In income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied, the Supreme Court has reiterated.
In this case, the bench comprising of Justices AM Khanwilkar and Dinesh Maheshwari were considering an appeal assailing computation of total income of the assessee for the assessment year 2005-2006 with disallowance of payments to the tune of Rs. 57,11,625/-, in terms of Section 40(a)(ia) of the Income Tax Act, 1961,for failure of the assessee to deduct the requisite tax at source.
One of the contentions raised by the assessee before the Apex Court was that the said sub-clause (ia), having been inserted to clause (a) of Section 40 of the Act with effect from 01.04.2005 by the Finance (No.2) Act, 2004, would apply only from the financial year 2005-2006 and hence, cannot apply to the present case pertaining to the financial year 2004-2005. It relied on a Calcutta High Court judgment in PIU Ghosh v. Deputy Commissioner of Income-Tax & Ors.: (2016) 386 ITR 322 wherein it was observed that the assessee could not have foreseen prior to 10.09.2004 that any amount paid to a contractor without deducting tax at source was likely to become not deductible in computation of income under Section 40 and that the legislature, being conscious of the likely predicament, provided that the provision shall become operative from 01.04.2005. It was further submitted that the revenue has accepted the said decision of the High court and has not filed any appeal against the same.
Addressing this argument, the bench observed that the said decision cannot be treated as final declaration of law on the subject merely because the same has not been appealed against. The court added that the observation made by the High Court is not in conformity with the scheme of assessment of income tax.
"It needs hardly any detailed discussion that in income tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication. As per Section 4 of the Act of 1961, the charge of income tax is with reference to any assessment year, at such rate or rates as provided in any central enactment for the purpose, in respect of the total income of the previous year of any person. The expression "previous year" is defined in Section 3 of the Act to mean 'the financial year immediately preceding the assessment year'; and the expression "assessment year" is defined in clause (9) of Section 2 of the Act to mean 'the period of twelve months commencing on the 1st day of April every year'."
In this regard, the Court referred to old judgments in Commissioner of Income-Tax, West Bengal v. Isthmian Steamship Lines: (1951) 20 ITR 572, Karimtharuvi Tea Estate Ltd. v. State of Kerala: (1966) 60 ITR 262. In the latter judgment, which is a constitutional bench one, it was observed thus:
"it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force."
The bench then proceeded to consider the issues raised in the appeal and dismissed it.
Case no.: CIVIL APPEAL No. 7865 OF 2009Case name: SHREE CHOUDHARY TRANSPORT COMPANY vs. INCOME TAX OFFICERCoram: Justices AM Khanwilkar and Dinesh Maheshwari