INCOME TAX OFFICER versus VIKRAM SUJITKUMAR BHATIA
[2023] 2 S.C.R. 756, Supreme Court of India, 2023
Outcome: Appeal(s) allowed (Granted)
Segment: Facts
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[2023] 2 S.C.R. 756
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INCOME TAX OFFICER
v.
VIKRAM SUJITKUMAR BHATIA
(Civil Appeal No. 911 of 2022)
APRIL 06, 2023
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Income Tax Act, 1961: s.153C – Assessment of income of any
other person – Initiation of search u/s.132 prior to the amendment
to s.153C – Applicability of the amended s.153C – On facts, search
u/s.132 conducted on the premises on 04.09.2013 and s.153C as it
stood then was applicable – W.e.f. 01.06.2015, s.153C amended
vide Finance Act, 2015 – Books of account or documents or assets
seized by the Assessing Officer of the person other than searched
on 25.04.2017, subsequent to the amendment of s.153 C – Issuance
of notice u/s.153C on 04.05.2018 – Held: Proviso to s.153C creates
a deeming fiction wherein any reference made to the date of initiation
of search is deemed to be a reference made to the date when the
Assessing Officer of the non-searched person receives the books of
account or documents or assets seized etc – Thus, even though the
search u/s.132 was initiated prior to the amendment to s.153C w.e.f.
01.06.2015, the books of account or documents or assets were seized
by the Assessing Officer of the non-searched person only on
25.04.2017, which is subsequent to the amendment, thus, when the
notice u/s.153C was issued on 04.05.2018, the provision of the law
existing as on that date, i.e., the amended s.153C would be applicable
– Moreover, the object and purpose
of s.153C is to address the
persons other than the searched person – Thus, the order passed
by the High Court that s.153C as amended by the Finance Act,
2015 w.e.f. from 01.06.2015 shall not be applicable to searches
conducted prior to 01.06.2015 is held to be unsustainable –
Amendment brought to s.153C applicable to searches conducted u/
s.132 before 01.06.2015, i.e., the date of the amendment – Finance
Act, 2015.
s.153C (amended by Finance Act, 2015)– Object/Purpose of
– Stated.
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Interpretation of Statutes: Taxing Statute – Interpretation of
machinery provision – Held: Courts, while interpreting machinery
provisions of a taxing statute, must give effect to its manifest purpose
by construing it in such a manner so as to effectuate the object and
purpose of the statute – s. 153C of the Act is a machinery provision
– Thus, the object and purpose of the amendment to be seen.
Allowing the appeals, the Court
HELD : 1.1 As per the proviso to Section 153C of the
Income Tax Act, 1961 as inserted vide Finance Act, 2005, and
the effect of the said proviso is that it creates a deeming fiction
wherein any reference made to the date of initiation of search is
deemed to be a reference made to the date when the Assessing
Officer of the non-searched person receives the books of account
or documents or assets seized etc. Thus, in the instant case, even
though the search under Section 132 was initiated prior to the
amendment to Section 153C w.e.f. 01.06.2015, the books of
account or documents or assets were seized by the Assessing
Officer of the non-searched person only on 25.04.2017, which is
subsequent to the amendment, therefore, when the notice under
Section 153C was issued on 04.05.2018, the provision of the law
existing as on that date, i.e., the amended Section 153C shall be
applicable. [Para 10.3][777-E-F]
1.2. Section 153C of the Act is a machinery provision. The
Courts, while interpreting machinery provisions of a taxing
statute, must give
effect to its manifest purpose by construing it
in such a manner so as to effectuate the object and purpose of
the statute. [Para 10.6][781-B]
1.3. Even the unamended s.153C pertains to the
assessment of income of any other person. The object and purpose
of Section 153C is to address the persons other than the searched
person. Even as per the unamended Section 153C, the proceeding
against other persons (other than the searched person) was on
the basis of the seizure of books of account or documents seized
or requisitioned “belongs or belong to” a person other than the
searched person. However, it appears that as in the case of Pepsico
India Holdings Private Limited, the Delhi High Court interpreted
INCOME TAX OFFICER v. VIKRAM SUJITKUMAR BHATIA
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the words “belong to” restrictively and/or narrowly and which
led to a situation where, though incriminating material pertaining
to a third party / person was found during search proceedings
under Section 132, the Revenue could not proceed against such
a third party, which necessitated the legislature / Parliament to
clarify by substituting the words “belongs or belong to” to the
words “pertains or pertain to” and to remedy the mischief that
was noted pursuant to the judgment of the Delhi High Court.
Therefore, if the submission on behalf of the respective respondents
– assessees that despite the fact that the incriminating materials
have been found in the form of books of account or documents or
assets relating to them from the premises of the searched person,
still they may not be subjected to the proceedings under Section
153C solely on the ground that the search was conducted prior
to the amendment is accepted, in that case, the very object and
purpose of the amendment to Section 153C, which is by way of
substitution of the words “belongs or belong to” to the words
“pertains or pertain to” shall be frustrated. Any interpretation,
which may frustrate the very object and purpose of the Act/Statute
shall be avoided by the Court. If the interpretation as canvassed
on behalf of the respective respondents is accepted, in that case,
even the object and purpose of Section 153C namely, for
assessment of income of any other
person (other than the
searched person) shall be frustrated. [Para 10.8][785-G-H; 786-
A-E]
1.4 The impugned common judgment and order passed by
the High Court is held to be unsustainable, and is quashed and
set aside. The amendment brought to s. 153C of the Act, 1961
vide Finance Act, 2015 shall be applicable to searches conducted
under Section 132 of the Act, 1961 before 01.06.2015, i.e., the
date of the amendment. [Para 11][786-F-G]
Pepsico India Holdings Private Limited vs. Assistant
Commissioner of Income Tax, 2014 SCC OnLine Del
4155; Shamrao v. Parulekar vs. District Magistrate,
(1952) 2 SCC 1 : 1952 SCR 683, Zile Singh vs. State of
Haryana, (2004) 8 SCC 1; Commissioner of Income
Tax - III vs. Calcutta Knitwears, Ludhiana (2014) 6
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SCC 444; Government of Andhra Pradesh vs. Hindustan
Machine Tools Ltd., (1975) 2 SCC 274; Lily Thomas
vs. Union of India (2013) 7 SCC 653; Controller of
Estate Duty vs. M.A. Merchant, 1989 Supp (1) SCC
499; State of Tamil Nadu vs. Star Tobacco Co., (1974)
3 SCC 249; Girdhari Lal & Sons vs. Balbir Nath Mathur
(1986) 2 SCC 237; Commissioner of Income Tax vs.
Hindustan Bulk Carriers (2003) 3 SCC 57 - referred to.
Case Law Reference
1952 SCR 683
referred to
Para 10.4
(2014) 6 SCC 444
referred to
Para 10.6
(1986) 2 SCC 237
referred to
Para 10.7
(2003) 3 SCC 57
referred to
Para 10.7
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 911 of
2022.
From the Judgment and Order dated 02.04.2019 of the High Court
of Gujarat at Ahmedabad in SCA No. 18777 of 2018.
With
Civil Appeal Nos. 912, 913, 914, 915, 916, 917, 918, 919, 920, 921,
922, 923, 924, 925, 926, 927, 928, 929, 930, 931, 932, 933, 934, 935, 936,
937, 938, 939, 940, 941, 942, 943, 944, 945, 946, 947, 948, 949, 950, 951,
952, 953, 954, 955, 956, 957, 958, 959, 960, 961, 962, 963, 964, 965, 966,
967, 968, 969, 970, 971, 972, 973, 974, 975, 976, 977, 978, 979, 980, 981,
982, 983, 984, 985, 986, 987, 988, 989, 990, 991, 992, 993, 994, 995, 996,
997, 998, 999, 1000, 1001, 1002, 1003, 1004, 1005, 1006, 1007, 1008,
1009, 1010, 1011, 1012, 1013, 1014, 1015, 1016, 1017, 1018, 1019, 1020,
1021, 1022, 1023, 1024, 1025 and 1026 of 2022.
