FM’s & CBDT’s Promise Not To Reopen Cases Despite Retro Law Is Illegal

Shri. Tarun Jain

FM’s & CBDT’s Promise Not To Reopen Cases Despite Retro Law Is Illegal

Tarun Jain, Advocate, Supreme Court

The author argues that the promise made by the Finance Minister in Parliament, which is now endorsed in a CBDT Circular dated 29.05.2012, that completed assessments as of 1.4.2012 will not be reopened pursuant to the retrospective amendments made by the Finance Act 2012, is without authority of law & illegal. The author makes good his contention by reference to several landmark cases

Retrospective amendments have always been a bone of contention in taxation laws. Sometimes to cure the defects pointed out by courts in the fiscal legislation and sometime (by being accompanied by validation laws) to take away vested rights of the citizens, retrospective amendments are not unknown to tax jurisprudence. Even though they may be criticized on grounds of unreasonable or unfairness and the legislature making such amendments may not be beyond reproach, still the competence of the legislature to make retrospective amendments in taxation laws is duly acknowledged and judicially upheld.

the question arises that if the statute permits and the Courts have upheld reopening of assessment on ground of retrospective amendment, is it permissible for the Finance Minister or the CBDT to declare and direct that no reopening will take place on ground of retrospective amendment? The answer in an emphatic no

The Finance Act, 2012 has introduced a number of retrospective amendments to the Income Tax Act, 1961 with some of the amendments being introduced with effect from the date on which the 1961 Act come into force. The law to this regard is well settled that once a retrospective amendment is validly enacted than it is in the fitness of things as also incumbent upon the judicial authorities to decide the pending lis upon the strength of such retrospective amendment. However a tall claim has been made by the Finance Minister before the Parliament that the retrospective amendments introduced in the Finance Act, 2012 will not be the basis of reopening of assessments which have already been closed before the enactment of such retrospective amendments. This claim has also been backed by a recent CBDT Instruction. This paper revisits the law relating to reopening of assessments in the context of retrospective amendments as applicable in India and examines the correctness of the Government’s claim from a purely legal perspective.

Under the provisions of Income Tax Act, 1961 power has been vested with the Assessing Officers to reopen a concluded assessment within the specified time-frame if income has escaped assessment. The reason for escaping of assessment can be manifold. One such valid reason for reopening of assessment is that the law has been amended retrospectively(1). The only rider to this ground is that given the language of Section 149 there can be no reopening beyond a period of four years if there is no ‘failure to disclose’ on the part of the assessee. Therefore retrospective amendment is not a valid ground for reopening of assessment beyond four years(2).

In this background the question arises that if the statute permits and the Courts have upheld reopening of assessment on ground of retrospective amendment, is it permissible for the Finance Minister or the CBDT to declare and direct that no reopening will take place on ground of retrospective amendment? The answer in an emphatic no, which is evident from the settled legal position as discussed in the following paragraphs;

Suppose an assessing officer goes ahead and reopens a particular assessment within limitation on the ground of the retrospective amendment, will it be open to the assessee to challenge the same on the ground that it is contrary to Finance Minister’s statement before the Parliament and the Circular of the Board? The answer is an emphatic no. The statements made before the Parliament do not create legally enforceable rights and are also not justiciable

(a) First and foremost, the speech of the Finance Minister is not the guide for interpretation of statutory provisions. The law to this regard is well settled that the Court can rely upon the speech of the Finance Minister occasioning the movement of a Finance Bill only in case of ambiguity of the provisions in order to decipher the legislative intent (3). However when the provisions are unambiguous then regard cannot be had to the speech of the Finance Minister in the Parliament (4). If this is the legal position and relevance attached to the of Finance Minister’s speech during the occasioning of the Bill, there hardly seems any greater weightage being assigned to speech at other occasions made by the Finance Minister.

