An analysis of the proposition as found to have been conclusively settled by the case laws from the numerous Supreme Court and High Court Judgments in decided cases reveals as under. As such, going by the correct legal position, unequivocally accepted, there might be no dispute – or even a remote scope for disputing any longer – that the said settled proposition is binding, with all force, on all judicial and quasi-judicial authorities, the ITAT being no exception. If so, all the more reason why administrative/ executive authorities are duty bound to not but follow/abide by the same as a PRECDENT.
Sequencing of
provisions
As a general
rule, provisions of a legislative text are sequenced as follows:
§ General
provisions precede specific provisions
§ More important
provisions precede less important provisions
§ Permanent
provisions precede temporary provisions
§ Technical
provisions appear last
Statement of purpose - if the
substantive provisions of an enactment are well drafted, they should not need
additional elements to assist in their interpretation
In principle, if the substantive provisions of an
enactment are well drafted, they should not need additional elements to assist
in their interpretation. It is therefore primarily important to draft the
substantive provisions of the proposed enactment so as to communicate clearly
the legislative intent to those to whom it is addressed and those called upon
to enforce it. However, in certain cases, the formulation of such intent in a
separate statement may be appropriate. In some jurisdictions, such statements
of purpose are used to articulate the principles and policies which are
intended to be implemented in the body of the text and to preside over its
interpretation. Therefore, a statement of purpose should not contain substantive
provisions granting rights, prohibiting actions, establishing substantive
standards, etc.
Justice G.P.
Singh in “Principles of Statutory Interpretation” (14th Edition, in Chapter 6)
while dealing with operation of fiscal statute elaborates the principles of
statutory interpretation in the following words:
“Fiscal
legislation imposing liability is generally governed by the normal presumption
that it is not retrospective and it is a cardinal principle of the tax law that
the law to be applied is that in force in the assessment year unless otherwise
provided expressly or by necessary implication. The above rule applies to the
charging section and other substantive provisions such as a provision imposing
penalty and does not apply to machinery or procedural provisions of a taxing
Act which are generally retrospective and apply even to pending proceedings.
But a procedural provision, as far as possible, will not be so construed as to
affect finality of tax assessment or to open up liability which had become
barred. Assessment creates a vested right and an assessee cannot be subjected
to reassessment unless a provision to that effect inserted by amendment is
either is either expressly or by necessary implication retrospective. A
provision which in terms is retrospective and has the effect of opening up
liability which had become barred by lapse of time, will be subject to the rule
of strict construction. In the absence of a clear implication such a
legislation will not be given a greater retrospectivity than is expressly
mentioned; nor will it be construed to authorize the Income-tax Authorities to
commence proceedings which, before the new Act came into force, had by the
expiry of the period then provided become barred. But unambiguous language must
be given effect to, even if it results in reopening of assessments which had
become final after expiry of the period earlier provided for reopening them.