K.M. Nataraj, ASG, Zoheb Hossain, Ms. Gargi Khanna, Ms.
Aakanksha Kaul, Manish, Bijan
Ghosh, Navanjay Mahapatra, Raj
Bahadur Yadav, Mrs. Anil Katiyar, Advs. for the Appellant.
R. K. Patel, Tushar Hemani, Ketan H. Shah, Saurabh Soparkar,
Sr. Advs., Ms. Manisha T. Karia, Darshan R. Patel, Ms. Sukhda Kalra,
Adarsh Kumar, Ms. Nidhi Nagpal, Ms. Vaibhavi Parikh, Ms. Aditi Sheth,
Ms. Anushree Prashit Kapadia, Ms. Priyanka Rathi, Haresh Raichura,
INCOME TAX OFFICER v. VIKRAM SUJITKUMAR BHATIA
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Aman K. Shah, Ram Bhadauria, Ms. Saroj Raichura, Kalp Raichura,
Bandish Soparkar, Pradhuman Gohil, Mrs. Taruna Singh Gohil, Ms. Ranu
Purohit, R. Vishnu Kumar, Alapati Sahithya Krishna, Purvish Jitendra
Malkan, Sudhir Mehta, Ms. Khushboo Vinodray Malkan, Jitendra Malkan,
Ms. Dharita P Malkan, Ms. Deepa Gorasia, Alok Kumar, Ms. Nandini
Chhabra, Ms. Shailee Mehta, Ms. Bhavna Sarkar, Hardik Vora, Sameer
Singh, Vijay Kumar Singh, Sahil Lochab, Ms. Neelam Singh, Sachin
Singh, Darshan Gandhi, Jimi Patel, Subodh S. Patil, Chitranshul A. Sinha,
Siddhartha Jha, Bharat Kumar Sharma, Ketan Shah, Aman Shah, Roshan
Santhalia, Advs. for the Respondent.
The Judgment of the Court was delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned common
judgment and order dated 02.04.2019 passed by the High Court of Gujarat
in Special Civil Application No. 18777 of 2018 and other connected
matters, as well as the impugned judgment(s) and order(s) passed by
the High Court of Gujarat in other special civil applications relying upon
its earlier decision in the aforesaid case, whereby the High Court has
quashed the notice under Section 153C of the Income Tax Act, 1961
(hereinafter referred to as “Act, 1961”) issued to the respondent –
assessee - respondents herein and set aside consequent Assessment
Orders (where assessment stood completed) by holding that Section
153C of the Act, 1961 (as amended by Finance Act, 2015)
would not
apply to searches under Section 132 of the Act, 1961 initiated before the
date of amendment, the Revenue has preferred the present appeals.
2. At the outset, it is required to be noted that the question of law
that arises for the consideration of this Court is :-
Whether amendment brought to Section 153C of the Income Tax
Act, 1961 vide Finance Act, 2015 would be applicable to searches
conducted under Section 132 of the Act, 1961 before 01.06.2015,
i.e., the date of amendment?
3. For the sake of convenience, the Civil Appeal arising out of the
impugned judgment and order passed by the High Court in Special Civil
Application No. 12825 of 2018 is considered and treated as the lead
matter and the facts in the said writ petition are narrated, which in nutshell
are as under:-
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3.1 The original writ petitioner, an individual filed his Return of
Income for the Assessment Year (A.Y.) 2012-13 on 11.09.2012 declaring
total income of Rs. 44,73,820/- as business income from a partnership
firm and other income. A search came to be conducted on various
premises of H.N. Safal Group on 04.09.2013. A panchnama came to be
prepared on 07.09.2013. On the basis of the seized material, the Assessing
Officer initiated proceedings against the assessee under Section 153C
of the Act, 1961 by issuing a notice dated 08.02.2018.
3.2 The assessee filed his reply dated 01.05.2018 and also
submitted his return of income. Vide letter dated 14.5.2018, the Assessing
Officer furnished the satisfaction note recorded by him and also attached
therewith the satisfaction of the Assessing Officer of the searched person.
From the satisfaction recorded, though it was found that no document
belonging to the original writ petitioner - assessee was found during the
course of search, however, a hard-disk was seized, which contained an
excel sheet with the data of the computer of the searched person, wherein
there were references to the petitioner’s name. On receiving the details,
the original writ petitioner raised objections to the proceedings under
Section 153C of the Act, 1961 contending, inter alia, that on the basis of
the excel sheet data of the computer of the searched person wherein
there were only references to the original writ petitioner’s name, the
Assessing
Officer could not have initiated proceedings against him under
Section 153C of the Act, 1961, inasmuch as the condition precedent for
invoking Section 153C of the Act as it stood on the date of the search,
namely, that the Assessing Officer should be satisfied that any money,
bullion, jewellery or other valuable article or thing or books of account or
documents seized or requisitioned “belongs or belong to” the person
other than the searched person, was not satisfied. It was also contended
that for the purpose of initiating action under Section 153C of the Act,
1961, independent satisfaction has to be recorded, by the Assessing
Officer of the searched person as well as by the Assessing Officer of
the person other than the searched person. It was submitted that, however,
on a perusal of the satisfaction note recorded by the Assessing Officer
of the original writ petitioner, it was evident that the Assessing Officer
had merely reproduced the satisfaction of the Assessing Officer of the
searched person and had not recorded the requisite satisfaction as
contemplated under Section 153C of the Act, 1961.
3.3 The Assessing Officer by an order dated 23.07.2018 rejected
the objections. Feeling aggrieved and dissatisfied with the rejection of
INCOME TAX OFFICER v. VIKRAM SUJITKUMAR BHATIA
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the objections against initiation of proceedings under Section 153C of
the Act, 1961, the original writ petitioner filed the present writ petition
before the High Court.
3.4 Similar notices under Section 153C of the Act, 1961 were
challenged by other persons – persons other than the searched persons
by way of different writ petitions. In the cases of some of the writ
petitioners, on the basis of the proceedings under Section 153C of the
Act, 1961, the assessments were completed, which were also permitted
to be challenged as the question involved was common.
3.5 By the impugned judgment and order though the High Court
has observed that Section 153C of the Act, 1961 is a machinery provision
for assessment of income of a person other than the person searched;
Section 153C of the Act as amended w.e.f. 01.06.2015 by Finance Act,
2015 shall not be made applicable with respect to the searches conducted
prior to 01.06.2015. The High Court has further observed that by
amendment brought in Section 153C of the Act, 1961 by Finance, Act,
2015 w.e.f. 01.06.2015, a new class of assesses are sought to be brought
within the sweep of Section 153C of the Act, which affects the
substantive rights of the assessees and, therefore, cannot be said to be a
mere change in the procedure. The High Court has also observed that
since the amendment expands the scope of Section 153C of the Act,
1961 by bringing in an assessee if books of account or
documents
pertaining to him or containing information relating to him have been
seized during the course of search, within the fold of that section, this
question assumes significance, inasmuch as in the facts of the present
case, as on the date of search, it was only if such material belonged to a
person other than the searched person, that the Assessing Officer of the
searched person could record such satisfaction and forward the material
to the Assessing Officer of such other person. However, subsequent to
the date of search, the amendment has been brought into force and
based on the amendment, the petitioners who were not included within
the ambit of Section 153C of the Act, 1961 as on the date of the search,
are now sought to be brought within its fold on the ground that the
satisfaction note and notice under Section 153C of the Act, 1961 have
been issued after the amendment came into force. Therefore, by
observing that the amended Section 153C of the Act, 1961, shall not be
made applicable retrospectively and therefore, no notice could have been
issued under Section 153C of the Act, 1961 post-amendment with respect
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to the searches conducted prior to 01.06.2015, by the impugned common
judgment and order, the High Court has allowed the writ petitions and
set aside the notice as well as the respective assessment orders. The
impugned common judgment and order passed by the High Court is the
subject matter of present appeals.