(b) The law to this effect is well settled that the assumptions and presumptions of the Parliament do not make the law and it is the text of the law alone which is relevant (5). Therefore even if Finance Minister and the entire Parliament assume and believe that the retrospective amendments in the Finance Act, 2012 will not be a ground for reopening of assessment, that would not be a valid ground to hold that there would be no reopening. In fact if what the Finance Minister states is correct that retrospective amendment will not be a ground for reopening of assessment then the proviso to Section 14A(3) is redundant. That proviso specifically provides that the retrospective amendments in Section 14A will not be a ground for reopening of assessment. If the Finance Minister’s claim is correct then there was no need for the said proviso to Section 14A.

(c) On the aspect of the power of CBDT to issue a Circulars and instructions, the law to this regard is well settled that CBDT Circulars and Instructions are binding on the Department. However it is equally well settled that CBDT Circulars and Instructions cannot bind the department or the officers as far as exercise of statutory powers or exercise of their discretion is concerned (6). When the statute provides for retrospective amendment and the law obliges the assessing officer to reopening cases (within period of limitation) on such ground then the assessing officer would be failing in the statutory duty by not reopening assessment. One is reminded of the clear enunciation of law on this aspect by the Delhi High Court in the following terms (7);

94. The impugned Circular was issued by the executive and sent to all Chief Commissioners of Central Excise, all Director General of Central Excise, all Commissioners of Central Excise (Appeals) and all Commissioners of Central Excise. Some of these bodies discharge quasi judicial functions. It is the settled position of law that quasi judicial functions cannot be controlled by executive actions by issuing circulars. It is totally impermissible. According to the spirit of Section 37B circulars or directions can be issued in order to achieve the object of uniformity and to avoid discrimination. Such circulars bind the officers only when they act in their administrative capacity. It must be clearly understood that the Board’s circulars instructions or directions cannot in any manner interfere with quasi judicial powers of the Assessing Officers. Officials exercising quasi judicial powers must ignore any circular or direction interfering with their quasi judicial functions.

95. Whenever any authority is conferred with the power to determine certain questions in judicial and/or quasi judicial manner, the authority is required to exercise the power conferred upon him as per his own discretion. This is the essence of judicial and quasi judicial function. The authority exercising such powers cannot be influenced by any directions, instructions or the Circulars that may be issued by any other agency. Consequently, the Circular issued by the respondents cannot be permitted to interfere with the discretion of the judicial and quasi judicial authorities.

96. The power to impose tax is essentially a legislative function and according to our constitutional scheme it cannot be delegated. The Excise Duty which the legislature intends to impose must be imposed directly in accordance with law. By issuing the impugned circular the respondent cannot introduce revenue legislation indirectly. The impugned circular also deserves to be quashed on this ground also.

97. Consequently, the impugned circular dated 7-9-2001 issued by the Ministry of Finance, Department of Revenue, Central Board of Excise & Customs is quashed and proceedings emanating from the said Circular also stand quashed. These writ petitions are accordingly allowed. In the facts and circumstances of the case, we direct the parties to bear their own costs.

(d) The law to this regard is also settled that Board’s Circular / instruction cannot be contrary to law (8). Therefore when the law obliges the assessing officer to reopen the assessment and the Circular / instruction directing the assessing officer not to, renders the Circular / instruction contrary to law. One is reminded of the decision of a Constitutional Bench of the Hon’ble Supreme Court wherein it has been categorically declared that “a circular which is contrary to the statutory provisions has really no existence in law”. The Instruction (9) dated 29.05.2012 is therefore illegal as it is contrary to statutory provisions of the income tax act as interpreted by the Supreme Court.

(e) The same outcome is reached even if the matter is examined from a practical viewpoint. Suppose an assessing officer goes ahead and reopens a particular assessment within limitation on the ground of the retrospective amendment, will it be open to the assessee to challenge the same on the ground that it is contrary to Finance Minister’s statement before the Parliament and the Circular of the Board? The answer is an emphatic no. The statements made before the Parliament do not create legally enforceable rights and are also not justiciable. Therefore any case they do not advance the case of the assessee. As regards the Circular, it does hold goods being contrary to statutory provisions as also the decisions of the Supreme Court. In any case, the Departmental Circulars do not bind the judicial and quasi-judicial authorities and therefore are of no assistance to the assessee to challenge the action of the Assessing Officer. Therefore the reopening cannot be challenged at all. In fact in Ratan Melting the Supreme Court went on to declare that “circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court.”