There is no fixed formula for the expression of legislative intent to give
retrospectivity to a taxation enactment……”
Holds 2016 Benami Act amendments was not merely procedural, rather, prescribed substantive provisions; Forfeiture envisaged, punitive in nature, cannot be retroactive
Supreme Court holds that the Benami
Transactions (Prohibition) Amendment Act, 2016 (2016 Act) prescribes
substantive provisions and is not merely procedural; Holds Section
3(2) of the Benami Transactions (Prohibition) Act, 1988 (unamended Benami Act)
as unconstitutional for being manifestly arbitrary and holds Section 3(2) of
the Prohibition of Benami Property Transactions Act, 1988 (amended Benami Act)
also as unconstitutional for being violative of Article 20(1) of the
Constitution; Holds provisions under Section 5 of unamended Act providing
for in rem forfeiture, is unconstitutional for being
manifestly arbitrary and expounds that forfeiture provision under Section 5 of
amended Benami Act is punitive in nature, thus, can only be applied
prospectively and not retroactively; Supreme Court makes it clear that the
authorities cannot initiate or continue criminal prosecution or confiscation
proceedings for transactions entered into prior to the coming into force of the
2016 Act, viz., October 25, 2016, thus, quashes all such
prosecutions or confiscation proceedings; SC leaves question of forfeiture of
property under the amended Benami Act open for adjudication in appropriate
proceedings; Supreme Court holds that the unamended Benami Act was an
inconclusive law where essential features were to be prescribed through
delegation and the gaps were not merely procedural, rather the same were essential
and substantive; Supreme Court observes that without substantive provisions,
the law was fanciful and oppressive at the same time, thus, manifestly
arbitrary as the open texture of the law did not have sufficient safeguards to
be proportionate; Supreme Court holds Section 3 (criminal provision) read with
Section 2(a) and Section 5 (confiscation proceedings) of the unamended Benami
Act as overly broad, disproportionately harsh, and operating without
adequate safeguards in place; Remarks that such provisions were stillborn law
and never utilized in the first place and finds Sections 3 and 5 of the
unamended Benami Act to be unconstitutional from their inception; With regard
to the amended Benami Act, Supreme Court observes that the criminal provisions
are applicable only prospectively as the relevant Sections of the unamended
Benami Act have been declared as unconstitutional and the question of
retroactive applicability of the penal provisions of the amended
Benami Act does not arise; Supreme Court traces the development of
law of forfeiture of property and finds provisions of forfeiture of property in
amended Benami Act to be in rem and not in personam since the property itself
is held to be tainted subjected to confiscation; Supreme Court observes that under
such legal framework, “a retroactive law would characterize itself as
punitive for condemning the proceeds of sale which may also involve legitimate
means of addition of wealth.” Also observes that the amended Benami Act
condemns the method of transfer and holding of property which was once a
recognized form of property holding in India, thus the in rem civil proceeding
utilized retroactively itself take penal character; Supreme Court throws light
on the legal framework that allows authorities under the amended Benami Act to
initiate confiscation by using extensive powers of discovery, inspection,
compelling attendance, compelling production of documents and take assistance
of police officers, custom officers, income tax officers and other relevant officers
for furnishing information whereby any person who fails to furnish information
is subjected to penalty and the one providing false information is subjected to
rigorous imprisonment of upto 5 years; Supreme Court thus holds that the law
amended by 2016 Act cannot retroactively apply for confiscation of the
transactions entered into between September 5, 1988 to October 25, 2016 as the
same would tantamount to punitive punishment, in the absence of any other form
of punishment and under this unique circumstance, confiscation contemplated
during the said period would take punitive character, if allowed retroactively;
On this aspect, Supreme Court also observes that curbing benami transactions
retroactively would no doubt be susceptible to prohibitions under Article 20(1)
of the Constitution since at one point of time benami transactions were an
accepted form of holding property in our country; Supreme Court, alternatively,
observes that continuation of only the civil provisions implies that the
ostensible owner would continue to have full ownership over the property,
without allowing the real owner to interfere with the rights of the benamidar
and in such a situation without effecting any enforcement proceedings for a
long span of time, the crystallised rights would be in jeopardy; Supreme Court
finds this implied intrusion into the right to property impermissible since it
operates retroactively and would be unduly harsh and arbitrary; Supreme Court,
thus, disposes of Union’s appeal with the aforementioned observations and
conclusion; Factual background of the case is that Respondent-Company was
subjected to Benami proceedings where it purchased a property in 2011 and in
2012 its shares were acquired by another company with common directors at a
substantially lower price; The Benami Authority passed a provisional attachment
order that was quashed in writ appeal by Calcutta High Court on the basis that
2016 Act does not have retrospective application
In
view of the above, it is held as under:
(i) Section 3(2) of the unamended 1988 Act is
declared as unconstitutional for being manifestly arbitrary. Accordingly,
Section 3(2) of the 2016 Act is also unconstitutional as it is violative of
Article 20(1) of the Constitution.