4. Shri K.M. Nataraj, learned ASG appearing on behalf of the
Revenue has vehemently submitted that while passing the impugned
common judgment and order and quashing and setting aside the notice
under Section 153C of the Act, 1961 issued against the original writ
petitioners – the persons other than the searched persons, the High Court
has not properly appreciated and considered the object and purpose,
which necessitated the amendment in Section 153C of the Act, 1961.
He has taken us to the Section 153C of the Act, 1961 as it stood before
the amendment vide Finance Act, 2015 and Section 153C after being
amended by the Finance Act, 2015, which read as under:-
“Section 153C as it stood before the amendment vide Finance
Act, 2015 read as:-
153-C. Assessment of income of any other person.—(1)
Notwithstanding anything contained in Section 139, Section 147,
Section 148, Section 149, Section 151 and Section 153, where
the Assessing Officer is satisfied that any money, bullion,
jewellery or other valuable article or thing or books of account
or documents seized or requisitioned belongs or belong to a
person other than the person referred to in Section 153-A,
then, the books of account or documents or assets seized or
requisitioned shall be handed over to the Assessing Officer
having jurisdiction over such other person and that Assessing
Officer shall proceed against each other person and issue such
other person notice and assess or reassess income of such
other person in accordance with the provisions of Section 153A,
Provided that in case of such other person, the reference to
the date of initiation of the search under Section 132 or making
of requisition under Section 132-A in the second proviso to sub-
section (1) of Section 153-A shall be construed as reference
to the date of receiving the books of account or documents or
assets seized or requisitioned by the Assessing Officer having
jurisdiction over such other person:
INCOME TAX OFFICER v. VIKRAM SUJITKUMAR BHATIA
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Provided further that the Central Government may by rules
made by it and published in the Official Gazette, specify the
class or classes of cases in respect of such other person, in
which the Assessing Officer shall not be required to issue notice
for assessing or reassessing the total income for six assessment
years immediately preceding the assessment year relevant to
the previous year in which search is conducted or requisition is
made except in cases where any assessment or reassessment
has abated.
(2) Where books of account or documents or assets seized or
requisitioned as referred to in sub-section (1) has or have been
received by the Assessing Officer having jurisdiction over such
other person after the due date for furnishing the return of
income for the assessment year relevant to the previous year
in which search is conducted under Section 132 or requisition
is made under Section 132-A and in respect of such assessment
year—
(a) no return of income has been furnished by such other
person but no notice under sub-section (2) of Section 142
has been issued to him, or
(b) a return of income has been furnished by such other
person but no notice under sub-section (2) of Section 143
has been served and limitation of serving the notice under
sub-section (2) of Section 143 has expired, or
(c) assessment or reassessment, if any, has been made,
before the date of receiving the books of account or documents
or assets
seized or requisitioned by the Assessing Officer having
jurisdiction over such other person, such Assessing Officer
shall issue the notice and assess or reassess total income of
such other person of such assessment year in the manner
provided in Section 153-A.”
Section 153C of the act after being amended by Finance Act,
2015 reads thus:-
153-C. Assessment of income of any other person.—(1)
Notwithstanding anything contained in Section 139, Section 147,
Section 148, Section 149, Section 151 and Section 153, where
the Assessing Officer is satisfied that,—
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(a) any money, bullion, jewellery or other valuable article or
thing, seized or requisitioned, belongs to; or
(b) any books of account or documents, seized or
requisitioned, pertains or pertain to, or any information
contained therein, relates to,
a person other than the person referred to in Section 153-A,
then, the books of account or documents or assets, seized or
requisitioned shall be handed over to the Assessing Officer
having jurisdiction over such other person and that Assessing
Officer shall proceed against each such other person and issue
notice and assess or reassess the income of the other person
in accordance with the provisions of Section 153A, if, that
Assessing Officer is satisfied that the books of account or
documents or assets seized or requisitioned have a bearing on
the determination of the total income of such other person for
six assessment years immediately preceding the assessment
year relevant to the previous year in which search is conducted
or requisition is made and for the relevant assessment year or
years referred to in sub-section (1) of Section 153-A:
Provided that in case of such other person, the reference to
the date of initiation of the search under Section 132 or making
of requisition under Section 132-A in the second proviso to sub-
section (1) of Section 153-A shall be construed as reference
to the date of receiving the books of account or documents or
assets seized or requisitioned by the Assessing Officer having
jurisdiction over such other person:
Provided further that the Central Government may by rules
made by it and published in the Official Gazette, specify the
class or classes of cases in respect of such other person, in
which the Assessing Officer shall not be required to issue notice
for assessing or reassessing the total income for six assessment
years immediately preceding the assessment year relevant to
the previous year in which search is conducted or requisition is
made and for the relevant assessment year or years as referred
to in sub-section (1) of Section 153-A except in cases where
any assessment or reassessment has abated.
INCOME TAX OFFICER v. VIKRAM SUJITKUMAR BHATIA
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(2) Where books of account or documents or assets seized or
requisitioned as referred to in sub-section (1) has or have been
received by the Assessing Officer having jurisdiction over such
other person after the due date for furnishing the return of
income for the assessment year relevant to the previous year
in which search is conducted under Section 132 or requisition
is made under Section 132-A and in respect of such assessment
year—
(a) no return of income has been furnished by such other
person and no notice under sub-section (1) of Section 142
has been issued to him, or
(b) a return of income has been furnished by such other
person but no notice under sub-section (2) of Section 143
has been served and limitation of serving the notice under
sub-section (2) of Section 143 has expired, or
(c) assessment or reassessment, if any, has been made,
before the date of receiving the books of account or documents
or assets seized or requisitioned by the Assessing Officer having
jurisdiction over such other person, such Assessing Officer
shall issue the notice and assess or reassess total income of
such other person of such assessment year in the manner
provided in Section 153-A.”
4.1 It is submitted by Shri Nataraj, learned ASG that the amendment
in Section 153C was necessitated in view of the observation of the Delhi
High Court in the case of Pepsico India Holdings Private Limited
Vs. Assistant Commissioner of Income Tax,
2014 SCC OnLine
Del 4155 whereby the High Court has observed that the words “belongs
or belong to” should not be confused with the words ‘relates to or refers
to,’ the former being much narrower than the latter. It is submitted that
it was held that therefore, the provision could not have been invoked
unless the documents / material ‘belong to’ the third party (other than
the searched person). That in such a situation, where though incriminating
material pertaining to a third party was found during search proceedings
under Section 132, the Revenue could not proceed against such third
party in view of the observations of the Delhi High Court. Therefore, as
such, the said observation of the Delhi High Court was coming in the
way of suppressing the very mischief which the legislature intended to
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suppress. That therefore, vide Finance Act, 2015, w.e.f. 01.06.2015,
Section 153C has been amended by way of substitution to replace the
words “belongs or belong to” with the words “pertains or pertain to”
insofar as books of account and documents are concerned.
4.2 It is further submitted that there is a difference between the
words or phrases “belongs or belong to” and “pertains or pertain to”. It
is submitted that the words “pertains or pertain to” are of much wider
import than “belongs or belong to”. That, therefore, the legislature has
expanded the scope of operation of Section 153C to include the situation
where during search proceedings under Section 132 of the Act, 1961, if
incriminating documents / materials pertaining to a third party are found,
the Revenue can proceed against such third party.
4.3 It is next submitted by Shri Nataraj, learned ASG appearing
on behalf of the Revenue that while interpreting the amendment to Section
153C by Finance Act, 2015, the following principles / tests need to be
kept in mind:-
(i)
effect of amendment by substitution;
(ii)
legislative intent;
(iii)
Section 153C of the Act, 1961 is a machinery provision;
(iv)
interpretation which makes the statute or a part of it a “dead
letter” to be avoided;
(v)
power to legislate includes power to legislate retrospectively.
