Some questions are required to be answered in the light of prevalent legal position. These are if penalty provisions can be amended retrospectively to include cash deposits and whether the government can increase tax rate on deposits retrospectively.
In my opinion, provisions regarding levy of penalty and increased tax rate are in the nature of substantive law and not adjectival law. Charging sections are to be strictly construed. Even machinery provisions are to be construed as would effectuate the object and purpose of the statute and not defeat the same. Therefore, fresh inclusion of a circumstance in penalty provisions and increase in rate of tax, even if construed as forming part of the machinery provisions are to be considered as substantive law which cannot be construed retrospectively.
Such view is in accordance with the decision of the Hon’ble Apex court rendered by the five-judge bench in the case of J.K Synthetics Ltd. vs Commercial Taxes Officer (1994) 119 CTR 0222.
Hon’ble Apex court in the case of W Ramnad Electric Distribution Co. Ltd. v State of Madras AIR 1961 SC 1753 has held that penal statutes are generally considered prospective. Those penal statutes which create offences or which have the effect of increasing penalties for existing offences will only be prospective by reason of constitutional restriction imposed by Article 20 of the Constitution.
In Maruram vs. UOI AIR 1980 SC 2147 it has been held that when an Act creates new offence it will bring into its fold only those offenders who commit all ingredients of the offence after the act comes into operation.
In the case of Pyare Lal vs M.D J&K Industries AIR 1989 SC 184 it is held that “it is the basic principle of natural justice that no one can be penalized on the ground of a conduct which was not penal on the day it was committed”.
Income tax is a liability in respect of previous year relevant to assessment year, the liability is fixed by the Finance Act which is applicable for complete financial year and in my opinion for a particular action, it cannot be changed for part of the year.
However, it is one of the settled principles that because of plenary powers, the legislature, if it is otherwise competent to legislate on a topic, can pass legislations prospectively as well as retrospectively subject to several recognized limitations.
The first is the requirement that the words used must expressly provide or clearly imply retrospective operation. The second is that the retrospectivity must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional. (National Agricultural Co-operative Marketing Federation of India Ltd. vs. UOI (2003)260 ITR 548 (SC).
Reference can also be made to the decision of the Hon’ble apex court in the case of Hitendra Vishnu Thakur vs. State of Maharashtra. AIR 1994 SC 2623,2641 (SC). In this case their lordships after examining the several decisions on retrospective operation of a statute have observed as under:-
“From the law settled by this Court in various cases, the illustrative though not exhaustive, principles which emerge with regard to the ambit and scope of an Amending Act and its retrospective operation may be culled out as follows:
“(i) A statute which affects substantive rights is presumed to be prospective in operation, unless made retrospective, either expressly or by necessary intendment, whereas a Statute which merely affects procedure, unless such a construction is texturally impossible, is presumed to be retrospective in its application, should not be given an extended meaning, and should be strictly confined to its clearly defined limits.
“(ii) Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal, even though remedial, is substantive in nature.
“(iii) Every litigant has a vested right in substantive law, but no such right exists in procedural law.
“(iv) A procedural Statute should not generally speaking be applied retrospectively, where the result would be to create new disabilities or obligations, or to impose new duties in respect of transactions already accomplished.
“(v) A Statute which not only changes the procedure but also creates new rights and liabilities, shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication.”
Thus, the validity of retrospective amendment, if brought into the statute has to be examined in the light of above principles.
What can the court do if they find that most taxpayers in India are showing accumulated cash income as current year income?
The answer to this query can be found in the decision of Apex Court in the case of Padmasundra Rao V. State of Tamil Nadu 255 ITR 0147 (SC) (five judges). It is observed that the courts only interpret law and cannot legislate. If a provision of law is misused and subjected to abuse of the process of law, it is for the legislature to amend, modify or repeal it, if deemed necessary. It is well settled principle in law that the court cannot read anything into a statutory provision, which is plain and unambiguous. A statute is an addict of the legislature. The language employed in the statute is determinative factor of legislative intent. The legislative casus omissus cannot be supplied by judicial interpretative process. Principle of casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it found in the four corners of the statute itself but at the same time casus omissus should not be readily inferred and for that purpose all the parts of the statute or section must be construed together and every clause of a section should be construed with reference to the context and other causes thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature.
IPB.