Validity of Retrospective/ Prospective amendments in Tax laws

In general every statute is prospective unless it is expressed in the statute that it has retrospective operation. It is a well-settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute, so as to take away or impair an existing right, or create a new obligation or impose a new liability otherwise than as regards matters of procedure.

The general rule as stated by Halsbury in volume 36 of the Laws of England (third edition) and reiterated in several decisions of the Supreme Court as well as English courts is that “all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective” and retrospective operation should not be given to a statute so as to effect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only.

Meaning of Retrospective

Retrospective comes from the Latin words “retro” meaning “backwards” and “specere” which means to look at. Therefore laws that are retrospective in nature deal with events that have happened in the past. 

Retrospective legislation implies ex-post-facto law. The simple case of a retrospective legislation is a situation where date of commencement of some provisions is earlier to the date of enactment and the enactment is made operative from the earlier date.

Nature of Retrospective Legislation

The term ‘retrospective statute can be defined as

"A statute is to be deemed to be retrospective, which takes away or impairs any vested right acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability in respect to transactions or considerations already past."

The same term with respect to an enactment may affect the following:

§  affecting an existing contract; or

§  reopening up of past, closed and completed transaction; or

§  affecting accrued rights and remedies; or

§  affecting rules of procedure.

There are 3 concepts with regard to amendments made from time-to-time to various sections of Income-tax Act which are as follows -

(i)    prospective amendment with effect from a fixed date;

(ii)   retrospective amendment with effect from a fixed anterior date; and

(iii)  clarificatory amendments which are retrospective in nature.

The legislature which proposes the amendment sometimes very clearly mentions that the amendment proposed to be made is applicable from a particular assessment year and not from an earlier assessment year in respect of certain amendment(s) and from an earlier assessment year in respect of certain other amendment(s)

A statute is deemed to be retrospective if it takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability, in respect of transactions or considerations already passed. The legislative power to make law with retrospective effect is well-recognized. It is also well-settled that, though the Legislature has no power to sit over Court's judgment or usurp judicial power, yet it has, subject to the competence to make law, power to remove the basis which led to the Court's decision. The Legislature has the power to enact laws with retrospective effect but has no power to change a judgment of the court of law either retrospectively or prospectively.

The major principle which circumscribes the retrospective applicability of laws is the principle that unless otherwise stated expressly or by necessary implication, a statute is presumed to act prospectively. Maxwell (12th edn., p. 215) has this to say:

“Upon the presumption that the Legislature does not intend what is unjust rests the leaning against giving certain statutes a retrospective operation. They are construed as operating only in cases or on facts which come into existence after the statutes were passed unless a retrospective effect is clearly intended.”

Whether rules framed under the delegated powers could be retrospective

Though the Parliament is competent to enact laws having retrospective operation, whether the executive authorities could make rules with similar effect under their delegated powers?

Delegated legislation consists of orders, rules, regulations, directions, bye-laws, etc., made by a person or body other than the legislative authority by virtue of powers conferred by the statute. The Legislature cannot delegate its power to make a law but it can make a law to delegate powers to determine some facts or state of things upon which the law makes or intends to make its own action depend.

The Supreme Court in CIT v. Taj Mahal Hotel (1971) 82 ITR 44 (SC) held that the rules are meant only for the purposes of carrying out provision of the Act and they could not take away what was conferred by the Act or whittle down its effect. Where any rule or regulation is made by a person or authority to whom such power is delegated by the Legislature, it may or may not be possible to make the same so as to give retrospective operation. It will depend on the language employed in the statutory provision which may in express terms or by necessary implication empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found, it has been held by the Court that the person exercising subordinate legislative functions cannot make a rule which can operate retrospectively. [ITO v. Excel Productions (1970) 75 ITR 174 (SC)].

There is no prohibition on imposing civil liability retrospectively in India

According to Article 20(1) of the Indian Constitution, only retrospective criminal laws are prohibited. There is no prohibition on imposing civil liability retrospectively.

Meaning of the word prospective

The dictionary meaning of the word prospective with reference to statutes shows that it is concerned with or applying the laws in future or atleast from the date of commencement of the statute.

Prospective means future laws, that means if any law or a regulation which were made in the purview of future of acts. Retrospective means past laws, that means laws which followed under events impaired an existing right or obligation.

Difference between retrospective and prospective operation of statutes

To begin with and to get a proper perspective the dictionary meaning of “prospective” is “relating to or effective in the future” whereas “retrospective” is defined as “contemplative of or relating to past events or taking effect from a date in the past”.

In general, and may be rather overwhelmingly, the Judiciary has often quoted and relied approvingly on the Coke Maxim (which is attributed to Sir Edward Coke – the widely respected English Barrister and Judge) – “A new law ought to be prospective, not retrospective in its operation”.

S. No.	Prospective operation of statutes	Retrospective operation of statutes
1.	A prospective operation of any statute essentially means that the statute as it is formulated is solely focused on the future acts or offences that might be committed. It doesn’t consider any past act or incident that happened that in the present times would have constituted a crime.	On the other hand, the retrospective operation of the law is in absolute contradiction with prospective laws. Under this form, the law that has been passed or the amendment made to the current times is also going to be applicable to the events carried out in the past which would now constitute an offence. Hence, this contradicts the general presumption of the law being effective in the future.
2.	Any statute introduced, unless expressly stated otherwise, is considered to be prospective in nature.	No statute is presumed to ever be retrospective in nature.
3.	Any law, unless stated otherwise, is considered to be prospective in nature, i.e., to be effective from either the date of its enforcement or from any other future date.	This is not the case with retrospective legislation. If such legislation is to be introduced, the legislators need to specify the past date from which the law is going to be applicable. Also, the Supreme Court has the power to decide whether a law should be enforced retrospectively or not.
4.	In India, all the laws relating to both civil and criminal matters can have prospective operation. In other words, all the statutory provisions are going to be applicable to future events or any of the acts.	However, the retrospective statutes can only be used for criminal matters and not civil ones.
5.	There is general acceptance by the public for the prospective operation of the statutes because they acquire complete knowledge about the various offences and hence do not commit them to attract any penalty. These uphold the democratic values of justice and the rule of law.	On the other hand, the retrospective operation of any statute is most of the times highly criticized by the people for violating their rights. While committing that act, they did not have the knowledge that it was going to become unlawful in the future for which they could be punished.
6.	All countries generally accept all the new laws to be applicable for future events, i.e., prospective operation of the laws. They are always given preference because it upholds the values of democracy and, at the same time, is the most favourable path to follow as  people acquire the necessary information about offences.	On the other hand, most countries in this world do not recognize the retrospective operation of any statute or with certain restrictions. In several other countries, these can be introduced with several restrictions. Even in India, Article 20(1) of the Constitution prohibits the enforcement of any retrospective law or amendment which might be harmful to the rights of the citizens.

Retroactive, Retroactivity and Retrospective explained

Advanced Law Lexicon by P. Ramanatha Aiyar explains the following concepts-

§   “Retroactive - Acting backward; affecting what is past. (Of a statute, ruling, etc.) extending in scope or effect matters that have occurred in the past, also termed retrospective.

§   ‘Retroactivity’ is a term often used by lawyers but rarely defined. On analysis it soon becomes apparent, that it is used to cover at least two distinct concepts. The first, which may be called ‘true retroactivity’, consists of the application of a new rule of law to an Act or transaction which was completed before the rule was promulgated. The second concept, which will be referred to as ‘quasi-retroactivity’, occurs when a new rule of law is applied to an Act or transaction in the process of completion.... The foundation of these concepts is the distinction between completed and pending transactions....

§   Retrospective - Looking back; contemplating what is past having operation from a past time. ‘Retrospective’ is somewhat ambiguous and that good deal of confusion has been caused by the fact that it is used in more senses than one. In general, however, the Courts regard as retrospective any statute which operates on cases or facts coming into existence before its commencement in the sense that it affects even if for the future only the character or consequences of transactions previously entered into or of other past conduct. Thus, a statute is not retrospective merely because it affects existing rights, nor is it retrospective merely because a part of the requisite for its action is drawn from a time and antecedents to its passing (Vol.44 Halsbury’s Laws of England, Fourth Edition, page 570 para 921)

What is the presumption of any law?

Any new law introduced is presumed to be prospective in nature unless expressly stated to be retrospective with the date in the past from which the statute shall apply.

The Concept of Ultra Vires

Ultra vires (‘beyond the powers’) is a Latin phrase used in law to describe an act which requires legal authority but is done without it. Its opposite, an act done under proper authority, is intra vires (‘within the powers’). Acts that are intra vires may equivalently be termed “valid”, and those that are ultra vires termed “invalid”.

In India, when the Legislature delegates legislative power to an administrative authority without offering any guide lines, the validity of the relevant statute may be attacked on following grounds, viz;

(a)    The statute offends against Articles 14 & 19 of the Constitution on the ground of unreasonable or arbitrary on the part of the legislature to confer uncontrolled discretionary power upon an administrative authority.

(b)   That the statute is invalid because of excessive delegation of abdication of legislative power by the legislature.

(c)    retrospective effect cannot be given to a subordinate legislation unless it is authorized by the parent statute or a validating statute

Declaratory Clarificatory Curative Amendments

A declaratory Act is described in Craies Law on Statutes as an Act to remove doubts as to the meaning of effect of a statute and the usual reason for passing a statutory Act is to set aside what the Parliament deems to have been a judicial error .

