Verdict corner : Clearing the air on retrospective amendments

Written by Indu Bhan | Indu Bhan | Updated: Oct 2 2014, 05:20am hrs
In a landmark judgment that lays down guidelines on the applicability of amendments in tax laws, a five-judge Constitution bench of the Supreme Court has held that a legislation has to be read prospectively until a contrary intention appears clear from the Act, or arises by necessary and distinct implication.

Reversing its earlier judgment in Suresh N Gupta case where it ruled that the proviso to Section 113 of the Income-tax Act, 1961, being clarificatory in nature would apply retrospectively, it said: 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 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 tomorrows backward 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 Lex prospicit non respicit: The law looks forward not backward.

According to the top court, an amendment made to a taxing statute can be said to be intended to remove hardships only of the assessee, not of the department.

retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity on the contrary, it is a provision (inserted to Section 113) which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors, the apex court stated while referring to its various judgments, including Government of India & Ors vs Indian Tobacco Association, where the doctrine of fairness was held to be relevant factor to construe a statute.

Section 113 provided for taxing the total undisclosed income of a taxpayer over a block of six years at a tax rate of 60%. Since there was no clarity on the applicability of the surcharge, Section 113 of the Act was amended by the Finance Act, 2002, with effect from June 1, 2002. A new proviso was inserted to clarify that surcharge would be leviable at the rates specified in the Finance Act relevant to the year in which the search was initiated. Subsequently, the controversy arose over whether the new proviso was prospective or retrospective in nature.

Clearing the air over the applicability of the inserted proviso in a batch of cases led by Commissioner of Income Tax vs Vatika Township, the apex court further said that if the intention of the legislature was to apply the surcharge retrospectively, it would have been provided for in the Finance Act itself.

It said that Chapter XIVB of the 1961 Act comprehensively takes care of all the aspects relating to the block assessment relating to undisclosed income. a diagnostic of Chapter XIVB of the Act leads to irresistible conclusion that it contains all the provisions starting from charging section till the completion of assessment, by prescribing special procedure in relation thereto, making it a complete Code by itself, the Supreme Court said.