Whether such Assessing Officer will be liable for disciplinary action for violating the CBDT Circular is no one’s concern and in any case is not determinative of the reassessment proceedings. Thus the moot point remains is that if the speech of the Finance Minister as well as the CBDT Circular does not have legal force, why all this effort to issue them. The Press Release citing Finance Minister states it is to allay the fears of the foreign investors in the wake of the numerous retrospective amendments in the Finance Act, 2012. If that was indeed the intent then a provision like the proviso to Section 14A(3) should have been introduced. However that not being done makes it clear that the speech as well as the Circular is mere eyewash with the legal position being different.

The intent of this article is to neither attribute any motives nor criticize any officer or concerned individual but only to restate the legal position on the issue. The author hopes that he would be proved wrong and indeed no reopening will ensue pursuant to the retrospective amendments under the Finance Act, 2012 but in the event of the situation being otherwise the law is too well clear to draw a conclusion. If the intent is really to ensure that no reopening is undertaken on grounds of these retrospective amendments that the 1961 Act has to be suitably amended to that effect and nothing less.

The author will also fail in the duty to ignore the fact that even the instruction dated 29.05.2012 reaffirms the parliamentary intent to proceed with the recovery from Vodafone in as much as the instruction states that the reopening may follow for cases which have been validated and the legal fraternity very well knows which is the only case for which the Finance Act, 2012 provides for a validation clause.

(1) ITO v. Bombay Dyeing & Manufacturing (1958) 34 ITR 143 (SC); See also CTO v. Biswanath Jhunjhunwala, AIR 1997 SC 357; Additional Commissioner v. Jyoti Traders, AIR 1999 SC 526; National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India, AIR 2003 1329 (para 29);
(2) See DIL Ltd. v. ACIT (2012) 205 Taxman 182 (Bom); SIL Investments Ltd. 339 ITR 166 (Del)
(3) Union of India v. Martin Lottery Agencies Ltd. (2009) 12 SCC 209.
(4) B.K. Industries v. Union of India AIR 1993 SC 2123 which holds that ‘Finance Minister speech is not law’ and therefore will not operate against clear statutory provisions
(5) ITO v. Mani Ram (1969) 72 ITR 203 (SC)
(6) J.K. Synthetics v. CIT (1972) 83 ITR 335 (SC).
(7) Faridabad Iron & Steel Traders Asso. v. Union of India 2004 (178) ELT 1099 (Del) Affirmed by the Supreme Court in its order reported at 2005 (181) ELT A68 (SC). See also Popular Packing Pvt. Ltd. v. Union of India 2004 (175) ELT 33 (Raj); Madura Coats Ltd. v. CBEC 2004 (163) ELT 164 (Mad); Hindustan Motors Ltd. v. Union of India 2000 (117) ELT 32 (Del); etc.
(8) CCE v. Ratan Melting and Wire Industries Ltd. (2008) 220 CTR 98 (SC) (Constitutional Bench)
(9) Letter issued vide F.No.500/111/2009-FTD-1(Pt.) dated 29-5-2012
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9 comments on “FM’s & CBDT’s Promise Not To Reopen Cases Despite Retro Law Is Illegal
  1. Qaqa says:

    The “benevolent circular” only refers to assessments completed u/s 143(3). On the other hand, the retrospective amendments mainly impact the liability to deduct tax at source [such as amendments to “royalty” and to an extent, indirect transfers]. The liability of the payers under section 201 in respect of such covered transactions is not affected in any way by this circular.

    Considering this, I do not forsee any real world impact from this circular. The question of whether the circular is valid or not, remains academic.

  2. pradip kedia says:

    one thing that appears to have lost sight in the whole discussion is that what has been issued is mere ‘press release’ or an ‘instruction’ which does not have the same statutory force as ‘circular’ issued under S. 119. For this proposition one may refer to CIT vs. Kelvinator of India Ltd. 256 ITR 1 (2002)(Del.) which has again referred to SC decision in Anjum Ghaswala for this point.

    It is trite that one of the purposes of CBDT circular is to tone down the regours of law. while CBDT circular is binding on the AO, same is not true for the Assessee.