Declaratory statutes are generally retrospective in their operation. These do not prove the law was otherwise before, but rather the reverse. A declaratory Act means to declare the law, or to declare that which has always been the law, and there having been doubts which have arisen, the Parliament declares what the law is and enacts that it shall continue what it then is.

Declaratory Acts may be of various kinds. For instance, a statute may correct an error in a former statute. It may be explanatory of a former statute; and so there may be cases in which unless retrospective operation is given it would fail in its object. It is clear from a declaratory statute that its objects were to 'explain' certain words or clauses.

Clarificatory amendments and interpretation of an earlier ambiguous provision

An amendment which is by way of clarification of an earlier ambiguous provision can be useful in construing earlier provision even though such an amendment is not given retrospective effect. - Thiru Manickam & Co. v. State of Tamil Nadu AIR 1977 SC 518.

For example, the law of limitation being a procedural law always has a retrospective effect unless the statute provides otherwise. – [CIT v. Sadhu Ram (1981) 127 ITR 517 (P&H)]

NOTE

This case is Affirmed in (2002) 124 Taxman 484 (SC)

Finance Act, 2022 amendment to Section 14A for disallowance of expenditure in absence of exempt income, clarificatory in nature, applicable retrospectively

Guwahati ITAT rules in favour of Revenue, holds that the Explanation inserted by Finance Act, 2022 to Section 14A providing that the provisions shall apply whether or not exempt income has accrued, arisen or received, is clarificatory in nature and thus, applicable retrospectively; For Assessment year 2013-14, Revenue observed that Assessee-Company earned Rs. 3.7 Cr exempt dividend income and considering that Assessee’s own funds were insufficient to make such investment, applied Section 14A and disallowed Rs. 8.36 Cr.; However, CIT(A) held that disallowance under section 14A cannot exceed the total tax exempt income earned and restricted the disallowance to the extent of exempt income earned; ITAT considers Revenue’s submission that in accordance with the newly inserted explanation in Section 14A, it is now clarified that notwithstanding anything to the contrary contained in the Act, the provisions of section 14A shall apply and shall be deemed to have always applied in a case where the exempt  income has not accrued/ arisen/ received during the year and the expenditure has been incurred during the year in relation to such income; ITAT extensively delves into the legislative history of Section 14A, notes that the controversy on apportionment of expenditure related to taxable and exempt income, prior to insertion of Section 14A, was dealt by Supreme Court in Rajasthan State Warehousing Corporation whereby Supreme Court held that if two businesses producing taxable and exempt income can be bifurcated and do not constitute one indivisible business, then the apportionment of expenditure is permissible, thus leading to introduction of Section 14A by Finance Act, 2001 with retrospective effect; Further refers to CBDT Circular No.5/2014 whereby it was clarified that the disallowance under Section 14A is attracted in respect of expenditure incurred to earn exempt income even where the Assessee in a particular year has not earned any exempt income, also refers to Supreme Court rulings in Walfort Share and Stock Brokers, Godrej & Boyce and Maxopp Investment, whereby it was reiterated consistently that if the expenditure has not been incurred for the purpose of earning of taxable income, that cannot be allowed irrespective of the fact that any exempt income has been earned or not by incurring such expenditure; States that “despite the aforesaid legal position and CBDT Circular No. 5 of 2014, the different Hon’ble High Courts of the country ruled that no disallowance is attracted under section 14A, in case, the assessee has not earned any income not forming part of the total income and that the disallowance under section 14A cannot exceed the total tax exempt income earned by the assessee during the year.”; Thus, opines that in order to remove the prevailing doubts about the interpretation of the provisions of Section 14A and to overcome the interpretation given by the various High Courts the Parliament has brought in an Explanation to Section 14A by Finance Act, 2022; Highlights that while the insertion of non-obstante clause in sub-section (1) it has been specifically mentioned that the amendment will take effect from 01.04.2022 and will accordingly apply in relation to Assessment year 2022-23 and subsequent assessment years, “in respect of explanation…., it is simply written that the amendment will take effect on 1st April 2022.”; Perusing the explanation, notes that it starts with the words, “For the removal of doubts, it is hereby clarified…” and opines, “The opening words of the explanation reveal in an unambiguous manner that the said provision is clarificatory and has been inserted for removal of doubts.”; States that when seen in light of the principle laid down by the various decisions of the SC, “there leaves no doubt that the said explanation is clarificatory in nature inserted for the purpose of removal of doubts and to make the intention of the legislature clear and free from misinterpretation and thus the same, obviously, would operate retrospectively.”; Accordingly sets aside CIT(A) order restricting disallowance to the extent of exempt income and restores Revenue’s order. - [ACIT v. Williamson Financial Services Ltd. (2022) 140 taxmann.com 164 (ITAT Guwahati) 

NOTE

For contrary view on retrospective applicability of Explanation to section 14A, See ACIT v. Bajaj Capital Ventures (P) Ltd. (2022) 140 taxmann.com 1 (ITAT Mumbai). In that case, it was held that Explanation has no retrospective applicability.

CBDT Circular No. 23/2019 dated 06.09.2019 providing an exception to minimum monetary limit for filing appeal would not apply with retrospective effect and, thus, Circular No. 23/2019, read with Office Memorandum dated 16.09.2019, would not apply to pending appeals though involving an organized tax evasion activity on date of said Circular

It is the case of the appellant that on 17.03.2006 the search action in case of Peety Group of Jalna was conducted by the Income Tax Department. The respondent-assessee is one of the family member of the said group. It is the case of the appellant that during the search action, certain statements of the share brokers were recorded by the investigation wing of the department at Mumbai wherein they had admitted that they had issued bogus ‘broker notes’ and bills to the number of persons to ante-date purchases including the members of Petty Group of Jalna to generate bogus Long term Capital Gain and Short Term Capital Loss. It is the case of the appellant that the respondent-assessee voluntarily declared the amount shown as long term capital gain and short term capital loss as bogus and had voluntarily stated that they will pay the taxes on the admitted amount on 17.03.2006. However, while filing the return, they retracted from the statement made under section 132(4) of the IT Act. On 31.12.2007 the Assessing Officer held that the claim of long term capital gain and short term capital loss are bogus and made addition of the amounts to the taxable income of the respondent-assessee.

The respondent-assessee preferred appeal before the CIT (A), Aurangabad. The CIT (A) allowed the said appeal filed by the respondent assessee. Being aggrieved by the order passed by the CIT (A), the appellant preferred appeal before the ITAT for the assessment year 2005-06. The ITAT dismissed the said appeal preferred by the appellant. Being aggrieved by the said order, the appellant preferred this Income Tax Appeal under section 260A of the IT Act.

It is not in dispute that the appeals filed by the appellant revenue in this bunch of appeals allege the voluntary declaration of the amounts shown as long term capital gain and short term capital loss by the respondents-assessees during the search action under section 132(4) of the IT Act, 1961. However, in view of the fact that the said Circular No. 23/2019 dated 06.09.2019 read with Office Memorandum dated 16.09.2019 not applicable with retrospective effect, though appellant-revenue has alleged organized tax evasion activity on the part of the respondent-assessee in those pending appeals as on the date of the said Circular No. 23/2019, the appellant-revenue cannot be allowed to pursue these appeals. In our view, since the tax effect involved in this bunch of appeals is less than the monetary limit prescribed in the earlier circulars referred to aforesaid issued by the Department of Revenue, CBDT, Ministry of Finance, Government of India, the appellant- revenue cannot be allowed to proceed with these appeals on merits. The aforesaid appeals are accordingly dismissed, however, without prejudice to rights and liberties of the appellant to approach this Court afresh in appropriate case wherever special orders have been issued by the Board as an exception to the Circular No. 17/2019 and 23/2019 where organized tax evasion activity of the assessee is noted in future i.e. after the date of the said Circular. In view of the dismissal of these appeals and in view of the tax effect not having exceeded the monetary limits as prescribed in CBDT circulars, this Court is not required to answer the substantial questions of law formulated by this Court by order dated 10.03.2018. – [CIT v. Surendra Shantilal Peety (2022) 138 taxmann.com 75 (Bom.)]

