Delhi High Court Upholds Validity of Settlement Applications Filed During Transitional Period
Retrospective amendments through Finance Act, 2021 cannot invalidate applications filed between February 1 and March 31, 2021, says Court.
In a significant judgment, the Delhi High Court has upheld the validity of settlement applications filed under Section 245-C of the Income Tax Act, 1961, during the transitional period between February 1, 2021, and March 31, 2021. The decision comes in the wake of retrospective amendments introduced through the Finance Act, 2021, which sought to abolish the Income Tax Settlement Commission (ITSC) and replace it with an Interim Board. The court ruled that retrospective amendments cannot take away vested rights unless clearly expressed or necessarily implied.
The case in question involved Megha Engineering And Infrastructure Ltd., which had filed settlement applications amid concerns that the ITSC was not accepting applications due to the provisions of the Finance Bill, 2021. The court, making interim orders absolute on March 25, 2021, directed the ITSC to process the applications uninfluenced by the Finance Bill, as it had not yet become a statute.
The bench comprising Mr. V. Kameswar Rao and Vinod Kumar, JJ., referred to several judgments from the High Courts of Madras, Bombay, and Gujarat, which had similarly ruled in favor of assessees whose rights were affected by the retrospective application of the Finance Act, 2021. The court emphasized the importance of statutory rights and vested interests, asserting that the abolition of the ITSC through retrospective legislation must not affect applications filed within the specified timeframe.
The judgment highlighted that the ITSC was operational until March 31, 2021, and applications filed during this period are valid and should be adjudicated by the Interim Board. Furthermore, the court declared that notifications extending the time for filing settlement applications, which restricted eligibility to assessees eligible as of January 31, 2021, were invalid and beyond the powers of the Central Board of Direct Taxes (CBDT).
The decision also stays the notices issued under Sections 143(2) and 142(1) of the Income Tax Act for assessments during the pendency of the settlement applications, thereby providing relief to the petitioners.
Legal experts view this judgment as a reaffirmation of the principle that retrospective legislation cannot infringe upon vested rights without explicit legislative intent. The ruling is expected to impact numerous assessees who were caught in the transitional phase of tax legislation changes.
Bottom Line:
Income Tax - Validity of settlement applications filed under Section 245-C of the Income Tax Act, 1961 during the interregnum period between 01.02.2021 and 31.03.2021 upheld - Retrospective amendments through the Finance Act, 2021 cannot take away vested rights unless clearly expressed or necessarily implied.
Statutory provision(s): Income Tax Act, 1961 Sections 245A to 245M, Finance Act, 2021, Income Tax Act, 1961 Section 119(2)(b), Constitutional Law Article 14, Income Tax Act, 1961 Sections 143(2) and 142(1).
