2015 Amendment To Section 153C Of Income Tax Act Will Apply To Searches Conducted Prior To Date Of Amendment : Supreme Court

In a significant judgment on taxation law, the Supreme Court on Thursday held that the amendment brought to Section 153C of the Income Tax Act 1961 by the Finance Act 2015 will retrospectively apply to searches conducted prior to the date of the amendment, i.e,  01.06.2015.

Section 153C allows the revenue department to proceed against a party other than the person who is being searched, if incriminating articles against the "other person" is found during the search. Section 153C initially used the word "belong/belongs to". So, if any books of accounts or documents which "belong/belongs to" a person other than the person who is being searched is discovered during the search proceedings, Section 153C enabled the department to proceed against the "other person" if the materials indicated undisclosed income or assets.

However, in 2014, the Delhi High Court gave a restrictive meaning to the words "belong/belongs" in Section 153C in the case PepsiCo India Ltd. vs Assistant Commissioner Of Income Tax. The High Court held that the word used in the Section cannot be confused as "relates to" or "refers to". The HC held that if photocopies of a document are seized from a person, it cannot be said that the document "belongs" to that person, as the originals are with someone else. The High Court further held that if a registered sale deed is found during the search premises, it cannot "belong" to the vendor thought the vendor's name is mentioned there.

To get over the decision of the Delhi High Court, Section I53C was amended by Finance Act 2015 to substitute the words "belong/belongs to" with "pertain/pertains to". The issue in the present batch of appeals before the Supreme Court was whether this amendment will apply to searches undertaken before the 2015 amendment.

To answer the issue in favour of the revenue, a bench comprising Justices MR Shah and CT Ravikumar placed heavy reliance on the objects and reasons of the 2015 amendment. The bench noted that the 2015 amendment was specifically brought to remove the basis for the Delhi High Court's judgment. The amendment was necessitated because of the "narrow and restrictive" meaning given by the Delhi High Court which limited the powers of the revenue to proceed against third parties even if incriminating materials were found against them during the search.

"The said observation of the Delhi High Court was coming in the way of suppressing the very mischief which the legislature intended to suppress, which necessitated the amendment to Section 153C", the Court observed.

Therefore, the Apex Court held that it was necessary to give effect to the manifest intention of the legislature while interpreting the provision. Once the primary intention is ascertained and the object and purpose of the legislature is known, it becomes the duty of the court to give a purposive and functional interpretation. The contention of the revenue that Section 153C is a machinery provision and hence its manifest purpose should be given effect to was accepted by the Court.

Also, the 2015 amendment was a case of substitution of words, whereby "belong/belongs" was replaced with "pertain/pertains".

Referring to precedents, the bench noted that amendment by substitution has the effect of wiping the earlier provision off the statute book as if the unamended provision never existed.

The bench also rejected the argument of assesees that the retrospective application of the amendment will affect the substantive rights of the individuals. "Though the submission is attractive, it deserves to be rejected", the bench said by pointing out that even the un-amended Section 153C pertains to the assessment of income of any other person. The object and purpose of Section 153C is to address the persons other than search persons and even as per the unamended Section, the bench said.  Accepting the argument of assesees will frustrate the very objective of the amendment.

Allowing the batch of 115 appeals filed by the revenue against the High Court's judgments which refused to allow the retrospective application of the amendment, the Supreme Court held :

"The question wether the amendment brought to Section 153C of Income Tax Act by Finance Act 2015 would be applicable to searches conducted under Section 132 of the Income Tax Act act before 01.06.2015, i.e the date of the amendment is answered in favour of revenue and against the assesees.

It is held that amendment brought to Section 153C by Finance Act 2015 shall be applicable to searches conducted under Section 132 of the Act before 01.06.2015, i.e the date of amendment"

Case Title : Income Tax Officer vs Vikram Sujitkumar Bhatia and 114 connected cases.

Citation : 2023 LiveLaw (SC) 274

Income Tax Act 1961- The amendment brought to Section 153C of the Act, 1961 vide Finance Act, 2015 shall be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of the amendment - Para 11

 Income Tax Act 1961- Section 153C - The object and purpose of Section 153C is to address the persons other than the searched person - 2015 amendment was necessitated because of the narrow interpretation given to "belong/belongs" in Section 153C by the Delhi High Court in Pepsico Holdings which led to a situation where, though incriminating material pertaining to a third party / person was found during search proceedings under Section 132, the Revenue could not proceed against such a third party-Para 10.8

Interpretation of Statutes : once the primary intention is ascertained and the object and purpose of the legislation is known, it then becomes the duty of the Court to give the statute a purposeful or a functional interpretation- primary and foremost task of a court in interpreting a statute is to ascertain the intention of the legislature, actual or imputed. Having ascertained the intention, the Court must then strive to so interpret the statute as to promote or advance the object and purpose of the enactment- ascertainment of the legislative intent is a basic rule of statutory construction and that a rule of construction should be preferred which advances the purpose and object of a legislation and that though the construction, according to the plain language, should ordinarily be adopted, such a construction should not be adopted where it leads to anomalies, injustices or absurdities - Para 10.7- Followed Girdhari Lal & Sons Vs. Balbir Nath Mathur, (1986) 2 SCC 237.

Retrospective application for amendment - amendment by substitution has the effect of wiping the earlier provision from the statute book and replacing it with the amended provision as if the unamended provision never existed- 2015 amendment substituted "belong/belongs" in Section 153C with "pertain/pertains" and hence is amendment by substitution- Para 10.4- Followed Shamrao V. Parulekar Vs. District Magistrate, (1952) 2 SCC 1

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