Definition of ‘benami transaction’ in section 2(9) of amended Act would have no retrospective applicability to transactions entered into prior to 01.11.2016, thus, prospective; Quashes provisional attachment

Telangana High Court holds widened scope of ‘benami transaction’ by the amendments in Benami Act in 2016 to be prospective; Sets aside provisional attachment order, thus, allows writ petitions challenging the retrospective applicability and provisional attachment order; High Court observes that as per Section 1(2) of the Benami Transactions (Prohibition) Amendment Act, 2016, the amendments come into force on the notified date which is 01.11.2016; Remarks that Respondents have not placed any other notification of the Government to the effect that Section 2(9) of the amended Act will be effective from a prior date; Petitioner-Alleged Beneficial Owner, underwent expansion of manufacturing activities and in order to raise capital, took loans from various banks, raised share capital by issuing shares to interested individuals including the alleged Benamidar; The alleged Benamidar invested Rs. 45 Lakh on 14.12.2011 for which the payments were made through banking channels and the Petitioner and group companies was subjected to search operation by Income Tax Department on 15.03.2017; Initiating Officer issued a notice under Section 24(1) of the Benami Act, after which statements of the alleged Benamidar were recorded based on which the share transaction was held to be a benami transaction, thus, a provisional attachment order for 4.50 lakh shares and the building acquired from the proceeds of the share capital was passed; Petitioner challenged the show cause notice and the provisional attachment order in the writ petition and submitted that the impugned transactions took place in the year 2011, and therefore, the Benami Act as amended in 2016 cannot be applied retrospectively to the said transaction and thus, the provisional attachment order was flawed and liable to be set aside; Respondents contended that Section 24 of the amended Act was a machinery provision intended to supplement the substantive provisions and held that the transaction was arranged and executed in a planned manner by the Assessee so that its funds out of the unknown sources gets parked in the name of the alleged Benamidar in the form of shares; High Court traverses through the history behind enactment of the Benami Act and observes that primary objective was to outlaw benami transactions by making it an offence; High Court refers to the Finance Minister’s speech on the amendments and observes that the Act in its original form provided for acquisition of property, and payment of compensation on such acquisition but not for vesting of the acquired property with the Government though the acquisition was in its favour; Also observes that in case a new law was enacted, it would have amounted to granting immunity to all people who acquired benami properties between 1988 and 2016 as the penal provisions would have stood repealed; High Court notes that there is a qualitative change in the definition of ‘benami transaction’ and observes that its scope and ambit is now much wider; Comparing the definition, in the context of the instant case, High Court remarks that there is a subtle but significant difference in the amended definition, “as per the amended definition, the property need not be transferred by ‘another person’. The property can be transferred to by any person or held by a person on behalf of any person. But the consideration for such property is provided or paid by the ‘another person’..” and that such transferred property must be held for immediate or future benefit of the person who provided the consideration and such benefit may be direct or indirect; Notes that ‘benamidar’ and ‘beneficial owner’ was not defined in the 1988 Act, but are defined under the 2016 Act and remarks that they should be read in conjunction with the definition of ‘benami transaction’; Explains that Section 2(9)(C) of the Amended Act contemplates is that in the event of a transaction or an arrangement in respect of a property if the owner of the property says that he is not aware of and denies knowledge of such ownership, then such a transaction or an arrangement would be a benami transaction; Thus, opines that Section 2(9)(A) and Section 2(9)(C) are substantive provisions, inasmuch as if a transaction or an arrangement comes within their ambit, then it would be a benami transaction prohibited under Section 3(1) but also punishable under Sections 3(2) and (3) as well as under Section 53 as amended; Notes that a benami transaction under the amended Sections 2(9)(A) and 2(9)(C) will attract stiffer penalty and thus disagrees with the contention that the said sections are machinery or procedural provisions; On retrospective applicability of the provisions, High Court refers to Justice G.P. Singh’s work on principles of statutory interpretation wherein it is stated that “Penal statutes which create offences or which have effect of increasing penalties in existing offences will only be prospective by reason of the constitutional restriction imposed by Article 20 of the Constitution.”; Refers to a catena of rulings on prospective applicability of substantive law under various statutory frameworks including SEBI Act, TADA, Land Acquisition Act in support of the conclusion; High Court refrains from referring to the Calcutta High Court ruling in  Union of India v. Ganpati Dealcom (P) Ltd., wherein SLP admitted by the Supreme Court stayed the part of ruling that declared the Amendment Act as prospective; Opines that “while Section 24 may have a retrospective effect, we are clear in our view that Section 2 (9) (A) and Section 2 (9) (C) being substantive provisions, creating an offence by widening the definition of benami transaction cannot have retrospective effect”; Also refers to Supreme Court rulings in Binapani Paul v. Pratima Ghosh and Mangathai Ammal v. Rajeshwari where the Act in its original form was held not to be retrospective and holds the impugned order as null and void. – [Nexus Feeds Ltd. & Others v. ACIT (2022) 444 ITR 261 : 137 taxmann.com 494 (Telangana High Court)]

Finance Act, 2021 amendments disallowing employee’s contribution to ESI/PF deposited after due dates have no retro-effect

During relevant assessment year, assessee company had deposited amount towards employee’s contribution to Provident Fund (PF) and ESI fund after due date prescribed under relevant statutes but prior to due date of filing of return under section 139(1). Assessing Officer disallowed said amount towards employee’s contribution to PF and ESI under section 36(1)(va).

The question is whether the amendment to section 36(1)(va) and 43B of the Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon’ble Supreme Court in the recent judgment in the case of M. M. Aqua Technologies Ltd. v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is “for the removal of doubts” cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P) Ltd. v. DCIT 366 ITR 408 (Karn.) the assessee would have been entitled to deduction of employees’ contribution to ESI, if the payment was made prior to due date of filing of the return of income under section 139(1) of the Income Tax Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36(1)(va) and 43B of the Income Tax Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-22 onwards. The following orders of the Tribunal had categorically held that the amendment to sections 36(1)(va) and 43B of the Act by Finance Act, 2021 is only prospective in nature and not retrospective.

(i)    Dhabriya Polywood Ltd. v. ADIT, CPC, Bengaluru reported in (2022) 192 ITD 298 : (2021) 133 taxmann.com 135 : 91 ITR(T) 127 : 63 CCH 30 (ITAT Jaipur).

(ii)   NCC Ltd. v. ACIT reported in (2021) 63 CCH 0060 Hyd.

(iii)  Indian Geotechnical Services v. ACIT in ITA No. 622/Del/2018 (order dated 27.08.2021).

(iv)  M/s. Jana Urban Services for Transformation (P) Ltd. v. DCIT in ITA No. 307/Bang/2021 (order dated 11.10.2021).

Therefore, the amended provisions of section 43B as well as section 36(1)(va) of the I.T. Act brought by Finance Act, 2021 to this effect from 01.04.2021 is prospective in nature are not applicable for the assessment years under consideration. By following the binding decision of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P) Ltd. (supra), the employees’ contribution paid by the assessee before the due date of filing of return of income under section 139(1) of the I.T. Act is an allowable deduction. Accordingly, we decide this issue in favour of the assessee and the disallowance at Rs. 4,00,293 made by the Assessing Officer is deleted. [In favour of assessee] (Related Assessment year : 2019-20) – [Eskay Heat Transfers (P) Ltd. v. Assistant Director of Income-tax (2022) 134 taxmann.com 289 (ITAT Bangalore)]

Amended Section 269SS prospective in nature, does not cover receipt of advance in cash; Deletes Section 271D penalty

Delhi ITAT dismisses Revenues appeal, upholds CIT(A) order deleting the penalty of Rs. 5.30 Cr under Section 271D read with Section 269SS; Observes that Section 269SS prior to Finance Act 2015 amendment applies to loans and deposits but does not apply to the ‘advance’ received as the said amendment is not retrospective in nature, thus, holds that Assessee’s case for Assessment year 2013-14 is not covered under Section 269SS; Assessee-Company was subject to search operation wherein Revenue recorded statement of the director of Assessee under Section 132(4) admitting that advances of Rs. 5.30 Cr recorded in Assessee’s books of accounts was not genuine, however the return of income filed by Assessee under Section 153A, did not include the said amount; During the assessment proceedings for Assessment year 2013-14, Assessee provided a list of the parties from whom Assessee had claimed to have received advance in cash, out of which only two parties responded to the summons under Section 131; Revenue held that the said parties could not sufficiently prove their creditworthiness to provide advance to Assessee and thus, made the addition of Rs. 5.30 Cr. in the hands of Assessee under Section 68, treating the said amount as Assessee’s undisclosed income; Subsequently, Revenue initiated proceedings under Section 271D and held that Assessee accepted cash advances of Rs. 5.30 Cr in contravention of Section 269SS, thus it is liable to penalty and imposed penalty of Rs. 5.30 Cr which is the sum equal to the amount of advances accepted; CIT(A) deleted the penalty holding that since the same amount has been treated as Assessee’s undisclosed income, no further penalty under Section 271D is called for; On Revenue’s Appeal, ITAT notes Assessee’s contention that provisions of Section 269SS as stood for relevant AY, do not envisaged the provisions for any advances received but only applies to any loan or deposit received otherwise than by an account payee cheque or bank draft; Observes that a loan is a debt instrument whereas the advance is a credit instrument on the part of the recipient; Peruses Section 269SS as it stood for Assessment year 2013-14 and observes that it only envisaged the words ‘loans’ and ‘deposit’; Further observes that amendment vide Finance Act, 2015 introduced the term ‘any specified sum’ into Section 269SS which would cover the ‘advances’ received, however the earlier provisions could not envisage the utilization of provisions of Section 269SS for the ‘advances’ accepted; Opines that, “Since, the amendment to the provisions of Section 269SS have been brought w.e.f. 01.06.2015 with regard to the “advances” received in relation to transfer of immovable property, and since the appeal before us pertains to the Assessment year 2013-14 and since the amendment is not retrospective in operation , we hereby hold that the appeal of the revenue is liable to be dismissed”. (Related Assessment Year : 2013-14) – [ACIT(C) v. Ruhil Developers (P) Ltd. – Date of Judgement : 30.08.2022 (ITAT Delhi)]

Reference to DVO without rejecting Assessee’s books, invalid; 2014 amendment to Section 142A not retrospective

