Introduction
The Covid-19 pandemic severely impacted the functionality of both government and citizens right from early 2020. Due to lockdowns and other preventive measures announced by the Government of India (‘GOI’), both taxman and taxpayers were unable to function normally.
Keeping these difficulties in mind, GOI introduced the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 to relax certain timelines which were approaching, inter alia, under the Income-tax Act, 1961 (‘IT Act’). Subsequently, this Ordinance received presidential assent and was enacted as Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (‘TOLA’).
Section 3 of the TOLA empowered GOI to extend certain timelines by issuance of notifications. In legal terms, the notifications issued in exercise of delegated powers by GOI are referred to as delegated legislation. In exercise of this power, Ministry of Finance extended the timeline for issuing re-assessment notices till 30 June 2021[1].
Meanwhile, by the Finance Act, 2021, the entire re-assessment law underwent a significant revamp. By Finance Act, 2021, the existing re-assessment provisions were substituted by a new set of provisions. The new provisions were made effective for all reassessments on or after 1 April 2021.
Issue in hand
In the above background, the key question which has gathered the attention of the entire tax fraternity is:
After enactment of new reassessment law from 1 April 2021, whether reassessment notice can still be issued under the old law till 30 June 2021 and whether the old law still remains alive for such cases?
The Taxman has taken a position that the reassessment notices can be served under the old law till 30 June 2021 and the proceedings for such cases shall continue to be governed by the old provisions. This is because of the extension granted under TOLA read with the subsequent notifications.
As one could expect, the above position did not receive the assent of huge mass of taxpayers who received reassessment notices under the old law especially post 1 April 2021. Thus, the taxpayers questioned the validity of such notices by filing writ petitions before the jurisdictional High Courts.
So far, the petitions have been adjudicated and the final orders have been passed by the Chhattisgarh High Court, the Allahabad High Court, the Rajasthan High Court, and the Delhi High Court. Adding fuel to the raging fire, different High Courts have expressed contrary views on the issue. While the Chhattisgarh High Court has dismissed the writ petitions, other High Courts have allowed the petitions and have quashed the issuance of such reassessment notices. With two diverging views, the question is, which view is legally sound and expected to be adopted by other High Courts and most importantly, the Apex Court.
It is apposite to look at the reasoning given by both the Chhattisgarh High Court and the other High Courts while ruling as above.
Chhattisgarh High Court’s ruling (Single bench)[2]
In view of the High Court, as a result of the notification issued by the Ministry of Finance for extending the time limit for issuance of notices, the individual identity of Section 148, which was prevailing prior to substitution, was insulated and saved till 30 June 2021.
According to the High Court, the notifications were issued by the Ministry of Finance by way of conditional legislation in the peculiar circumstances which arose during the pandemic and lockdown and the Central Government cannot be said to have encroached upon the turf of the Parliament.
Allahabad High Court’s ruling (Division bench)[3]
The High Court gave the following reasoning for allowing the writ petitions:
- In the absence of any clause to save the old provisions, taxman could only initiate a re-assessment proceeding on or after 1 April 2021, under the new law. This is because, old provisions cannot survive once they have been replaced by new provisions, except for things done or already undertaken to be done or things expressly saved to be done.
- High Court also observed that delegated legislation (i.e., Notification) cannot overreach any principal legislation (i.e., Finance Act, 2021). Thus, it would be incorrect to refer to notifications issued under TOLA to interpret the provisions of the Finance Act, 2021.
- Harmonizing the new legislation and the notifications issued under the old legislation, the High Court noted that extended deadline of 30 June 2021 should be applicable only where the proceedings under old law have commenced prior to 1 April 2021. Cases where the proceedings have not been initiated by 1 April 2021, the amended law alone will apply.
In view of the aforesaid reasoning, the Allahabad High Court also expressly dissented from the view expressed by the Chhattisgarh High Court.
