Union of India & Ors. v. Rajeev Bansal

Union of India & Ors. v. Rajeev Bansal

34Copy pinpoint34. Taxing statutes are interpreted by following the principles of strict interpretation.74 While interpreting a taxing statute, there is no room for any intendment.75 A taxing statute must be construed by having regard to the strict letter of the law.76 In a taxing statute, it is not possible to assume any intention or governing purpose more than what is stated in the plain language. A taxing statute can successfully impose liability on persons or property only if it frames appropriate provisions to that end. The courts cannot plugin a loophole in a taxing statute “by a strained construction in reference to the supposed intention of the Legislature.”77 Further, the considerations of equity or justice are not relevant in interpreting a taxing statute.78

35Copy pinpoint35. It is a well-accepted rule of construction that in situations where the interpretation of taxing legislation is ambiguous or leads to two possible interpretations, the interpretation most beneficial to the subject of the tax should be adopted.79 It would not be an unjust result if a taxpayer escapes the tax net on account of the legislature’s failure to express itself clearly.80

36Copy pinpoint36. In a taxing statute, the charging section has to be construed strictly, but the machinery provisions must be interpreted in accordance with the ordinary rules of statutory interpretation.81 The purpose is to give effect to the clear intention of the legislature. In Murarilal Mahabir Prasad v. B R Vad,82 this Court held that: “29. […] There is no equity about a tax in the sense that a provision by which a tax is imposed has to be construed strictly, regardless of the hardship that such a construction may cause either to the treasury or to the taxpayer. If the subject falls squarely within the letter of law he must

74 G P Singh, Principles of Statutory Interpretation (15th edn, 2023) 616. 75 Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) KB 64, 71 76 A.V. Fernandes v. State of Kerala, 1957 SCC OnLine SC 23 77 Muralilal Mahabir Prasad v. B R Vad (1975) 2 SCC 736 [28] 78 ITO v. T S Devinatha Nadar, 1967 SCC OnLine SC 52 [30] 79 Central India Spinning and Waving Co. Ltd. v. Municipal Committee, 1957 SCC OnLine SC 18 [5]; CIT v. Shahzada Nand & Sons, 1966 SCC OnLine SC 24 [10]; T S Devinatha Nadar (supra) [25]; Voltas Ltd. v. State of Gujarat (2015) 7 SCC 527 [24] 80 CIT v. Jargaon Electric Supply Co. Ltd., 1960 SCC OnLine SC 105 [7]; State of W.B. v. Kesoram Industries Ltd. (2004) 10 SCC 201 [106] 81 Mahim Patram (P) Ltd. v. Union of India (2007) 3 SCC 668 [25] 82 [1976] 1 SCR 689 : (1975) 2 SCC 736 [29]

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be taxed, howsoever inequitable the consequences may appear to the judicial mind. If the Revenue seeking to tax cannot bring the subject within the letter of law, the subject is free no matter that such a construction may cause serious prejudice to the Revenue. In other words, though what is called equitable construction may be admissible in relation to other statutes or other provisions of a taxing statute, such a construction is not admissible in the interpretation of a charging or taxing provision of a taxing statute.”

37Copy pinpoint37. A statute is designed to be workable. A statutory provision must be construed in a manner to make it workable to achieve the purpose of the legislation.83 A construction that fails to achieve the manifest purpose of legislation or reduces the statutory provisions to futility should be avoided.84 The machinery provisions must be construed to effectuate the object and purpose of a statute and not defeat them. In J K Synthetics Ltd. v. CTO,85 a Constitution Bench of this Court observed: “16. It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same.” (emphasis supplied)

83 K P Mohammed Salim v. CIT (2008) 11 SCC 573 [14]; 84 Mohan Kumar Singhania v. Union of India, 1992 Supp (1) SCC 594 [52]; CIT v. Hindustan Bulk Carriers (2003) 3 SCC 57 [17] 85 [1997] 1 SCR 603 : (1994) 4 SCC 276

