Section 245C(5) Of Income Tax Act Is Read Down By Removing Retrospective Last Date Of 1st Feb 21 As 31st March 21: Madras High Court

The Madras High Court has held that Section 245C(5) of the Income Tax Act, 1961 (as amended by the Finance Act, 2021) is read down by removing the retrospective last date of the 1st February 2021, as the 31st March 2021.

The bench of Chief Justice Sanjay V. Gangapurwala and Justice D. Bharatha Chakravarthy has observed that the Finance Act, 2021, was retrospective in nature. Those who have had a right to approach the Settlement Commission (ITSC) i.e., those who had a case pending against them, would have missed the bus by not actually filing the application before the ITSC as it was retrospectively made inoperative. Only for the action of filing the application, the circular extends the date by 30.09.2021, even though, as per the Income Tax Act, it was only 01.02.2021. When paragraph No. 4 categorically states that only those assessees who are eligible to file an application for settlement as of January 31, 2021, it cannot be said that it introduces an additional clause of eligibility that is not found in the statute. On the other hand, if only clause 4(i) is not there, it would render violence to the Finance Act, 2021.

“We are unable to accept the contentions on behalf of the writ petitioners that the circular imposes an additional condition of eligibility that is not there in the statute. Even though there is no specific provision regarding eligibility, the right to approach the ITSC can be exercised so long as the ITSC is operational under law. When ITSC itself has been made inoperative with effect from 01.02.2021, it cannot be said that clause 4(i) of the circular runs counter or imposes an additional condition on the statute,” the court said.

The petitioners/assessees have challenged the order issued by the Revenue Department dated September 28, 2021, in as much as it restricted the filing of the application before the Interim Board for Settlement only by the assessees who were eligible to file the application for settlement on January 31, 2021.

The petitioners are all assessees of income tax. The matters pertaining to assessments, re-opening, etc. were pending, and they have either approached or contemplated approaching the Settlement Commission as per Chapter XIX-A of the Income Tax Act, 1961. Originally, under Chapter XIX-A, the eligible assessees were entitled to approach the Settlement Commission at any stage of a case relating to them. The ITSC will consider their cases as per the parameters and will grant relief by passing orders providing for the terms of settlement of the case. Thus, the eligible assessees had the additional option of resolving the dispute by approaching ITSC.

The petitioners contended that they are eligible, their cases are complex in nature, and it would be uncertain to pursue the regular remedies. It would be beneficial for them to settle the issue.

The Finance Act, 2021, was made retrospective in operation with effect from February 1, 2021. The reason that was mentioned for the said cut-off date is that the bill was introduced in Parliament on the said date. However, as per the existing provisions, in the months of February and March 2021, in respect of their 'cases', the petitioners had made applications before the ITSC.

While considering the difficulty of the assessees, on account of the sudden and retrospective amendment, a press release was issued and an order extending the time limit for filing applications before the Interim Board up to September 30, 2021 was issued.

The petitioner contended that the statutory remedy of approaching the ITSC cannot be taken away retrospectively. Retrospective legislation cannot affect vested rights. It also overrides the directions of courts issued in the interregnum. The provisions aforementioned in the prayer are unconstitutional. Similarly, the Department is entitled to prescribe the last date even beyond the original cut-off date as prescribed by the legislation. When it has extended the last date from 01.02.2021 to 30.09.2021, it can only extend the deadline but cannot introduce a new concept of ‘eligibility as on 01.02.2021’ which is not there in the Act itself. The circular is illegal.

The department contended that Parliament was well within its powers to abolish the ITSC. To have the matter settled before the commission is only a concession and not a right. Thus, nobody had any vested right regarding the instant claims, and therefore there is no question of interfering with any such vested right. Retrospectivity by itself will not invalidate the law. As a matter of fact, the bill was introduced as of 01.02.2023, from which date everyone concerned was aware of the move to abolish the ITSC, and therefore, the Interim Board is constituted only to deal with applications pending as of 01.02.2023.

The court held that the purpose of the retrospective legislation is to make the ITSC inoperative right from the date of the introduction of the bill and to send all the pending applications to the Interim Board. Therefore, fixing the last date for filing the applications alone travels beyond the purpose and results in more retrospectivity than is needed, thus running counter to the other parts of the Act. As a matter of fact, as per the principle of lex prospicit non respicit (law looks forward, not back), it can be seen that the purpose of the legislation is only to do away with the policy of resolution through ITSC. As a matter of fact, the Central Government has to make a scheme for the purposes of settlement in respect of pending applications by the Interim Board as per Section 245D(11), and such a scheme had to be placed before the Parliament. Thus, neither there is any intent nor is it within the purpose to do away with the ‘pending applications’ in respect of matters in which the ‘cases’ arose from 01.02.2021 to 31.03.2021.

“We find that it is just and necessary to write down the last date mentioned for filing applications in Section 245C(5) as 31.03.2021, and consequently, the last date mentioned in paragraph No.4(i) of the Circular should also be read as 31.03.2021,” the court said.

Counsel For Petitioner: J.D. Mistry

Counsel For Respondent: Prabhu Mukunth Arunkumar

Case Title: M/s. Jain Metal Rolling Mills Versus Union of India

Citation: 2023 LiveLaw (Mad) 364

Case No.: W.P.Nos.13455,13554, 14419,15405, 21691, 21696, 24159, 24163 of 2021

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