Relief to Tata Communication: Bombay HC Quashes Reassessment Notice in line with Allahabad High Court

The Hon’ble Bombay high court, on 29th March 2022 disposed of the Writ Petition of Tata Communication along with more than 100 other Writ Petitions challenging the initiation of assessment proceedings under Section 148 of the Income Tax Act, 1961 (the Act) for different assessment years. All notices in these petitions for initiation of assessment proceedings have been issued after 1^st April 2021.

The cause of action of dispute arising in all these writ petitions was purely being legal, i.e., on the validity of the assessment proceedings initiated against assessees after 1st April 2021 under the provisions of the Act, as it existed before 1st April 2021, read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (the Relaxation Act) and the notifications issued thereunder. Further, as per court the peculiar facts or pleadings of each case, are not material to the adjudication of the issues involved.

The counsels were led by Mr. Mistri, Mr. Pardiwalla, Mr. Andhyarujina and Mr. Chatterji for petitioners and Mr. Anil Singh, learned Additional Solicitor General of India represented Revenue.

What Bombay High Court said?

29 At the outset, we had made it clear to Mr. Anil Singh, learned ASG that we were inclined to go along with the view expressed by the three Division Benches of Allahabad High Court, Rajasthan High Court and Delhi High Court. During the hearing our attention was invited to the judgment of the Division Bench of Madras High Court in Vellore Institute of Technology (Supra). We expressed that we were inclined to take a similar view as expressed by all the Division Benches and independently also we hold the same view. We also indicated to the learned ASG that we were unable to persuade ourselves to accept the analysis of the learned Single Judge of the Chhattisgarh High Court in Palak Khatuja (Supra).

30 We asked Mr. Anil Singh, learned ASG if he has anything more to argue apart from the submissions of Revenue already recorded in these judgments of the four Division Benches. Mr. Anil Singh, learned ASG answered in affirmative.

31 Before we proceed further in detail with the submissions of the learned ASG, Mr. Mistri and Mr. Pardiwalla, we would note the compact submissions made by Mr. Chatterji and Mr. Andhyarujina :

(a) Mr. Chatterji, inter alia, emphasized that once legislature has exercised its powers of legislation by enacting Finance Act, 2021, then any action like issuance of impugned notifications contrary to said legislation taken by any other agency/wing of the Government is bad in law as the same would fall foul of the doctrine of occupied filed as held by the Apex Court in A.B. Kirshna and Ors. V/s. State of Karnataka and Ors10. Mr. Chatterji submitted that no authority was vested in Government to issue the impugned notifications so as to disturb/intrude into the field occupied by the legislature.

(b) Mr. Andhyarujina kept his submissions brief as others were already covering everything and submitted that essential legislative functions and extension of limitation period cannot be delegated and if limitation period is altered by a subordinate authority, then the delegation is excessive and the doctrine of ultra vires can be invoked which envisages that a subordinate authority can exercise only so much power as is conferred to it under the law. Mr. Andhyarujina also submitted that since the Finance Act, 2021 is the latter Act in the instant case, the general rule of law states that when there is a conflict between two statues, the one that is more recent prevails and in this case, since the Finance Act was more recent compared to the Relaxation Act, the provisions of Finance Act would prevail over the provisions made in the Relaxation Act. Therefore, as the relaxation and extension of the period of limitation in respect of issuing reopening notices can only be a function or a power conferred only to the legislation and not a subordinate authority, the two notifications extending the period of limitation are ultra vires and bad in law and vitiated in law since the authority to extend the period of limitation did not vest with the authority at all.

Both Mr. Chatterji and Mr. Andhyarujina supported the submissions of Mr. Mistri and Mr. Pardiwalla.