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38Copy pinpoint38. The provisions in a taxing statute dealing with machinery for assessment have to be construed in accordance with the intention of the legislature to make the charge levied effective.86 While interpreting provisions that set up the machinery of assessment, the rule is that construction should be preferred which makes the machinery workable87 and furthers the intention of the legislature.88 In CIT v. Sun Engineering Works (P) Ltd.,89 a two-Judge Bench of this Court observed that the provision dealing with reassessment contained in Section 147 of the Income Tax Act was for the benefit of the Revenue: “40. Although, Section 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under Section 147 of the Act are for the benefit of the Revenue and not an assessee and are aimed at gathering the ‘escaped income’ of an assessee, the same cannot be allowed to be converted as ‘revisional’ or ‘review’ proceedings at the instance of the assessee, thereby making the machinery unworkable.”

iv. Principle of harmonious construction

39Copy pinpoint39. The legislature is presumed to enact a consistent and harmonious body of laws in deference to the rule of law.90 In case of any apparent conflict within a provision or between two provisions of the same statute, the courts must read the provisions harmoniously.91 The principle of harmonious construction requires courts to bring about a reconciliation between seemingly conflicting provisions to give effect to both. An interpretation which reduces one of the provisions to a “dead letter” is not a harmonious construction. The principle of harmonious construction also applies to reconcile two seemingly conflicting provisions of different statutes.92

86 Gursahai Saigal v. CIT (1963) 48 ITR (SC) 1 [9] 87 CIT v. Mahaliram Ramjidas, AIR 1940 PC 124 88 Gursahai Saigal (supra) [13] 89 [1992] Supp. 1 SCR 732 : (1992) 4 SCC 363 [40] 90 MCD v. Shiv Shankar (1971) 1 SCC 442 [5] 91 Sultana Begum v. Prem Chand Jain (1997) 1 SCC 373 [15] 92 In re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, 2023 INSC 1066 [165]

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40Copy pinpoint40. A legislature often appends a non obstante clause to a provision to give it an overriding effect over provisions contained in the same statute or a separate statute.93 The purpose of incorporating a non obstante clause in a provision is to prohibit the operation and effect of all contrary provisions.94 In Chandavarkar Sita Ratna Rao v. Ashalata S Guram,95 Justice Sabyasachi Mukharji (as the learned Chief Justice then was) explained the purpose of a non obstante clause thus: “67. A clause beginning with the expression “notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract” is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the non obstante clause. It is equivalent to saying that in spite of the provision of the Act or any other Act mentioned in the non obstante clause or any contract or document mentioned the enactment following it will have its full operation or that the provisions embraced in the non obstante clause would not be an impediment for an operation of the enactment.”

41Copy pinpoint41. A non-obstante clause must be given effect to the extent Parliament intended and not beyond.96 In construing a provision containing a non obstante clause, courts must determine the purpose and object for which the provision was enacted.97 The courts are also required to find out the extent to which the legislature intended to give one provision overriding effect over another provision.98 In case of a clear inconsistency between two enactments, a provision containing a non obstante clause can be given an overriding effect over a provision contained in another statute.

93 State of Bihar v. Bihar Rajya MSESKK Mahasangh (2005) 9 SCC 129 [45] 94 Union of India v. G M Kokil, 1984 Supp SCC 196 [11] 95 [1986] 3 SCR 866 : (1986) 4 SCC 447 96 ICICI Bank Ltd v. SIDCO Leathers Ltd (2006) 10 SCC 452 [37] 97 SIDCO Leathers Ltd (supra) [34]; Geeta v. State of U P (2010) 13 SCC 678 [45] 98 A G Varadarajulu v. State of Tamil Nadu (1998) 4 SCC 231 [16]

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42Copy pinpoint42. Another principle of interpretation is that when two laws are inconsistent or repugnant, the later legislation is interpreted as having impliedly repealed the earlier legislation. The principle underlying implied repeal is that there is no need for the later enactment to state in express words that the earlier enactment has been repealed if the legislative intent to supersede the earlier law is manifested through the provisions of the later enactment.99 In MCD v. Shiv Shankar,100 this Court culled out the following principles applicable to the implied repeal of legislation: a. A subsequent legislation may not be too readily presumed to effectuate a repeal of existing statutory laws in the absence of express or at least unambiguous indication to that effect; b. Courts must lean against implying a repeal unless the two provisions are so plainly repugnant to each other that they cannot stand together and it is not possible on any reasonable hypothesis to give effect to both at the same time; c. It is necessary to closely scrutinise and consider the true meaning and effect of both the earlier and the later statute; and d. If the objects of the two statutory provisions are different and the language of each statute is restricted to its objects or subject, then they are generally intended to rule in parallel lines without meeting and there would be no real conflict.

