In a path-breaking verdict in income tax jurisprudence, the Supreme Court on Wednesday invoked its extraordinary powers under Article 142 to ward off a deluge of over 9,000 cases from inundating the top court’s docket.
Article 142 of the Constitution empowers the Supreme Court to pass such “decree or order as may be necessary for doing complete justice between the parties”, and is usually invoked by the apex court in matters of larger public interest or to settle disputes between the parties before it.
However, a bench of justices MR Shah and BV Nagarathna made an exception on Wednesday when it used Article 142 to hold that around 90,000 tax reassessment notices issued under the 1961 Income Tax Act should be treated as issued as per the new requirement of the amended 2021 Act.
This means that any notice sent to an assessee under the old regime should be treated as only a show-cause notice as per the amended act.
Noting that these notices are the subject matter of more than 9,000 petitions before various high courts and the I-T department proposes to move the Supreme Court in appeal in all these cases, the bench emphasised that it is imperative to resort to Article 142 “to lessen the burden of this court”.
“We propose to pass an order in exercise of powers under Article 142 of the Constitution of India. The present order shall govern all the other judgments and orders passed by various high courts on the similar issue. Hence, we observe that the Revenue need not file separate individual appeals which may be more than 9,000 in numbers,” held the bench.
It underlined: “The present order is passed in exercise of powers under Article 142 of the Constitution of India so as to avoid any further appeals by the Revenue on the very issue by challenging similar judgments and orders, with a view not to burden this court with approximately 9,000 appeals.”
Breaking new ground in the tax litigation, the court further underscored that its order under Article 142 shall govern not only the appeals against the high court orders pending before it, but shall also be made applicable in respect of the similar judgments and orders passed by all the high courts across the country and “therefore, the present order shall be applicable to pan India.”
The controversy pending before the top court pertained to validity of reassessment notices issued to several entities under the old provisions of Section 148 of the I-T Act, 1961, after March 31, 2021.
Earlier, the high courts of Allahabad, Bombay, Calcutta, Delhi, Madras and Rajasthan had allowed a clutch of petitions, which complained that the notices issued by the Revenue were untenable since several provisions of the 1961 Act, including Section 148, were substituted by the Finance Act, 2021 which came into force from April 1.
The 2021 Act, the petitioners pointed out, required the assessing officer to conduct an inquiry and also provide assesses an opportunity of being heard before notices were sent, which was not done when notices were issued under the old regime.
The Central Board of Direct Taxes (CBDT), on the other hand, relied on the notifications issued by it under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 in March and April this year, to maintain that it could issue the notice of reassessment under Section 148 by extending the time period.
Deciding the cases, the Supreme Court on Wednesday held that the new provisions under the 2021 Finance Act are remedial and benevolent in nature, and protect the interest of the assesses by ensuring sufficient opportunities for them before reassessment notices are issued.
Even as the top court maintained that high courts were correct in ruling against the validity of the notices issued under the old regime after March 31, 2021, it clarified that the Revenue cannot be left remediless and the object and purpose of reassessment proceedings cannot be frustrated due to a bona fide mistake of the department in issuing notices under the 1961 Act.
The high courts, it added, should have given some leeway to the I-T department by making the notices issued under the old regime to be treated as notices under the 2021 Act, subject to compliance of all the procedural requirements and the defence, which may be available to the assesses.
“It will strike a balance between the rights of the Revenue as well as the respective assesses as because of a bonafide belief of the officers of the Revenue in issuing approximately 90,000 such notices, the Revenue may not suffer as ultimately it is the public exchequer which would suffer,” emphasised the top court, issuing its directives under Article 142.
The bench, therefore, directed that all high court orders shall stand modified to the extent that reassessment notices under old Section 148 would be construed as show-cause notices under new Section 148A, and the assessing offices shall provide assesses with relevant materials within 30 days to enable them to respond. It pointed out that the procedure as mentioned under the 2021 Act takes off after show-cause notices are issued.
“The present order shall be applicable PAN INDIA and all judgments and orders passed by different high courts on the issue and under which similar notices which were issued on or after April 1, 2021 issued under Section 148 of the Act are set aside and shall be governed by the present order and shall stand modified to the aforesaid extent,” it said.
Rakesh Nangia, chairman of Nangia Andersen India, called it a landmark order.
“Till now, the Supreme Court has been refraining from invoking extra-ordinary constitutional power in tax matters, and would interpret tax laws based on statute book, as it stands. However, considering the very large number of cases, which might escape assessment of tax due to quashing of such reassessment notices issued on or after April 1, 2021 and its potential tax impact on the exchequer, the court has taken an exception in the present case and considered it fit to invoke Article 142,” Nangia said.
It is also crucial to note, the chairman of the tax consulting and advisory firm said, reassessment proceedings are not revived in all 90,000 notices and that validity of proceedings in each case will be tested based on provisions of new law following the replies to the show-cause notices.