Sudhir MehtaAdvocate Sudhir Mehta
(Gujarat High Court)

lex prospicit non respicit : law looks forward not backward. 

Present article demonstrate the section 115BBE which amended from time to time and the relevant case laws of the applicability of amendment prospectively. 

Insertion of new section 115BBE by the Finance Act, 2012, w.e.f. 1-4-2013.

47. After section 115BBD of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2013, namely:—

“115BBE. Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D.—(1) Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of—

(a)  the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and

(b)   the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a).

(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1).”.

Notes on Clauses

Clause 45 of the Bill seeks to insert a new section 115BBE in the Income-tax Act relating to tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D.

Sub-section (1) of the proposed new section 115BBE provides that where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of – (a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent.; and (b) the amount of income-tax with which the assessee would have been chargeable had his total income being reduced by the amount of income referred to in clause (a) of the said sub-section.

Sub-section (2) of the aforesaid new section provides that notwithstanding anything contained in the Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provisions of this Act in computing his income referred to in clause (a) of sub-section (1).

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-2014 and subsequent assessment years.

Memorandum

Taxation of cash credits, unexplained money, investments etc.

Under the existing provisions of the Income-tax Act, certain unexplained amounts are deemed as income under section 68, section 69, section 69A, section 69B, section 69C and section 69D of the Act and are subject to tax as per the tax rate applicable to the assessee. In case of individuals, HUF, etc., no tax is levied up to the basic exemption limit. Therefore, in these cases, no tax can be levied on these deemed income if the amount of such deemed income is less than the amount of basic exemption limit and even if it is higher, it is levied at the lower slab rate.

In order to curb the practice of laundering of unaccounted money by taking advantage of basic exemption limit, it is proposed to tax the unexplained credits, money, investment, expenditure, etc., which has been deemed as income under section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus surcharge and cess as applicable). It is also proposed to provide that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing deemed income under the said sections.

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

[Clause 45]

By the Finance Act, 2016, w.e.f. 1-4-2017.

Amendment of section 115BBE.

53. In section 115BBE of the Income-tax Act, in sub-section (2), after the word “allowance”, the words “or set off of any loss” shall be inserted with effect from the 1st day of April, 2017.

# The Government of India announced the demonetization scheme in a live telecast addressed by the Hon’ble Prime Minister of India on 8.11.2016 at around 8.00 pm. With effect from the midnight of 8.11.2016, the high denomination currency notes of Rs. 500/- and Rs. 1,000/- were declared invalid with immediate effect and the general public at large were permitted to deposit the demonetized old currency notes into their respective bank account.

The Taxation Laws (Second Amendment) Act, 2016 (No. 48 of 2016) was passed by the Hon’ble Lok Sabha of India on 29.11.2016. The Second Amendment Act, 2016 received the assent of the President on the 15th December, 2016 and is published for general information. The section 115BBE of the Income tax was substituted by a new section 115BBE w.e.f. 1st April, 2017.

Taxation Laws (Second Amendment) Act, 2016, w.e.f. 1-4-2017

Amendment of section 115BBE.

Following sub-section (1) shall be substituted for the existing sub-section (1) of section 115BBE by the Taxation Laws (Second Amendment) Act, 2016, w.e.f. 1-4-2017 :

(1) Where the total income of an assessee,—

(a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or

(b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a),

the income-tax payable shall be the aggregate of—

(i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and

(ii)  the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).

(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance [or set off of any loss] shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1).]

Two Changes in the amendment.

1. Reflected in the return of income furnished under section 139

2. The rate of sixty per cent 

The relevant case laws are as under : 

1. [2014] 49 taxmann.com 249 (SC)/[2014] 227 Taxman 121 (SC) Commissioner of Income-tax (Central)-I, New Delhi v. Vatika Township (P.) Ltd.

34. In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors.

2. [1966] 60 ITR 262 (SC) Karimtharuvi Tea Estate Ltd. v. State of Kerala

10. Now, 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.

11. In Scindia Steam Navigation Co. Ltd. v. Commissioner of Income-tax [1954] 26 I.T.R. 686, a Division Bench of the Bombay High Court, consisting of Chagla C.J. and Tendolkar J., considered the question-as to the effect of an amendment which came into force after the commencement of the financial year. The facts in that case were these. The assessee’s ship was lost as a result of enemy action. The Government paid the assessee in 1944 a certain- amount as compensation which exceeded the original cost of the ship. The Income-tax Officer included the difference between the original cost and the written down value of the ship in the total income of the assessee for the assessment year 1946-47. The Tribunal upheld that decision and referred the question, whether the sum representing the difference between the original cost and the written down value was properly included in the assessee’s total income computed for the assessment year 1946-47. It was argued that the fourth proviso to section 10(2)(vii) of the Income-tax Act (inserted by the Amendment Act of 1946 with effect from May 4, 1946) under which the inclusion of the amount was justified by the department, had no application to the case.

