Income Tax Search and Seizure : Retrospective applicability of Section 153C “2015 amendment” as held by the Supreme Court
The Supreme Court on 06th April’2023 delivered a landmark verdict in the case of Income Tax Officer vs Vikram Sujitkumar Bhatia and 114 connected cases ( in C.A. No. 911/2022 ) as it ruled that searches conducted before June 1, 2015, would also come under the amendment brought by the Finance Act 2015 in Section 153C of the Income Tax Act,1961. The Supreme Court held that the amendment brought to Section 153C of the Income Tax Act 1961 by the Finance Act 2015 will retrospectively apply to searches conducted prior to the date of the amendment, i.e., 01.06.2015.
The Bench of Justice M.R. Shah and Justice C.T. Ravikumar passed the orders on a bunch of 115 applications filed by the Revenue Department against the Delhi High Court order of 2014 in the PepsiCo India Ltd vs Assistant Commissioner of Income Tax case.
Section 153C allows the revenue department to proceed against a party other than the person who is being searched if incriminating articles against the “other person” is found during the search. Section 153C initially used the word “belong/belongs to”. So, if any books of accounts or documents which “belong/belongs to” a person other than the person who is being searched is discovered during the search proceedings, Section 153C enabled the department to proceed against the “other person” if the materials indicated undisclosed income or assets.
However, in 2014, the Delhi High Court gave a restrictive meaning to the words “belong/belongs” in Section 153C in the case PepsiCo India Ltd. v/s Assistant Commissioner Of Income Tax. The High Court held that the word used in the Section cannot be confused with “relates to” or “refers to”. The HC held that if photocopies of a document are seized from a person, it cannot be said that the document “belongs” to that person, as the originals are with someone else. The High Court further held that if a registered sale deed is found during the search premises, it cannot “belong” to the vendor though the vendor’s name is mentioned there.
To nullify the decision of the Delhi High Court, Section I53C was amended by Finance Act 2015 to substitute the words “belong/belongs to” with “pertain/pertains to and relates to”. The issue in the aforementioned batch of appeals before the Supreme Court was whether this amendment will apply to searches undertaken before the 2015 amendment.
This issue was answered in favor of revenue wherein a bench comprising of Hon’ble Justices MR Shah and CT Ravikumar placed heavy reliance on the objects and reasons of the 2015 amendment. The bench noted that the 2015 amendment was specifically brought to remove the basis for the Delhi High Court’s judgment. The amendment was necessitated because of the “narrow and restrictive” meaning given by the Delhi High Court which limited the powers of the revenue to proceed against third parties even if incriminating materials were found against them during the search.
“The said observation of the Delhi High Court was coming in the way of suppressing the very mischief which the legislature intended to suppress, which necessitated the amendment to Section 153C”, the Court observed.
Therefore, the Apex Court held that it was necessary to give effect to the manifest intention of the legislature while interpreting the provision. Once the primary intention is ascertained and the object and purpose of the legislature are known, it becomes the duty of the court to give a purposive and functional interpretation. The contention of the revenue that Section 153C is a machinery provision and hence its manifest purpose should be given effect was accepted by the Court.
Also, the 2015 amendment was a case of substitution of words, whereby “belong/belongs” was replaced with “pertain/pertains”.
Referring to precedents, the bench noted that amendment by substitution has the effect of wiping the earlier provision off the statute book as if the unamended provision never existed.
The bench also rejected the argument of Assesees that the retrospective application of the amendment will affect the substantive rights of the individuals. “Though the submission is attractive, it deserves to be rejected”, the bench said by pointing out that even the un-amended Section 153C pertains to the assessment of income of any other person. The object and purpose of Section 153C are to address persons other than search persons and even as per the unamended Section, the bench said.
Allowing the batch of 115 appeals filed by the revenue against the High Court’s judgments which refused to allow the retrospective application of the amendment, the Supreme Court held: “The question whether the amendment brought to Section 153C of Income Tax Act by Finance Act 2015 would be applicable to searches conducted under Section 132 of the Income Tax Act act before 01.06.2015, i.e the date of the amendment is answered in favor of revenue and against the assessees.
It is held that amendment brought to Section 153C by Finance Act 2015 shall also be applicable to searches conducted under Section 132 of the Act before 01.06.2015, i.e the date of amendment”.
CA Mohit Gupta
Delhi, India
Mr. Mohit Gupta is a Fellow Member of the Institute of Chartered Accountants of India, a commerce graduate from prestigious Ramjas College, Delhi University, and alumni of St. Xavier’s School, New Delhi. He is practicing as a Chartered Accountant for more than 15 years and managing the Direct Tax Advisory and Litigation practice of M/s. Dhanesh Gupta & Co., Chartered Accountants, New Delhi a renowned Chartered Accountancy firm in the core domain of direct taxation established in 1978. He forte is handing Income Tax Search and Seizure matters, matters before the Income Tax Settlement Commission and other direct tax litigation matters. As of today, he has wide experience in handling Income Tax Search and Seizure Cases, representing matters before the Income Tax Settlement Commission, ITAT, and other appellate tribunals. He has been contributing articles in various professional magazines/journals and addressing various seminars on topics relating to Income Tax Search and Seizure, Income Tax Settlement Commission, and other allied tax matters. He has to his credit plethora of well-researched articles out of which many have appeared in leading journals. In Addition to the above, Mr. Mohit Gupta is a Special Auditor of the Income Tax Department and has carried out numerous Special Audits across the country on being appointed by the Income Tax Department which have plugged tax evasions, tax base erosion, and other tax manipulative practices and in turn, facilitated the Income Tax Department to collect huge tax revenues. Mr. Mohit Gupta has also been appointed as Special Auditor under other tax statutes and by other Investigation Agencies of the Government of India. Mr. Mohit Gupta, authored the periodical Newsletter on Income Tax Search and Seizure. The said newsletter contained well-researched write-ups/articles and judicial developments on the matters of Direct Taxation. The newsletter was circulated both electronically and otherwise. Recently, in the year 2016, Mr. Mohit Gupta has authored two comprehensive books on the Income Declaration Scheme’2016, titled as “Law Relating to Income Declaration Scheme’2016”. His books provided at one place the entire gamut of the Law relating the Income Declaration Scheme ‘2016 and set to rest all the queries that arose before, during, and after the course of making the declaration under the Income Declaration Scheme’2016. The books received an extremely overwhelming response from the readers including the proposed taxpayers, tax administration, tax professionals, corporate houses, and academicians. The said books were released by erstwhile Hon’ble Union Finance Minister, Shri. Arun Jaitley, Shri.Arjun Ram Meghwal, Minister of State for Finance and the Chairman of Central Board of Direct Taxes and many other dignitaries. Due to his continuous desire to always rise on the learning curve, he always has a quest and quenches to read more, learn more, and perform even more.
