Amendment In Finance Act Can't Retrospectively Affect Vested Right Of Taxpayer To Adjudicate Settlement Application U/S 245(D): Calcutta HC
Pankaj Bajpai
26 Dec 2024 2:40 PM IST
The Calcutta High Court recently reiterated that when the settlement applications were filed before the date on which the Finance Act 2021 did not come into effect, then taxpayers had vested right of preferring the application in absence of any statute prohibiting the said application.
The Division Bench of Justice Harish Tandon and Justice Hiranmay Bhattacharyya reiterated that retrospective legislation cannot affect the vested rights.
The purport of Sec 245(C)(5) is not to make an application already filed after Feb 01, 2021 as invalid but it should be read as no application shall be made after Feb 01, 2021 once the assent of the President of India has been received, and any application made by assessee before the grant of assent will not be hit by Sec 245(C)(5) of the Act, further reiterated the Bench.
The Bench reiterated so, while referring to decision of Bombay High Court in case of Sar Senapati Santaji Ghorpade Sugar Factory Ltd. vs. Assistant Commissioner of Income-tax [(2024) 161 taxmann.com 166 (Bombay).
Facts of the case:
The appellants/ Assessee filed applications for settlement of his income tax matters u/s 245C(I) of the Income Tax Act before the Settlement Commission. Meanwhile, appellants were subjected to search & seizure operations and notices u/s 153(A) came to be issued. The SETCOM treated the application as invalid and refused to proceed u/s 245(D)1, observing that the requisite conditions for filing a settlement application u/s 245(C) read with Press release dated Sep 07, 2021 and CBDT's order u/s 119(2)(b) were not fulfilled.
When the appellant approached the High Court, the Single Judge held that the order of the board was constitutionally valid and not discriminatory.
Hence, the appellants prayed for a declaration that the amendment introduced by the Finance Act, 2021 by which the Income Tax Settlement Commission was abolished and an interim Board was constituted to deal with the pending applications to be ultra vires, arbitrary, unconstitutional, and violative of the provisions of the Income tax Act and Article 14 of the Constitution of India.
Observations of High Court:
The Bench observed that prior to the Finance Act, 2021, the eligible assessees were entitled to approach the SETCOM at any stage of a case relating to them.
However, the Bench found that the SETCOM was abolished by the Finance Act, 2021 which was notified on Apr 01, 2021 and an Interim Board was constituted to deal with the pending applications.
Proviso to Sec 245B was inserted which states that the SETCOM shall cease to operate on or after Feb 01, 2021, and Sec 245C(1) was inserted by the Finance Act, 2021 which states that no application shall be made under that section on or after Feb 01, 2021, added the Bench.
However, the Bench noted that the Finance Act was made retrospective in operation with effect from Feb 01, 2021, which has been challenged by the Assessee's counsel, contending that the Finance Act, 2021 was notified only on Apr 01, 2021, and therefore, the statutory remedy of approaching the SETCOM could not have been taken away retrospectively.
In short, Mr. J.P Khaitan, appearing for the appellant, contended that such vested right could not be affected by a retrospective legislation.
The Bench noted that the issue as to whether paragraph 4(i) of the circular dated Sep 28, 2021 is bad in law in as much as it imposes a condition of liability to file application for settlement along with the issue as to whether the Finance Act, 2021 is unconstitutional in as much as by giving retrospective application, fell for consideration before the Division Bench of the Madras High Court in the case of Jain Metal Rolling Mills vs. Union of India [(2024) 461 ITR 423 (Mad)].
The question regarding validity of Circular was answered in Jain Metal case by holding that when the SETCOM itself was made inoperative with effect from Feb 01, 2021, then it cannot be said that Clause 4(i) of the Circular runs counter or imposes an additional condition to the statute, added the Bench.
Therefore, referring to the decision of Madras High Court, the Bench noted that all applications in respect of the appellants even in respect of cases arising between Feb 01, 2021 to Mar 31, 2021 shall be deemed as pending applications for the purpose of consideration by the Interim Board.
Wherever such applications are rejected on the ground that they did not have a case pending as on Jan 31, 2021, such orders shall stand set aside and the applications shall be deemed to be pending applications for consideration by the Interim Board if otherwise in order and eligible, added the Bench.
In the present case, the appellants have applied before the Settlement Commission prior to the date when the Finance Act, 2021 came into effect.
The High Court therefore allowed the Assessee's appeal and directed the Interim Board to consider the settlement application in accordance with the scheme that may be framed by the Central Government as in respect of the cases which arose prior to Jan 31, 2021.
Counsel for Appellant/ Assessee: Senior Adv J.P. Khaitan, along with Advocates Saumya Kejriwal, Ananya Rath, Debarghya Banerjee and Navin Mittal
Counsel for Respondent/ Revenue: Senior Adv Vipul Kundalia and Advocate Soumen Bhattacharjee
Case Title: Pradeep Kumar Naredi vs. Union of India
Case Number: MAT 375 of 2002