12. The learned judges held that as it was the Finance Act of 1946 that imposed the tax for the assessment year 1946-47, the total income had to be computed in accordance with the provisions of the Income-tax Act as on April 1, 1946; that as the amendments made by the Amendment Act of 1946 with effect from May 4, 1946, were not retrospective, they could not be taken into consideration merely because the assessee was assessed after that date ; and that the assessee was not liable to pay tax on the sum because the fourth proviso to section 10(2)(vii) of the Income-tax Act under which it was sought to be taxed was not in force in respect of the assessment year 1946-47.

13. This court affirmed this decision in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. [1961] 42 I.T.R. 589; [1962] 1 S.C.R. 788, where it was stated at page 816 as follows:

“On the merits, the appellant had very little to say. He sought to contend that the proviso though it came into force on May 5, 1946, was really intended to operate from April 1, 1946, and he referred us to certain other enactments as supporting that inference. But we are construing the proviso. In terms, it is not retrospective, and we cannot import into its construction matters which are ad extra legis, and thereby alter its true effect.”

14. In Commissioner of Sales Tax, Uttar Pradesh v. Modi Sugar Mills Ltd. [1961] 2 S.C.R. 189 ; 12 S.T.C. 183 this court held by a majority at page 199 as follows:

“A legal fiction must be limited to the purpose for which it has been created, and cannot be extended beyond its legitimate field. The turnover of the previous year is fictionally made the turnover of the year of assessment : it is not the actual or the real turnover of the year of assessment. By the imposition of a different tariff in the course of the year, the incidence of tax liability may competently be altered by the legislature, but for effectuating that alteration, the legislature must devise machinery for enforcing it against the taxpayer and if the legislature has failed to do so, the court cannot resort to a fiction which is not prescribed by the Legislature and seek to effectuate that alteration by devising machinery not found in the statute.”

15. In the instant case, there is no escape from the conclusion that the Surcharge Act not being retrospective by express intendment, or necessary implication, it cannot be made applicable from April 1, 1957, as the Act came into force on September 1, of that year. 

3. [2017] 82 taxmann.com 211 (SC) Binoy Viswam v. Union of India

126. However, at the same time, we find that proviso to Section 139AA(2) cannot be read retrospectively. If failure to intimate the Aadhaar number renders PAN void ab initio with the deeming provision that the PAN allotted would be invalid as if the person had not applied for allotment of PAN would have rippling effect of unsettling settled rights of the parties. It has the effect of undoing all the acts done by a person on the basis of such a PAN. It may have even the effect of incurring other penal consequences under the Act for earlier period on the ground that there was no PAN registration by a particular assessee. The rights which are already accrued to a person in law cannot be taken away. Therefore, this provision needs to be read down by making it clear that it would operate prospectively.

4. Sedco Forex International Drill Inc. v. CIT  [2005] 149 Taxman 352 (SC)

22. When the Explanation seeks to give an artificial meaning (to) ‘earned in India’ and bring about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively.

 5. CIT v. Hindustan Electro Graphites Ltd. [2000] 109 Taxman 342 (SC)

11. The case before us does not represent even a bona fide mistake. In fact it is not a case where under some mistaken belief the assessee did not disclose the cash compensatory support received by it which it could offer to tax. It is true that income by way of cash compensatory support became taxable retrospectively with effect from 1-4-1967 but that was by amendment of section 28 by the Finance Act, 1990 which amendment could not have been known before the Finance Act came into force. Levy of additional tax bears all the characteristics of penalty. Additional tax was levied as the assessee did not in its return show the income by way of cash compensatory support. The Assessing Officer on that account levied additional income-tax. No additional tax would have been leviable on the cash compensatory support if the Finance Act, 1990 had not so provided even though retrospectively. The assessee could not have suffered additional tax but for the Finance Act, 1990. After it had filed its return of income, which was correct as per law on the date of filing of the return, it was thereafter that the cash compensatory support also came within the sway of section 28. When additional tax has imprint of penalty, the revenue cannot be heard saying that levy of addition tax is automatic under section 143(1A). If additional tax could be levied in such circumstances, it will be punishing the assessee for no fault of it. That cannot ever be the legislative intent. It shocks the very conscience if in the circumstances, section 143(1A) could be invoked to levy the additional tax. Following observations by the Constitution Bench of this Court in Pannalal Binjraj v. Union of India [1957] 31 ITR 565are apt :