Bangalore ITAT allows Assessee’s appeal, deletes the disallowance made on account of earth filling and land levelling based on DVO's report as unsustainable since Revenue had accepted Assessee’s books of accounts; Further holds that material collected during the course of survey under Section 133A has no evidentiary value, thus, cannot be a basis for addition; Also holds that the reference made to DVO under Section 142A by Revenue was not justified without rejection of Assessee's books since the amendment introduced by the Finance Act, 2014 is not retrospective in nature; Assessee-Individual, a land developer, was subject to survey under Section 133A, during which the Revenue discovered self-made vouchers of cash payment below Rs.20,000, claimed to be made towards earth filling expenses, however Revenue doubted if such expenses were actually incurred and asked Assessee to  furnish the name and address of the parties to whom the payment has been made; Assessee failed to produce the name and address of the service provider, however furnished the certificate to support the expenditure from one party and supported the claim of expenditure by filing an affidavit; Revenue did not accept the documents filed by Assessee and referred the matter to DVO, whereby the report was obtained after lapse of 2 years of incurring this expenditure, stating that Assessee has incurred an expenditure of Rs. 9.30 Lacs only, towards earth filling and levelling; Accordingly, the Revenue disallowed the expenditure incurred towards earth filling and land levelling expenses of Rs. 6.42 Cr. for Assessment year 2007-08, and on CIT(A)’s direction made the addition of the earth filling and land levelling expenditure incurred in Assessment year 2006-07 of Rs. 7.55 Cr. on a protective basis totalling the disallowance to Rs. 13.88 Cr.; CIT(A) dismissed Assessee’s appeal in limine, on the ground that the Assessee had not paid the taxes in full in respect of the admitted income but ITAT restored the matter to CIT(A) for fresh consideration, pursuant to which CIT(A) held that the claim of earth filling and levelling expenses is only a paper entry with sole purpose of inflating the cost to reduce the profit, thereby evade the tax and sustained the addition of Rs. 13.88 Cr. by allowing a deduction of only Rs. 9.30 Lacs out of total claim of expenditure; On Assessee's appeal, ITAT notes that the Revenue made addition on the basis of DVO’s report, however Assessee’s books of accounts maintained and duly audited under Section 44AB were not rejected; Opines that disallowance of expenditure without rejecting Assessee’s books of accounts is not sustainable especially when the regular books of accounts are maintained with supporting evidence, which are duly audited; Further notes that Assessee failed to produce the service providers to whom the payment was made, as they left the city (Bangalore) after completion of Assessee’s work, since they do not have the permanent address or residence (in Bangalore); Holds that Revenue’s finding that there was no evidence to support the claim of expenditure is erroneous since Assessee had furnished regular books of accounts and supporting vouchers and bills; Points out that the evidences were filed during the course of assessment including the survey report by M/s. Guideline Survey and Assessee’s affidavit, were not examined by the Revenue in accordance with law; Observes that material collected during the course of survey proceedings was the provocation to doubt the expenditure incurred on earth filling and land levelling and reference to DVO to decide the quantum of amount spent on the said expenses; Relies on Supreme Court ruling in Khader Khan v. CIT (2003) 352 ITR 480 : 254 CTR 228 (SC), wherein it was held that the material collected during the course of survey under Section 133A which have no evidential value, cannot be basis for addition; Thus, holds that the addition of expenses incurred towards earth filling is not sustainable, accordingly deletes the addition of Rs. 13.88 Cr by relying on jurisdictional High Court ruling in Sri Ganesh Shipping Agency in ITA No.366/2015 vide order dated 06.02.2021; ITAT notes Assessee’s contention that reference made to DVO under Section 142A is bad in law since  142A does not empower Revenue to make reference to DVO to determine the cost of development works incurred by Assessee; Observes that Section 142A provides that a reference could be made to DVO for making an estimate of the value of investment referred to in section 69, or for the valuation of any bullion, jewellery or other valuable article referred to in section 69 & 69B but it does not empower Revenue to make a reference to the Valuation Officer to estimate the expenditure incurred by Assessee, as provisions of section 69C is not included in section 142A, as it stood at the relevant point of time; Relies on Supreme Court ruling in Amiya Bala Paul v. CIT (2003) 262 ITR 407 : 182 CTR 489 : 30 Taxman 511 (SC), wherein it was held that a Valuation Officer can only have jurisdiction to give a report under the Income-tax Act in terms of the statutory provisions of the Act, i.e. Section 142A; Relies on Supreme Court ruling in Sargam Cinemas v. CIT 262 ITR 513 (SC), wherein it was held that rejection of books of accounts is a pre-condition for making a reference to DVO; Holds that the reference made to DVO under Section 142A by Revenue is not justified, thus the addition of Rs. 13.88 Cr based on DVO’s report cannot be sustained. [In favour of assessee] (Related Assessment year : 2007-08) – [K. Satish Kumar v. Addl. CIT – Date of Judgement : 01.08.2022 (ITAT Bangalore)]

Section 14A amendment alters legal position, not retrospective, despite inserted ‘for removal of doubts’

Delhi High Court dismisses Revenue’s appeal, holds amendment to Section 14A by Finance Act, 2022 on disallowance of expenditure in absence of exempt income to be applicable prospective, despite being inserted for removal of doubts; Opines that “the amendment of Section 14A, which is “for removal of doubts” cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood.”; Revenue preferred the present appeal challenging Delhi ITAT order deleting disallowance of Rs. 3.61 Cr under Section 14A for Assessment year 2013-14 in case of Assessee-Company wherein ITAT had held that no disallowance under Section 14A could be made where no exempt income was earned by the Assessee by relying on jurisdictional High Court ruling in PCIT v. IL & FS Energy Development Company Ltd., 2017 SCC Online Del 9893; Before the High Court, Revenue submitted that in view of amendment made by the Finance Act, 2022 to Section 14A, inserting a non-obstante clause under an Explanation, the ruling relied upon by ITAT is not good in law; High Court peruses the Memorandum Explaining the Finance Bill, 2022 and observes that the it explicitly stipulates that the amendment made to Section 14A will take effect from 01.04.2022 and will apply in relation to the Assessment year 2022-23 and subsequent Assessment years; Refers to Supreme Court ruling in Sedco Forex International Drill. Inc. v. CIT (2005) 12 SCC 717 (SC) wherein it was held that retrospective provision in a tax act which is 'for the removal of doubts' cannot be presumed to be retrospective, highlights that the aforesaid position was reiterated by Supreme Court in M.M Aqua Technologies Ltd. v. CIT, 2021 SCC OnLine SC 575 in the context of amendment to Section 43B; High Court follows the coordinate bench rulings in IL & FS Energy as well as Cheminvest Ltd. v. CIT (2015) 378 ITR 33  to dismiss Revenue’s appeal while observing that in Revenue’s SLPs against coordinate bench's rulings no stay has been granted; Relies on Supreme Court ruling in Kunhayammed and Others v. State of Kerala and Another (2000) 6 SCC 359 (SC) to hold that the present appeal is covered by the coordinate bench rulings, however, clarifies that the order passed herein shall abide by the Supreme Court ruling in IL & FS Energy. [In favour of assessee] (Related Assessment year : 2013-14). - [PCIT v. ERA Infrastructure (India) Ltd. – Date of Judgemet : 20.07.2022 (Del.)]

Hearing on demand clause in Faceless Appeal Scheme, 2021 applicable retrospectively, since beneficial

Mumbai ITAT remits the matter to CIT(A) with a direction for passing a speaking order after giving an opportunity for a hearing by video conferencing (VC) in terms of Rule 12 of the Faceless Appeal Scheme, 2021 for de novo adjudication in a case for Assessment year 2010-11 decided under Faceless Appeal Scheme, 2020 after denial of hearing through VC; Relies on Supreme Court’s Constitution Bench ruling in CIT v. Vatika Townships (P) Ltd. (2014) 367 ITR 466 (SC), on the principles of retrospectivity and holds, “What logically follows from the law so settled … is that when an opportunity of presenting the case, through the video conferring in the faceless appeal proceedings, is now available to every taxpayer, on-demand, the same must also be held to be admissible in the proceedings, if so demanded by the assessee, in the old rules as well.”; Further observes that under the new Scheme, the discretion on granting a hearing has been done away with since upon an assessee’s request an opportunity of being heard is required to be afforded; ITAT opines that the earlier scheme was amended to obviate the undue hardships faced by the assessees in presenting their cases in first appeal, thus, it to be treated as retrospective in effect for being curative in nature despite not brought retrospectively in specific terms; ITAT notes that perhaps the right course of action would be to send the matter back to NFAC for taking a call on whether or not to permit the Assessee to make submissions through the video conferencing in terms of Madras High Court ruling in Ramco Cement; However, in the light of the supersession of Faceless Appeal Scheme, 2020 by the Faceless Appeals Scheme 2021, ITAT holds that even a specific call on the request for VC hearing may not really be necessary. - [Bank of India v. ACIT – Date of Judgement ; 30.06.2022 (ITAT Mumbai)]

Extended period of 16 years for reopening of assessment, retrospective; Deviates from Delhi High Court’s Brahm Dutt v. ACIT ruling