43Copy pinpoint43. The principle on which the rule of implied repeal rests is that if the subject-matter of a later legislation is identical to that of an earlier legislation so that they both cannot stand together, then the earlier legislation is impliedly repealed by the later legislation.101 The courts have to determine whether the legislature intended the two sets of provisions to be applied simultaneously.102 The presumption against implied repeal is based on the theory that the legislature knows the existing laws and does not intend to create any confusion by retaining two conflicting provisions or statutes.103 The test to be applied for the

99 State of Orissa v. M A Tulloch, 1963 SCC OnLine SC 18 [20] 100 [1971] 3 SCR 607 : (1971) 1 SCC 442 [5] 101 Zaverbhai Amaidas v. State of Bombay (1954) 2 SCC 345 [16] 102 Ratan Lal Adukia v. Union of India (1989) 3 SCC 537 [18] 103 Pradeep S Wodeyar v. State of Karnataka (2021) 19 SCC 62 [69]

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construction of implied repeal is whether the new or subsequent law is inconsistent with or repugnant to the old law. The inconsistency or repugnancy should clearly and manifestly reveal an intention to repeal the existing laws.104 The inconsistency or repugnancy must be such that the two statutes cannot be reconciled on reasonable construction or hypothesis. To determine whether a later statute repeals by implication an earlier statute, it is necessary to examine the scope and object of the two enactments by comparison of their provisions.105 Implied repeal should be avoided, if possible, where both the statutes can stand together.106

44Copy pinpoint44. We now proceed to analyse the issues given the broad legislative and judicial background discussed above. E. Reading TOLA into the Income Tax Act i. First proviso to Section 149(1) of the new regime

45Copy pinpoint45. The first proviso to Section 149(1)(b) provides thus: “149. (1) No notice under section 148 shall be issued for the relevant assessment year, - (a) If three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) If three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in possession of books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year: Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April 2021, if such notice could not have been issued at that time

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on account of being immediately beyond the time limit specified under the provisions of clause (b) of sub- section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021:” (emphasis supplied)

46Copy pinpoint46. The ingredients of the proviso could be broken down for analysis as follows: (i) no notice under Section 148 of the new regime can be issued at any time for an assessment year beginning on or before 1 April 2021; (ii) if it is barred at the time when the notice is sought to be issued because of the “time limits specified under the provisions of” 149(1)(b) of the old regime. Thus, a notice could be issued under Section 148 of the new regime for assessment year 2021-2022 and before only if the timelimit for issuance of such notice continued to exist under Section 149(1)(b) of the old regime.

47Copy pinpoint47. In CTO v. Biswanath Jhunjhunwalla,107 the Bengal Sales Tax Rules 1941 empowered the Commissioner to revise any assessment within four years from the date of assessment. Subsequently, the State Government issued a notification following the law to extend the time limit from four years to six years from the date of assessment. The extension of the time limit was challenged by the respondents on the ground that the assessments which had attained finality because of the expiry of the period of four years could not be reassessed. This Court observed that it was the clear intention of the notification to permit the Commissioner to revise any assessment made or order passed, provided the assessment had not been made before six years. It was held that if the legislative intention is clear and the language is unambiguous, full effect must be given to the legislative intention by reading the notification as applying not only to the incomplete assessments but also to assessments that had reached finality because of lapse of the earlier prescribed period. The principle that emanates from Biswanath Jhunjhunwalla (supra) is that the courts should give full effect to the legislative intention of granting reassessment powers to assessing officers unless the legislature, by express provision, states otherwise.

