Once proceedings are validly
initiated under section 148, all procedural and substantive provisions
governing reassessment under the 1961 Act apply, notwithstanding that
the assessment year relates to the repealed 1922 Act.
§ The words “all the
provisions of this Act shall apply accordingly” incorporate the entire reassessment framework of the 1961 Act and
are not confined merely to the issuance of the notice.
The saving provision in
section 297(2)(d)(ii) requires that, after a valid notice under section 148 is
issued, the reassessment proceedings must be conducted in accordance with the
Income-tax Act, 1961 in all respects, subject only to the limitation and relaxation
provisions contained in sections 149 and 150. Thus, the reassessment machinery
of the 1961 Act applies in its entirety to such saved proceedings.
Relevance under the Income Tax Act, 2025
The principle is equally relevant while
interpreting the saving provisions in section 536 of the Income-tax Act, 2025.
Where the 2025 Act saves pending or future proceedings relating to earlier tax
years, the phrase directing that proceedings shall be taken under the new Act
generally indicates that the procedural machinery of the new Act applies,
unless the saving provision expressly preserves the old law or provides
otherwise. Thus, Mahadeo Prasad Bais v. ITO supports the proposition
that a saving clause ordinarily carries with it the complete procedural
framework of the new enactment.
- [In favour of Revenue]
(Related Assessment years : 1953- 54 to 1961-62) - [Mahadeo Prasad Bais v.
ITO (1991) 192 ITR 402 (1992) 60 Taxman 388 (SC)]
Vested rights
relating to carry forward and set-off of losses validly acquired under the
repealed Income Tax Act, 1922 is a vested right. Such right survives the repeal
of the 1922 Act and cannot be taken away by the Income Tax Act, 1961 unless the
new statute expressly or by necessary implication provides otherwise.
Brief facts
of the case
Assessee was a registered partnership firm. During
the years governed by the Income Tax Act, 1922, the firm had incurred
speculation losses. Under section 24(1) of the 1922 Act, the firm itself was
entitled to carry forward and set off such speculation losses against future
speculation profits. Before those losses could be fully adjusted, the Income Tax
Act, 1961 came into force with effect from 01.04.1962. Under section 75(2) of
the 1961 Act (as it then stood), a registered firm was not entitled to carry
forward and set off its own losses; instead, such losses were to be apportioned
among the partners. For the assessment year 1963-64, the assessee claimed
set-off of the speculation losses carried forward from the period governed by
the 1922 Act. The Revenue rejected the claim on the ground that section 75(2)
barred such set-off.
Core
Issue
The core issue before the Supreme Court in CIT
v. Shah Sadiq & Sons was:
Whether the assessee-firm was entitled to carry
forward and set off speculation losses incurred under the repealed Income-tax
Act, 1922 in the assessment year 1963-64, despite the prohibition contained in
section 75(2) of the Income-tax Act, 1961, or whether such vested right stood
extinguished on the repeal of the 1922 Act ?
Revenue’s
Arguments
The Revenue contended that :
§ Once the Income-tax Act, 1961 came into force, the
assessment had to be governed entirely by the provisions of the new Act.
§ Section 75(2) expressly prohibited a registered
firm from carrying forward and setting off its losses.
§ Therefore, even losses that arose under the 1922
Act could not be set off by the firm after the commencement of the 1961 Act.
§ The assessee had no surviving right under the
repealed Act once it stood repealed.
Assessee’s Arguments
The assessee argued that:
§ The right to carry forward and set off speculation
losses had already accrued under the 1922 Act.
§ Such right constituted a vested or accrued right.
§ Section 297 of the 1961 Act repealed the 1922 Act
but did not expressly or by necessary implication extinguish accrued rights.
§ By virtue of section 6(c) of the General Clauses
Act, 1897, accrued rights survive the repeal of a statute unless a contrary
intention appears.
§ Therefore, the firm remained entitled to set off
the speculation losses.
