2023 (11) TMI 1111 - HC - Income Tax

Ceasure of income tax settlement commission - restriction to the filing of the application before the Interim Board for Settlement - by Finance Act, 2021, which was notified on 01.04.2021, the ITSC was abolished and an Interim Board was constituted only to deal with applications pending as of 01.02.2023 - revenue restricted the filing of the application before the Interim Board for Settlement only by the assesses who were eligible to file the application for settlement on 31.01.2021 - case of the Writ Petitioners that their statutory remedy of approaching the ITSC , cannot be taken away retrospectively - as argued Department is entitled to prescribe the last date even beyond the original cut-off date as prescribed by the legislation. Accordingly, when it has extended the last date from 01.02.2021 to 30.09.2021, it can only extend the deadline but cannot introduce a new concept of eligibility as on 01.02.2021 which is not there in the Act itself. Writ of declaration, declaring the amendment to the Income Tax Act in Section 245-A by inserting Sub-Clause (da), (ea) and (eb), 245B, 245BC,245BD, proviso to 245C, 245D, 245DD, 245F, 245G, 245H and insertion of new Section 245AA and 245M by way of Sections 54 to 65, Finance Act, 2021 with retrospective effect from 01.02.2021 as arbitrary, illegal and void and infringing the fundamental rights conferred under Article 14,19(i)(g), 20, 20 (2) and 21 of the Constitution of India, 1950, thus unenforceable and unconstitutional - Scope of circular 28.09.2021 in as much as it restricted the filing of the application before the Interim Board for Settlement only by the assesses who were eligible to file the application for settlement on 31.01.2021. According to the petitioners, they are eligible and their cases are complex in nature and it would be uncertain to pursue the regular remedies and it would be beneficial for them to settle the issue - Whether or not paragraph No.4(i) of the Circular, dated 28.09.2021 is bad in law inasmuch as it imposes a condition of eligibility to file application for settlement as on 31.01.2021 ? HELD THAT - As considering the fact that the Finance Act, 2021 was retrospective in nature. Those who have had a right to approach ITSC i.e., those who had a case pending against them would have missed the bus in not actually filing the application before the ITSC as the same was retrospectively made inoperative. Only for the said action of filing the application, the circular extend the date by 30.09.2021, even though as per the Act , it was only 01.02.2021. In that context, when paragraph No.4 categorically states that only those assessees who are eligible to file an application for settlement as on 31.01.2021, it cannot be said that it introduces an additional clause of eligibility which is not found in the statute. On the other hand, if only such clause 4(i) is not there, it would render violence to the Finance Act, 2021. Therefore, we are unable to accept the contentions on behalf of the writ petitioners that the circular imposes an additional condition of eligibility which is not there in the statute. Even though there is no specific provision regarding eligibility, the right to approach the ITSC can be exercised so long as the ITSC is operational in law. When ITSC itself has been made inoperative with effect from 01.02.2021, it cannot be said that clause 4(i) of the circular runs counter or imposes an additional condition to the statute. Accordingly, Question No.i is answered. Constitutionality of the impugned enactment is that it is retrospective in nature and that it takes away the vested rights of the petitioners - At the material time, i.e., during the interregnum period of 01.02.2021 upto 31.03.2021, the petitioners had a case within the definition of Section 245A(b). Their applications were very much pending applications as per the definition of 245A(eb). As a matter of fact, their applications were dealt with as per Section 245D and on a perusal of Section 245M, it can be seen that these applications were also to be transferred to the Interim Board to be dealt with in accordance with the procedure laid down to the board. But, however, without amending the definition of case pending applications etc., Section 245C(5) simply provides that no application shall be made under the Section on or after the first day of February, 2021. The right to file application before ITSC is very much existent and has been exercised till 31.03.2021. The retrospective legislation by way of legal fiction attempts to make it as if it is unavailable. When we consider the instant case, the purpose of the retrospective legislation is to make the ITSC inoperative right from the date of the introduction of the Bill and to send all the pending applications to the Interim Board. Therefore, fixing the last date for filing the applications alone travels beyond the purpose and results in more retrospectivity than which is needed and thus, runs counter to the other parts of the Act . As a matter of fact, as per the principle of lex prospicit non respicit (law looks forward not back) it can be seen that the purport of the legislation is only to do away with the policy of resolution through ITSC. As a matter of fact, the Central Government has to make a Scheme for the purposes of Settlement in respect of pending applications by the Interim Board as per Section 245D(11) and such scheme had to be placed before the Parliament. Thus, neither there is any intent nor it is within the purpose to do away with the pending applications in respect of matters in which the cases arose from 01.02.2021 to 31.03.2021. Thus, we find that it is just and necessary to read down the last date mentioned for filing applications in Section 245C(5) as 31.03.2021 and consequently the last date mentioned in paragraph No.4(i) of the Circular should also read as 31.03.2021. The Question No.ii is answered accordingly. Reliefs, the petitioners are entitled - As reading down the statute in respect of the date as 31.03.2021, the petitioners (i) all the applications in respect of the petitioners even in respect of the cases arising between 01.02.2021 to 31.03.2021 shall be deemed as pending applications for the purposes of consideration by the Interim Board; (ii) Wherever they are rejected on the ground that they did not have a case pending as on 31.01.2021, such orders shall stand set aside and the applications shall be deemed to be pending applications for the consideration by the Interim Board, if otherwise in order and eligible, and shall be dealt with in accordance with law on merits in accordance with the scheme that may be framed by the Central Government as in respect of the other cases which arose prior to 31.01.2021. Order (i) Section 245C(5) of the Income Tax Act, 1961 (as amended by the Finance Act, 2021) is read down by removing the retrospective last date of 1st date of February, 2021 as 31st day of March, 2021; (ii) Consequently the last date of eligibility mentioned paragraph 4(i) of the impugned circular dated 28.09.2021 shall also be read as 31.03.2021; (iii) all the applications in respect of the petitioners even in respect of the cases arising between 01.02.2021 to 31.03.2021 shall be deemed be pending applications and shall be deemed to be pending applications for the purposes of consideration by the Interim Board; (iv) Wherever they are rejected on the ground that they did not have a case pending as on 31.01.2021, such orders shall stand set aside and the applications shall be deemed to be pending applications for the consideration by the Interim Board, if otherwise in order and eligible, and shall be dealt with in accordance with law on merits in accordance with the scheme that may be framed by the Central Government as in respect of the other cases which arose prior to 31.01.2021. All miscellaneous applications shall stand closed.