107 [1996] Supp. 5 SCR 286 : (1996) 5 SCC 626

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48Copy pinpoint48. Notices have to be judged according to the law existing on the date the notice is issued. Section 149 of the old regime primarily provided two timelimits: (i) four years for all situations and (ii) beyond four years and within six years if the income chargeable to tax which escaped assessment amounted to Rupees one lakh or more. After 1 April 2021, the timelimits prescribed under the new regime came into force. The ordinary timelimit of four years was reduced to three years. Therefore, in all situations,reassessment notices could be issued under the new regime if not more than three years have elapsed from the end of the relevant assessment year. For example, for assessment year 2018-2019, the four year period would have expired on 31 March 2023 under the old regime. However, if the notice is issued after 1 April 2021, the three year time limit prescribed under the new regime will be applicable. The three year timelimit will expire on 31 March 2022.

49Copy pinpoint49. The first proviso to Section 149(1)(b) requires the determination of whether the timelimit prescribed under Section 149(1)(b) of the old regime continues to exist for the assessment year 2021-2022 and before. Resultantly, a notice under Section 148 of the new regime cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed under Section 149(1)(b) of the new regime applies prospectively. For example, for the assessment year 2012-2013, the ten year period would have expired on 31 March 2023, while the six year period expired on 31 March 2019. Without the proviso to Section 149(1)(b) of the new regime, the Revenue could have had the power to reopen assessments for the year 2012-2013 if the escaped assessment amounted to Rupees fifty lakhs or more. The proviso limits the retrospective operation of Section 149(1)(b) to protect the interests of the assesses.

50Copy pinpoint50. Another important change under Section 149(1)(b) of the new regime is the increase in the monetary threshold from Rupees one lakh to Rupees fifty lakhs. The old regime prescribed a time limit of six years from the end of the relevant assessment year if the income chargeable to tax which escaped assessment was more than Rupees one lakh. In comparison, the new regime increases the time limit to ten years if the escaped assessment amounts to more than Rupees fifty lakhs. This change could be summarized thus:

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Regime Time limit Income chargeable to tax which has escaped assessment Old regime Four years but not Rupees one lakh or more than six years more New regime Three years but not Rupees fifty lakhs or more than ten years more

51Copy pinpoint51. Given Section 149(1)(b) of the new regime, reassessment notices could be issued after three years only if the income chargeable to tax which escaped assessment is more than Rupees fifty lakhs. The proviso to Section 149(1)(b) limits the retrospectivity of that provision with respect to the time limits specified under Section 149(1)(b) of the old regime.

52Copy pinpoint52. In Ashish Agarwal (supra), this Court held that the benefit of the new regime must be provided for the reassessment conducted for the past periods. The increase of the monetary threshold from Rupees one lakh to Rupees fifty lakh is beneficial for the assesses. Mr Venkataraman has also conceded on behalf of the Revenue that all notices issued under the new regime by invoking the six year time limit prescribed under Section 149(1)(b) of the old regime will have to be dropped if the income chargeable to tax which has escaped assessment is less than Rupees fifty lakhs.

53Copy pinpoint53. The position of law which can be derived based on the above discussion may be summarized thus: (i) Section 149(1) of the new regime is not prospective. It also applies to past assessment years; (ii) The time limit of four years is now reduced to three years for all situations. The Revenue can issue notices under Section 148 of the new regime only if three years or less have elapsed from the end of the relevant assessment year; (iii) the proviso to Section 149(1)(b) of the new regime stipulates that the Revenue can issue reassessment notices for past assessment years only if the time limit survives according to Section 149(1)(b) of the old regime, that is, six years from the end of the relevant assessment year; and (iv) all notices issued invoking the time limit under Section 149(1)(b) of the old regime will have to be dropped if the income chargeable to tax which has escaped assessment is less than Rupees fifty lakhs.

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ii. TOLA can extend the time limit till 31 June 2021

54Copy pinpoint54. The proviso to Section 149(1)(b) of the new regime uses the expression “beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021.” Thus, the proviso specifically refers to the time limits specified under Section 149(1)(b) of the old regime. The Revenue accepts that without application of TOLA, the timelimit for issuance of reassessment notices after 1 April 2021 expires for assessment years 2013-2014, 2014-2015, 2015-2016, 2016-2017, and 2017-2018 in the following manner: (i) for the assessment years 2013-2014 and 2014-2015, the six year period expires on 31 March 2020 and 31 March 2021 respectively; and (ii) for the assessment years 2016-2017 and 2017-2018, the three year period expires on 31 March 2020 and 31 March 2021 respectively. a. Finance Act 2021 substituted the old regime

