Madras HC lays new ground on retrospective applicability of I-T law provision

Shishir Sinha New Delhi | Updated on October 26, 2020

Madras High Court has cleared the air on when an amendment to the income tax law can be made applicable retrospectively, even if such retrospective applicability is not explicitly defined in the provisions of the law.

In a recent judgment for a case involving the Income Tax Department as appellant, a division Bench of the Court laid out conditions on retrospective applicability of an amendment if not defined.

The respondent (assessee) in this matter, Vummudi Amarendran, decided to sell a piece of land. An agreement for sale was signed on August 4, 2012 for a total sale consideration of ₹19 crore, of which the purchaser paid ₹6 crore as advance through cheque. The balance was paid on the day of execution and registration of the sale deed on May 2, 2013. The assesses computed the capital gain at ₹19 crore while assessing officer (AO) took the guiding value (based on the State government’s formula) on the day of execution as ₹27 crore.

Following this, the assessee argued before the AO that his case will attract proviso to Section 50(C) of the IT Act. It was said that though it was applied with effect from April 1, 2017, it would have retrospective effect as the proviso seeks to mitigate the undue hardship faced by the assessee. However, the AO did not agree with the argument and completed the assessment at ₹27 crore. The assessee appealed before first before Commissioner of Appeal, and it was allowed. Then tax department then moved to the Income Tax Appellate Tribunal (ITAT), but its appeal was dismissed, which brought this case to the High Court.

Applicability of provisos

The matter here focusses around provisos inserted in section 50C of the I-T Act with affect from April 1, 2017 (Assessment Year 2017-18). It said: “where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer.” This will be applicable only in a case where either the whole or a part of the consideration is paid through a banking instrument on the date of agreement.

In its appeal before the Bench, the tax department raised two questions. First, was the ITAT right in holding that the amendment was applicable retrospectively “when the language used in the proviso does not indicate that it was inserted as a clarification”? Second, unless explicitly stated, a piece of legislation is presumed not to be intended to have retrospective operation based on the principle lex prospicit non respicit, meaning that the law look forward and not backwards.

After going through arguments and various rulings, the Bench said before dismissing the petition: “We have no hesitation to hold that the proviso to Section 50C(1) of the Act should be taken to be retrospective from the date when the proviso exists.” Experts interpret this by saying that in case of removing the anomaly/hardship, the amendment should be treated as retrospective and when the purpose is revenue enhancement, it will be prospective.

Commenting on the ruling, S Jaykumar, Founder and Country Head of Swamy Associates said: “A welcome decision and one of the most reasoned judgements, which has brought out the fine essence of retrospect effect in legislative amendments, by emphasising in the spirit rather than the letters.”

Published on October 26, 2020

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