2023 (5) TMI 708 - HC - Income Tax

Taxability of Capital gains - Year of taxability - Joint Development Agreement (JDA) - Effect of new subsection 5A u/s 45 added - retrospectivity OR prospectivity - whether sub-section (5A) of Section 45 of the Act; inserted by the Finance Act, 2017, with effect from 01.04.2018, apply retrospectively? - Provision inserted to eliminate an unintended consequence, visiting the assessee with a hardship, which was sought to be removed HELD THAT - Since the amendment to Section 45 by insertion of a sub-section was expressly stated to be, with effect from the 1st day of April, 2018. There is no question of any discrimination between persons who entered into a JDA before and after the amendment, insofar as the JDA entered into by an individual or a Hindu undivided family, prior to 01.04.2018 being governed by the law on the subject as it existed at that point of time, i.e. on a conjoint reading of Section 2(47)(v) read with Sections 45 48. There is no discrimination among equals since the differentiation is made on the basis of date on which the JDA has been entered into, which is a natural consequence of an amendment brought into the Act by way of an insertion expressly stated to be prospective from a specific date i.e., 01.04.2018. Further, though there are different class of assessee under the Income Tax Act, they cannot be considered to be equal, merely for reason of their being assessed under that Act. In the present case, the amendment made effective from 01.04.2018 is expressly stated to be prospective from that date and there can be no intendment ferreted out since the above noted deficiencies are totally absent. We find no discrimination having been visited on individuals or Hindu undivided families, for whom there was a change made in the manner, or the previous year in which the computation of total income is made, which was effective only insofar as the agreements entered into after 01.04.2018. We find no reason to accept the contention raised of it s retrospectivity and reject the argument of discrimination and the amendment having intended mitigation of hardship and removal of unintended consequences. The consequence that flow from the provisions in the absence of sub-section (5A) of Section 45 prior to 01.04.2018 cannot be obliterated by the subsequent amendment, which was expressly stated to be prospective. We reject the writ petitions making it clear that we have answered only the question of retrospectivity urged before us. We have not gone into the facts and the various contentions of the petitioners, regarding the JDA having not materialized, no consideration having been passed, the JDA itself having become unworkable and even some of the petitioners, companies and like legal entities having become defunct.

Issues Involved:
1. Challenge to notices under Section 148 of the Income Tax Act, 1961.
2. Retrospective application of sub-section (5A) of Section 45 of the Income Tax Act, 1961.
3. Jurisdiction of the Assessing Officer in passing orders under Section 144 read with Section 147 of the Income Tax Act, 1961.
4. Alleged discrimination and violation of Article 14 of the Constitution of India.

Summary:

1. Challenge to Notices under Section 148 of the Income Tax Act, 1961:
The batch of writ petitions challenges the notices issued under Section 148 of the Income Tax Act, 1961, and some also challenge the orders issued under Section 144 read with Section 147 of the Act and the notice of demand issued pursuant to the assessment orders.

2. Retrospective Application of Sub-Section (5A) of Section 45 of the Income Tax Act, 1961:
The primary question of law is whether sub-section (5A) of Section 45 of the Act, inserted by the Finance Act, 2017, applies retrospectively. The petitioners argue that if it is held to be prospective, it would violate Article 14 of the Constitution of India due to invidious discrimination between the same class of persons. They contend that sub-section (5A) was introduced to remove unintended consequences of the earlier provisions, thus it should be considered retrospective despite the Finance Act indicating it to be prospective.

3. Jurisdiction of the Assessing Officer:
The petitioners challenge the jurisdiction exercised by the Assessing Officer, relying on the Supreme Court judgment in Commissioner of Income Tax vs. Balbir Singh Maini, where it was held that unless income from capital gains of a transaction has actually materialized, there is no question of any assessment in the year in which a transfer occurred. The court observed that this issue is fact-specific and should be addressed before the Assessing Officer.

4. Alleged Discrimination and Violation of Article 14:
The petitioners argue that the amendment discriminates against assessees based on their legal status, favoring individuals and Hindu undivided families while excluding others like companies. The court rejected this argument, stating that the amendment is expressly prospective from 01.04.2018 and does not create discrimination among equals. The differentiation based on the date of the Joint Development Agreement (JDA) is a natural consequence of the prospective amendment.

Conclusion:
The court concluded that sub-section (5A) of Section 45, inserted by the Finance Act, 2017, is prospective and not retrospective. The amendment was intended to provide a benefit only to individuals and Hindu undivided families entering into a JDA after 01.04.2018. The court dismissed the writ petitions, allowing the petitioners to pursue their statutory remedies and file objections or appeals within specified timeframes.

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