2023 (4) TMI 296 - SC - Income Tax

Finance Act 2015 amendment to Section 153C applies when books or assets of non-searched person seized or received after 01.06.2015

Income Tax Officer Versus Vikram Sujitkumar Bhatia

SC held that the Finance Act, 2015 amendment to Section 153C applies where the books/documents/assets of a non-searched person were seized or received ... Scope of amendment brought to Section 153C introduced vide Finance Act, 2015 w.e.f. 01.06.2015 - expression “belongs to” - presumption against retrospective operation of Amendments - Whether amendment brought to Section 153C vide Finance Act, 2015 would be applicable to searches conducted u/s 132 of the Act, 1961 before 01.06.2015, i.e., the date of amendment? - HELD THAT:- 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 AO 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 u/s 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. 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 [1952 (5) TMI 12 - SUPREME COURT] 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. 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. See GIRDHARI LAL AND SONS VERSUS BALBIR NATH MATHUR AND OTHERS [1986 (2) TMI 253 - SUPREME COURT] 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. Thus 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. Thus 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. Issues Involved:1. Applicability of the amendment to Section 153C of the Income Tax Act, 1961.2. Interpretation of 'belongs to' vs. 'pertains to' in Section 153C.3. Retrospective application of amendments in tax law.4. Impact on substantive rights of assessees.Summary:Issue 1: Applicability of the Amendment to Section 153CThe core issue was whether the amendment to Section 153C of the Income Tax Act, 1961, introduced by the Finance Act, 2015, would apply to searches conducted under Section 132 before 01.06.2015. The Supreme Court held that the amendment is applicable to searches conducted before the amendment date. It emphasized that the amendment was introduced to address the mischief identified by the Delhi High Court in Pepsico India Holdings Private Limited vs. Assistant Commissioner of Income Tax, where the term 'belongs to' was interpreted narrowly, preventing action against third parties despite incriminating material being found.Issue 2: Interpretation of 'Belongs to' vs. 'Pertains to'The Court noted that the amendment substituted the words 'belongs or belong to' with 'pertains or pertain to' to broaden the scope of Section 153C. This change was intended to include situations where incriminating documents or materials related to third parties were found during search proceedings, thus allowing the Revenue to proceed against such third parties.Issue 3: Retrospective Application of AmendmentsThe Court held that amendments made by substitution relate back to the date of the Parent Act, effectively replacing the earlier provisions as if they never existed. The Court cited precedents like Shamrao V. Parulekar vs. District Magistrate and Zile Singh vs. State of Haryana to support this interpretation. It was emphasized that the legislative intent behind the amendment was to address the mischief identified and should be applied to all pending and future proceedings, irrespective of the search date.Issue 4: Impact on Substantive Rights of AssesseesThe Court rejected the argument that the amendment affected substantive rights of the assessees, stating that Section 153C is a machinery provision. It emphasized that the primary intention of the legislature was to include persons against whom incriminating material was found during search proceedings. The Court noted that interpreting the amendment as prospective only would frustrate the legislative intent and the purpose of the statute.Conclusion:The Supreme Court overturned the High Court's decision, holding that the amendment to Section 153C by the Finance Act, 2015, applies to searches conducted before the amendment date. The Court allowed the Revenue's appeals and provided liberty to the assessees to challenge the assessment orders before CIT (A) on any other grounds within four weeks.