“. . . A humane and considerate administration of the relevant provisions of the Income-tax Act would go a long way in allaying the apprehensions of the assessees and if that is done in the true spirit, no assessee will be in a position to charge the revenue with administering the provisions of the Act with ‘an evil eye and unequal hand’.” (p. 597)

6. Anil Kumar Gopikishan Agarwal Vs. ACIT [2019] 106 taxmann.com 137 (Gujarat)

19.15 ………….. While it is true that sections 153A and 153C of the Act are machinery provisions, but the same cannot be made applicable retrospectively, when the amendment has expressly been given prospective effect. Besides, though such provisions are machinery provisions, the amendment brings into its fold persons who are otherwise not covered by the said provisions and therefore, affects the substantive rights of such person. In the opinion of this court, the decision of the Supreme Court in M.A. Merchant (supra) would be squarely applicable to the facts of the present case wherein it was held thus:

“6. The Estate Duty (Amendment) Act, 1958 effected a substantial change in the parent Act. Sections 56 to 65 were substituted in place of the existing Sections 56 to 65, and the originally enacted Section 62 was repealed. The original Section 62 provided essentially for the rectification of mistake apparent from the record or in the valuation of any property or by reason of the omission of any property. The newly enacted Section 59 deals with property escaping assessment. The provision is analogous to Section 34 of the Indian Income-tax Act, 1922 and Section 147 of the Income-tax Act, 1961. It seems to us that the new Section 59 endeavours to cover a substantially different area from that treated by the old Section 62. The only area which seems common to the two provisions relates to the “omission of any property”, but it seems to us that the incidents of the power under Section 62 relate to a situation materially different from the incidents of the power contemplated under Section 59. The High Court has closely analysed the provisions of the two sections and has come to the conclusion that the power or reassessment conferred by the new Section 59 is quite different from the power conferred by the old Section 62. We are in agreement with the High Court. The contention on behalf of the revenue based on the identity alleged between the new Section 59 and the old Section 62, and that, therefore, the new section should be regarded as retrospective cannot be accepted.

7. As it stands, there are no specific words either which confer retrospective effect to Section 59. To spell out retrospectivity in Section 59, then, there must be something in the intent to Section 59 from which retrospective operation can be necessarily inferred. We are unable to see such intent. The new Section 59 is altogether different from the old Section 62 and there is nothing in the new Section 59 from which an intent to give retrospective effect to it can be concluded.

8. The new Section 59 came into force from 1-7-1960. Much earlier, on 26-2-1960 the assessment on the accountable person had already been completed. There is a well settled principle against interference with vested rights by subsequent legislation unless the legislation has been made retrospective expressly or by necessary implication. If an assessment has already been made and completed, the assessee cannot be subjected to reassessment unless the statute permits that to be done. Reference may be made to Controller of Estate Duty, West Bengal v. Smt. Ila Das, [1981] 132 ITR 720 (Cal.), where an attempt to reopen the estate duty assessment consequent upon the insertion of the new Section 59 of the Estate Duty Act was held infructuous.

9. We hold that Section 59 of the Estate Duty Act is not retrospective in operation and that the reopening of the assessment under Section 59 of the Act is bad in law.”

# 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. The substantive law is always prospective in nature unless it is made retrospective by express enactment or necessary intendment. 

The constitutional validity of amendment is under challenged before the Gujarat High Court and Rajasthan High Court.

Disclaimer: The contents of this document are solely for informational purpose.

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One Comment

  1. CA. M. Lakshmanan says:

    It is very clear that this ammendment can not be applied retrospectively. Then how this was applied retrospectively in allmost for all assessemts throughout India for assessing the deposit of SBNs? Perhaps to show that the demonetisation has resulted in huge demand of taxes. Appeals filed are also kept pending for reasons better known to the people at the helm of affairs.

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