Mumbai ITAT allows Revenue’s appeal, holds extended period of 16 years for reopening of assessment to be retrospective, thus, applicable to Assessment year 1999-2000, in the light of Explanation below Section 149(3); Relies on Supreme Court Constitution Bench ruling in CIT v. Vatika Township (P) Ltd. (2014) 367 ITR 466 : 271 CTR 1 : 227 Taxman 121 : 49 taxmann.com 249 (SC)  on principles of retrospectivity, holds, “there cannot be any good reasons to hold the section 149(1)(c) to be only prospective in effect. It must be given full effect as visualized and stated by the law itself”; Assessee-Individual was subjected to reopening of assessment for Assessment year 1999-2000 in March 15 by invoking the provisions as amended w.e.f. July 1, 2012 to allow reopening in cases involving income from assets located outside India upto 16 years from the end of relevant Assessment year; ITAT refers to Delhi High Court ruling in Braham Dutt v. ACIT (2018) 100 taxmann.com 324 (Del), where the extended time limit was held to be prospective on the ground that the law was not explicitly stated to be retrospective in effect; Observes that Delhi High Court had no occasion to refer to, or take note of, the Explanation below Section 149(3) which categorically made the amendment retrospective and clarifies, “It is not the position that the said Explanation has been held to be ultra vires or unconstitutional”; Further relies on jurisdictional High Court ruling in CIT v. Thana Electricity Co. Ltd. (1994) 206 ITR 727 (Bom.), and adds that non-jurisdictional High Court rulings do not bind ITAT on law in all the situations, particularly when Explanation below Section 149(3) was not considered by Delhi High Court which has explicitly been relied upon by the Revenue in the present case; Observes that the non-jurisdictional High Court ruling “in any event, do not constitute unquestionably binding judicial precedents, which cannot be deviated from, for us. While the views expressed by even non-jurisdictional High Court does deserve utmost respect and reverence, that position is still a step below the unquestionable binding force of law.”; Also holds that summary dismissal of Revenue’s SLP against Delhi High Court ruling is not a decision on law and cannot be treated as a binding precedent under Article 141 of the Constitution; Considering the fact that the Assessee is a very senior citizen and has a prima facie arguable case on merits, directs CIT(A) to dispose of the appeal on merits at the earliest and in no event later than 180 days. [In favour of revenue] (Related Assessment year : 1999-2000) – [DCIT(C) v. Dilip J Thakkar – Date of Judgement : 16.02.2022 (ITAT Mumbai)]

Amendment by Finance Act 2021 disallowing employee’s contribution to ESI/PF is applicable prospectively

Assessee had deposited amount received from his employees as contributions in Provident Fund and ESI fund after due date prescribed in corresponding statutes, but before due date of filing return of income. Assessing Officer added said amount to income of assessee as per provisions of section 36(1)(va) of the Act. On appeal the Tribunal held that since legislature has not only incorporated necessary amendments in section 36(1)(va) as well as 43B vide Finance Act, 2021 to this effect but also CBDT has issued Memorandum of Explanation that same applies with effect from 01.04.2021 only, therefore, impugned disallowance for assessment year 2019-20 is not sustainable.  [In favour of assessee] (Related Assessment year : 2019 -20 ) – [Salzgitter Hydraulics (P) Ltd v. ITO ( 2021) 128 taxmann.com 192 (ITAT Hyderabad)]

Allows Vedanta Ltd. to withdraw appeal consequent to nullification of retro tax on indirect transfer

Delhi ITAT allows Vedanta Ltd. (Successor to Cairn India Ltd.) to withdraw its appeal for Assessment year 2007-08 in pursuance of amendment to Section 9(1)(i) made by Taxation Laws (Amendment) Act, 2021 and Rules framed thereunder; Assessee’s Application dated 19.11.2021 seeking withdrawal of the appeal are reproduced as under:-

“The appeal originates out of Order dated 11.03.2015 passed by the Respondent under Section 201 read with Section 195 of the Income-tax Act, 1961 for Financial Year 2006- 07 vide which the Appellant has been held to be an assessee-in-default for failure to withhold tax under Section 195 of the Act on consideration paid/discharged to Cairn UK Holdings Ltd. (“CUHL” or “Seller”), for acquisition of shares held by CUHL in Cairn India Holding Ltd. (“CIHL”), a company incorporated under the laws of Jersey (Channel Islands), that has been rendered to be liable to be assessed as capital gains under section 9(1)(i) of the Act as it stood amended by the Finance Act, 2012, as amended vide the Taxation Laws (Amendment) Act, 2021, read with Rule 11UE and Rule 11UF of the Income Tax Rules, 1962 (“Rules”)……………….”

Assessee submitted that the newly inserted fourth, fifth and sixth provisos to Explanation 5 under section 9(1)(i) provide an opportunity to nullify tax liability incurred on an indirect transfer of underlying assets in India under the erstwhile Section 9(1)(i), subject to fulfilment of certain conditions which, inter alia, include the withdrawal of appeal pending before ITAT; Assessee submitted that it is in the process of settling all disputes related to tax liability on indirect transfer of assets and has filed the undertaking and declarations dated 09.11.2021 as prescribed under Form No.1 under Rules 11UE and 11UF of IT Rules; Also submitted that the jurisdictional PCIT has accepted the undertaking and issued a certificate dated 18.11.2021 as prescribed under Form No. 2; ITAT, thus, accepts Assessee’s request for withdrawal of appeal in view of the scheme prescribed under Rule 11UE and Rule 11UF. (Related Assessment Year : 2007-08) - [Vedanta Ltd. (Successor To Cairn India Ltd.) v. DCIT(International Taxation), Gurgaon – Date of Order : 03.12.2021 (ITAT Delhi)]

Finance Act 2021 amendment to section 36(1)(va) does not apply to any Assessment Year prior to Assessment Year 2021-22; New Explanation 2 to section 36(1)(va) does not apply to any Assessment year prior to Assessment year 2021-22

As Explanation 2 to section 36(1)(va) has no retrospective applicability, deduction claimed 36(1)(va) cannot be disallowed for any Assessment Years prior to Assessment Year 2021-22, if employees’ contribution to PF/ESI is deposited with relevant authorities by assessee-employer on or before the due date for filing ITR under section 139(1). Since the deduction under section 36(1)(va) has been claimed by assessee in ITR for Assessment Years prior to Assessment Year 2021-22 on the basis of certain judicial decisions, this is a debatable issue and cannot be disallowed by the Department in an intimation issued under section 143(1). – [Flying Fabrication v. DCIT – Date of Judgement : 17.11.2021  (ITAT Delhi)]

Amendment by the Finance Act, 2021 in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021

Hon’ble Karnataka High Court in the case of Essae Teraoka (P) Ltd. v. DCIT (2014) 43 taxmann.com 33 (Karn.) has taken the view that employee’s contribution under section 36(1)(va) of the Act would also be covered under section 43B of the Act and therefore if the share of the employee’s share of contribution is made on or before due date for furnishing the return of income under section 139(1) of the Act, then the assessee would be entitled to claim deduction. Therefore, the issue is covered by the decision of the Hon’ble Karnataka High Court. The next aspect to be considered is whether the amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act, 2021, has to be construed as retrospective and applicable for the period prior to 01.04.2021 also. On this aspect, we find that the explanatory memorandum to the Finance Act, 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so. In the decisions referred to by us in the earlier paragraph of this order on identical issue the tribunal has taken a view that the aforesaid amendment is applicable only prospectively i.e., from 01.04.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act in both the Assessment Years deserves to be deleted. (Related Assessment year : 2019-20) – [Gopalakrishna Aswini Kumar v. Assistant Director of Income Tax - Date of Judgement : 13.10.2021 (ITAT Banglore)]

Amendment in section 43B by Finance Act, 2021 is applicable prospectively

Where assessee remitted employees contribution towards PF and ESI before filing of return under section 139(1) and that the amendment/Explanation brought in Section 43B of Income Tax Act, 1961 by Finance Act, 2021 with effect from 01.04.2021 on the instant issue being prospective in nature, the said amendment would not be applicable to the relevant assessment year; thus, the addition made on account of delay in payment of employees contribution towards PF and ESI was liable to be deleted. (Related Related Assessment Year : 2019-20) - [AKS Power Equipments (P) Ltd. v. DCIT - Date of Judgement : 01.09.2021 (ITAT Kolkata)]

Assessment procedure under section 144C applicable prospectively from Assessment year 2011-12; Quashes assessment order

Delhi ITAT quashes assessment order for Assessment year 2003-04 as null and void; The original assessment was completed vide order dated 28.03.2006 under section 143(3) and subsequently, unsuccessfully appealed before the CIT(A); On appeal, the ITAT, vide order dated 31.08.2009, had set aside the assessment order for denovo consideration by the Assessing Officer; While giving effect to the ITAT’s order, the Assessing Officer passed draft assessment order on 30.12.2010 whereon the DRP issued Instructions on 10.08.2011 and culminating in final assessment order dated 19.08.2011 - this final order is impugned in the present appeal; Assessee (through its additional ground) contended against the validity of assessment basis the argument that the provisions of section 144C introduced by the Finance (No. 2) Act, 2009 w.e.f. 01.04.2009 has no application for Assessment year 2003-04; ITAT relies on Madras High Court decision in Vedanta Limited where in owing to CBDT Circular No. 5/2010 dated 3rd June, 2020 (which clarifies substantive procedures of assessment enshrined in section 144C would apply from Assessment year 2011-12 onwards) it was held that “the provisions of section 144C of the Act has been introduced by the Finance (No. 2) Act, 2009 with effect from 01.04.2009, the said amendment is applicable from Assessment year 2011-12 onwards” ; Further relies on Delhi Tribunal’s  decision for Assessment year 2007-08 in case of Travelport L.P. USA wherein after relying on High Court decision in case of Vedanta Ltd., it was held that provisions of section 144C are applicable only prospectively, from Assessment year 2011-12 and the assessment in question was held to barred and quashed; Further ITAT relies on  Supreme Court decision in Karimtharuvi Tea wherein it is was held that it is a settled principle that assessment has to be made as per the law in force on the first date of the assessment year; Dismisses the Revenue’s reliance on various judicial precedents (including Headstrong Service India (P) Ltd.) as being different from the current case; Based on the aforementioned judicial precedents and facts of the case , ITAT renders additional ground in favor of the assessee and quashes the assessment order passed in accordance with the scheme of Section 144C as null and void. - [A.T. Kearney Ltd. v. ADIT – Date of Judgement : 25.05.2021 (ITAT Delhi)]

Proviso to section 50C(1) should be taken to be effective from date when proviso was introduced

Assessee entered into an agreement for sale of immovable property for Rs. 19 crores and received advance of Rs. 6 crores on 4th August, 2012 much before the insertion of first and second provisos to section 50C. The stamp duty value (guideline value) at the time of registration of sale deed was Rs. 27 crores. The Assessing Officer rejected the plea of the assessee about the sale agreement and receipt of the consideration much before the transfer of property.

