Supreme Court: Finance Act amendment not retroactive. Reconsider penalty demand under Income Tax Act

The Supreme Court held that the amendment under the Finance Act, 2002 was not clarificatory and could not be applied retrospectively. The Court directed reconsideration of a previous point laid down and emphasized the Department's stance not to demand penalty from the assessee, seeking an authoritative decision on the interpretation of section 271(1)(c) of the Income Tax Act.

---

---

Issues involved:
The issue involved in this case is whether penalty under section 271(1)(c) could be levied if the returned income is a loss.

Judgment Details:

Issue 1: Clarificatory nature of the amendment
The Supreme Court rejected the Department's argument that the amendment made by the Finance Act, 2002 was clarificatory in nature and applicable retrospectively. The Court emphasized that the statute expressly stated that the amendment would take effect only from 1st April, 2003, and therefore, it cannot be applied to any period prior to that date. The Court held that a statement in the Notes on Clauses cannot bind the Court when even a statement in the statute itself is not regarded as binding or conclusive.

Issue 2: Reconsideration of the point laid down
Considering the nature of the amendment in section 271 and a previous judgment, the Court decided that the point laid down by the Division Bench in a previous case needed reconsideration. The matter was directed to be placed before the learned Chief Justice for appropriate directions.

Issue 3: Department's stance on penalty
The Additional Solicitor General stated that even if the Department were to succeed ultimately before the Larger Bench, they would not demand penalty from the assessee as the Department's primary concern was obtaining an authoritative decision on the question of law concerning the interpretation of section 271(1)(c) as amended by the Finance Act, 2002.

This judgment addresses the issue of the clarificatory nature of an amendment, the need for reconsideration of a previous point laid down, and the Department's stance on penalty in a case involving section 271(1)(c) of the Income Tax Act.

---