4.4 Elaborating the above, it is submitted that so far as the effect
of amendment to Section 153C is concerned, Section 153C has been
amended by way of
“substitution”, vide Finance Act, 2015, w.e.f.
01.06.2015 whereby the words “belongs or belong to” have been
substituted by “pertains or pertain to”. That it is a well settled principle
of interpretation that any amendment made by way of substitution relates
back to the date of the Parent Act. Reliance is placed on the decision of
this Court in the case of Shamrao V. Parulekar Vs. District
Magistrate, (1952) 2 SCC 1 :1952 SCR 683. That in the said decision,
it is observed and held that an amendment by substitution has the effect
of wiping out the earlier provision from the statute book and replacing it
with the amended provision as if the unamended provision never existed.
Therefore, the statute, which in this case is Section 153C of the Act,
1961 would have to be read as if the amended provision existed from the
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very inception. Shri Nataraj, learned ASG has also placed reliance on
the decision of this Court in the case of Zile Singh Vs. State of Haryana,
(2004) 8 SCC 1 (paras 24 and 25).
4.5 It is contended that even while interpreting the amendment to
Section 153C by Finance Act, 2015, the legislative intent behind the
amendment is required to be considered. That while interpreting a statute
the Court must bear in mind the intention with which the legislation was
passed and the mischief it sought to suppress. That the interpretation
which best expresses the intention of the legislature should be preferred.
That in the present case, the intention of the legislature was to bring
within the scope of Section 153C those persons against whom
incriminating material is found at another person’s premises during the
search proceedings under Section 132. That, however, the narrow scope
given to the words “belongs or belong to” frustrated this purpose and,
therefore, the amendment was necessitated. It is submitted that bearing
the said legislative intent and the mischief sought to be suppressed in
mind, any interpretation other than that the amended Section 153C will
apply to all pending and future proceedings, irrespective of whether the
search under Section 132 of the Act, 1961 was before or after the
amendment, would fail to advance the object of the legislation. In support
of the above submission, Shri Nataraj, learned ASG has
relied upon the
decisions of this Court in the cases of Zile Singh (supra) (paras 14, 15,
18 and 20) and Girdhari Lal & Sons Vs. Balbir Nath Mathur, (1986)
2 SCC 237.
4.6 Relying upon above two decisions, it is contended that the
object and purpose of the amendment to remove the mischief and defect
for which the amendment was necessitated is required to be considered
and borne in mind. That as observed and held that once the Parliament’s
intention is ascertained and the object and purpose of the legislation is
known, it then becomes the duty of the Court to give the statute a
purposeful or a functional interpretation.
4.7 It is further contended by Shri Nataraj, learned ASG that
Section 153C of the Act, 1961 is a machinery provision. He submitted
that the High Court in the impugned judgment and order has also observed
that Section 153C is a machinery provisions. While interpreting a
machinery provision of a taxing statute, it is the duty of the Court to give
effect to its manifest purpose. The interpretation that defeats the purpose
of the statute should be avoided. That despite the observation by the
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High Court that Section 153C of the Act, 1961 is a machinery provision,
the High Court has failed to give effect to the object behind it. Reliance
is placed on the decision of this Court in the case of Commissioner of
Income Tax - III Vs. Calcutta Knitwears, Ludhiana (2014) 6 SCC
444 (paras 32 and 34).
4.8 It is next submitted by Shri Nataraj, learned ASG that as per
the settled position of law, the statute must be read as a whole and any
interpretation which makes the statute or a part of it a “dead letter” has
to be avoided. That the construction adopted shall be in consonance
with other provisions of the statute. That as per the settled law, the
courts should endeavour to harmonise statutes in conflict. One provision
cannot be used to defeat the object and purpose of another. It is submitted
that in this background, a perusal of Section 153C would show that if the
contention of the respondents that the amended Section 153C would not
be applicable to searches conducted before the amendment is accepted,
then the purpose behind the words “if that Assessing Officer is satisfied
that the books of account or documents or assets seized or requisitioned
have a bearing on the determination of the total income of such other
person for six assessment years immediately preceding the assessment
year relevant to the previous year in which search is conducted or
requisition is made and for the relevant assessment year or years referred
to in sub-section (1) of
section 153A” would be defeated. That it is
always presumed that the legislature would not take away with one
hand what it gives with the other. In support of the above, reliance is
placed on the decision of this Court in the case of Commissioner of
Income Tax Vs. Hindustan Bulk Carriers, (2003) 3 SCC 57 (paras
17 to 21).
4.9 It is submitted that even otherwise the power to legislate
includes the power to legislate retrospectively. That it is well settled that
the legislature is well competent to legislate retrospectively. That though,
retrospectivity of an enactment may not be presumed, the same can be
done through express enactment or by necessary implication. Therefore,
if the legislature is competent and the intention of the legislature to expand
the scope of the statute can be gathered, whether expressly or by
necessary implication, the same shall be given effect to. In support of
the above submission, reliance is placed on the decision of this Court in
the case of Government of Andhra Pradesh Vs. Hindustan Machine
Tools Ltd., (1975) 2 SCC 274 (para 10) and Lily Thomas Vs. Union
of India (2013) 7 SCC 653 (para 21).
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4.10 It is further submitted by Shri Nataraj, learned ASG that the
High Court has erred in holding that the respondents have a “vested
right” and the amendment to Section 153C of the Act, 1961 affects such
vested substantive right of the respondents. That no such substantive
rights are vested in the respondents. Once the conditions enumerated in
Section 153C are satisfied, no liability is fastened ipso facto. It is
submitted that the authorities issued a show cause notice and thereafter
proceedings were initiated in accordance with law. Therefore, the High
Court has erred in quashing the proceedings at the initial stage of show
cause notice by holding that substantive rights of the respondents are
affected.
4.11 Making above submissions, it is vehemently submitted that
the High Court has committed a grave error in holding that Section 153C
as amended by the Finance Act, 2015 w.e.f. 01.06.2015, though a
machinery provision, will only apply to search proceedings initiated after
the amendment in Section 153C.
4.12 Making above submissions, it is prayed that the present
appeals be allowed and the impugned common judgment and order passed
by the High Court be quashed and set aside.
5. While opposing the present appeals, the counsel appearing on
behalf of the respective assessees have vehemently submitted that the
controversy in the present group of appeals is with respect to the point
of applicability of the extant law in
search cases, i.e., whether Section
153C of the Act, 1961 as amended with effect from 01.06.2015 would
be applicable to cases where search is initiated prior to that date.
5.1 It is submitted that the issue has arisen because with effect
from 01.06.2015, i.e., after the date of the search, but before the issuance
of Section 153C notice, the law has been amended vide the Finance
Act, 2015 to expand the scope of third parties covered by the search to
include a new set of assessees. It is submitted that on the basis of this
amendment, notices under Section 153C of the Act, 1961 were issued to
assessees, who were not included within the scope of the provision as it
stood on the date of the search.
5.2 It is further submitted on behalf of the respective assessees
that it is the case on behalf of the Department that as Section 153C of
the Act, 1961 is a procedural and machinery provision, the amendment,
though made with effect from 01.06.2015, is retrospective and, thus,
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applicable to the cases where search was conducted prior to amendment
but the notices under Section 153C of the Act, 1961 have been issued
after the amendment. It is also submitted on behalf of the Department
that the amendment does not take away vested rights, and hence can be
applied retrospectively. It is further contended on behalf of the Department
that the date of the search is not relevant to Section 153C of the Act,
1961 and the amended provision would apply as both the satisfaction
note and assumption of jurisdiction were post 01.06.2015. In relation to
the aforesaid contentions of the Department, it is submitted on behalf of
the respective assessees that a machinery provision that affects
substantive rights cannot be held to be retrospective. That though Section
153C of the Act, 1961 is a machinery provision, the amendment cannot
be held to be retrospective.
