Last Date Mentioned u/s 245C to File SetCom Application Should Be Read as 31-03-2021 Instead of 01-02-2021 | HC

Case Details: Jain Metal Rolling Mills vs. Union of India - [2023] 156 taxmann.com 513 (Madras)

Judiciary and Counsel Details

• • Sanjay V. Gangapurwala, CJ. & D. Bharatha Chakravarthy, J.
  • J.D. Mistry, R. Sivaraman, Vandanay Vyas & P.S. Raman for the Petitioner.
  • Prabhu Mukunth Arunkumar, A.R.L. Sundaresan, Rajesh Vivekanathan, A.P. Srinivas & A.N.R. Jayaprathap for the Respondent.

Facts of the Case

Assessee filed an instant petition to challenge the constitutional validity of the amendment to section 245A discontinuing operations of settlement commission w.e.f. 1-4-2021. This was done by inserting various sub-clauses and proviso to the existing sections and inserting new sections 245AA and 245M by way of the Finance Act, 2021, with retrospective effect from 1-2-2021.

The above amendment was challenged on the ground that such amendment was arbitrary, illegal and void and also infringed the fundamental rights conferred under articles 14, 19(i)(g), 20, 20(2) and 21 of the Constitution of India 1950.

Assessee also challenged the validity of Circular, dated 28-9-2021, in as much as it restricted filing of the application before the Interim Board for Settlement only by assesses who were eligible to file an application for Settlement on 31-1-2021.

High Court Held

The Madras High Court held that the Income-tax Settlement Commission (ITSC) was made inoperative with effect from 1-2-2021 by virtue of proviso to section 245B. Similarly, section 245C(5) also played an embargo that no application shall be made under the section on or after 1-2-2021. The proviso to section 245D(2C) deemed that if no order was passed as of 31-1-2021 under the section, the application was deemed to be valid.

The legislation in question was given retrospective effect starting from February 1st, 2021 when the Bill was introduced in the Parliament. This move aimed to inform taxpayers and the public about the impending policy decision to render the ITSC inoperative.

The retrospective period spans merely two months, evidenced by the Act being officially notified on 01-4-2021. Importantly, this action doesn’t pertain to imposing taxes. Thus, it can’t be argued that the parties acted as per the law in force at the relevant time. Therefore, the act of the State in abolishing the ITSC with effect from a cutoff date per se cannot be illegal or ultra vires the Constitution.

However, until March 31st, 2021, the Income Tax Settlement Commission (ITSC) remained legally and factually operational. Eligible assesses retained the right to approach the ITSC if they had pending cases. Even for assessments or reopening proceedings initiated between February 1st, 2021, and March 31st, 2021, the assessees could approach the Commission.

Any applications submitted without a final order before January 31st, 2021, were considered ‘pending applications’. The legislation’s primary goal was to abolish the ITSC and establish an Interim Board to handle these pending applications. Notably, even cases arising before the Act’s notification on April 1st, 2021, but after the cutoff date of February 1st, 2021, were eligible for ITSC consideration.

The purpose of the retrospective legislation is to make the ITSC inoperative right from the date of the introduction of the Bill and to send all the pending applications to the Interim Board. As a matter of fact, the Central Government has to make a Scheme for Settlement with respect to pending applications by the Interim Board as per section 245D(11), and such a scheme has to be placed before the Parliament.

Thus, there was no intent, nor was it within the purpose to do away with the ‘pending applications’ with respect to matters in which the ‘cases’ arose from 1-2-2021 to 31-3-2021. Thus, it was necessary to read down the last date mentioned for filing applications in section 245C(5) as 31-3-2021, and consequently, the last date mentioned in the Circular should also be read as 31-3-2021.