(ii) In rem forfeiture provision under Section 5
of the unamended Act of 1988, prior to the 2016 Amendment Act, was
unconstitutional for being manifestly arbitrary.
(iii) The 2016 Amendment Act was not merely
procedural, rather, prescribed substantive provisions.
(iv) In rem forfeiture provision under Section 5
of the 2016 Act, being punitive in nature, can only be applied prospectively
and not retroactively.
(v) Concerned authorities cannot initiate or
continue criminal prosecution or confiscation proceedings for transactions
entered into prior to the coming into force of the 2016 Act, viz., 25.10.2016.
As a consequence of the above declaration, all such prosecutions or
confiscation proceedings shall stand quashed. –
[Union of India v. Ganpati Dealcom (P) Ltd. (2022) 447 ITR 108 : 141
taxmann.com 389 (SC)]
Financial Benefits to Assessee can not be a Ground to Levy Interest without an explicit substantive provision
The Bombay High Court has ruled that penalty or
interest on additional customs duty (CVD) and special additional duty of
customs (SAD), or surcharge, which is not connected to the basic customs duty,
cannot be imposed in the absence of an explicit substantive provision.
The Division Bench of
Justices K.R. Shriram and A.S. Doctor observed that there was no substantive
provision which obligated the assessee to pay interest or penalty on CVD or
SAD, leviable under the Customs Tariff Act, 1975, or on the surcharge leviable
under the Finance Act, 2000. – [Mahindra & Mahindra Ltd. versus Union of
India & Ors. Citation: 2022 LiveLaw (Bom.) 400]
Extension Notification inapplicable on Benami
Authority after end of additional charge arrangement, for passing reserved
orders
Delhi High Court
dismisses Assessees' writ appeals, holds that CBDT Notification
No.113/2021 dated 17.09.2021, extending the deadline for completion of
assessment under Benami Act cannot be extended to Adjudicating Authority
who ceased to hold the office; Assessee-Companies were subjected to
proceedings under the Benami Act before the Adjudicating Authority, New Delhi and
since the Adjudicating Authority, New Delhi was vacant, the Adjudicating
Authority, Mumbai was given additional charge of Adjudicating Authority, New
Delhi, who had actually heard the matter and reserved orders on 16.09.2021;
Subsequently, on 08.10.2021, a proper appointment was made to the post of
Adjudicating Authority, New Delhi and, thus, the additional charge given to the
Adjudicating Authority, Mumbai, came to an end; In this backdrop, the
Assessees filed a writ petitions before the Single Judge Bench praying that the
Adjudicating Authority, Mumbai, who was given the additional charge and had
heard the matter should be directed to pass the order in Assessees' cases;
However, the Single Judge Bench dismissed the writ petition holding
that once a proper appointment was made for Adjudicating Authority, New Delhi,
the authority holding additional charge could not have passed the order in the
matter reserved by him since he was no longer holding the post of Adjudicating
Authority at New Delhi; On Assessee's appeal against Single Judge's ruling, the
Division Bench observes that on the day of proper appointment for Adjudicating
Authority, New Delhi, the officer holding the additional charge before passing
the order in Assessees' cases and had ceased to function as the Adjudicating
Authority, New Delhi; Opines, “Viewed in this light, the notification dated
17.09.2021 extending the time period from 30.09.2021 to 31.03.2022 for
pronouncing judgments in cases where hearings had been completed and orders
were reserved cannot be applied to the present cases.”; Explains that the
notification would apply to such of those officers who had reserved orders, but
had not pronounced it within the time as stipulated by the notification, “The
said notification cannot be extended to an officer who has ceased to occupy the
post.”; Further points out that the Notification only extended the
period from 30.09.2021 to 31.03.2022 to deliver judgments in cases where
the Adjudicating Authority was yet to deliver its judgments; States that a writ
is maintainable only when there is a right and in absence of any right, a writ
cannot be passed and in the present case, Assessee has not been able to
demonstrate violation of any right or breach of any notification which states
that an Authority should pronounce the judgment in a matter heard by it even
after the person, who heard the matter, has ceased to occupy the chair, thus
upholds the Single Judge Bench ruling and dismisses Assessee’s appeals. – [Ramaa
Advisors (P) Ltd. v. Union Of India & Anr – Date of Judgement : 05.08.2022
(Del.)]