5.3 It is next submitted that as rightly observed by the High Court
though the provisions are machinery provisions, the amendment brings
into its fold persons not otherwise covered and hence affects the
substantive rights and, therefore, cannot be made applicable
retrospectively. In support of their submission that the amendment to
Section 153C by Finance Act, 2015 shall not be made applicable
retrospectively and with respect to the search carried out prior to
01.06.2015, reliance is placed on the decision of this Court in the case of
Controller of Estate Duty Vs. M.A. Merchant, 1989 Supp
(1) SCC
499. It is submitted that in the said decision, this Court had refused to
interfere with the vested rights by allowing reopening of an assessment
completed prior to the date w.e.f. which the new section in the Estate
Duty Act came into force.
5.4 It is contended that in the present case, the amendment to
Section 153C by Finance Act, 2015 brings into the fold of Section 153C
of the Act, 1961, assessees, who were not so far covered by it, i.e.,
persons to whom books of account/documents pertain or relate to, and
not just persons to whom it belong. That this widening, thus, affects
substantive rights, as new assessees may now be proceeded against
and hence the decision of this Court in the case of M.A.
Merchant(supra) has rightly been applied by the High Court.
5.5 It is further contended that it is well settled that even procedural
laws grant substantive rights and amendments affecting such rights have
been held to be prospective. That reopening has been held to be a question
of power and not procedure as observed and held by this Court in the
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case of State of Tamil Nadu Vs. Star Tobacco Co., (1974) 3 SCC
249.
5.6 It is next contended that the amendment to Section 153C of
the Act, 1961 has added a new class of assessees and not merely changed
the procedure for the existing assessees, hence it cannot be given
retrospective effect. That the High Court has specifically observed and
held that the amendment to Section 153C of the Act, 1961 is not merely
a change in procedure provision affecting the assessees already covered.
A new class of assessees are sought to be brought under Section 153C
of the Act, 1961, which affects the substantive rights of the assessees.
Subsequent to the date of the search, the assessees, who were not
included within the ambit of Section 153C of the Act, 1961 as on the
date of the search are now sought to be brought within its fold.
5.7 It is submitted that before 01.06.2015, the Assessing Officer
could have only recorded satisfaction as to whether the seized material
belongs to the other person. That in the present case, since the hard
disk, which was found from the searched persons, did not belong to the
respondents, on the date of the search, therefore, the jurisdiction under
Section 153C of the Act did not exist. It is submitted that as rightly
observed by the High Court that if on the date of the search in 2013, the
material were forwarded by the Assessing Officer of the searched person
on the basis that it belongs to the
respondents - assessees, challenge
against issue of notice under Section 153C of the Act, 1961 would have
been successful, as the material does not actually ‘belong’ to the
respondent. That moreover, having once formed a satisfaction and
forwarded the material, there is no question of the Assessing Officer of
the searched person once again forming a satisfaction on the basis of
the amended provision. Thus, Section 153C of the Act, 1961 as it stood
then, did not permit any action against the respondent, as admittedly the
hard disk belonged to the searched person. Hence, the Assessing Officer
could not have invoked Section 153C of the Act, 1961 at all.
5.8 It is further submitted that the amended Section 153C of the
Act, 1961 deals with both procedural and substantive rights, therefore,
the prospective rule of construction shall be applicable. That as observed
and held by this Court in the case of Zile Singh (supra), it is a cardinal
principle of construction that every statute is prima facie prospective
unless it is expressly or by necessary implication made to have a
retrospective operation. The rule in general is applicable where the object
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of the statute is to affect vested rights or to impose new burdens or to
impair existing obligations. It is submitted that unless there are words in
the statute, which are sufficient to show the intention of the legislature
to affect existing rights, it is deemed to be prospective only. That the
date of search is the relevant date, which has to be taken into
consideration for applying the amendment. The same is supported by
the CBDT Circular No. 2/2018 dated 15.02.2018 wherein Section 153A
was amended with effect from 01.04.2017. That Para 80.5 of the Circular
clearly states that the amended provisions of Section 153A shall apply
where search under Section 132 of the Act, 1961 is initiated or requisition
under Section 132A has been made on or after 01.04.2017. It is submitted
that while Section 153A was introduced by Finance Act, 2003, the
legislature considered the dates of search and specified that the provision
is applicable to search actions conducted after 31.05.2003. Therefore,
Sections 153A and 153C are to be read together and the relevant date
ought to be the date of search as clarified by Finance Act, 2003.
5.9 It is further submitted on behalf of the assessees that even
the satisfaction has not been recorded immediately. That the searched
person had filed application before the Settlement Commission on
30.01.2015 and accepted receipt of money on the basis of hard disk
from petitioners. The copy of the settlement application is required to be
given to Assessing Officer. Accordingly, Assessing Officer of the searched
person would have information regarding alleged money payment by
petitioners on 30.01.2015, if not before, whereas, documents were
transferred on 25.04.2017. Hence, the documents were transferred after
2 years and 3 months after the knowledge about facts, on the basis of
which Section 153C proceedings are initiated. It is submitted that the
same is not permissible considering the decision of this Court in the case
of Calcutta Knitwears, Ludhiana (supra).
5.10 Learned counsel appearing on behalf of the assesses in Civil
Appeal Nos. 1019, 997, 1016, 1021 and 1023 of 2022 has in addition to
the above, further submitted that before the High Court, the respondents
– original writ petitioners had raised various grounds for holding that the
notices issued under Section 153C were bad and illegal. That, however,
the High Court has followed the decision in Special Civil Application No.
12825 of 2018 and others and has allowed the writ petitions by deciding
only one question in favour of the petitioners and the remaining issues
are left undecided. It is submitted that, therefore, if this Hon’ble Court is
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to allow the appeals by the Revenue, the matters may be sent back to
the High Court for deciding the validity of the notices and other issues
that were originally left undecided.
5.11 Making the above submissions, it is prayed by the learned
counsel appearing on behalf of the respective original writ petitioners –
assessees that the present appeals be dismissed.
6. We have heard the learned counsel appearing on behalf of the
respective parties at length.
7. The question of law that arises for consideration of this Court
is:-
“Whether the amendment brought to Section 153C of the Income
Tax Act, 1961 vide Finance Act, 2015 would be applicable to
searches conducted under Section 132 of the Act, 1961 before
01.06.2015, i.e., the date of amendment?”
8. While considering the aforesaid question and the submissions
made on behalf of the respective parties, a few facts, which are
necessary for determination of the question are required to be referred
to, which are as under:-
(i)
That a search under Section 132 of the Act, 1961 was
conducted at the various premises of one H.N. Safal Group
on 04.09.2013. When the search came to be conducted,
Section 153C as it stood then (pre amendment 2015) was
applicable.
(ii)
Section 153C as it stood then provided that “Notwithstanding
anything contained in Sections 139, 147, 148, 149, 151 and
153, where the Assessing Officer is satisfied that any money,
bullion, jewellery or other valuable
article or thing or books
of account or documents seized or requisitioned “belongs
or belong to” a person other than the person referred to
in Section 153-A, then, the books of account or documents
or assets seized or requisitioned shall be handed over to the
Assessing Officer having jurisdiction over such other person
and that Assessing Officer shall proceed against such other
person and issue such other person notice and assess or
reassess income of such other person in accordance with
the provisions of Section 153A. It also further provided that
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in case of such other person, the reference to the date of
initiation of the search under Section 132 or making of
requisition under Section 132-A in the second proviso to sub-
section (1) of Section 153-A shall be construed as reference
to the date of receiving the books of account or documents
or assets seized or requisitioned by the Assessing Officer
having jurisdiction over such other person.
