2002 (4) TMI 7 - SC - Income Tax

Amended section 150(1) cannot reopen finalized assessments previously barred by section 149 limitation periods

The SC held that amended provisions of section 150(1) cannot be used to reopen assessments that have already attained finality and were previously barred ... Application and interpretation of the provisions of Section 150 - notices issued u/s 148 - bar of limitation prescribed u/s 149 - whether the provisions of sub-section (1) of Section 150 as amended can be availed for reopening assessments, which have attained finality and could not be reopened due to bar of limitation, that was attracted at the relevant time to the proposed reassessment proceedings under the provisions of Section 149 of the Act. - HELD THAT:- The plain language of sub-section (2) of Section 150 clearly restricts application of sub-section (1) to enable the Authority to reopen assessments which have not already become final on the expiry of prescribed period of limitation under Section 149. As is sought to be done by the High Court, sub-section (2) of Section 150 cannot be held applicable only to reassessments based on Orders 'in proceedings under the Act' and not to Orders of Court 'in proceedings under any other law'. Such an interpretation would make the whole provision under Section 150 discriminatory in its application to assessments sought to be reopened on the basis of Orders under the IT Act and other assessments proposed to be reopened on the basis of Orders under any other law. Interpretation, which creates such unjust and discriminatory situation, has to be avoided. We do not find that sub-section (2) of section 150 has that result. Sub-section (2) intends to insulate all proceedings of assessments, which have attained finality due to the then existing bar of limitation. To achieve the desired result it was not necessary to make any amendment in sub-section (2) corresponding to sub-section (1), as is the reasoning adopted by the High Court. n a proper construction of the provisions of Section 150(1) and the effect of its operation from 1.4.1989, we are clearly of the opinion that the provisions cannot be given retrospective effect prior to 1.4.1989 for assessments which have already become final due to bar of limitation prior to 1.4.1989. Taxing provision imposing a liability is governed by normal presumption that it is not retrospective and settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot in the absence of clear contrary intendment expressed therein be given greater retrospectivity than is expressly mentioned so as to enable the Authorities to affect finality of tax assessments or to open up liabilities, which have become barred by lapse of time. Our conclusion, therefore, is that sub-section (1) of Section 150, as amended with effect from 1.4.1989, does not enable the Authorities to reopen assessments, which have become final due to bar of limitation prior to 1.4.1989 and this position is applicable equally to reassessments proposed on the basis of Orders passed under the Act or under any other law. Appeal is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:- Whether the provisions of Section 150(1) of the Income Tax Act, 1961, as amended with effect from 1.4.1989, permit reopening of assessments that had already become final due to the bar of limitation under Section 149 of the Act prior to the amendment;- Whether the limitation period prescribed under Section 149 is overridden by the amended Section 150(1) for reassessments based on orders passed by a Court in proceedings under any other law, specifically orders under the Land Acquisition Act;- The interpretative scope and interplay between sub-sections (1) and (2) of Section 150, particularly whether sub-section (2) operates as a restriction or explanation limiting the retrospective application of sub-section (1);- The applicability of principles of retrospective operation of amending statutes to the amendment in Section 150(1); and- The validity of reassessment notices issued under Section 148 of the Act for assessment years where the limitation period had expired before the amendment.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether the amended Section 150(1) permits reopening of assessments barred by limitation prior to 1.4.1989Relevant legal framework and precedents: Section 149 of the Income Tax Act prescribes limitation periods of four or seven years for reassessment proceedings. Section 150(1), as amended by the Direct Tax Laws (Amendment) Act, 1987 effective 1.4.1989, allows issuance of notices under Section 148 notwithstanding Section 149 for reassessment or recomputation consequent to any order passed by any authority under the Act or by a Court in any proceeding under any other law. Section 150(2) restricts the application of Section 150(1) where assessments could not have been made at the time the order was passed due to limitation.The precedent relied upon by the appellant was S.S. Gadgil v. Lal and Co., where the Court held that an amendment with limited retrospective operation could not be used to reopen assessments barred by limitation prior to amendment.Court's interpretation and reasoning: The Court emphasized the principle that fiscal statutes imposing tax liabilities or regulating limitation must be strictly construed. The law of limitation provides finality and certainty, and reopening assessments barred by limitation would unsettle finality.The Court held the amendment to Section 150(1) is not expressly or impliedly retrospective and must be applied prospectively from 1.4.1989. Therefore, it cannot be used to reopen assessments which had become final due to limitation prior to that date.Key evidence and findings: The amendment inserted the phrase 'or by a Court in any proceeding under any other law' to extend the scope of reassessment but did not expressly provide retrospective effect. The assessments in question had become final before the amendment.Application of law to facts: Since the reassessments sought related to years where limitation had expired before 1.4.1989, the amended Section 150(1) could