55Copy pinpoint55. In Shamrao V Parulekar v. District Magistrate, Thana, 108 a Constitution Bench of this Court was called upon to decide the validity of the detention of the petitioner under the Preventive Detention Amendment Act 1950.109 The Detention Act 1950 was due to expire on 1 April 1951, but the legislation was amended to prolong its life by another year till 1 April 1952. The petitioner was detained on 15 November 1951 and his detention would have expired on 1 April 1952 with the expiration of the enactment. However, the Detention Act 1950 was amended in 1952, further prolonging its application for six months till 1 October 1952. The issue before this Court was whether the prolonging of the Detention Act 1950 also prolonged the detention of the petitioner.

56Copy pinpoint56. Justice Vivian Bose, writing for the Constitution Bench, held that the detention continued until the expiry of the Detention Act 1950 on 1 October 1952. The learned Judge further observed:

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“7. The rule is that when a subsequent Act amends an earlier one in such a way as to incorporate itself, or a part of itself, into the earlier, then the earlier Act must thereafter be read and construed (except where that would lead to a repugnancy, inconsistency or absurdity) as if the altered words had been written into the earlier Act with pen and ink and the old words scored out so that thereafter there is no need to refer to the amending Act at all. […] Bearing this in mind it will be seen that the 1950 Act remains the 1950 Act all the way through even with its subsequent amendments. Therefore, the moment the 1952 Act was passed and Section 2 came into operation, the Act of 1950 meant the 1950 Act as amended by Section 2, that is to say, the 1950 Act now due to expire on 1-10-1952.” (emphasis supplied) The principle which emanates from Shamrao V Parulekar (supra) is that after an amendment, the legislation has to be read along with the amended provisions.

57Copy pinpoint57. The legislative practice of amendment by substitution is often used by the legislatures. The process of substitution of a statutory provision generally involves two steps: first, the existing rule is deleted; and second, the new rule is brought into existence in its place.110 The deletion effectively repeals the existing provision.111 Thus, an amendment by substitution results in the repeal of an earlier provision and its replacement by a new provision.112 The repealed provision will cease to operate from the date of repeal and the substituted provision will commence operation from the date of its substitution.113 After the substitution, the legislation must be read and construed as if the altered words have been written into the legislation “with pen and ink and the old words scored out.”114 Therefore, after amendment

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by substitution any reference to a legislation must be construed as the legislation as amended by substitution.

58Copy pinpoint58. In Shyam Sunder v. Ram Kumar,115 a Constitution Bench of this Court was called upon to decide the extent of retrospective operation of an amendment by substitution. In that case, the Haryana Amendment Act 1995 substituted Section 15 of the Punjab Pre-emption Act by taking away the right of a co-sharer to pre-empt a sale during the pendency of an appeal. This Court observed that according to Order 20 Rule 14(1) of the Code of Civil Procedure 1908, the right of pre- emption becomes a vested right and can only be taken away by a known method of law. As regards the retrospective operation of a substituted provision, it was held that “where a repeal of provisions of enactment is followed by fresh legislation by an amending Act, such legislation is prospective in operation and does not affect substantive or vested rights of the parties unless made retrospective either expressly or by necessary intendment.”116 This Court held that the language used by the legislature indicated that it was introduced with prospective effect and could not affect the accrued rights of the co-sharers. The decision of this Court in Shyam Sunder (supra) is an authority for the proposition that an amendment by substitution can have a retrospective effect and affect the vested rights of the parties if the provision is made retrospective either expressly or by necessary intendment.

59Copy pinpoint59. Parliament has often used the legislative process of amendment by substitution in the context of reassessment provisions under the Income Tax Act.In S C Prashar v. Vasantsen Dwarkadas,117 a Constitution Bench of this Court had to decide on the validity of the notices issued under Section 34 of the Income Tax Act 1922. In 1948, Section 34 of the Income TaxAct 1922 was substituted by

subsequent to the date of the amendment the various unamended provisions of the Act have to be read along with the amended provisions as though they are part of it. This is for the purpose of determining what the meaning of any particular provision of the Act as amended is, whether it is in the unamended part or in the amended part. But this is the not the same thing as saying that the amendment itself must be taken to have been in existence as from the date of the earlier Act. That would be imputing to the amendment retrospective operation which could only be done if such retrospective operation is given by the amending Act either expressly or by necessary implication.”] 115 [2001] Supp. 1 SCR 115 : (2001) 8 SCC 24 116 Shyam Sunder (supra) [28] 117 [1964] 1 SCR 29