(iii)
During the course of search, various incriminating material
/ documents were found and seized. Upon verification of
such seized material, it was noticed that certain documents
pertained / related to the respondent herein, who is other
than the searched person. Accordingly, satisfaction to that
extent was recorded by the Assessing Officer of the
searched person with respect to the respondents – assessees
(other than the searched person) on 25.04.2017. That the
said satisfaction note alongwith the incriminating material
was forwarded to the Assessing Officer of the non-searched
person on 25.04.2017. That, thereafter, the Assessing
Officer of the respondents – assessees (non-searched
persons) after verifying the seized material, found certain
incriminating material against them and the cash entries,
which were not declared in the original return filed.
Accordingly, the Assessing Officer of the respondents
recorded his independent satisfaction and issued notice
under Section 153C on 04.05.2018.
(iv)
At this stage, it is required to be noted that in the
meantime,
Section 153C came to be amended by Finance Act, 2015
w.e.f. 01.06.2015 and the words “belongs or belong to”
came to be substituted by the words “pertains or pertain
to”.
(v)
Thus, at the time when the satisfaction note came to be
recorded by the Assessing Officer of the searched person
on 25.04.2017 as well as by the Assessing Officer of the
respondents – assessees (non-searched persons) on
04.05.2018, Section 153C (as amended by Finance Act,
2015 w.e.f. 01.06.2015) became applicable. The notice
under Section 153C against the non-searched persons on
the basis of the material seized during the search conducted
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at the various premises of H.N. Safal Group (searched
person) and the assessment orders were the subject matter
of appeal before the High Court.
9. In light of the aforesaid facts, the question of law, which arises
for consideration of this Court is, “Whether amendment brought to Section
153C of the Income Tax Act, 1961 vide Finance Act, 2015 would be
applicable to searches conducted under Section 132 of the Act, 1961
before 01.06.2015, i.e., the date of amendment”, is required to be
considered.
10. While considering the aforesaid question, the reason and the
object and purpose of the amendment to Section 153C introduced vide
Finance Act, 2015 w.e.f. 01.06.2015 is required to be considered.
10.1 As observed hereinabove, in the pre-amended Section 153C,
the words used were “belongs or belong to” a person other than the
searched person. In the case of Pepsico India Holdings Private
Limited (supra), the Delhi High Court interpreted the expression “belong
to” and observed and held that there is a difference and distinction
between “belong to” and “pertain to”. It was observed and held that on
the basis of the registered sale deed seized from the premises of the
searched person, it cannot be said that it “belongs to” the vendor.
Therefore, the High Court view gave a very narrow and restrictive
meaning to the expression / word “belongs to” and held that the
ingredients of Section 153C have not been satisfied. To remove the
basis
of the observation made by the Delhi High Court in the case of Pepsico
India Holdings Private Limited (supra), now, Section 153C came to
be amended w.e.f. 01.06.2015 by substituting the words “belongs or
belong to” with the words “pertains or pertain to” insofar as the books
of account and documents are concerned. Thus, having found that the
observation made by the Delhi High Court in the case of Pepsico India
Holdings Private Limited (supra) led to a situation where, though
incriminating material pertaining to third party was found during the search
proceedings under Section 132, the Revenue could not proceed against
the third parties, it was observed that the said observation made by the
Delhi High Court in the aforesaid decision was coming in the way of
suppressing the very mischief which the legislature intended to suppress,
which necessitated the amendment in Section 153C. Thus, it is a case of
substitution of the words by way of amendment.
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10.2 At this stage, the first proviso to Section 153C of the Act,
1961 is required to be referred to. The first proviso to Section 153C of
the Act, 1961 came to be inserted vide Finance Act, 2005 with retrospective
effect from 01.06.2003, which provides that the reference to the date of
initiation of the search under Section 132 or making of requisition under
Section 132-A in the second proviso to sub-section (1) of Section 153-A
shall be construed as a reference to the date of receiving the books of
account or documents or assets seized or requisitioned by the Assessing
Officer having jurisdiction over such other person. Proviso to Section
153C as inserted vide Finance Act, 2005 reads as under:-
“Provided that in case of such other person, the reference to the
date of initiation of the search under Section 132 or making of
requisition under Section 132-A in the second proviso to sub-section
(1) of Section 153-A shall be construed as reference to the date
of receiving the books of account or documents or assets seized
or requisitioned by the Assessing Officer having jurisdiction over
such other person.”
10.3 Thus, as per the proviso to Section 153C as inserted vide
Finance Act, 2005, and the effect of the said proviso is that it creates a
deeming fiction wherein any reference made to the date of initiation of
search is deemed to be a reference made to the date when the Assessing
Officer of the non-searched person receives the books of account or
documents
or assets seized etc. Thus, in the present case, even though
the search under Section 132 was initiated prior to the amendment to
Section 153C w.e.f. 01.06.2015, the books of account or documents or
assets were seized by the Assessing Officer of the non-searched person
only on 25.04.2017, which is subsequent to the amendment, therefore,
when the notice under Section 153C was issued on 04.05.2018, the
provision of the law existing as on that date, i.e., the amended Section
153C shall be applicable.
10.4 As observed hereinabove, Section 153C has been amended
by way of substitution whereby the words “belongs or belong to” have
been substituted by the words “pertains or pertain to”. As observed and
held by this Court in the case of Shamrao V. Parulekar (supra) that
amendment by substitution has the effect of wiping the earlier provision
from the statute book and replacing it with the amended provision as if
the unamended provision never existed. In the subsequent decision in
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the case of Zile Singh (supra), it is observed in paras 24 and 25 as
under:-
“24. The substitution of one text for the other pre-existing text is
one of the known and well-recognised practices employed in
legislative drafting. “Substitution” has to be distinguished from
“supersession” or a mere repeal of an existing provision.
25. Substitution of a provision results in repeal of the earlier
provision and its replacement by the new provision (see Principles
of Statutory Interpretation, ibid., p. 565). If any authority is needed
in support of the proposition, it is to be found in West U.P. Sugar
Mills Assn. v. State of U.P. [(2002) 2 SCC 645], State of
Rajasthan v. Mangilal Pindwal [(1996) 5 SCC 60] , Koteswar
Vittal Kamath v. K. Rangappa Baliga and Co. [(1969) 1 SCC 255]
and A.L.V.R.S.T. Veerappa Chettiar v. S. Michael [AIR 1963 SC
933] . In West U.P. Sugar Mills Assn. case [(2002) 2 SCC 645] a
three-Judge Bench of this Court held that the State Government
by substituting the new rule in place of the old one never intended
to keep alive the old rule. Having regard to the totality of the
circumstances centring around the issue the Court held that the
substitution had the effect of just deleting the old rule and making
the new rule operative. In Mangilal Pindwal case [(1996) 5 SCC
60] this Court upheld the legislative practice of an amendment by
substitution being incorporated in the text of a statute which had
ceased to
exist and held that the substitution would have the effect
of amending the operation of law during the period in which it
was in force. In Koteswar case [(1969) 1 SCC 255] a three-Judge
Bench of this Court emphasised the distinction between
“supersession” of a rule and “substitution” of a rule and held that
the process of substitution consists of two steps: first, the old rule
is made to cease to exist and, next, the new rule is brought into
existence in its place.”
10.5 In the said decision, in paragraphs 14, 15, 18 and 20 with
respect to the presumption against retrospective operation, it is observed
and held as under:-
“14. The presumption against retrospective operation is not
applicable to declaratory statutes…. In determining, therefore,
the nature of the Act, regard must be had to the substance rather
than to the form. If a new Act is “to explain” an earlier Act, it
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would be without object unless construed retrospectively. An
explanatory Act is generally passed to supply an obvious omission
or to clear up doubts as to the meaning of the previous Act. It is
well settled that if a statute is curative or merely declaratory of
the previous law retrospective operation is generally intended….
An amending Act may be purely declaratory to clear a meaning
of a provision of the principal Act which was already implicit. A
clarificatory amendment of this nature will have retrospective effect
(ibid., pp. 468-69).