Summary

Issues Involved: 1. Validity of paragraph 4(i) of the Circular dated 28.09.2021. 2. Constitutionality of the Finance Act, 2021 with retrospective effect. 3. Reliefs entitled to the petitioners.

Issue 1: Validity of paragraph 4(i) of the Circular dated 28.09.2021

The court examined whether paragraph 4(i) of the Circular, which imposes a condition of eligibility to file an application for settlement as on 31.01.2021, is valid. The court held that the circular is issued under Section 119(2) of the Act to ensure uniform and proper administration and application of the Income Tax Act. It cannot add any new condition or anything contrary to the statute but can grant administrative relief to the taxpayer. The court found that the Finance Act, 2021, retrospectively made the ITSC inoperative from 01.02.2021, and the circular extending the date for filing applications to 30.09.2021 did not introduce an additional clause of eligibility. Hence, paragraph 4(i) of the circular does not impose an additional condition and is valid.

Issue 2: Constitutionality of the Finance Act, 2021 with retrospective effect

The court addressed the challenge to the retrospective application of the Finance Act, 2021, which abolished the ITSC and set up an Interim Board. The court acknowledged that the right to approach the ITSC is a statutory right conferred by Chapter XIX-A of the Act. The Parliament had the right to abolish the ITSC and enact the Finance Act, 2021, with retrospective effect from 01.02.2021. However, the court found that the ITSC existed legally and factually until 31.03.2021, and eligible assessees had the right to approach the ITSC during this period. The retrospective legislation should not take away vested rights unless expressly provided or by necessary intendment. The court concluded that the last date for filing applications should be read as 31.03.2021 to avoid rendering the retrospective legislation more extensive than necessary.

Issue 3: Reliefs entitled to the petitioners

The court held that all applications filed by the petitioners for cases arising between 01.02.2021 and 31.03.2021 shall be deemed pending applications for consideration by the Interim Board. Orders rejecting applications on the ground that they did not have a case pending as on 31.01.2021 are set aside. The applications shall be considered by the Interim Board if otherwise in order and eligible, in accordance with the scheme framed by the Central Government.

Result:

The writ petitions are partly allowed with the following terms:

(i) Section 245C(5) of the Income Tax Act, 1961, as amended by the Finance Act, 2021, is read down to remove the retrospective last date of 01.02.2021, replacing it with 31.03.2021.

(ii) Paragraph 4(i) of the circular dated 28.09.2021 is also read as 31.03.2021.

(iii) All applications filed by the petitioners for cases arising between 01.02.2021 and 31.03.2021 shall be deemed pending applications for consideration by the Interim Board.

(iv) Orders rejecting applications on the ground that they did not have a case pending as on 31.01.2021 are set aside, and the applications shall be considered by the Interim Board if otherwise in order and eligible.

(v) No costs. All miscellaneous applications are closed.