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a new provision which provided the following time limits: (i) eight years from the end of the year if there was omission or failure on the part of an assessee to make a return or disclose fully and truly all material facts necessary for assessment; and (ii) four years for all other cases. Justice M Hidayatullah (as the learned Chief Justice then was), writing for himself and Justice Raghubar Dayal, observed that the substituted provision was meant to enable the reassessment of income which had escaped assessment for past periods. It was further observed that the substituted provision “meant to operate retrospectively eight years in some cases and four years in others.”118 Justice A K Sarkar (as the learned Chief Justice then was) also observed that no notice could be issued under the 1948 amendment “for a year from the end of which eight years had expired.”119

60Copy pinpoint60. The above principles can be applied as follows to the factual situation in the present appeals: (i) The Finance Act 2021 substituted Sections 147 to 151 of the Income Tax Act with effect from 1 April 2021; (ii) Sections 147 to 151 of the old law ceased to operate from 1 April 2021; (iii) After 1 April 2021, any reference to the Income Tax Act means the Income Tax Act as amended by the Finance Act 2021; (iv) The time limits prescribed for issuing reassessment notices under Section 149operate retrospectively for three years for all situations and six years in case the escaped assessment amounts to or is likely to amount to more than Rupees fifty lakhs.

61Copy pinpoint61. TOLA is a legislation enacted by Parliament. The assesses have neither challenged the legislative competence of Parliament to enact TOLA nor have they challenged the vires of the legislation. Section 3(1) of TOLA provides for the relaxation of “any time limit” prescribed under the specified Acts for completion or compliance of “any proceeding or passing of any order or issuance of any sanction, intimation, notification, sanction, or approval.” The expression “any” has been interpreted by this Court to mean “all” or “every”.120 The context in which the word “any” appears has to be construed after taking into consideration the scheme and the purpose of the enactment.121

118 S C Prashar (supra) 107 119 S C Prashar (supra) 86 120 LDA v. M K Gupta (1994) 1 SCC 243 [4]; Raj Kumar Shivhare v. Directorate of Enforcement (2010) 4 SCC 772 [24]; 121 Vivek Narayan Sharma v. Union of India (2023) 3 SCC 1 [132]

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62Copy pinpoint62. The purpose of Section 3(1) of TOLA is to provide relaxation of time limits prescribed under the specified Acts, which fell for completion or compliance from 20 March 2020 to 31 March 2021. TOLA was enacted in the backdrop of the COVID-19 pandemic, which impeded the functioning of the government at all levels. The imposition of national and local lockdowns created difficulties for the common people, including litigants and assesses, to comply with their legal obligations. The COVID-19 pandemic and the ensuing lockdowns required legislatures across the world to dynamically adapt their laws and policies to redress the difficulties faced by persons, entities, and governmental authorities.122 The World Bank identified that persons and business entities faced severe financial situations characterised by a lack of cash or easily convertible-to-cash assets. It suggested that this would impact revenue collection because individuals and entities would not be in a position to pay the assessed taxes. Therefore, the World Bank advised deferral of tax filings and payment deadlines to allow individuals and business entities to cope with the crisis.123 Many countries across the world have extended deadlines for filing tax returns.124

63Copy pinpoint63. TOLA extended the time limits for completion or compliance of certain actions under the specified Act, which fell for completion during the COVID-19 outbreak. The use of the expression “any” in Section 3(1) indicates that the relaxation applies to “all” or “every” action whose time limit falls for completion from 20 March 2020 to 31 March 2021. Section 3(1) is only concerned with the performance of actions contemplated under the provisions of the specified Acts. Consequently, the amendment or substitution of a provision under the specified Acts will not affect the application of TOLA, so long as the action contemplated under the provision falls for completion during the period specified by TOLA, that is, 20 March 2020 to 31 March 2021.