Decision of the Supreme Court
The Supreme Court decided in favour of the assessee. The Court held that:
§ The right to carry forward and set
off speculation losses under Section 24(2) of the 1922 Act was an accrued and vested right.
§ Such a vested right is preserved by
section 6(c) of the General Clauses Act unless the repealing statute expressly
or by necessary implication takes away that right.
§ Section 297 of the Income-tax Act,
1961 did not disclose any intention to destroy rights that had already accrued
under the repealed Act.
§ Section 75(2) of the 1961 Act
operated prospectively and did not affect rights that had vested under the 1922
Act.
§ Consequently, the assessee-firm was
entitled to carry forward and set off the speculation losses in the assessment
year 1963-64 notwithstanding section 75(2).
Significance
The judgment is regarded as an important precedent
on statutory interpretation and saving of accrued rights. It
establishes that repeal of a statute does not automatically extinguish rights
that have already vested. Courts will presume such rights continue unless the
legislature clearly indicates otherwise.
The decision also overruled an earlier contrary
view of the Allahabad High Court in CIT v. Mangiram Gopichand,
reinforcing the principle that savings clauses are not exhaustive and that
Section 6 of the General Clauses Act continues to protect accrued rights unless
displaced by clear legislative intent.
[In favour of assessee] – [CIT v. Shah Sadiq
& Sons (1987) 166 ITR 102 : 61 CTR 269 : 31 Taxman 498
(SC)]
Section 297(2)(d)(ii) of the Income Tax Act, 1961
does not revive a reassessment power that had already become barred under the
repealed Income Tax Act, 1922. In the absence of express legislative intent, a
transitional provision cannot be construed retrospectively to revive a remedy
extinguished by limitation.
Issue
Whether section 297(2)(d)(ii) of the Income
Tax Act, 1961 permits the Income-tax Officer to issue a notice under section
148 to reopen an assessment where the power to reopen under section 34(1)(a) of
the Income Tax Act, 1922 had already become barred by limitation before the
Income Tax Act, 1961 came into force ?
The respondent was
assessed to income-tax for the assessment year 1947- 48. Thereafter the
Income-Tax Officer issued a notice under section 34(1)(a) of the Income Tax
Act, 1922, for reassessment. There was no proper service of the notice, and
despite the respondent’s objection, the Income-tax Officer determined the total
income of the respondent at Rs. 89,000. The Appellate Assistant Commissioner
allowed the respondent’s appeal by order dated 05.01.1963 on the ground that
there is no valid service of the notice. On 01.04.1962, the Income Tax Act,
1922 was repealed and the Income-tax Act, 1961 came into force, and the time
for taking action for reassessment was enlarged from 8 years to 16 years. By
that date, the right of the Income-Tax Officer to reopen the assessment under
section 34(1)(a) of the Income Tax Act, 1922 became barred. The Income-tax
Officer however, issued a notice under section 148 of the Income Tax Act, 1961
for reopening the assessment. The respondent, thereupon filed a writ
petitioning the High Court for quashing the notice and the petition was
allowed. In appeal to this Court.
Held : On a proper
construction of section 297(2)(d)(ii), the Income-tax Officer cannot issue a
notice under section 148 in order to reopen the assessment of an assessee in a
case where the right to reopen the assessment under the Income Tax Act, 1922
was barred at the date when the Income Tax Act, 1961 came into force. The
reason is that unless the statute expressly so provides or there is a necessary
implication, retrospective operation should not be given to it so as to affect,
alter or destroy any right already acquired or to revive any remedy’ already
lost by effluviums of time. The Income Tax Act, 1961 does not disclose in
express terms or by necessary implication that there was a revival of the right
of the Income-tax Officer to reopen an assessment which was already barred
under the Income Tax Act, 1922 and if the section is construed as reviving such
a right it would be tantamount to giving it retrospective operation which is
not warranted by its language.
