AMENDMENTS TO COVER-UP INEFFECIENCY OF GOVERNMENT AND ITS OFFICERS. IS WISH OR VIEW OF A.O. LEGISLATIVE INTENTION?

[C.A. DEV KUMAR KOTHARI]

Duty of government officers:

Duty of government officers (who are public servants) is to act as per law. Anything done by them which is not within their power or which is done without proper application of law and relevant procedure is bad and many times considered as void.

Wrong approach  - 'who cares for acting as per law'? because law will be amended:

However, many officers have approach for not acting as per law. If someone show the law, they may simply say -"go to higher forum". It is not uncommon that many officers are not following binding judgments of even Supreme Court. Recently we have also noticed that even Tribunal is not following judgments of the Supreme Court and High Courts expressing different opinion.

There is reason for such approach, because the officers are confident that someday the law will be amended and it will be amended with retrospective effect to regularize his wrong actions. We find several examples of such amendment in every Finance Bill.

The wrong tendency of government:

The law as enacted and as prevailing at any time is relevant for the public as well as the Government. The intention of government (unfortunately called, branded or disguised as legislative intention) is to be interpreted as per law as it stands at any time. Public is expected to follow the law as it stands at the relevant time. In case the law is not clear or it does not express legislative intention or if there is change in legislative intention, then amendment should be made as early as possible and with prospective effect. However, the government has adopted tendency to amend law as and when it so think fit with retrospective effect for any number of years.  This is in spite of fact that fiscal laws are reviewed continuously and at least once in any year there is substantial exercise made to amend laws through the regular Finance Bill. Besides Finance Bill, many other amendment Acts are passed.

Retrospective period should not go beyond last amendment :

When law is amended every year, there should not be any amendment which goes beyond the period of last amendment. There should be a presumption that when the law was amended at last occasion, the legislature has made all amendments to make the law as per its intention. For example, suppose last amendment was made on 01.01.2008, then any amendment made after 01.01.2008 should not change law with retrospective effect prior to 01.01.2008, if at all retrospective effect is to be given it can be after 01.01.2008 and not even w.e.f. 01.01.2008 because there should be presumption that while amending law, due care has been taken to express legislative intention.

There should be reason for retrospective effect :

There should be valid reason to propose any amendment which has retrospective effect. Even a new law to be enacted should have valid reason. Without a valid reason and purpose, a law cannot be enacted. The purpose and reason are briefly stated in the preamble of any enactment.

Amendment of Section 147 of the Income-tax Act, 1961:

Vide THE FINANCE (No. 2) ACT, 2009 an amendment in section 147 has been made and has been made w.r..e.f. 01.04.1989. The relevant clause 58 of the Act reads as follows:

58. In section 147 of the Income-tax Act, after Explanation 2, the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1989, namely:—

"Explanation 3.— For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.".

The memorandum explaining the amendment :

In the memorandum explaining the proposals of the Finance (No.2) Bill 2009 the relevant explanation is given as follows:

Clarificatory amendment in respect of reassessment proceeding under section 147

The existing provisions of section 147 provides, inter alia, that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income after recording reasons for re-opening the assessment. Further, he may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section.

Some Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent.

With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147 to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148.

This amendment will take effect retrospectively from 1st April, 1989 and will, accordingly, apply in relation to assessment year 1989-1990 and subsequent years.

How it is clarificatory:

The amendment is said to be clarificatory- how it is clarificatory is not stated.

When courts have gathered legislative intention as per law as it stood, how a change in law can be made with retrospective effect?  Howe legislative intention is ascertained by the present Finance Minister? There is no reason given for expressing legislative intention now and not earlier.

When the last amendment was made in the Income-tax Act, 1961, why amendment was not made, to express the changed legislative intention.

There is no reason as to why 01.04.1989 is taken as  cutoff date to make amendment with effect from such date.

What is purpose of taking 01.04.1989 as cutoff date and giving twenty years of retrospective effect.

The purpose of recording of reasons is given a good by in true sense:

By this amendment the purpose of recorded reasons will be diluted because the A.O. can record one reason for an item and then can enquire about all matters and can also make variations to returned income in any manner. This is not proper and this is not as per legislative intention also.

Inefficiencies of officers will be protected:

The A.O. should record all reasons for which he is prompted to issue a notice for reassessment. Not recording of reasons, yet having permission to make variations to returned or assessed income to any extent given a blanket permit to the A.O. and this can lead to  roving enquiries and harassment of assesses. This cannot be legislative intention.

Legislative intention:

Legislative intention is first of all expressed by the proposer in any proposed enactment. In case of Fiscal laws it is generally the Finance Minister who is supported by his team of finance ministry and various departments  or wings of the same. The Bill is published, circulated and the legislatures consider the same and sometimes (though rarely) some changes are made on suggestion of members. Once the Bill is passed through the proper procedure and it is assented by the President/ Governor ( in case of states) the Bill become law. Therefore, legislative intention is an expression of house of members. The legislative intention is cumulative intention, Therefore, how an ascertainment of true intention can be made subsequently after twenty years?.

Even in case of personal written agreements intentions of parties are to be ascertained by interpretation of words used therein. In case parties to agreement find that there is some mistake in drafting, then changes can be made by mutual consent of all parties (or majority of parties) Therefore, the government should not have blanket permit to amend law as it suits to it and as and when it so wish.

Is view of A.O. is legislative intention:

If we go by various amendments and particularly amendments made with retrospective effect we find that such amendments are made to affirm views of the A.O. which he might have expressed in an assessment order long back .The appellate authorities and courts might have considered provisions. Legislative intention and held that the view of the A.O. is not correct. In many cases the Supreme Court has  ascertained and expressed legislative intention , on interpretation of law. However, subsequently the law is amended, in name of legislative intention , and the amended law is as per the view of the A.O.

In such a situation there is a big mark on aspect of legislative intention. Can we dare to say  that legislative intention is nothing but the wishes of the Assessing Officers and not what is written in the fiscal legislation.    

The amendment is not valid:

As noted above the amendment though made as clarificatory amendment and with retrospective effect is not valid law because the reason given are wrong and not supported by reason or logic. How a newly formed Parliament can ascertained legislative intention of house which might have prevailed as on 01.04.1989 when there are very few common members in the parliament as on 01.04.1989 and as on 07.07.09. The other reason is why the Government (Parliament) could not express its true intention in so many enactments (yearly finance bills, interim bills, amendment bills etc) through which the Income-tax Act, 1961 has undergone changes more than once in most of years since 01.04.1989.

Amendments with retrospective effect just on lines of wishes or views of the A.O. and ignoring the ascertainment of legislative intention by courts, poses a big question mark on the capability and  integrity of various governments  headed by different prime ministers and presidents and other ministers over long period of time. This also raises big question mark on the judicial system of our country.

Should a group of Assessing Officers frame the fiscal laws and also give final verdict?

What is need of parliament and judicial system, if in ultimate analysis we have to follow what a petty A.O. had taken a view long ago.  

Discussions to this article

[Prasanna Kumar]

Dear Mr.Dev Kumar Kothari I appreciate your concerns. This is not only limited to the law of Income Tax. It equally applies to other laws like Central Excise and Service Tax laws. I think we have been victim of a system where in the executive dictates terms to legislature since our legislative members are assisted by the so called executive.