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”
– [Nexus Feeds Ltd. & Others v. ACIT [TS-291-HC-2022(TEL)] – Date of Judgement
: 08.03.2022 (High
Court Telangana)]
Natural justice is a
flexible tool in the hands of the judiciary to reach out in fit cases to remedy
injustice. The breach of the audi alteram partem rule cannot by itself, without
more, lead to the conclusion that prejudice is thereby caused. Where procedural
and/or substantive provisions of law embody the principles of natural justice,
their infraction per se does not lead to invalidity of the orders passed. Here
again, prejudice must be caused to the litigant, except in the case of a
mandatory provision of law which is conceived not only in individual interest,
but also in public interest. – [State
Of U.P v. Sudhir Kumar Singh – Date of Judgement : 16.10.2020 (SC)]
Section 11 & 12 are the substantive provisions providing
exemptions to charitable/ religious Trusts
under the Scheme
of the Act, sections 11 and 12 are substantive provisions which provide for
exemptions to a religious or charitable trust. Sections 12A and 12AA detail the
procedural requirements for making an application to claim exemptions under
sections 11 and 12 by the assessee and the grant or rejection of such
application by the commissioner. Thus, in my view, sections 12A and 12AA are
only procedural in nature. Hence, it is not the registration u/s 12AA by itself
that offers immunity from taxation. A receipt whether it is revenue or capital
in nature is to be decided at the assessment stage. Being procedural in nature,
in our view, liberal interpretation will give effect to the intention of the
amendment, thereby removing the hardship in genuine cases like the present
assessee under consideration. – [Bandanthamma
Mathu Kalamma Trust v. ITO, Mysuru. [TS-119-ITAT-2020(Bang)] Date of Judgement : 26.02.2020 (ITAT Bangalore)]
Failure to furnish Annual
Information Return in time is a technical or venial breach of provision of Act
flowing from a bona fide ignorance of assessee; for such failure penalty
proceeding under section 271FA need not be initiated
Assessee, co-operative
bank, an entity falling within the ambit of section 285BA, failed to furnish
Annual Information Return (AIR) for the assessment year 2012-13. A notice was
issued by the Assessing Officer. On a request made on behalf of the
representative of the assessee, the time was extended. The assessee complied
with the requirement of section 285BA and filed the annual information return.
Subsequently, the Director of Income Tax (Intelligence and criminal
investigation) levied penalty on it for the delay in furnishing AIR. According
to the assessee, the default was not intentional, but due to ignorance of
existence of such an obligation. The revenue took stand that there could not be
such an ignorance in view of the department conducting so much of awareness
campaign and the assessee was complying with other obligations under the Act.
On appeal to the High Court:
On a careful
consideration of the matter, one can find that except the instant alleged
breach, nothing more is alleged against the assessee. As a matter of fact, the
Director of Income Tax (Intelligence and Criminal investigation) who passed the
penalty order himself observed in his order vide para No 3 that the assessee
got the accounts of all branches consolidated and audited, and also filed
Income Tax/TDS returns. The order of the Director of Income Tax (Intelligence
and Criminal investigation) does not speak as to how the assessee stood to gain
by contravening the provisions of section 285BA of the Act or the act of
assessee resulted in any loss to the Revenue. Further, it is an acknowledged
and judicially recognized fact that the tax laws of this country are complex
and complicated and often require compliance therewith. The assistance of tax
practitioners specialising in this field is a well known fact and it is equally
well known fact that the legislation in this field undergoes so frequent
changes and amendments that it is not possible for even a person specialised in
this field, including the tax administrator, to claim that he knows what
exactly the law is on a particular given day or period without making
references to the history of the enactments. In these circumstances, no mala
fides can be attributed to the assessee so as to invoke the penalty proceedings
under section 271FA of the Act. The Director of Income Tax (Intelligence and
Criminal investigation) should have taken note of fact that the breach is only
technical or venial breach of the provisions of the Act and such a breach could
have flown from a bona fide ignorance of the assessee that he is liable to act
in the manner prescribed by the statute, and should not have invoked the
penalty proceedings. [In favour of assessee] (Related Assessment year :
2011-12) - [Malda District Central Co-op Bank Ltd. v. Director of Income-tax
(I & CI), Kolkata (2016) 72 taxmann.com 306 (ITAT Kolkata)]
Insertion
of the proviso to Section 113, is clearly a substantive provision and hence is
to be construed prospective in operation
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.