32 Now reverting to the submissions of learned ASG, during the course of hearing, learned ASG tendered a synopsis of submissions spread in 39 paragraphs. Learned ASG stated that paragraphs 1 to 15 contained additional arguments of respondents other than those urged before and negated by the various High Courts and paragraphs 16 to 39 deal with issues already considered and dealt with by various High Courts and he reiterated and adopted the stand taken by the Revenue before those Courts. Revenue’s additional arguments, as set out in the synopsis, are as under :

A. The Notifications do not result in creating an overlap in statutory schemes and there is no question of the Executive seeking to apply provisions of law after they have been substituted/repealed by Parliament. Relaxation Act applies only to actions to be taken between 20th March 2020 and 31st March 2021, a date before the Finance Act, 2021 came into force. Thus, Relaxation Act and the Notifications would apply only in respect of matters where the time fell due for any act prior to Finance Act, 2021 coming into force, i.e., prior to 31st March 2021. However, Relaxation Act permits the action to be taken in such cases within certain extended timelines owing to the pandemic.

B. The use of the word “such action” in Section 3(1) of the Relaxation Act reveals the legislative intent that it is the very same “action” which is permitted to be complied with within the extended deadline. As a sequitur, all legal conditions precedent, pre-requisites, limitations and procedural norms as applicable on the original date on which “such action” was required to be completed/complied/fell due under the Act, would apply, even though “such action” is being taken/complied within the extended time period provided for under the Relaxation Act and the Notifications thereunder. Accordingly, notices under Section 148 of the Act will “relate back” and be governed by the previous unamended law. This interpretation is apparent from the object of the Relaxation Act, i.e., “In view of the spread of pandemic Covid-19 across many countries of the world including India, causing immense loss to the lives of people, it had become imperative to relax certain provisions, including extension of time-limit” and the plain language of Section 3(1) of the Relaxation Act.

C. It is to be inferred that Section 3(1) of the Relaxation Act requires that extended time limits for issue of, inter alia, Section 148 notices would also mean/require that the conditions for issue of Section 148 notices should be in terms of the Act as it stood on the date of the expiry of the said time limits, i.e., a ‘stop-the-clock’ provision, wherein a fiction is created as if the compliance of the action is made within the time limit specified in the unamended Income-tax Act as it stood when the time for compliance expired between 20th March 2020 and 31st March 2021.

D. All reopening notices challenged have been issued in accordance with/under the unamended provisions of the Income-tax Act, 1961, as the provisions of the Relaxation Act empowered assessing officers to do so. The case of the Revenue is not that the old provisions apply after 1st April 2021, but Section 3(1) empowers the officer to issue notices under the old law.

E. Relaxation Act is a beneficial legislation which relaxes requirements in specified Acts for both assessees and revenue alike which must be given a purposive interpretation.

F. Referring to para 80 of the decision of the Hon’ble Allahabad High Court – liberty should be granted to initiate reassessment proceedings in accordance with the provisions of the Act, as amended by Finance Act, 2021, after making all compliances, as required by law.

33 The submissions made by learned ASG, as additional arguments of respondents, as submitted by Mr. Mistri, with whom we agree, in effect are all restatement, made in different style, of the same argument urged before the Allahabad, Delhi, Rajasthan, Calcutta and Madras High Court. They had already argued/ contended that as the original time limit for issuing a notice under Section 148 of the Act was expiring on or before 31st March 2021 and such time limit has been extended by the Relaxation Act, the old/unamended provisions of Section 148 of the Act will continue to govern such notices. This submission of respondents ignores the legal position that the provisions of Sections 147 to 151 of the Act have been substituted with effect from 1st April 2021 by the Finance Act, 2021. Further a new Section 148A of the Act has been inserted with effect from 1st April 2021. Accordingly, the old/unamended provisions of Sections 148 to 151 cease to have legal effect after 31st March 2021 and the substituted provisions of Sections 148 to 151 have binding force from 1st April 2021. In the absence of a savings clause there is no legal device by which a repealed set of provisions can be applied and a set of provisions on the statute book (in force) can be ignored. Further if the revenue’s contention had the semblance of legality or validity, the impugned Explanations in Notification Nos. 20 and 38 of 2021 are otiose and superfluous. Moreover, Revenue’s arguments are unsustainable as various High Courts have considered and rejected the said arguments or facets thereof.

