Taxation laws are arguably the most complex pieces of legislation in India. At the same time, they are required to be read strictly and the scope of latitude in interpreting them is minimal. A raft of Supreme Court (SC) judgments held that the court will take recourse to the golden rule of strict interpretation while dealing with taxation statutes. It has evolved as trite law that their interpretation would not depend upon contingency — until a day ago, when justices MR Shah and BV Nagarathna created a new judicial precedent when the court invoked its extraordinary powers under Article 142 of the Constitution to prevent over 9,000 cases from gutting the top court’s board.
Article 142 empowers the SC to issue any directive that it deems appropriate “for doing complete justice between the parties”. The ruling ushers in a paradigm shift in tax jurisprudence where interpretation of a financial statute has been juxtaposed with the rights of the entities involved and avoided a possible deluge of cases that a judgment may result in. The SC used Article 142 to hold that around 90,000 tax reassessment notices, issued on or after April 1, 2021, under the 1961 Income Tax Act should be treated as issued as per the new requirement of the 2021 Finance 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 new law and the procedure envisaged under the 2021 Act shall ensue. It added the pending cases before the high courts could also be disposed of in the light of its directions. The departure from the conventional norms is a welcome move, for the SC has not only sought to minimise the pendency, but added a new dimension to the manner in which constitutional courts read financial statues.
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