[Finance Act] Retrospective Abolition Of ITSC Doesn't Nullify Settlement Applications Filed Between Feb 1 To Mar 31, 2021: Delhi High Court
The Delhi High Court has held that the Finance Act 2021, which retrospectively abolished the Income Tax Settlement Commission (ITSC), responsible for enabling compromise between the state and its tax payers, cannot create a void.For context, the Finance Act 2021 envisaged replacing the ITSC with a body known as the Interim Board of Settlements from 01.02.2021. However, the Act came into force...
The Delhi High Court has held that the Finance Act 2021, which retrospectively abolished the Income Tax Settlement Commission (ITSC), responsible for enabling compromise between the state and its tax payers, cannot create a void.
For context, the Finance Act 2021 envisaged replacing the ITSC with a body known as the Interim Board of Settlements from 01.02.2021. However, the Act came into force on 01.04.2021.
Thus, the question before the Court was whether settlement applications made in the interregnum, at which point there was no amendment of the statute, can be denied acceptance/processing by way of a retrospective amendment.
A division bench comprising Justices V. Kameswar Rao and Vinod Kumar held,
“In the amending provisions, there are neither any express words nor any indication that the intent of the legislature was to take away existing rights of the assessee to file such applications between 01.02.2021 to 31.03.2021. As such the rights cannot be said to have been taken away, though the Act has been given a retrospective effect. The purpose of the amendments is in fact, to abolish the ITSC with effect from 01.02.2021 and bring all pending settlement applications before the newly constituted Interim Board for adjudication.”
In the case at hand, the Petitioners sought processing of their application for settlement, made on 22.03.2021.
It challenged Sections 62 to 73 of the Finance Act, 2021 on the ground that they are arbitrary to the extent they retrospectively abolished the ITSC w.e.f. 01.02.2021.
It was argued that there cannot be a complete vacuum between 01.02.2021 and 01.04.2021.
Agreeing, the High Court said the ITSC (or the Interim Board) being a creation of a statute, the assessees do have a statutory right to approach the same, seeking concession.
It relied on Sar Senapati Santaji Ghorpade Sugar Factory v. ACIT where the Bombay High Court held retrospective legislation cannot affect the vested rights of the assessee.
In the case at hand, the High Court said that a vested right accrued to the petitioners when the search and seizure was conducted on their premises on 11.10.2019, and also when the applications were filed before the ITSC.
“So long as the notices were issued prior to 01.04.2021, the petitioners have a right to approach the ITSC because it existed factually until 01.04.2021, and was only removed retrospectively,” the Court said.
It also relied on Jain Metal Rolling Mills v. Union of India (2024) in which the Madras High Court read down Section 245C(5) (as amended) by removing the retrospective last date of the 1st February 2021.
Similarly, reliance was placed on Pradeep Kumar Naredi v. Union of India wherein the Calcutta High Court directed the Interim Board to consider the application of the appellant who was subjected to search and seizure under Section 132 on 16.01.2020. Notices under Section 153A were issued on 02.02.2021 and the appellant therein preferred an application before the ITSC on 17.03.2021.
The Union government argued that the specific date of 01.02.2021 is a legislative choice and a policy decision and therefore not amenable to the jurisdiction of this Court under Article 226 of the Constitution of India
The High Court however said,
“It is settled law that the right of the Parliament to make a retrospective amendment cannot be disputed. However, if any vested right is to be taken away by the legislature, it should be done by express words or by necessary implication. However, no such intent can be gathered from the provisions of the Finance Act, 2021.
The Court added that the purpose of Finance Act 2021 was to make ITSC inoperative and bring the pending applications before the Interim Board.
Thus, it held, “it cannot be said that the legislature had any intent to do away with pending applications in respect of cases that arose between 01.02.2021 and 31.03.2021.”
As such, it directed that the Petitioner's applications be considered by the Interim Board.
Appearance: For the Petitioner : Mr. Parag P. Tripathi, Sr. Adv. with Ms. Sanam Tripathi, Mr. Srinivasan, Mr. Ramaswamay, Mr. Dheeresh K. Dwivedi & Mr. Harjeet Singh, Advs. For the Respondents : Mr. Sanjay Kumar, SSC with Ms. Monica Benjamin and Ms. Easha, JSCs.
Case title: Megha Engineering And Infrastructure Ltd v. Income Tax Settlement Commission & Ors.
Case no.: W.P.(C) 3479/2021