In our opinion, the
principle of this decision applies in the present case and it must be held that
on a proper construction of section 297(2)(d)(ii) of the new Act, the
Income-tax Officer cannot issue a notice under section 148 in order to reopen
the assessment of an assessee, in a ease where the right to reopen the
assessment was barred under the old Act at the. date when the new Act came into
force. It follows therefore that the notices dated 13.11.1963 and 09.01.1964
issued by the Income-tax Officer, Ahmedabad were illegal and ultra vires and
were rightly quashed by the Gujarat High Court by the grant of a writ. For the
reasons expressed, we hold that the judgment of the High Court of Gujarat dated
14th/15th December, 1964 is correct and this appeal must be dismissed with
costs.
Principle Laid Down
The Court held that section 297(2)(d)(ii) is
merely a transitional provision. It enables reassessment proceedings under the
new Act only where the right to reopen the assessment was still subsisting on
the date the 1961 Act came into force. It does not revive a power which had
already become barred under the repealed 1922 Act.
[In favour of assessee] (Related Assessment
year : 1947-48) - [J.P. Jani, ITO, Ahmadabad v. Induprasad Devshankar Bhatt
AIR (1969) 778, 1969 SCR (1) 714 - [TS-4-SC-1968] (SC)]
Assessment for relevant assessment years was
completed under 1922 Act - 1922 Act was repealed by 1961 Act - Thereupon,
Commissioner issued notice under section 33B of 1922 Act to revise those
assessments – Notice issued by Commissioner under 1922 Act was valid
Core Issue before the Supreme Court :
Whether the Commissioner
could exercise revisionary powers under the repealed 1922 Act after the
commencement of the Income-tax Act, 1961 in respect of assessments completed
under the repealed Act ?
Section 263, read with
section 297 of the Income-tax Act, 1961 [Corresponding to section 33B of the
Indian Income-tax Act, 1922] - The assessment for the relevant assessment years
was completed under the 1922 Act. The 1922 Act was repealed by the 1961 Act.
Thereupon, the Commissioner issued a notice under section 33B of 1922 Act to
revise the assessments already made. The assessee filed a writ petition to
quash the notice issued by the Commissioner. The High Court dismissed the
petition. On appeal to the Supreme Court:
The word ‘assessment’ can
bear a very comprehensive meaning: it can comprehend the whole procedure for
ascertaining and imposing liability upon the taxpayer. Is there then anything
in the context of section 297 which compels us to give to the expression “procedure
for the assessment” the narrower meaning. The answer to this question must be
in the negative. Section 297 is meant to provide as far as possible for all
contingencies which may arise out of the repeal of the 1922 Act. It deals with
pending appeals, revisions, etc. It deals with non-completed assessments
pending at the commencement of the 1961 Act, and assessments to be made after
the commencement of the 1961 Act, as a result of returns of income filed after
the commencement of the 1961 Act. It is hardly believable in this context that
Parliament did not think of appeals and revisions in respect of assessment
orders already made or which it had authorised to be made under clause (a) of
section 297(2).
It is true that whether a
different intention appears or not, must depend on the language and content of
section 297(2). If section 6 of the General Clauses Act is out of the way,
there is no doubt that Parliament should not be credited with the intention of
not providing for appeals and revisions, etc., against the assessment orders
made under the 1922 Act. The expression “proceedings for the assessment of that
person” in clause (a) of section 297(2) has a very comprehensive meaning. At
any rate, if the Income-tax (Removal of Difficulties) Order, 1962, is valid,
paragraph 4 of the said order clearly covers the instant case and would give
jurisdiction to the Commissioner to issue the impugned notice. Consequently,
instant appeal was to be dismissed. The Supreme Court upheld the Commissioner's
action and ruled in favour of the Revenue.
Principle Laid Down
The repeal of an
Income-tax Act does not extinguish the power of revision in respect of
assessments made under the repealed law where the saving provisions preserve
such jurisdiction. Revision proceedings are treated as part of the overall
assessment process and may continue or be initiated after repeal if authorised
by the transitional provisions.
