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The Supreme Court on Thursday upheld an amendment that allows income tax officials to proceed against “third parties” against whom incriminating evidence was found at another person’s premises during search operations. It also said that the amendment would apply retrospectively.
The matter pertains to the application of Section 153C of the Income Tax Act, which provides the revenue department the power to proceed against third parties and issue notice and assess and reassess income in case of undisclosed income and assets. This amendment was passed through the Finance Act of 2015, which came into effect on June 1, 2015.
The court said such proceedings were within the scope of Section 153C of the Income Tax Act, irrespective of whether the searches were conducted before or after June 1, 2015.
Quashing a 2014 Delhi High Court order, the top court said the amendment to Section 153C would apply retrospectively to searches conducted prior to the date of the amendment.
This also implies that action initiated against third parties will be covered under this and will apply to all pending and future proceedings.
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In 2014, the Delhi HC gave restrictive interpretation to the words “belong/belongs” mentioned in the Section 153C for other persons/third parties. The HC held that the word cannot be confused as “relates to/refers to”.
To address this, the government brought in the amendment to the section in 2015, through which it substituted the words with “pertain/pertains to”.
However, there was contention over the applicability of the section and whether the amendment would be applicable retrospectively.
The Supreme Court allowed a batch of 115 appeals filed by the revenue department against the Delhi HC’s judgment.
The amendment was necessitated because of the “narrow and restrictive” meaning given by the Delhi High Court in the Pepsico case, the apex court said. The Delhi HC’s observation came in the way of suppressing the very mischief that the legislature intended to suppress, the apex court pointed out.
It said that while interpreting a statute the court must bear in mind the intention with which the legislation was passed and the mischief it sought to suppress. It added that the interpretation that best expressed the intention of the legislature should be preferred. However, the narrow scope given to the words “belongs or belong to” frustrated this purpose and, therefore, the amendment was necessitated.
It further said, “The object and purpose of Section 153C is to address the persons other than the searched person. Even as per the unamended Section 153C, the proceeding against other persons (other than the searched person) was on the basis of the seizure of books of account or documents seized or requisitioned ‘belongs or belong to’ a person other than the searched person.”
The apex court rejected assessees’ arguments that the retrospective application of the section would affect the substantive rights of individuals. It said, the submission seems to be attractive but deserves to be rejected.