not be invoked to reopen those assessments.Treatment of competing arguments: The Department argued that the amendment was intended to lift the bar of limitation for reassessment based on Court orders under other laws, but the Court rejected this as it would amount to retrospective operation without express provision.Conclusions: The amended Section 150(1) applies prospectively and does not authorize reopening of assessments barred by limitation prior to 1.4.1989.Issue 2: Interpretation and interplay of sub-sections (1) and (2) of Section 150Relevant legal framework and precedents: Section 150(2) states that the provisions of sub-section (1) shall not apply if the assessment could not have been made at the time the order was passed due to limitation.Court's interpretation and reasoning: The High Court had held that sub-section (2) was an explanation applicable only to orders under the Act and not to orders of Courts under other laws. The Supreme Court disagreed, holding that sub-section (2) restricts the operation of sub-section (1) generally, including orders by Courts under other laws.The Court reasoned that interpreting sub-section (2) as excluding orders under other laws would create an unjust and discriminatory distinction between assessments reopened on the basis of orders under the Income Tax Act and those reopened on orders under other laws. Such an interpretation must be avoided.Key evidence and findings: The language of sub-section (2) refers to 'any such assessment, reassessment or recomputation as is referred to in that sub-section,' i.e., sub-section (1) as a whole, without limiting its scope to orders under the Act alone.Application of law to facts: The reassessments sought were based on Court orders under the Land Acquisition Act, which falls within the scope of sub-section (1) as amended. However, since the assessments had attained finality due to limitation, sub-section (2) applies to bar reopening.Treatment of competing arguments: The Department's argument that sub-section (2) does not apply to orders under other laws was rejected as inconsistent with the plain language and purpose of the provision.Conclusions: Sub-section (2) operates as a restriction on sub-section (1) to prevent reopening of assessments that have become final due to limitation, regardless of whether the order is under the Income Tax Act or any other law.Issue 3: Principles of retrospective operation of amendments and finality of assessmentsRelevant legal framework and precedents: The Court applied the well-settled principle that taxing statutes are to be construed strictly and are presumed not to have retrospective operation unless expressly stated or necessarily implied. The Court relied on the precedent in S.S. Gadgil (supra) to reinforce this principle.Court's interpretation and reasoning: The Court held that the amendment to Section 150(1) does not expressly provide retrospective effect, and there is no clear implication that it should be applied retrospectively to assessments already barred by limitation.Key evidence and findings: The amendment was effective from 1.4.1989 and the assessments in question had become final before that date.Application of law to facts: The assessments for the years 1968-69 to 1971-72 and 1981-82 had already attained finality prior to the amendment, so reopening them would be impermissible retrospectively.Treatment of competing arguments: The Department's contention that the amendment lifts the bar of limitation retrospectively was rejected as contrary to the principle of legal certainty and finality.Conclusions: The amendment is prospective only and cannot reopen finalized assessments barred by limitation before its commencement.Issue 4: Validity of reassessment notices issued under Section 148 for barred assessment yearsRelevant legal framework and precedents: Section 148 empowers the Assessing Officer to issue notices for reassessment, subject to limitation under Section 149, except as provided in Section 150.Court's interpretation and reasoning: Since the amended Section 150(1) cannot be applied retrospectively to override limitation bar for the relevant years, the reassessment notices issued under Section 148 for those years are invalid.Key evidence and findings: The reassessment notices related to assessment years 1968-69 to 1971-72 and 1981-82, all of which had become final before 1.4.1989.Application of law to facts: The notices issued after the limitation period expired cannot be sustained.Treatment of competing arguments: The Department's reliance on Section 150(1) amended provisions for notices was rejected.Conclusions: The reassessment notices under Section 148 for the barred years are quashed.3. SIGNIFICANT HOLDINGS- 'Fiscal statute more particularly on a provision such as the present one regulating period of limitation must receive strict construction. Law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events.'- 'The amendment to sub-section (1) of Section 150 is not expressed to be retrospective and, therefore, has to be held as only prospective.'- 'Sub-section (2) intends to insulate all proceedings of assessments, which have attained finality due to the then existing bar of limitation. To achieve the desired result it was not necessary to make any amendment in sub-section (2) corresponding to sub-section (1).'- 'Interpretation, which creates such unjust and discriminatory situation, has to be avoided.'- 'Taxing provision imposing a liability is governed by normal presumption that it is not retrospective and settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication.'- 'Sub-section (1) of Section 150, as amended with effect from 1.4.1989, does not enable the Authorities to reopen assessments, which have become final due to bar of limitation prior to 1.4.1989 and this position is applicable equally to reassessments proposed on the basis of Orders passed under the Act or under any other law.'- The Court set aside the High Court judgment and quashed the reassessment notices issued under Sections 148 and 142 of the Act for the assessment years 1968-69 to 1971-72 and 1981-82.