34 It is well settled that the validity of a notice issued under Section 148 of the Act must be judged on the basis of the law existing on the date on which such notice is issued. Even the Revenue accepts this well settled position. Further, the provisions of Sections 147 to 151 are procedural laws and accordingly, the provisions as existing on the date of the notice would be applicable. Even the revenue accepts this legal position and the CBDT Circular No.549 of 1989, that Mr. Mistri relied upon, explaining the provisions of the Finance Act, 1989 specifically sets out that any notices issued by Revenue after the amendment made by the Finance Act, 1989 must comply with the amended provision of the law. Therefore, any notice issued after 1st April, 2021 must comply with the amended provisions of the Act which was amended with effect from 1st April, 2021. This contention has also been considered and upheld by the Delhi High Court and the Allahabad High Court.

35 We have to also note the well settled proposition that when the Act specifies that something is to be done in a particular manner, then, that thing must be done in that specified manner alone, and any other method/(s) of performance cannot be upheld. Hence, notices issued under Section 148 of the Act after 1st April, 2021 must comply with the amended provisions of law and cannot be sustained on the basis of the erstwhile provision.

36 In order to uphold the arguments of the Revenue in this regard, either a savings clause, or a specific legislative enactment deferring applicability of the amended provisions and the repeal of the old provisions of the Act, would be required. Plainly no such savings clause or enactment is available.

37 Section 3(1) of Relaxation Act does not provide that any notice issued under Section 148 of the Act, after 31st March 2021 will relate back to the original date or that the clock is stopped on 31st March, 2021 such that the provision as existing on such date will be applicable to notices issued relying on the provision of Relaxation Act. A plain reading of Relaxation Act, as Mr. Mistri rightly submitted, makes it clear that Section 3(1) of Relaxation Act merely extends the limitation provided in the specified Acts (including Income-tax Act) for doing certain Acts but such Acts must be performed in accordance with the provisions of the specified Acts. Therefore, if there is an amendment in the specified Act, the amended provision of the specified Act would apply to such actions of the Revenue. The Delhi High Court has considered and rejected the contention of the Revenue that the notice issued after 1st April 2021 relates back to an earlier period.

38 The Delhi High Court has considered and rejected this argument of the Revenue that Relaxation Act creates a legal fiction such that the notices issued under Section 148 of the Act are deemed to be issued on 31st March, 2021. The so-called legal fiction is directly contrary to the Revenue’s own Circular No.549 of 1989, which is binding on them as well as the well settled principle that the validity of a notice is to be judged on the basis of the law that prevails at the time of its issue.

39 Even though Relaxation Act was in existence when the Finance Act, 2021 was passed, the parliament has specifically made the amended provisions of Sections 147 to 151 of the Act as being applicable with effect from 1st April, 2021. Therefore, the intention of the legislature is clear that substituted provisions must apply to notices issued with effect from 1st April, 2021. No savings clause has been provided in the Act for saving the erstwhile provisions of Sections 147 to 151 of the Act, like in Section 297 of the Act where, the Parliament when it intended, has specifically provided the savings clause.

40 On a plain reading of Relaxation Act it is clear that the only powers granted to the Central Government by Relaxation Act is the power to notify the period during which actions are required to be taken that can fall within the ambit of Relaxation Act, and the power to extend the time limit within which those actions are to be taken. A plain reading of the impugned Explanations in Notification Nos.20 of 2021 and 38 of 2021 shows that it purports to “clarify” that the unamended provisions of Sections 147 to 151 of the Act will apply for the purposes of issue of notices under Section 148 of the Act, which is clearly ultra vires Relaxation Act.

41 In our view, the reopening notices issued after 1st April, 2021 are unsustainable and bad in law even if one was to apply the Explanations to the Notification Nos.20 of 2021 and 38 of 2021. The Explanation seeks to extend the applicability of erstwhile Sections 148, 149 and 151. The impugned Explanation does not cover Section 147, which (as amended) empowers the revenue to reopen an assessment subject to Sections 148 to 153, which includes Section 148A. Thus, even if Explanations are valid, the mandatory procedure laid down by Section 148A has not been followed and hence, without anything further, the notices under Section 148 of the Act are invalid and must be struck down for this reason as well. This proposition has also been upheld by the Delhi High Court.

