2012 (6) TMI 37 - HC - Income Tax

Law of Limitation - validity of notice issued u/s 147 purporting re-opening of assessment after the expiry of nine years from the end of relevant AY - assessment for AY 1998-99 purported to be reopened - applicability of Finance Act 2001 substituting time limit u/s 149 - Revenue contended that Section 149 before its substitution would apply prescribing time limit of 10 years - Held that - Law of limitation, being procedural law has to be applied to the proceedings on the date of institution/filing. It is a settled position that liability to tax as a levy is normally determined as per statute as it exists on the first day of the AY. In present case, issue is of procedure i.e. the time period in which the assessment or re-assessment proceedings can be initiated, on which it is held that time period/limitation period prescribed on the date of issue of notice will apply. Therefore, where Finance Act, 2001 reduced limitation period u/s 149 from 10 years to 6 years w.e.f. 1-6-2001, all notices issued on or after 1-6-2001 should conform to the revised reduced time limit of 6 years - Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of the re-assessment notice dated 30.3.2009 under Section 148 of the Income Tax Act, 1961.
2. Applicability of the amended Section 149 of the Income Tax Act post Finance Act, 2001.
3. Procedural versus substantive law in the context of limitation periods.

Issue-wise Detailed Analysis:

1. Validity of the Re-assessment Notice:
The petitioner challenged the re-assessment notice dated 30.3.2009 under Section 148 of the Income Tax Act, 1961, arguing it was issued beyond the permissible time limit. The original return for the assessment year 1998-99 was filed on 20.11.1998, and the assessment order under Section 143(3) was passed on 28.2.2001. The re-assessment notice was issued after nine years, raising the question of whether it was barred by time.

2. Applicability of the Amended Section 149:
The court examined whether the time limit for issuing the re-assessment notice should be governed by the amended Section 149, effective from 1.6.2001, which reduced the period to six years from the end of the relevant assessment year. Before this amendment, re-assessment could be initiated up to 10 years from the end of the relevant assessment year. The Revenue contended that the pre-amendment Section 149 should apply, relying on Section 6 of the General Clauses Act, 1897, which suggests that a statute is prima facie prospective unless expressly made retrospective.

3. Procedural vs. Substantive Law:
The court discussed whether the amendment to Section 149 was procedural or substantive. Procedural laws, including the law of limitation, are generally retrospective and apply to pending and future proceedings unless they affect vested rights. The court cited several precedents, including *Mathukumalli Ramayya v. Uppalapati Lakshmayya* and *C. Beepathuma v. Velasari Shankaranarayana Kadambolithaya*, affirming that procedural laws apply from the date of their enforcement. The court concluded that the law of limitation, being procedural, should apply as it stood on the date of the re-assessment notice.

Conclusion:
The court held that the re-assessment notice dated 30.3.2009 was barred by time under the amended Section 149, which limited the period to six years. The procedural amendment applied retrospectively, making the notice invalid. The court allowed the writ petition, quashing the re-assessment notice and the order dismissing the objections. The respondent was ordered to pay costs of Rs.10,000/- to the petitioner.

Summary:
The High Court quashed the re-assessment notice dated 30.3.2009 and the subsequent order dismissing objections, ruling that the notice was barred by time under the amended Section 149 of the Income Tax Act. The court emphasized that procedural laws, including the law of limitation, apply retrospectively unless they affect vested rights, thus supporting the petitioner's contention. The respondent was also directed to pay costs to the petitioner.