– [CIT v. Vatika Township (P) Ltd. – Date of
Judgement : 15.09.2014 (SC)]
Section 92CA(2A), though
substantive provision, applies to all proceedings pending on 01.06.2011
& TPO can examine un-referred transactions. Section 92CA(2B) applies even
to cases where Form 3CEB is filed but the transaction is not reported. DRP has
power to hold that TPO had no jurisdiction & to quash his order. Writ
cannot be entertained where there is alternate remedy
HELD by the High Court
dismissing the Petition:
(i) Though s. 92CA(2A)
inserted with effect from 01.06.2011 is a substantive provision and not a
procedural one and confers fresh jurisdiction on the TPO, it applies to all
proceedings that are pending as of 1.6.2011. Consequently, the TPO has
jurisdiction to consider unreported and un-referred international transactions
in proceedings that were pending before him on 01.06.2011;
- [Vodafone India Service (P) Ltd. v. UOI –
Date of Judgement : 06.09.2013 (Bom.)]
Mere
breach of some technical provision or a requirement would not ipso facto
disqualify an assessee from claiming deduction under Section 80IB of the Act
High
Court observed that outside of the Income Tax Act, there may be large number of
requirements for the factory owner to be fulfilled and mere breach of some
technical provision or a requirement would not ipso facto disqualify an
assessee from claiming deduction under Section 80IB of the Act. However,
Factory License was the basic requirements of setting up of a factory without
which legally it would not be permissible to set up a factory and to commence
manufacturing activity.
Accordingly,
High Court held that the benefit of Section 80IB was not available where the
assessee had not applied for Factory License before April 1st 2004. However,
High Court also clarified that in other cases where the assessee had applied
for Factory License before April 1st 2004 but was granted the same later,
deduction shall be allowable and such cases shall be treated as mere technical
default. – [CIT v. Jolly Polymer – Date of Judgement : 16.01.2012 (Guj.)]
Trustees were not aware of the
technical provisions of the Act and that would have prevented them from
applying for the registration on time. Thus, the rejection of prayer for
condonation of delay in filing application was also not justified
The Commissioner, after
obtaining a report from the Assessing Officer, rejected the application under
section 12A on the reasons that assessee had not filed the returns for the last
three years and, therefore, it did not comply with the conditions laid down in
section 12A(1)(b); that the assessee had not spent even a single pie for the
welfare of the general public except the claim of Rs. 54,249 as repair and
maintenance of the Dharamshala; that it had also purchased a car which could
not be put into the frame of the objects of the society; that the trust deed
did not stipulate that it would take care of regular expenses of the settlor of
the trust; and that it could not prove that it had separate account for the
personal expenses of the settlor. He also rejected the prayer of condonation of
delay by observing that these days charitable trust/Societies are
created/established mostly with an eye on the concessional provisions of the
Act and by observing the fact that the trust was situated in a remote rural
area of Haryana and the plea that trustees were not aware of the technical
provisions was not a ground which could prevent them from applying for
registration under section 12AA in time.