    One may also note that S. 147 ( Substantive section being a jurisdiction section) which regulates the reopening of old cases vests power to the AO and AO alone. The superior authority can review the proposed action only under S.151. The superior authority viz. instruction of CBDT per se is not an impediment for issuing notice u/s 147.

    CA PRADIP KEDIA

  3. Hemant Joshi says:

    Congratulations Tarun! You have a valid point!

  4. J.P.Gupta says:

    The circulars issued by the C.B.D.T. are binding on the assessing authority who cannot substitute his own opinion even if ex-facie it appears to be as per law. There is therefore hardly any case for calling the circular illegal unless the assessee himself is aggrieved by it and challenges it before appropriate forum.

  5. jitesh sonee says:

    The moot point of the circular is closed asst are not to be reopened but the open asst in the stage of AO, or pursued at CIT(A),Tribunals,Courts shall have to bear the rigours of retro clarificatory amendments.
    Secondly the department is making ground for interest waiver and penalty dropping by providing discrimination issues in the circular.
    How much 143(1) issues are affected is the only debatable issue left.

  6. CA DEV KUMAR KOTHARI says:

    Legislative intention or bureaucratic whims?

    Retrospective amendments on one hand, and exemption from application of such amendments by way of executive instructions leads to one pointer that a mockery of law is made by bureaucracy and it is so very unfortunately in guise of amendments in name of ‘legislative intention’.
    The question thus arises – how it can be ascertained as to what was legislative intention when the original law was enacted?
    After a gap of 15-20 years even an individual may not be in a position to recall as to what was his intention when he made some commitment or arrangements. He has to ascertain his intention also from the documents and record of past actions and relevant facts. When an individual cannot go beyond what is written in documents executed by him, how legal provisions can be amended so easily to take effect retrospectively. Legislative intention has to be ascertained only as per language and words used.
    A change in legislative intention requiring amendment of law should therefore, be only for future.
    The retrospective amendment places different people in different positions. A person whose matter has been settled by way of order u/s 143(3) is not affected. whereas another person whose assessment has not been made u/s 143(3) is affected. Another assessee whose appeal is pending at some stage ( from CIT(A) to Supreme Court) is affected because the amended law will apply.

    Therefore in such circumstances different people are placed in different situations. There is no intelligible differential so as to permit such situation. Therefore, the retrospective amendments, are untravirse the Constitution of India as such provision violate equality before law.

  7. Anil Jain says:

    Section 119(2) Without prejudice to the generality of the foregoing power,—

    97(a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of sections 98[115P, 115S, 115WD, 115WE, 115WF, 115WG, 115WH, 115WJ, 115WK,] 99[139,] 143, 144, 147, 148, 154, 155 1[, 158BFA], 2[sub-section (1A) of section 201, sections 210, 211, 234A, 234B, 234C], 271 and 273 or otherwise), general or special orders in respect of any class of incomes 3[or fringe benefits] or class of cases, setting forth directions or instructions (not being prejudicial to assessees) as to the guidelines, principles or procedures to be followed by other income-tax authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties and any such order4 may, if the Board is of opinion that it is necessary in the public interest so to do, be published and circulated in the prescribed manner for general information;

  8. Vineet Agrawal says:

    I dont see much help to battered assessees from this circular as it cleverly exempts only those case where assessment has been finalised u/s 143(3). What about the cases which were not taken up for scrutiny. The circular brings a discrimination with regards to such cases vis a vis those cases which were scrutinised and spared the brunt of an interpretation which has been negated by highest court of land.

    Of course the validation clause will certainly catch those cases which are already before various judicial forums or Vofadfone which will now face another round of persecution as representative assessee of Hutch. It will be interesting to see how this case proceeds and tested by judicial forums.

  9. gopal nathani says:

    Reopening an assessment is a procedure and for certain board has powers to issue directions .
    The fact that FM has made a statement on the floor of the house and board has issued instruction is
    Wonderful show which must be appreciated. Vodafone has to face action as FM suggested in their case that they were warned earlier.
    There is nothing illegal in the circular.

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