Taxation Relaxation Act Doesn't Sanction Applying Repealed Provisions : Madras HC Sets Aside Reassessment Notices U/S 148 Of Old Income Tax Act

The Madras High Court has recently set aside a number of reassessment notices issued under the 1961 Income Tax Act by iterating that the Taxation Relaxation Act, 2020 only extends the period of limitation and not the application of repealed provisions in light of the amended provisions effective from 1st April, 2021.

The first bench of Acting Chief Justice Munishwar Nath Bhandari and Justice PD Audikesavalu followed the previous judgments by Allahabad and Delhi High Courts and held that the procedure contemplated under the amended provisions from Sections 147-151 of the Act ought to have been followed for the issue of reassessment notices. The court underscored that Section 3(1) of the enabling act of Taxation and Other Laws (Relaxation and Amendment Of Certain Provisions) Act, 2020 (TOLA, 2020) does not control the validity of amended reassessment provisions and there is not a saving clause in the amended Act to save the pre-existing provisions or defer the operation of substituted provisions.

"In view of the ratio propounded by the Allahabad and Delhi High Courts on the subject, the reassessment notices under Section 148 of the Act of 1961 served on the petitioners on or after 1.4.2021 are set aside having been issued in reference to the unamended provisions and the Explanations are to be read as applicable to reassessment proceedings if initiated on or prior to 31.3.2021, but it would be with liberty to the assessing authorities to initiate reassessment proceedings in accordance with the provisions of the Act of 1961, as amended by the Finance Act, 2021, after making all the compliances as required by law, if limitation for it survives."

Background

In the case before the High Court, the petitioner was served with a reassessment notice issued under Section 148 of the old Act by applying the procedure given in Sections 147-151 of the Act. The same was done despite the fact that the Act stood amended from 1st April, 2021 due to the Finance Act, 2021. By virtue of the Finance Act, Section 147 of the Income Tax Act was amended and a new section of Section 148A was added citing the compliance before issuance of notice.

Citing the above factual background, the counsel for the petitioner asserted that after the amendment under Sections 147 to 151 of the Act of 1961, the notices under Section 148 of the Act of 1961 could not have been given applying the repealed provisions as it could not be saved by the 2021 Notifications (specifically Explanations A(a)(ii)/A(b) to the Notification No.20, dated 31.3.2021 and Notification No.38 which extends the applicability of unamended provisions that existed only till 31st April according to the statute) under challenge and even by the TOLA Act, 2020.

The petitioner counsel also submitted that the TOLO Act merely extended the period of limitation because of the pandemic and not the date from which the amended provisions would be in force.

Observations

While deciding the matter on its merits, the court heavily relied on the Allahabad HC judgment in Ashok Kumar Agarwal v. Union of India (2021) and the Delhi HC judgment in Mon Mohan Kohli v. Assistant Commissioner of Income Tax (2021) and similar judgments from Calcutta and Rajasthan High Courts as prayed by the petitioner.

In Ashok Kumar Garwal, the court had observed that the enabling Act of TOLA, 2020 is an enactment to extend the timelines alone. According to the Allahabad HC, all references to the issuance of notice contained in the Enabling Act must be read as a reference to the substituted provisions only from 1st April, 2021. Similarly, there is no difficulty in applying the pre-existing provisions to the already pending proceedings, the court added.

"Section 3(1) of the Enabling Act does not itself speak of reassessment proceeding or of Section 147 or Section 148 of the Act as it existed prior to 1st April, 2021. It only provides general relaxation of limitation granted on account of general hardship existing upon the spread of pandemic COVID-19. After enforcement of the Finance Act, 2021, it applies to the substituted provisions and not the pre-existing provisions... upon that sweeping amendment made the Parliament, by necessary implication or implied force, it limited the applicability of the Enabling Act and the power to grant time extensions thereunder, to only such reassessment proceedings as had been initiated till 31st March, 2021", Allahabad High Court clarified in the judgment.

Madras High Court also quoted important excerpts from the judgment in Mon Kohli to elaborate upon the ratio of the case at hand:

"There is a difference between the extension of time of an action which is getting time-barred and applicability of a provision which has been enacted and notified by the Legislature. Relaxation Act, 2020 nowhere delegates power to the Central Government to postpone the date of applicability of a new law enacted by the Legislature. Relaxation Act, 2020 also does not put any embargo on the power of the Legislature to legislate." 

The Delhi High Court had also observed that the reassessment notices should have been issued by complying with the newly inserted Section 148A of the Act as it stands amended in 2021. The High Court also went on to note that the benefit of new provisions must be made available even in respect of proceedings related to past assessment years, given that the Section 148 notice was issued on or after April 1, 2021.

Case Title: Vellore Institute of Technology, Represented by its Chairman and Managing Trustees v. The Central Board Of Direct Taxes & Anr. and Others.

Case No: W.P.No.15019 of 2021 etc., batch

Citation: 2022 LiveLaw (Mad) 62

Appearance: For the Petitioner: Mr S.Ganesh, Senior Counsel assisted by Mr Suhrith Parthasarathy

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