15. Though retrospectivity is not to be presumed and rather there
is presumption against retrospectivity, according to Craies (Statute
Law, 7th Edn.), it is open for the legislature to enact laws having
retrospective operation. This can be achieved by express enactment
or by necessary implication from the language employed. If it is a
necessary implication from the language employed that the
legislature intended a particular section to have a retrospective
operation, the courts will give it such an operation. In the absence
of a retrospective operation having been expressly given, the courts
may be called upon to construe the provisions and answer the
question whether the legislature had sufficiently expressed that
intention giving the statute retrospectivity. Four factors are
suggested as relevant: (i) general scope and purview of the statute;
(ii) the remedy sought to be applied; (iii) the former state of the
law; and
(iv) what it was the legislature contemplated. (p. 388)
The rule against retrospectivity does not extend to protect from
the effect of a repeal, a privilege which did not amount to accrued
right. (p. 392)
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18. In a recent decision of this Court in National Agricultural Coop.
Marketing Federation of India Ltd. v. Union of India [(2003) 5
SCC 23] it has been held
that there is no fixed formula for the expression of legislative
intent to give retrospectivity to an enactment. Every legislation
whether prospective or retrospective has to be subjected to
the question of legislative competence. The retrospectivity is
liable to be decided on a few touchstones such as: (i) the words
used must expressly provide or clearly imply retrospective
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operation; (ii) the retrospectivity must be reasonable and not
excessive or harsh, otherwise it runs the risk of being struck
down as unconstitutional; (iii) where the legislation is introduced
to overcome a judicial decision, the power cannot be used to
subvert the decision without removing the statutory basis of
the decision. There is no fixed formula for the expression of
legislative intent to give retrospectivity to an enactment. A
validating clause coupled with a substantive statutory change
is only one of the methods to leave actions unsustainable under
the unamended statute, undisturbed. Consequently, the absence
of a validating clause would not by itself affect the retrospective
operation of the statutory provision, if such retrospectivity is
otherwise apparent.
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20. In Bengal Immunity Co. Ltd. v. State of Bihar [(1955) 2 SCR
603 : AIR 1955 SC 661] , Heydon case [(1584) 3 Co Rep 7a : 76
ER 637] was cited with approval. Their Lordships have said: (SCR
pp. 632-33)
“It is a sound rule of construction of a statute firmly
established in England as far back as 1584 when Heydon
case [(1584) 3 Co Rep 7a : 76 ER 637] was decided that—
‘… for the sure and true interpretation of all statutes in
general (be they penal or beneficial, restrictive or enlarging of
the common law) four things are to be discerned and
considered—
1st. What was the common law before the making of the
Act.
2nd. What was the mischief and
defect for which the
common law did not provide.
3rd. What remedy Parliament hath resolved and appointed
to cure the disease of the Commonwealth, and
4th. The true reason of the remedy; and then the office of
all the judges is always to make such construction as shall
suppress the mischief, and advance the remedy, and to suppress
subtle inventions and evasions for continuance of the mischief,
and pro privato commodo, and to add force and life to the cure
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and remedy, according to the true intent of the makers of the
Act, pro bono publico.’ “
10.6 It is the case on behalf of the Revenue that Section 153C is
a machinery provision, which has been inserted with the purpose of
carrying out the assessment of persons other than the searched person
under Section 132 of the Act, 1961. Even, in the impugned judgment and
order, the High Court has, at paragraph 19.4 recorded that Section 153C
of the Act is a machinery provision. As per the settled position of law,
the Courts, while interpreting machinery provisions of a taxing statute,
must give effect to its manifest purpose by construing it in such a manner
so as to effectuate the object and purpose of the statute. In the case of
Calcutta Knitwears, Ludhiana (supra), while interpreting Section
158BD (which has been replaced by Section 153C), this Court has
observed in paras 18, 32 and 34 as under:-
“18. Sections 158-BC and 158-BD of the Act are machinery
provisions. Section 158-BC of the Act provides the procedure for
block assessment and Section 158-BD of the Act provides for
assessments in the case of an undisclosed income of any other
person. The said sections are relevant for the purpose of this
case and, therefore, they are extracted. They read as under:
“158-BC.Procedure for block assessment.—Where
any search has been conducted under Section 132 or books of
account, other documents or assets are requisitioned under
Section 132-A, in the case of any person,
then—
(a) the assessing officer shall—
(i) in respect of search initiated or books of accounts or
other documents or any assets requisitioned after the 30th day
of June, 1995 but before the 1st day of January, 1997 serve a
notice to such person requiring him to furnish within such time
not being less than fifteen days;
(ii) in respect of search initiated or books of account or
other documents or any assets requisitioned on or after the 1st
day of January, 1997 serve a notice to such person requiring
him to furnish within such time not being less than fifteen days
but not more than forty-five days,
as may be specified in the notice a return in the prescribed
form and verified in the same manner as a return under clause
INCOME TAX OFFICER v. VIKRAM SUJITKUMAR BHATIA
[M. R. SHAH, J.]
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(i) of sub-section (1) of Section 142, setting forth his total income
including the undisclosed income for the block period:
Provided that no notice under Section 148 is required to be
issued for the purpose of proceeding under this Chapter:
Provided further that a person who has furnished a return
under this clause shall not be entitled to file a revised return;
(b) the assessing officer shall proceed to determine the
undisclosed income of the block period in the manner laid down
in Section 158-BB and the provisions of Section 142, sub-
sections (2) and (3) of Section 143, Section 144 and Section
145 shall, so far as may be, apply;
(c) the assessing officer, on determination of the undisclosed
income of the block period in accordance with this Chapter,
shall pass an order of assessment and determine the tax payable
by him on the basis of such assessment;
(d) the assets seized under Section 132 or requisitioned
under Section 132-A shall be dealt with in accordance with the
provisions of Section 132-B.
***
158-BD.Undisclosed income of any other person.—
Where the assessing officer is satisfied that any undisclosed
income belongs to any person other than the person with respect
to whom search was made under Section 132 or whose books
of account or other documents or any assets were requisitioned
under Section 132-A, then, the books of account, other
documents or assets seized or requisitioned shall be handed
over to the
assessing officer having jurisdiction over such other
person and that assessing officer shall proceed under Section
158-BC against such other person and the provisions of this
Chapter shall apply accordingly.”
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32. It is also trite that while interpreting a machinery provision,
the courts would interpret a provision in such a way that it would
give meaning to the charging provisions and that the machinery
provisions are liberally construed by the courts. In Mahim Patram
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(P) Ltd. v. Union of India [(2007) 3 SCC 668] this Court has
observed that: (SCC p. 680, paras 25-26)
“25. A taxing statute indisputably is to be strictly construed.
(See J. Srinivasa Rao v. State of A.P. [(2006) 12 SCC 607]) It
is, however, also well settled that the machinery provisions for
calculating the tax or the procedure for its calculation are to be
construed by ordinary rule of construction. Whereas a liability
has been imposed on a dealer by the charging section, it is well
settled that the court would construe the statute in such a
manner so as to make the machinery workable.
26. In J. Srinivasa Rao [(2006) 12 SCC 607] this Court
noticed the decisions of this Court in Gursahai Saigal v. CIT
[(1963) 48 ITR 1 (SC)] and Ispat Industries Ltd. v. Commr.
of Customs [(2006) 12 SCC 583].
‘17. In Gursahai Saigal [(1963) 48 ITR 1 (SC)] the question
which fell for consideration before this Court was
construction of the machinery provisions vis-à-vis the
charging provisions. The Schedule appended to the Motor
Vehicles Act is not machinery provision. It is a part of the
charging provision.
18. By giving a plain meaning to the Schedule appended to
the Act, the machinery provision does not become
unworkable. It did not prevent the clear intention of the
legislature from being defeated. It can be given an
appropriate meaning.’”