42 As regards Revenue’s arguments that Relaxation Act being a beneficial legislation must be given purposive interpretation’, the purpose of Section 3(1) of Relaxation Act is to extend limitation periods as provided in a specified Act (including the Income-tax Act). The purpose of Section 3(1) of Relaxation Act is not to postpone the applicability of amended provisions of a Specified Act. Though Relaxation Act was in existence when the Finance Act, 2021 was passed, the Parliament has specifically enacted the new, (amended) provisions of Section 147 to 151 of the Act and made them applicable with effect form 1st April, 2021. Therefore, it is clear that amendment is to be applied from 1st April, 2021. Further, when there is no ambiguity on the applicability of the provision, there is no question of resorting to purpose test.

43 As regards liberty granted by the Allahabad High Court, certainly, if the law permits issuance of notices under Section 148 of the Act (as amended), afresh, then no liberty is required to be granted by the Court, and it would be within the Assessing Officer’s powers to initiate proceedings as per the amended law. The Madras High Court has considered this very plea and granted liberty to initiate reassessment proceedings in accordance with the provisions of the amended Act, “if limitation for it survives”.

44 As submitted by Mr. Mistri, with whom we agree, Chapter II of Relaxation Act provide for – “Relaxation of Certain Provisions of Specified Act”and Section 3 forms part of this Chapter. Further Chapter III provides for amendment to Income Tax Act, 1961 and various Sections of the Act have been amended in Chapter III. From this the following propositions emerge :

(a) Wherever the Parliament thought fit, the Parliament has itself amended the provision of the Income Tax Act, 1961 and not left it for the CBDT to make the amendment. Therefore, it is clear that no power is given under Relaxation Act to postpone the applicability of provisions of the Income Tax Act.

(b) Chapter II of Relaxation Act is only for ‘Relaxation of Certain Provisions of Specified Act’ and, therefore, there is no question of the Revenue relying on this Chapter and Section 3 to justify the postponement of applicability of certain provisions of the Income Tax Act. If the Parliament wanted to give some right to the CBDT, it would have formed part of Chapter III, however, there is no such provision in Chapter III of the Act.

45 As submitted by Mr. Pardiwalla there are other Sections in the Finance Act, 2021 which have amended other provisions of the Income Tax Act from dates other than 1st April, 2021. Like for example Section 12 of the Finance Act inserted a proviso in Section 43CA. Had the intention of the legislature, while amending Sections 147 to 153, been to give it effect from 1stJuly, 2021, a similar savings clause could have been inserted, which has not been done. We agree with Mr. Pardiwalla because as per Section 1(2)(a) of the Finance Act, 2021, the amendments to Sections 147 to 153 of the Act shall come into force on 1st April, 2021. Similarly, the Memorandum explaining the provisions of the Finance Bill, 2021 clarifies that these amendments will take effect from 1st April, 2021. Section 12 of the Finance Act inserted a proviso in Section 43CA which inter alia provides that the words ‘one hundred and ten percent’ in the first proviso will be substituted by the words ‘one hundred and twenty percent’ if the transfer of residential units takes place during the period beginning from 12th day of November, 2020 and ending on the 30th day of June, 2021. Therefore, had the intention of the legislature, while amending Sections 147 to 153, was to give it effect from 1stJuly, 2021, a similar savings clause could have been inserted, which has not been done.

46 Mr. Pardiwalla submitted that only Section 4 of Relaxation Act which amended the Act and no such amendments to the substantive provisions of the Act were envisaged under Section 3 of Relaxation Act, which was only a relaxation provision dealing with time limits under various enactments.