122 Cary Coglianese and Neysun Mahboubi, ‘Administrative Law in a Time of Crisis: Comparing National Responses to COVID-19’ (2021) 73(1) Administrative Law Review 1, 10. 123 Cebreiro Gomez, et al, COVID-19: Revenue Administration Implications – Potential Tax Administration and Customs Measures to Respond to the Crisis, World Bank Group (2022) 19 124 See International Monetary Fund, Policy Responses to COVID-19 https://www.imf.org/en/Topics/imf- and-covid19/Policy-Responses-to-COVID-19

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64Copy pinpoint64. When enacting a statute, the legislature often endeavours to ensure that the provisions of one legislation do not conflict with provisions of another legislation.125 The purpose of the Income Tax Act is to levy tax on income and raise revenues for the functioning of the Government. On the other hand, the purpose of TOLA is to provide relaxation of the time for completion of any actions or proceedings falling for completion within a particular period. Thus, the two enactments operate in separate and distinct fields. This Court must ensure that the provisions of the two enactments are interpreted harmoniously unless there is an irreconcilable conflict between them.

b. Reading TOLA into Section 149

65Copy pinpoint65. Section 3(1) of TOLA applies to the action of “issuance of any notice” under the Income Tax Act. The relaxation provided under Section 3(1) of TOLA will apply to the issuance of a reassessment notice under Section 148 of the Income Tax Act. TOLA did not amend the time limits of four years and six years from the end of the relevant assessment years as specified under the Income Tax Act. It merely provided a relaxation of the time period for issuance of a reassessment notice under Section 148. TOLA has no application in situations where the time limit specified under Section 149 expired before 20 March 2020. The effect of TOLA is that at the time of issuance of a reassessment notice under Section 148, the Revenue has to determine two things: (i) the time limit specified under Section 149; and (ii) the extent of relaxation provided by TOLA and its notifications for issuance of notices. Thus, although TOLA did not amend Section 149 of the Income Tax Act, it has to be read with Section 149to determine the time limit for issuance of a notice. This was the legislative intent behind the enactment of TOLA. For instance, the six year time limit for assessment year 2013-2014 under Section 149(1)(b) of the old regime expired on 31 March 2020. TOLA extended the period for issuing notice until 30 June 2021,given the difficulties that arose because of the COVID-19 pandemic.

66Copy pinpoint66. Section 3(1) of TOLA allowed the Central Government to specify by notification “such other date after the 31st day of March, 2021” as the time limit for completion or compliance of any action under the

125 In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, 2023 INSC 1066 [159]

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specified Acts. The provision also empowered the Central Government to specify different dates for completion or compliance of different actions. The notifications dated 31 March 2021 and 27 April 2021 extend the operation of TOLA by providing an extended time limit for completing actions under the Income Tax Act till 30 June 2021.

67Copy pinpoint67. Section 2(1)(b)(ii) of TOLA defines ‘specified Act’ to include the Income Tax Act. After 1 April 2021, Section 2(1)(b)(ii) must be read to mean the Income Tax Act as amended by the Finance Act 2021. The substitution of Sections 147 to 151 will not affect the purpose of TOLA, which is,to provide relaxation of the time limit for completion or compliance of any actions falling for completion between 20 March 2020 and 31 March 2021. TOLA will continue to apply to the Income Tax Act after 1 April 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between 20 March 2020 and 31 March 2021.

68Copy pinpoint68. After 1 April 2021, the Income Tax Act has to be read along with the substituted provisions. The substituted provisions apply retrospectively for past assessment years as well. On 1 April 2021, TOLA was still in existence, and the Revenue could not have ignored the application of TOLA and its notifications. Therefore, for issuing a reassessment notice under Section 148 after 1 April 2021, the Revenue would still have to look at: (i) the time limit specified under Section 149 of the new regime; and (ii) the time limit for issuance of notice as extended by TOLA and its notifications. The Revenue cannot extend the operation of the old lawunder TOLA, but it can certainly benefit from the extended time limit for completion of actions falling for completion between 20 March 2020 and 31 March 2021.