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34. It is the duty of the court while interpreting the machinery
provisions of a taxing statute to give effect to its
manifest purpose.
Wherever the intention to impose liability is clear, the courts ought
not be hesitant in espousing a commonsense interpretation to the
machinery provisions so that the charge does not fail. The
machinery provisions must, no doubt, be so construed as would
effectuate the object and purpose of the statute and not defeat
the same (Whitney v. IRC [1926 AC 37 (HL)] , CIT v. Mahaliram
Ramjidas [(1939-40) 67 IA 239 : (1940) 52 LW 234 : (1940) 8
ITR 442] , Indian United Mills Ltd. v. Commr. of Excess Profits
Tax [(1955) 27 ITR 20 (SC)] and Gursahai Saigal v. CIT [(1963)
INCOME TAX OFFICER v. VIKRAM SUJITKUMAR BHATIA
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48 ITR 1 (SC)]; CWT v. Sharvan Kumar Swarup & Sons [(1994)
6 SCC 623]; CIT v. National Taj Traders [(1980) 1 SCC 370];
Associated Cement Co. Ltd. v. CTO [(1981) 4 SCC 578]). Francis
Bennion in Bennion on Statutory Interpretation, 5th Edn., Lexis
Nexis in support of the aforesaid proposition put forth as an
illustration that since charge made by the legislator in procedural
provisions is excepted to be for the general benefit of litigants and
others, it is presumed that it applies to pending as well as future
proceedings.”
10.7 In the case of Girdhari Lal & Sons (supra), it is observed
and held by this Court that once the primary intention is ascertained and
the object and purpose of the legislation is known, it then becomes the
duty of the Court to give the statute a purposeful or a functional
interpretation. It is further observed that the primary and foremost task
of a court in interpreting a statute is to ascertain the intention of the
legislature, actual or imputed. Having ascertained the intention, the Court
must then strive to so interpret the statute as to promote or advance the
object and purpose of the enactment. It is further observed that the
ascertainment of the legislative intent is a basic rule of statutory
construction and that a rule of construction should be preferred which
advances the purpose and object of a legislation and that though the
construction, according to the plain language, should
ordinarily be adopted,
such a construction should not be adopted where it leads to anomalies,
injustices or absurdities. On interpretation of the statute, it is observed in
paras 17 to 21 in the case of Hindustan Bulk Carriers (supra) as
under:-
“17. If the choice is between two interpretations, the narrower
of which would fail to achieve the manifest purpose of the
legislation, we should avoid a construction which would reduce
the legislation to futility, and should rather accept the bolder
construction, based on the view that Parliament would legislate
only for the purpose of bringing about an effective result.
(See Nokes v. Doncaster Amalgamated Collieries [(1940) 3 All
ER 549 : 1940 AC 1014 : 109 LJKB 865 : 163 LT 343 (HL)]
referred to in Pye v. Minister for Lands for NSW [(1954) 3 All
ER 514 : (1954) 1 WLR 1410 (PC)] .) The principles indicated in
the said cases were reiterated by this Court in Mohan Kumar
Singhania v. Union of India [1992 Supp (1) SCC 594 : AIR 1992
SC 1].
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18. The statute must be read as a whole and one provision of
the Act should be construed with reference to other provisions in
the same Act so as to make a consistent enactment of the whole
statute.
19. The court must ascertain the intention of the legislature by
directing its attention not merely to the clauses to be construed
but to the entire statute; it must compare the clause with other
parts of the law and the setting in which the clause to be interpreted
occurs. (See R.S. Raghunath v. State of Karnataka [(1992) 1
SCC 335 : AIR 1992 SC 81].) Such a construction has the merit
of avoiding any inconsistency or repugnancy either within a section
or between two different sections or provisions of the same statute.
It is the duty of the court to avoid a head-on clash between two
sections of the same Act. (See Sultana Begum v. Prem Chand
Jain [(1997) 1 SCC 373 : AIR 1997 SC 1006] .)
20. Whenever it is possible to do so, it must be done to construe
the provisions which appear to conflict so that they harmonise. It
should not be lightly assumed that Parliament had given with one
hand what it took away with the other.
21. The provisions of one section of the statute cannot be used
to defeat those of another unless it is impossible to effect
reconciliation between them. Thus a construction that reduces
one of the provisions to a “useless lumber” or “dead letter” is not
a harmonised construction. To harmonise is not to destroy.”
10.8 Insofar as the submission
on behalf of the respective
respondents – assessees that by way of amendment to Section 153C by
Finance Act, 2015, it brings into its fold, the assessees – persons, who
were not so far covered by it and, therefore, it affects the substantive
rights of the assessees and, hence, it should not be made applicable
retrospectively, is concerned, the submission seems to be attractive but
deserves to be rejected. As observed hereinabove, even the unamended
Section 153C pertains to the assessment of income of any other person.
The object and purpose of Section 153C is to address the persons other
than the searched person. Even as per the unamended Section 153C,
the proceeding against other persons (other than the searched person)
was on the basis of the seizure of books of account or documents seized
or requisitioned “belongs or belong to” a person other than the searched
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person. However, it appears that as in the case of Pepsico India
Holdings Private Limited (supra), the Delhi High Court interpreted
the words “belong to” restrictively and/or narrowly and which led to a
situation where, though incriminating material pertaining to a third party
/ person was found during search proceedings under Section 132, the
Revenue could not proceed against such a third party, which necessitated
the legislature / Parliament to clarify by substituting the words “belongs
or belong to” to the words “pertains or pertain to” and to remedy the
mischief that was noted pursuant to the judgment of the Delhi High
Court. Therefore, if the submission on behalf of the respective respondents
– assessees that despite the fact that the incriminating materials have
been found in the form of books of account or documents or assets
relating to them from the premises of the searched person, still they may
not be subjected to the proceedings under Section 153C solely on the
ground that the search was conducted prior to the amendment is
accepted, in that case, the very object and purpose of the amendment to
Section 153C, which is by way of substitution of the words “belongs or
belong to” to the words “pertains or pertain to” shall be frustrated. As
observed hereinabove, any interpretation, which may frustrate the very
object and purpose of the Act / Statute shall be avoided by the Court. If
the interpretation as
canvassed on behalf of the respective respondents
is accepted, in that case, even the object and purpose of Section 153C
namely, for assessment of income of any other person (other than the
searched person) shall be frustrated.
11. In view of the above and for the reasons stated above, the
impugned common judgment and order passed by the High Court is held
to be unsustainable and the question, i.e., “Whether the amendment
brought to Section 153C of the Income Tax Act, 1961 vide Finance Act,
2015 would be applicable to searches conducted under Section 132 of
the Act, 1961 before 01.06.2015, i.e., the date of amendment?”, is
answered in favour of the Revenue and against the assessees and is
answered accordingly. Therefore, it is observed and held that the
amendment brought to Section 153C of the Act, 1961 vide Finance Act,
2015 shall be applicable to searches conducted under Section 132 of the
Act, 1961 before 01.06.2015, i.e., the date of the amendment. The
impugned common judgment and order passed by the High Court,
therefore, deserves to be quashed and set aside and is accordingly
quashed and set aside. However, as before the High Court respective
assessment orders were challenged mainly on the aforesaid issue, which
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is now answered in favour of the Revenue as above, we reserve the
liberty in favour of the respective assessees to challenge the assessment
orders before CIT (A) on any other grounds which may be available
and it is observed that if said appeals are preferred within four weeks
from today, the same be considered in accordance with law and on their
own merits, on any other grounds.
Present appeals are accordingly allowed in terms of the above.
However, in the facts and circumstances of the case, there shall be no
order as to costs.
Nidhi Jain
Appeals allowed.
(Assisted by : Abhishek Pratap Singh and Tamana, LCRAs)
INCOME TAX OFFICER v. VIKRAM SUJITKUMAR BHATIA
[M. R. SHAH, J.]