Held that the
Commissioner was not justified in rejecting the claim of the assessee.
Apparently, the trust was a charitable one established for the general welfare
of the public utility. The reason given for rejection that it had not filed
returns for the past three years was no ground and was also not a condition for
granting registration. The other reason that it had not spent even a pie for
the welfare of the public utility was also not relevant as he himself had
stated that a sum of Rs. 54,249 had been spent on repair and maintenance of
Dharmashala which was an object of general public welfare. As far as the car
was concerned, the same had been given as a donation and was not purchased by
the trust and, therefore, nothing adverse could be inferred therefrom. Thus, it
was also not a ground for refusing registration. The last ground stated by him
that the trust deed did not stipulate that it would take care of the living
expenses of the settlor was also not a valid ground. Looking to the facts and
circumstances of the case, the CIT was not justified in rejecting the claim of
the assessee. The assessee had a reasonable cause for delay in filing of the
application as it was situated in a remote rural area of Haryana and the
trustees were not aware of the technical provisions of the Act and that would
have prevented them from applying for the registration on time. Thus, the
rejection of prayer for condonation of delay in filing application was also not
justified. [In favour of assessee] - [Baba Samtai Nath Charitable Trust v.
CIT (2010)
130 TTJ 97 (ITAT Delhi) (UO)]
Interest on delayed
payment of tax can be levied
and charged only if the statute that levies and charges the tax makes a
substantive provision to this effect
In India Carbon Ltd. & Ors. v. State
of Assam 1997 (6) SCC 479 there was delay in payment of central sale tax. The
appellants were called upon to pay interest of 24% per annum by the sale tax
authorities of the state of Assam under the Assam Sales Tax Act. Following the
judgment of the Constitution Bench in J.K. Synthetics v. CCE (supra) among
other judgments, the court inter alia went on to hold that there is no
substantive provision in the Central Act requiring payment of interest under 50
the Central Sales Tax Act. Though Section 9(2) was pressed into service by the
Revenue and the said provision did refer to the power to recover interest under
the State Act noticing the absence of any power to recover interest under the
Central Act in respect of tax due under the Central Act, the Court took the
view that interest could not be demanded from the appellant.
The Supreme Court had
held that interest on delayed payment of tax can be
levied and charged only if the statute that
levies and charges the tax makes a substantive provision to this effect.
Therefore, the Apex Court had laid down that where there is no substantive
provision requiring the payment of interest, the authorities cannot charge
interest on tax for the purpose of collecting and enforcing the payment of tax.
In short, therefore, the principle may be
taken to be established that while levy of interest is a part of the adjective
law, yet to levy interest there must be substantive provision. Demand for
interest can be made only if the legislature has specifically intended
collection of interest. We must look at the statutory provisions. – [India
Carbon Ltd. & Ors. v. State of Assam 1997 (6) SCC 479 (SC)]
Procedural and
substantive provisions of law which embody the principles of natural justice
which, when infracted, must lead to prejudice being caused to the litigant in
order to afford him relief
In State Bank of Patiala
and Ors. v. S.K. Sharma, a Division Bench of this Court distinguished between
“adequate opportunity” and “no opportunity at all”, and held that the
“prejudice” exception operates more especially in the latter case.
This judgment also
speaks of procedural and substantive provisions of law which embody the
principles of natural justice which, when infracted, must lead to prejudice
being caused to the litigant in order to afford him relief
An order passed imposing
a punishment on an employee consequent upon a disciplinary/departmental enquiry
in violation of the rules/regulations/statutory provisions governing such
enquiries should not be set aside automatically. The Court or the Tribunal
should enquire whether (a) the provision violated is of a substantive nature or
(b) whether it is procedural in character.
(2) A substantive
provision has normally to be complied with as explained hereinbefore and the
theory of substantial compliance or the test of prejudice would not be
applicable in such a case. – [State Bank of Patiala and Ors. v. S.K. Sharma
(1996) 3 SCC 364 (SC)]
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