As per proviso to section 50C(1) where date of agreement, fixing amount of consideration and date of registration for transfer of capital assets are not same, value adopted or assessed or assessable by stamp valuation authority on date of agreement may be taken for purposes of computing full value of consideration for such transfer and, thus, amendment by insertion of said proviso seeks to relieve assessee from undue hardship and proviso to section 50C(1) should be taken to be effective from date when proviso introduced. [In favour of assessee] (Related Assessment year : 2014-15) - [CIT v. Vummudi Amarendran  (2020) 429 ITR 97 : 277 Taxman 243 : 120 taxmann.com 171 (Mad.)] 

Amendment to Explanation to section 73 by Finance (No. 2) Act, 2014 is prospectively effective from 01.04.2015 and cannot be given retrospective effect

Amendment to Explanation to section 73 by Finance (No. 2) Act, 2014 is prospectively effective from 01.04.2015 and cannot be given retrospective effect. Assessee, a non-banking financial company, derived income from trading in derivatives and share business along with dividend and interest. For assessment year 2008-09, it incurred loss (speculation loss) as a result of its activity of trading in shares. Loss arising from business of speculation was not capable of being set off against profits which it had earned against business of futures and options since latter did not constitute profits and gains of a speculative business. [In favour of revenue] (Related Assessment year : 2008-09) – [Snowtex Investment Ltd. v. PCIT (2019) 414 ITR 227 : 265 Taxman 3 : 105 taxmann.com 282 (SC)]

Third and fourth provisos to section 80HHC inserted by Taxation Laws (Second Amendment) Act, 2005 would not operate retrospectively and for period prior to that, cases of exporters having a turnover below Rs. 10 crore and those above Rs. 10 crore would be treated similarly

Third & fourth provisos to section 80HHC were inserted by Taxation Laws (Second Amendment) Act, 2005 with retrospective effect from 01.04.1998 which carved out two categories of exporters, namely, those whose export was less than Rs. 10 crores and those exporters whose export turnover was more than Rs. 10 crores. It provided that deduction in respect of exporters having a turnover of more than Rs. 10 crores would be available only if he had satisfied two conditions stiputed in third and fourth proviso to said amendment. All exporters including assessee contended that these conditions are severable and, therefore, these conditions should be declared ultra vires. High Court quashed impugned amendment only to extent that operation of said section could be given effect from date of amendment and not in respect of earlier assessment years of assessee. Conditions stiputed in third and fourth proviso to section 80HHC would not operate retrospectively and cases of exporters having a turnover below Rs. 10 crore and those above Rs. 10 crores would be treated similarly during period prior to amendment. [Partly in favour of assessee] – [CIT v. Avani Exports (2015) 277 CTR 407 : 232 Taxman 357 : 58 taxmann.com 100 (SC)]

Proviso appended to section 113 by Finance Act, 2002, is to operate prospectively with effect from 01.06.2002 - Surcharge was held to be prospective and not retrospective

A search and seizure operation under section 132 was carried out at the premises of the assessee on 10.02.2001. In pursuance of notice under section 158BC, the assessee filed its return of income for the block period from 01.04.1989 to 10.02.2000. The block assessment was completed under section 158BA at a total undisclosed income of Rs. 85,18,819. According to the commissioner, in view of the provisions of section 113 as inserted by the Finance Act, 1995 and clarified by the Board Circular No. 717 dated 14.08.1995, surcharge was leviable on the income assessed. The Commissioner, thus passed a revisional order directing the Assessing Officer to levy surcharge at the rate of 10 per cent on the amount of tax computed. The Tribunal held that the insertion of the proviso to section 113 cannot be held to be declaratory or clarificatory in nature and was prospective in its operation. The Tribunal thus set aside revisional order. The High Court upheld the order passed by the Tribunal. On appeal to the Supreme Court:

“Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's background adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lexprospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre: a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.”

“Notes on Clauses” appended to Finance Bill, 2002 while proposing insertion of proviso categorically states that “this amendment will take effect from 01.06.2002”. These become epigraphic words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the same notes that few other amendments in the Income-tax Act were made by the same Finance Act specifically making those amendments retrospectively. For example, clause 40 seeks to amend section 92F. Clause (iii) (a) of section 92F is amended “so as to clarify that the activities mentioned in the said clause include the carrying out of any work in pursuance of a contract.” This amendment takes effect retrospectively from 01.04.2002. Various other amendments also take place retrospectively. The Notes on Clauses show that the legislature is fully aware of 3 concepts:

(i)      prospective amendment with effect from a fixed date;

(ii)     retrospective amendment with effect from a fixed anterior date; and

(iii)    clarificatory amendments which are retrospective in nature.

Thus, it was a conscious decision of the legislature, even when the legislature knew the implication thereof and took note of the reasons which led to the insertion of the proviso, that the amendment is to operate prospectively.

Addition of this proviso in the Finance Act, 2003 further makes it clear that such a provision was necessary to provide for surcharge in the cases of block assessments and thereby making it prospective in nature. The charge in respect of the surcharge, having been created for the first time by the insertion of the proviso to section 113, is clearly a substantive provision and hence is to be construed prospective in operation. The amendment neither purports to be merely clarificatory nor is there any material to suggest that it was intended by Parliament. Furthermore, an amendment made to a taxing statute can be said to be intended to remove 'hardships' only of the assessee, not of the Department. On the contrary, imposing a retrospective levy on the assessee would have caused undue hardship and for that reason Parliament specifically chose to make the proviso effective from 01.06.2002.

The Supreme Court in the case of CIT v. Vatika Township (P) Ltd. the constitution bench laid down the following guidelines with respect to retrospective application of amendments:

(i)     Unless otherwise stated, the statute is not to be given a retrospective meaning. This is based on the principle of lex prospicit non respicit, i.e. law looks forward and not backward.

(ii)   The principle of fairness is the basis of every legal rule, particularly when the law confers a benefit without a consequent detriment.

(iii) Retrospective effect can be conferred only in case of clear, unambiguous words by the legislature.

When one examines the insertion of proviso in section 113, keeping in view the aforesaid principles, the irresistible conclusion is that the intention of the legislature was to make it prospective in nature. As a result of the aforesaid discussion, the appeals filed by the Department are hereby dismissed. Appeals of the assessees are allowed deleting the surcharge levied by the Assessing Officer for this block assessment pertaining to the period prior to 01.06.2002. – [CIT (C), New Delhi v. Vatika Township (P) Ltd. (2014) 367 ITR 466 : 271 CTR 1 : 227 Taxman 121 : 49 taxmann.com 249 (SC)]

Section 9(1)(i) : Income deemed to accrue or arise in India – Indirect transfers – Transfer of shares – Foreign company – Jurisdiction – Off shore transaction tax authorities in India has no jurisdiction to tax such share transfer – Tax planning vs Tax avoidance – Subsidiary and Holding company relationships

Issue

The issue before the Supreme court was whether acquisition by Vodafone International Holdings BV, a company resident for tax purposes in the Netherlands, of the entire share capital of CGP Investments (Holdings) Ltd., a company resident for tax purposes in the Cayman Islands, which gave acquisition of 67% controlling interest in HEL, being a company resident for tax purposes in India gave rise to a taxable event. In other words, can capital gains arising from the sale of the share  capital  of CGP be taxed in India?

Vodafone bought 67% holding of Hutchison Telecommunications International Ltd. along with its various assets that were placed in India. Consequently, a demand was raised by the government in respect of capital gains tax and withholding tax amounting to crores of rupees, stating that before affecting the transaction of purchase and making the requisite payment to Hutchison, Vodafone was required to deduct the tax at source. Unwilling to succumb to the demands of the government, Vodafone approached the Bombay High Court. Vodafone contended that the income from the transaction did not accrue in India, for the contract, the right to receive the monetary payment under the contract as well as the actual payment; all were with respect to the territory beyond India. The Revenue on the other hand contended that the income accrued by a non-resident comes under section 9 of the Income-tax Act, 1961, provided that the government is able to establish the requisite nexus. The High Court ruled in favour of the government, stating that “the situs of the capital asset within India is what determines exigibility to tax”. In other words, the Court held that the demands made by the government were true and fair and were to be adhered to by Vodafone.