The judgment reinforces
the principle that repeal affects the form of the law, but not accrued rights,
liabilities, or statutory proceedings unless the new legislation clearly
provides otherwise.
[In favour of revenue].
(Related Assessment years : 1952-53 to 1960-61) - [Kalawati Devi Harlalka v.
CIT (1967) 66 ITR 680 (SC)]
Relevance to Repeal and Savings under the Income Tax Act,
2025
The relationship of Section 6 of the General Clauses Act,
1897 and the Repeal and Savings clause was clarified to say that the Repeal and
Savings Clause does not oust the jurisdiction of the former, and that Section 6
will follow unless a different intention appears in the new enactment.
The principle relating
to a savings clause was authoritatively explained by the State of Punjab
v. Mohar Singh AIR 1955 SC 84. This is the leading Supreme
Court decision on the effect of repeal of statutes and the role of saving
clauses.
Repeal of a statute does not, by
itself, destroy rights accrued, liabilities incurred, penalties imposed, or
legal proceedings already commenced. Such matters continue to be governed by
Section 6 of the General Clauses Act unless the repealing statute expressly or
impliedly provides otherwise
Brief facts of the Case
Criminal proceedings had been initiated
against the respondent, Mohar Singh, under the provisions of an existing
criminal law. Before those proceedings were concluded, the statute under which
the prosecution had been launched was repealed and replaced by a new enactment.
The respondent contended that, because the original statute had been repealed
and the new law did not contain an express saving provision preserving pending
prosecutions, the criminal proceedings could not continue. The State of Punjab
argued that the repeal did not invalidate pending proceedings because Section 6
of the General Clauses Act, 1897 automatically saved rights, liabilities, and
legal proceedings unless the repealing statute disclosed a contrary intention.
The matter ultimately reached the Supreme
Court to determine the legal effect of the repeal on the pending prosecution.
Core Issue before the Supreme Court was:
Whether the repeal of an enactment automatically
extinguishes pending rights and proceedings initiated
under the repealed law, or whether they continue by virtue of Section 6 of the
General Clauses Act, 1897 unless the repealing statute expressly or impliedly
provides otherwise ?
Decision
of the Supreme Court
The Supreme Court held that the repeal of a statute
does not, by itself, extinguish rights, liabilities, penalties, or legal proceedings
that arose under the repealed law. Unless the repealing statute expressly or by
necessary implication manifests a different intention, the consequences
provided in Section 6 of the General Clauses Act, 1897 automatically apply.
The Supreme Court made the following important
observations:
- Section 6 applies automatically on repeal.
When an enactment is repealed, Section 6 of the General Clauses Act preserves accrued rights, liabilities, pending investigations, legal proceedings, and remedies, unless the new law indicates a contrary intention. - A saving clause is not always essential.
The Court observed that legislatures often insert a saving clause ex abundanti cautela (out of abundant caution) to remove doubts. However, even in the absence of such a clause, Section 6 ordinarily operates to save existing rights and pending proceedings. - Pending proceedings continue.
Investigations, prosecutions, appeals, and other legal proceedings instituted under the repealed statute do not lapse merely because the statute has been repealed. They may continue as if the repealing Act had not been enacted, unless the new statute expressly provides otherwise. - Legislative intention is decisive.
The Court emphasized that Section 6 applies only if the repealing statute does not disclose a “different intention.” Such intention may be expressed expressly or arise by necessary implication from the scheme and provisions of the new enactment.
The Supreme Court laid down the following
principle:
The effect of repeal is governed by Section 6 of
the General Clauses Act. Therefore, repeal does not affect accrued rights,
incurred liabilities, pending proceedings, or available remedies unless the
repealing statute expressly or impliedly indicates a contrary legislative
intention.
[State of Punjab v Mohar Singh in
AIR 1955 SC 84]