47 As noted earlier, it is Revenue’s case that Section 3 of Relaxation Act enabled the Central Government to issue notifications which would permit the Assessing Officers to issue notices under Section 148 of the Act after 1st April, 2021 in terms of the erstwhile provisions of Sections 147 to section 151, even though the said provisions were repealed with effect from 1st April, 2021 by the Finance Act, 2021. It is, however, pertinent to note that Section 3 of Relaxation Act falls in Chapter II of the said Act, which is titled ‘Relaxation of Certain Provisions of Specified Act’. In contradistinction, Section 4 of Relaxation Act which does amend several provisions of the Act falls in Chapter III, which is titled ‘Amendments to the Income Tax Act, 1961’. It will be apposite to notice that the amendments provided for in Section 4 were made by the Legislature itself in terms of the said Section and no such power to amend the Act was delegated to the Central Government. Therefore, we would agree with Mr. Pardiwalla that it is only Section 4 of Relaxation Act which amended the Act and no such amendments to the substantive provisions of the Act were envisaged under Section 3 of Relaxation Act, which was only a relaxation provision dealing with time limits under various enactments.

48 Mr. Pardiwalla submitted that even assuming for a moment that the primary contention of petitioners that the Explanations in the notifications are invalid is not accepted, still the impugned notices will be bad in law as the Explanation only seeks to effectuate the provisions of the erstwhile Sections 148, 149 and 151 of the Act. It does not cover the erstwhile Section 147 of the Act. As rightly submitted by Mr. Pardiwalla, the Assessing Officer could have assumed jurisdiction while issuing the impugned notices only after complying with the amended Section 147. The same has not been done by the Assessing Officers as (a) his assumption of jurisdiction is on the basis of his ‘reason to believe’ that income chargeable to tax has escaped assessment, a concept, which is no longer recognised in the amended Section 147; and (b) the amended Section 147 is in any event subject to Sections 148 to 153, which would also include the procedure contained in Section 148A, which has not been followed. Therefore, the impugned notices do not even comply with the relevant statutory provisions, even if we do not find fault with the Explanations in the two notifications. Infact the Delhi High Court in paragraph 84 of Mon Mohan Kohli (Supra) has also considered and accepted this aspect of the matter.
49 Some more reasons why the reopening notices must go are :

(a) Section 297 of the Act provides a saving clause for applicability of various provisions of the 1922 Act, even though the Act itself had been repealed. In the absence of such a saving clause for applicability of erstwhile Sections 147 to 151 of the Act, the amended provision of the Act would apply from 1st April, 2021.

(b) Moreover, the reopening notices issued after 1st April, 2021 are bad in law even if one was to apply the Explanations to the Notification Nos.20 and 38. The Explanations seek to extend the applicability of erstwhile Sections 148, 149 and 151. They do not cover Section 147, which empowers revenue to reopen subject to Section 148 to 153, which includes Section 148A. Thus, even if Explanation are valid, procedure of Section 148A is not followed and hence, notices are invalid.

(c) In any case, Relaxation Act is not applicable for Assessment Years 2015-2016 or any subsequent year and, hence, the question of applicability of the Notification Nos.20 and 38 of 2021 does not arise. The time limit to issue notice under Section 148 of the Act for the Assessment Years 2015-2016 onwards was not expiring within the period for which Section 3(1) of Relaxation Act was applicable and, hence, Relaxation Act could never apply for these assessment years. As a consequence, there can be no question of extending the period of limitation for such assessment years.

50 To sum up, since we are in respectful agreement with the reasons recorded and views taken by the Allahabad High Court, Rajasthan High Court, Delhi High Court and Madras High Court, in the cases referred hereinabove, and for reasons noted above, all these writ petitions listed above are disposed by allowing the same. The explanations to the Notification No.20 of 2021 dated 31st March 2021 and Notification No.38 of 2021 dated 27th April 2021 are declared ultra vires and are, therefore, bad in law and null and void.

51 All the impugned notices issued under Section 148 of the Act are quashed and set aside.

52 It will be open to the Assessing Officers concerned to initiate fresh reassessment proceedings in accordance with the relevant provisions of the Act as amended by the Finance Act, 2021 after strictly complying with the provisions of the Act.

53 All petitions disposed accordingly. No order as to costs.