Taxation Relaxation Act Does Not Validate Reassessment Notices Issued Under Old Income Tax Act Regime : Delhi High Court Quashes 1.3K Notices

The Delhi High Court on Wednesday held that sec. 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 empowers the Government or Executive to extend only the time limits and does not delegate the power to legislate on provisions to be followed for initiation of reassessment proceedings.

Pursuant to the lockdown imposed in March last year amid the covid 19 pandemic, looking at the difficulties faced by citizens in complying with the statutory time limits, the Legislature enacted Relaxation Act, 2020.

By way of the Relaxation Act, 2020, various time limits and limitations prescribed in different Central Acts, including the Income Tax Act, 1961, were relaxed. Additionally, sec. 3 of Relaxation Act, 2020 enabled the Central Government to issue Notifications for further relaxing the time limits prescribed in the 'Specified Acts'.

A bench comprising of Justice Manmohan and Justice Navin Chawla observed that the Relaxation Act does not give power to Government to extend sec. 147 to 151 beyond 31st March, 2021 or to defer the operation of substituted provisions enacted by the Finance Act, 2021.

"Revenue cannot rely on Covid-19 for contending that the new provisions Sections 147 to 151 of the Income Tax Act, 1961 should not operate during the period 1st April, 2021 to 30th June, 2021 as Parliament was fully aware of Covid-19 Pandemic when it passed the Finance Act, 2021. Also, the arguments of the respondents qua non-obstante clause in Section 3(1) of the Relaxation Act, 'legal fiction' and 'stop the clock provision' are contrary to facts and untenable in law," the Court observed.

Furthermore, the Court observed that the Executive or Revenue cannot use the administrative power to issue Notifications under sec. 3(1) of the Relaxation Act, 2020 to undermine the expression of Parliamentary supremacy in the form of an Act of Parliament, namely, the Finance Act, 2021.

"This Court is also of the opinion that the Executive/Respondents/Revenue cannot frustrate the purpose of substituted statutory provisions, like Sections 147 to 151 of Income Tax Act, 1961 in the present instance, by emptying it of content or impeding or postponing their effectual operation," it added further.

The Court was dealing with a bunch of 1346 petitions wherein the question of law that arose for bench's consideration was whether the Government or Executive can make or change law of the land by way of Explanations to Notifications without specific Authority from the Legislature to do so and that whether the Government or Executive can impede the implementation of law made by the Legislature.

The petitioners-assessees had sought quashing of the re-assessment Notices issued to them before 31st March, 2021 by the Respondents (Revenue) under sec. 148 of the Income Tax Act, 1961.

The petitioners-assessees also sought a declaration for declaring Explanations A(a)(ii)/A(b) to the Notification dated 31st March, 2021 and Notification dated 27th April, 2021 to the extent that they extend the applicability of the "provisions of Section 148, Section 149 and Section 151 of the Act, as the case may be, as they stood as on the 31st day of March, 2021, before the commencement of the Finance Act, 2021" to the period beyond 31st March, 2021 as ultra vires the Relaxation Act, 2020.

In pursuance to the power vested under sec. 3 of Relaxation Act, 2020, the Central Government had issued the Notifications extending the time lines prescribed under sec. 149 for issuance of reassessment notices under sec. 148 of the Income Tax Act, 1961.

The Explanations to the Notifications also provided that the provisions, as existed prior to amendment by Finance Act, 2021, shall apply to the reassessment proceedings initiated thereunder. The said Explanations were impugned in the petitions.

Perusing the impugned explanations and hearing both the sides, the Court observed that notices relating to any assessment year issued under sec. 148 on or after 1st April, 2021 have to comply with the provisions of sec. 147, 148, 148A, 149 and 151 of the Income Tax Act, 1961 as specifically substituted by the Finance Act, 2021 with effect from 1st April, 2021.

"Consequently, this Court is of the opinion that as the Legislature has permitted re-assessment to be made in this manner only, it can be done in this manner, or not at all," the Court said.

It also said that sec. 3(1) of the Relaxation Act, 2020 does not empower the Central Government to postpone the applicability of any provision which has been enacted from a particular date.

"There is a difference between 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 Court added.

The Court observed that the impugned Explanation was not only beyond the power delegated to the Government, but also in conflict with the provisions of the Income Tax Act, 1961 which had specifically made the new reassessment scheme applicable from 1st April, 2021.

"Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 are ultra vires the Relaxation Act, 2020 and are therefore, bad in law and null and void," it held.

Other important observations made by the Court is as follows:

- The impugned Explanations in the Notifications dated 31st March, 2021 and 27th April, 2021 are beyond the power delegated to the Government, as the Relaxation Act does not give power to Government to extend the erstwhile Sections 147 to 151 beyond 31st March, 2021 and/or defer the operation of substituted provisions enacted by the Finance Act, 2021.

- The Relaxation Act, 2020 and Notifications issued thereunder can only change the time-lines applicable to the issuance of a Section 148 notice, but they cannot change the statutory provisions applicable thereto which are required to be strictly complied with.

- Based on the substituted provisions as well as the speech of Finance Minister and the Memorandum explaining the provisions in the Finance Bill, 2021, it is apparent that the legislative intent behind the aforesaid substitutions/amendments is to reduce the time limit in ordinary cases to three years and to increase the threshold amount of income having escaped assessment to Rs.50 lakhs for invoking extended time limit of ten years is to reduce litigation and compliance burden, remove discretion, impart certainty and promote ease of doing business.

- This Court is of the opinion that the new provisions are remedial and benevolent provisions which are meant and intended to protect the rights and interests of assessees as well as promote public interest.

- The Finance Act, 2021 introduces a new regime regarding the procedure to be complied with in respect of the re-opening of an Income-tax assessment and accordingly, the benefit of the new provisions must necessarily be made available even in respect of proceedings relating to past Assessment Years provided, of course, Section 148 notice has been issued on or after 1st April, 2021.

- Section 3 of the Relaxation Act, 2020 is not a 'stop the clock' provision, as it only relaxes the time limit, so as to facilitate the cases in which the Revenue/assessee has not been able to take the specified action within the statutory timelines. The essential condition for a provision to be termed as stop the clock provision is that the time during which such clock is stopped, such period has to be excluded. In the present instance, time limit is extended, not excluded or stopped.

"Keeping in view the aforesaid conclusions, Explanations A(a)(ii)/A(b) to the Notifications dated 31st March, 2021 and 27th April, 2021 are declared to be ultra vires the Relaxation Act, 2020 and are therefore bad in law and null and void," the Court held.

Accordingly, the Court allowed the writ petitions and quashed the impugned reassessment notices issued under sec. 148 of the Income Tax Act, 1961.

Title: MON MOHAN KOHLI v. ASSISTANT COMMISSIONER OF INCOME TAX & ANR.

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