Rajasthan High Court’s ruling (Single bench)[4]
The High Court relied upon the aforementioned decision of the Allahabad High Court for allowing the writ petitions and quashing the reassessment notice issued under Section 148 of the IT Act. However, it allowed assessing authority to initiate reassessment proceedings in accordance with the provisions of the Finance Act, 2021.
Delhi High Court’s ruling (Division bench)[5]
In addition to relying upon the reasoning given by the Allahabad High Court, the Delhi High Court gave the following reasoning for allowing the writ petitions:
- Notices issued on or after 1 April 2021 have to comply with the provisions substituted by the Finance Act, 2021 with effect from 1 April 2021.
- TOLA can only change the timelines applicable to issue notice, but they cannot change the applicable statutory provisions.
- Taxman (i.e., Executive) cannot use the administrative power (i.e., issuing notifications) to undermine the expression of Parliamentary supremacy in the form of an Act (i.e., the Finance Act, 2021).
- Section 3(1) of TOLA does not empower the Central Government to postpone the date of applicability of a new law enacted by the legislature.
- Introduction of the new regime regarding re-opening of income-tax assessment is procedural in nature. Accordingly, the benefit of new provisions would be available for past assessment years.
- Non-obstante clause in TOLA cannot override the provision of the IT Act other than the applicable timelines.
In view of the aforesaid reasoning, the Delhi High Court dissented from the view expressed by the Chhattisgarh High Court.
Our comments
The issue of validity of reassessment notices issued under the old law from 1 April 2021 till 30 June 2021 has been in limelight recently. This is especially because of the divergent views laid down by different High Courts.
In humble view of the author, the reasoning and the view given by the Chhattisgarh High Court does not appear to be sound. This is because the notifications issued under the earlier law cannot supersede the newly enacted law. Especially when the notification was issued prior to enactment of the new provisions.
If the intention of the legislature was to save the validity of such notices issued under the old law, an express saving clause must have been introduced in the new legislation. In the absence of the same, such notices cannot be said to be valid.
The view expressed by the Allahabad High Court and the Delhi High Court are legally sound. The act of postponement of the new law by way of delegated legislation is contrary to the well-settled legal principle that subordinate legislation cannot be contrary to the parent statute[6].
Therefore, the rulings of the Allahabad High Court, the Rajasthan High Court, and the Delhi High Court are welcome rulings for all the taxpayers who had received re-assessment notices between 1 April 2021 and 30 June 2021. Accordingly, these rulings should act as ‘guiding light’ for numerous writ petitions presently pending before other High Courts.
Nonetheless, with contrary rulings from High Courts, it is expected that the issue will knock the doors of the Supreme Court. Therefore, the taxpayers should remain ready for another round of battle before the Supreme Court.
Also, wherever possible, the Taxman will try to initiate reassessment proceedings under the new legislation. Needless to mention, the time-limit and the requirements as provided in the new provisions for issuance of reassessment notices will have to be abided by the Taxman. In case any notice is issued in non-adherence of the same, the validity of the same can also be challenged by the taxpayers.
[The author is a Senior Associate in Direct Tax practice team, Lakshmikumaran and Sridharan Attorneys, New Delhi]
[1] Notification No. 1432 dated 31March 2021 and Notification No. 1703 (E) dated 27 April 2021.
[2] Palak Khatuja v. Union of India & Ors., W.P. (T) No. 149 of 2021 dated 23 August 2021.
[3] Ashok Kumar Agarwal v. Union of India, [TS-926-HC-2021(ALL)].
[4] Bpip Infra (P.) Ltd. v. ITO, [2021] 133 taxmann.com 48 (Rajasthan).
[5] Mon Mohan Kohli v. Assistant Commissioner of Income-tax, [2021] 133 taxmann.com 166 (Delhi).
[6] Indian Express Newspapers v. UOI, AIR 1986 SC 515 and State of Tamil Nadu v. P Krishnamurthy, (2006) 4 SCC 517.