The said decision evoked an appeal by Vodafone before the Supreme Court. The issue arose regarding the payment of tax on the transfer of shares before the Supreme Court of India. The Court examined the nature and intention of the transaction between the two foreign companies and came to the decision that the major purpose of the transaction was the transfer of GCP’s shares and not that of Hutchison Essar Limited. Furthermore, while interpreting Section 9(1)(i) of the Income Tax Act, 1961, the Apex Court clarified that tax obligations arise where there is a direct or indirect income and not a transfer of capital assets. Since there was a sale of shares and not capital assets, it was a non taxable transaction under Section 2(14) of the Income Tax Act, 1961. The tax must be levied on the source i.e. the location where the transaction has taken place and not from where the products have derived their value. Accordingly, Supreme Court reversed the decision of the lower court, holding that Vodafone was correct in interpreting the provisions of the Act and that it was not liable to pay the taxes as demanded by the government. Unhappy with the judicial pronouncement, the legislature passed an amendment to the Finance Act, 2012, empowering the Revenue to tax such transactions retrospectively. 

After the Supreme Court’s verdict in this case, the Indian legislature passed an amendment by the Finance Act, 2012, empowering the Revenue to tax such transactions retrospectively. The retrospective amendment to Section 9(1)(i) of the Income Tax Act created tax liability for non-residents or companies incorporated outside the territorial jurisdiction of India if they are involved in the transfer of shares whose values are derived from assets in India. – [Vodafone International Holdings B.V. v. Union of India (2012) 341 ITR 1 : 247 CTR 1 : 204 Taxman 408 : 66 DTR 265 (SC)]

NOTE

Supreme Court in the case of Vodafone held that Section 9 does not authorize tax authorities to tax capital gains derived from indirect transfer of shares of Indian company while the main transaction was between two foreign companies to acquire a foreign company which had majority shares in Indian company.

Therefore, Government of India (Ministry of Finance) amended Section 9 of Income-tax Act, 1961 vide Finance Act 2012 with retrospective effective from 1962 and provided that shares or interest in any foreign company/entity shall be deemed to be situated in India if such shares or interest derives its substantial value from assets located in India. Any capital gain from transfer of such shares or interest in foreign company deriving its substantial value from assets located in India was brought under tax levy. Accordingly, in Vodafone case where entire transactions were already carried out and ruling was also pronounced by Supreme Court could be brought to tax with this retrospective amendment.

Aggrieved by the act of the government, Vodafone invoked Article 9 of the Bilateral Investment Treaty signed between India and the Netherlands, seeking arbitration proceedings in the present matter. The act of changing legislation to impose tax liability has prompted Vodafone to seek relief from the Permanent Court of Arbitration, Hague. The arbitral tribunal has ruled in favor of the company by deciding that the retrospective amendment of the taxation law is in contravention with the fair and equitable treatment guaranteed by the Indian government under the India-Netherlands Bilateral Investment Treaty and the India-United Kingdom Bilateral Investment Treaty. The Permanent Court of Arbitration at The Hague further ruled that the demand of Rs. 22,100 crore made by the government in the form of capital tax and withholding tax was in violation of the guarantee of fair and equitable treatment and of the United Nations Commission on International Trade Law, and that India shall not continue to pursue the demand of taxes from the Vodafone Group.

Amendment made in Explanation 4 to section 271(1)(c)(iii) with effect from 01.04.2003 is clarificatory and, therefore, will have retrospective effect

It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations.

The circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and whether it would have retrospective effect or it was not so.

Above being the position, the inevitable conclusion is that the Explanation 4 to section 271(1)(c) is clarificatory and not substantive. The view expressed to the contrary in Virtual Soft Systems Ltd. v. CIT (2007) 159 Taxman 155 (SC)’s case is not correct. – [CIT, Ahmedabad v. Gold Coin Health Food (P) Ltd. (2008) 304 ITR 308 : 218 CTR 359 : 172 Taxman 386 (SC)]

‘Lex non cogit ad impossibilia’ is an age old maxim whereby the law does not compel the man to do which he cannot possibly perform

‘Lex non cogit ad impossibilia’ is an age old maxim, meaning that the law does not compel a man to do what he cannot possibly perform. Requiring the assessee to file a proper and complete return by including the income under the head ‘Capital gains’ would be impossible for the assessee, in cases where award of compensation has not been given.

Assessee’s land was acquired under section 17 of 1894 Act in year 1975, but possession of same was taken during relevant assessment year and compensation award was given by Collector on 18.09.1986. Revenue sought to tax capital gain arising as a result of such acquisition in relevant assessment year on ground that capital gain should be taxed in year in which transfer took place or possession was taken.

It was had held that lex non cogit ad impossibilia is an age old maxim whereby the law does not compel the man to do which he cannot possibly perform. In that case amount of compensation was not determined by the Hon’ble Allahabad High Court, therefore, it was impossible to compute capital gains and, therefore, it was impossible for the assessee to declare the same in the return of income. Since award of compensation had not been passed in relevant assessment year, no capital gain was exigible to tax in that year. (Related Assessment year : 1984-85) – [CIT, Meerut v. Prem Kumar (2008) 214 CTR 452 : 169 Taxman 351 (All.)]

Concept of retrospective legislation as elucidated by Edger Bodenheimer in his treatise Jurisprudence

The concept of retrospective legislation has been elucidated by Edger Bodenheimer in his treatise Jurisprudence - The Philosophy and Method of the Law (quoted by the Supreme Court of India in Transmission Corporation of A.P. v. Ch. Prabhakar (2004) 19 ILD 343 thus :

“The large majority of enactments passed by Legislature take effect ex nune, that is, they are applied to situations and controversies that arise subsequent to the promulgation of the enactment. It is a fundamental requirement of fairness and justice that the relevant facts underlying a legal dispute should be judged by the law, which was in existence when these facts arose and not by a law which was made post factum (after the fact) and was, therefore, necessarily unknown to the parties when the transactions or events giving rise to the dispute occurred. The Greeks frowned upon ex-post-facto laws, which are applied retrospectively to past-fact situation. The Corpus Juris Civilis of Justinian proclaimed a strong presumption against the retrospective application of laws. Bracton introduced the principle into English Law. Coke and Blackstone gave currency to it, and the principle is recognized today in England as a basic rule of statutory construction. In the United States, ex-post laws in criminal cases and retrospective State laws impairing the obligation of contracts are expressly forbidden by the terms of federal Constitution, in other types of situation, a retroactive legislative infringement of vested rights may present a problem of constitutional validity under the due process clause of the Constitution.”

Retrospective Amendment of law could not compel the assessee to deposit tax on additional income 

Assessee had received certain amount by way of cash compensatory support but did not include same in its return filed on 29.12.1989. Subsequently in 1990, clause (iiib) came to be inserted in section 28 treating cash compensatory support as profits and gains of business or profession with retrospective effect from 01.04.1967. Assessing Officer treated said amount as additional income under section 143(1A) and levied additional tax. In view of fact that when assessee had filed its return of income, it was correct as per law on date of filing of return, levy of additional tax was not warranted. One has to see the law on the date of filing the return. To attract penal provisions, there has to be some element of lack of bona fides unless the law specifically provides otherwise. If additional tax could be levied in such circumstances, it would be punishing the assessee for no fault of it. That cannot ever be the legislative intent. (Related Assessment year : 1989-90) – [CIT v. Hindustan Electro Graphites Ltd. (2000) 243 ITR 48 : 160 CTR 8 : 109 Taxman 342 (SC)]

An amendment which is made with retrospective effect can be remedial in nature and designed to eliminate unintended consequences making the provision unworkable or unjust, or causing undue hardship to the assessee

A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole.

First proviso to section 43B inserted with effect from 01.04.1988, is curative in nature and has to be read into section 43B from its inception. Therefore, even prior to insertion of first proviso sales tax collected by assessee for last quarter of relevant accounting year and paid after end of accounting year but within time allowed under relevant sales tax law could not be disallowed under section 43B.

Accordingly, the sales-tax collected by the assessee collected in the last quarter of the relevant previous year and paid after the end of the previous year but within the time allowed under the relevant sales-tax law could not be disallowed under section 43B, while computing the business income of the said previous year. (Related Assessment year : 1984-85) - [Allied Motors (P) Ltd. v CIT (1997) 224 ITR 677 : 139 CTR 264 : 91 Taxman 205 (SC)]

Supreme Court explain principles for amending an act retrospectively

The Apex Court in Hitendra Vishnu Thakur v. State of Maharashtra held that a law which affects the substantive rights of any of the parties, the law cannot be retrospective. Every party has a vested right in substantative law but no such right exists in procedural law. From the law settled by this Court in various cases the illustrative though not exhaustive principles which emerge with regard to the ambit and scope of an Amending Act and its retrospective operation may be culled out as follows:

(i) A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits.

(ii) Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal even though remedial is substantive in nature.

(iii) Every litigant has a vested right in substantive law but no such right exists in procedural law.

(iv) A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished.

(v) A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in Operation unless otherwise provided, either expressly or by necessary implication. - [Hitendra Vishnu Thakur v. State of Maharashtra (1994) 4 SCC 602 : 1994 AIR SCW 3699 : AIR 1994 SC 2623 : 1995 Cri LJ 517 - Date of Judgement : 02.07.1994 (SC)]

NOTE

This principle stands approved by the Constitution Bench in the case of Shyam Sunder v. Ram Kumar AIR 2001 SC 2472.

“A retrospective operation is not to be given to a statute so as to impair existing right or obligation, otherwise than as regards matter of procedure unless that effect cannot be avoided without doing violence to the language of the enactment. Before applying a statute retrospectively the Court has to be satisfied that the statute is in fact retrospective. The presumption against retrospective operation is strong in cases in which the statute, if operated retrospectively, would prejudicially affect vested rights or the illegality of past transaction, or impair contracts, or impose new duty or attach new disability in respect of past transactions or considerations already passed, However, a statute is not properly called a retrospective statute because a part of the requisites for its action is drawn from a time antecedent to its passing. The general scope and purview of the statute and the remedy sought to be applied must be looked into and what was the former state of law and what the legislation contemplated has to be considered. Every law that impairs or takes away rights vested agreeably to existing laws is retrospective, and is generally unjust and may be oppressive. But laws made justly and for the benefit of individuals and the community as a whole may relate to a time antecedent to their commencement. The presumption against retrospectivity may in such cases be rebutted by necessary implications from the language employed in the statute. It cannot be said to be an invariable rule that a statute could not be retrospective unless so expressed in the very terms of the section which had to be construed. The question is whether on a proper construction the legislature may be said to have so expressed its intention”. – [State of M.P. v. G.S. Dall & Flour Mills 1991 taxmann.com 887 (SC)]

Allowability of retrospective amendment which impairs existing right or obligation

In the case of Mithilesh Kumar & another v. Prem Bahadur Khare, the Apex Court in para 21 of the judgment held that  ‘A retrospective operation is not given to a statute so as to impair existing right or obligation otherwise than as a matter of procedure….. But laws made justly for the benefit of individuals and the community as a whole may relate to a time antecedent to their commencement.’

In the Displaced Persons (Compensation and Rehabilitation) Act (44 of 1954), Section 40 & 49 of it, there is nothing in Section 40 from which power of the Central Government to make retrospective rules may be inferred. In the absence of any such power, the Central Government acted in excess of its power in so far as it gave retrospective effect to the Explanation to Rule 49. The Explanation could not operate retrospectively and would be effective for the future from the date it was added.

The fact that the rules framed under the Act have to be laid before each House of Parliament would not confer validity on a rule if it is made not in conformity with S. 40 of the Act. The laying referred to in Section 40(3) is of the category of ‘laying subject to negative resolution’ because the above sub-section contemplates that the rule would have effect unless modified or annulled by the House of Parliament. The act of the Central Government in laying the rules before each House of Parliament would not, however, prevent the courts from scrutinizing the validity of the rules and holding them to be ultra vires if on such scrutiny the rules are found to be beyond the rule making power of the Central Government.

The Apex Court in Para 21 of its judgment as:

“A retrospective operation is not to be given to a statute so as to impair existing right or obligation, otherwise than as regards matter of procedure unless that effect cannot be avoided without doing violence to the language of the enactment. Before applying a statute retrospectively the Court has to be satisfied that the statute is in fact retrospective. The presumption against retrospective operation is strong in cases in which the statute, if operated retrospectively, would prejudicially affect vested rights or the illegality of past transaction, or impair contracts, or impose new duty or attach new disability in respect of past transactions or considerations already passed, However, a statute is not properly called a retrospective statute because a part of the requisites for its action is drawn from a time antecedent to its passing. The general scope and purview of the statute and the remedy sought to be applied must be looked into and what was the former state of law and what the legislation contemplated has to be considered. Every law that impairs or takes away rights vested agreeably to existing laws is retrospective, and is generally unjust and may be oppressive. But laws made justly and for the benefit of individuals and the community as a whole may relate to a time antecedent to their commencement. The presumption against retrospectivity may in such cases be rebutted by necessary implications from the language employed in the statute. It cannot be said to be an invariable rule that a statute could not be retrospective unless so expressed in the very terms of the section which had to be construed. The question is whether on a proper construction the legislature may be said to have so expressed its intention”. – [Mithilesh Kumari and another, v. Prem Behari Khare, AIR 1989 SC 1247 - Date of Judgement : 14.02.1989 (SC)]

Retrospective amendment of section 80J, with effect from 01.04.1972 by the Finance (No. 2) Act, 1980, incorporating provisions of rule 19A in the section was merely clarificatory in nature and therefore valid

In the context of the question of law raised in the writ petition in the case of Lohia Machines Ltd. v. Union of India about the validity of rule 19A and also the question of the constitutionality of retrospective amendment made in section 80J by the Finance (No. 2) Act, 1980, the Supreme Court held:

“. . . Since, on the view taken by us, rule 19A did not suffer from any infirmity and was valid in its entirety, the Finance Act (No. 2) of 1980 insofar as it amended section 80J by incorporating rule 19A in the section with retrospective effect from 01.04.1972, was merely clarificatory in nature and must accordingly be held to be valid.” (p. 38)

The case revolved around a certain exemption provided by the Income-tax Act to new industrial undertakings on the amount of capital employed by these undertakings. In the calculation of the capital employed, the amount of borrowed monies was being excluded, owing to the Rule that disentitled the assessees from claiming tax relief on long-term borrowings. This Rule was declared by High Courts to be ultra vires the Income-tax Act to the extent that it created such exception for long-term borrowings. Later, a retrospective amendment was passed by the Parliament through which the substance of the Rule was made a part of the Act itself. A challenge was brought to the said retrospective amendment before the Supreme Court, which gave the ruling by majority in favour of the government, stating that the amendment was merely clarificatory in nature. Therefore, the power of the legislature of passing retrospective amendments along with the amendment itself was upheld by the Court. – [Lohia Machines Ltd. and Anr. v. Union of India (1985) 152 ITR 308 : 20 Taxman 9 (SC)]

Unless specifically provided or necessarily required, retrospective operation is not to be given so as to impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. In case of doubt, the Act should be presumed to be only prospective in operation.

Now, it is a well settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock and every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. – [Govinddas v. ITO (1976) 103 ITR 123 (SC)

It is a well-settled principle that no action can be commenced where the period within which it can be commenced has expired

Any retrospective amendment does not authorise action which is already time-barred when the amendment comes into force unless the statute clearly provides for it. This is another established principle which has been upheld by the Supreme Court more than once CIT v. Onkarmal Meghrai (HUF) [1974] 93 ITR 233 (SC).

If a statute is curative or merely declares the previous law, retrospective operation would be more rightly ascribed to it.

It is well settled that if a statute is curative or merely declares the previous law retroactive, operation would be more rightly ascribed to it than the legislation which may prejudicially affect past rights and transactions. – [Channan Singh v. Smt. Jai Kaur AIR 1970 SC 349 (SC)]

If the new law speaks in language, which, expressly or by clear intendment, takes in even pending matters, the Court of trial as well as the court of appeal must have regard to an intention so expressed, and the court of appeal may give effect to such a law even after the judgment of the court of first instance

The Supreme Court in the case of Smt Dayawati v Inderjit AIR (1966) (SC) 1423 has emphatically observed as follows:-

“Now as a general proposition, it, may be admitted that ordinarily a Court of appeal cannot take into account a new law, brought into existence after the judgment appealed from has been rendered, because the rights of the litigants in an appeal are determined under the law in force at the date of the suit. Even before the days of Coke whose maxim - a new law ought to be prospective, not retrospective in its operation - is off-quoted, Courts have looked with dis-favour upon laws which take away vested rights or affect pending cases. Matters of procedure are, however, different and the law affecting procedure is always retrospective. But it does not mean that there is an absolute rule of inviolability of substantive rights. If the new law speaks in language, which, expressly or by clear intendment, takes in even pending matters, the Court of trial as well as the Court of appeal must have regard to an intention so expressed, and the Court of appeal may give effect to such a law even after the judgment of the Court of first instance.” – [Smt Dayawati v Inderjit AIR (1966) (SC) 1423 (SC)]

Retrospective operation did not violate fundamental rights.

It was held that the Parliament acting within its legislative field had the power and could by law, both prospectively and retrospectively, levy excise duty under the Central Excises and Salt Act, 1944, even where it was established that by reason of the retrospective effect being given to the law, the assessees were incapable of passing on the excise duty to the buyers, Ayyangar, J. observed:

“Mere retrospectivity in the imposition of the tax cannot per se render the law unconstitutional on the ground of its infringing the right to hold property under article 19(1)(f) or depriving the person of property under article 31(1). If on the one hand, the tax enactment in question were beyond legislative competence of the Union or a State necessarily different considerations arise. Such unauthorised imposition would undoubtedly not be a reasonable restriction on the right to hold property besides being an unreasonable restraint on the carrying on of the business, if the tax in question is one which is laid on a person in respect of his business activity.” (p. 1007)

In the case of Chhotabhai Jethabhai Patel & Co. v. Union of India (1961) wherein the legislature increased the excise duty on unmanufactured tobacco under the Central Excise and Salt Act, 1944 with a retrospective effect. The validity of the same was challenged by the appellants on the ground that the goods had already been cleared out of the warehouse and now, the payment of the increased duty, which would otherwise had been shifted on the consumers, would have to be made by the appellants themselves. In other words, they contended that the retrospective operation of duties deprived them of their right to pass the incidence of the duties to the consumers. Rejecting the said contention, the Supreme Court held that the Parliament was well-equipped with the power of passing retrospective legislations that fall within its legislative field under Schedule VII of the Constitution. [Chhotabhai Jethabhai Patel & Co. v. Union of India AIR 1962 SC 1006 (SC)]

Concept of retrospective law has been explained to mean a law, which affects contracts on the date when it comes into operation

In Gardner & Co. Ltd. v. Cone & Ors., the expression “retrospective” has been very clearly explained. An Act may be called retrospective because it affects contracts existing at the date when it comes into operation. – [Gardener & Co. Ltd. v. Come (1928) All ER 458]