69Copy pinpoint69. For instance, Section 149(1)(a) of the new regime specified the time limit of three years from the end of the relevant assessment year for reopening of the assessment. For assessment year 2017-2018, the three year period expired on 31 March 2021. The expiry of time fell within the time period contemplated by Section 3 of TOLA read with its notifications. Resultantly, the Revenue had time until 30 June 2021 to issue a reassessment notice for assessment year 2017- 2018 under Section 149(1)(a). This harmonious reading gives effect to the legislative intention of both the Income Tax Act and TOLA. Moreover, Sections 147 to 151 are machinery provisions. Therefore, they must be given an interpretation that is consistent with the object and purpose of the Income Tax Act.

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70Copy pinpoint70. In Income-tax Officer v. Vikram Sujitkumar Bhatia,126 a two-Judge Bench of this Court had to decide whether Section 153C of the Income Tax Act, as amended by the Finance Act 2015, would apply to searches conducted before 1 June 2015 (the date of coming into force of the amendment). This Court observed that since Section 153C is a machinery provision, it should be interpreted in a manner to effectuate the object and purpose of the statute. It was observed that the object and purpose of Section 153C was the assessment of the income of any other person. It was held that if the amended provision is made applicable prospectively, it will frustrate the object and purpose of Section 153C.

71Copy pinpoint71. Section 3(1) of TOLA contains a non obstante clause: “notwithstanding anything contained in the specified Act.” The legislative intention of including the non obstante clause is to remove any obstacles which may come in the way of the operation of the extension of the time limit till 31 March 2021 or such other date after 31 March 2021 specified by the Central Government. The purpose is to ensure that the full benefit of the relaxation should be provided to both the assesses and the Revenue to tide over the difficulties caused by the COVID-19 pandemic.

72Copy pinpoint72. The non obstante clause in Section 3(1) has to be read as controlling the provisions of the specified Acts, including the provisions of the Income Tax Act.127 In the context of the issuance of a reassessment notice, the non obstante clause will override the provisions of the Income Tax Act in case of any direct conflict or inconsistency. Section 3(1) overrides Section 149 only to the extent of relaxing the time limit for issuance of reassessment notice under Section

148. The time limit for issuance of a reassessment notices, which fall for completion between 20 March 2020 and 31 March 2021,has been extended till 30 June 2021. However, the non obstante clause under Section 3(1) of TOLA will operate neither to extend the time limit of three years from the end of the relevant assessment year under Section 149(1)(a) of the new regime nor to extend the time limit of six years from the end of the relevant assessment years under Section 149(1)(b) of the old regime. The non obstante clause

126 (2023) 453 ITR 417 127 M P V Sundararamier v. State of Andhra Pradesh, 1958 SCC OnLine SC 22

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ensures that the Revenue has additional time beyond the statutory stipulated time limit to complete or comply with the formalities given the administrative difficulties that arose due to the COVID-19 pandemic.

iii. Sanction of the specified authority

73Copy pinpoint73. Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under Section 148. The purpose behind this procedural check is to save the assesses from harassment resulting from the mechanical reopening of assessments.128 A table representing the prescription under the old and new regime is set out below:

Regime Time limits Specified authority Section 151(2) Before expiry of four Joint Commissioner of the old years from the end of the regime relevant assessment year Section 151(1) After expiry of four years Principal Chief of the old from the end of the Commissioner or regime relevant assessment year Chief Commissioner or Principal Commissioner or Commissioner Section 151(i) Three years or less than Principal Commissioner of the new three years from the end or Principal Director or regime of the relevant assessment Commissioner or Director year Section 151(ii) More than three years Principal Chief of the new have elapsed from the end Commissioner or regime of the relevant assessment Principal Director General year or Chief Commissioner or Director General

74Copy pinpoint74. The above table indicates that the specified authority is directly co-related to the time when the notice is issued. This plays out as follows under the old regime:

128 Srikrishna Private Ltd v. ITO (1996) 9 SCC 534 [4]

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(i) If income escaping assessment was less than Rupees one lakh: (a) a reassessment notice could be issued under Section 148 within four years after obtaining the approval of the Joint Commissioner; and (b) no notice could be issued after the expiry of four years; and (ii) If income escaping was more than Rupees one lakh: (a) a reassessment notice could be issued within four years after obtaining the approval of the Joint Commissioner; and (b) after four years but within six years after obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.

75Copy pinpoint75. After 1 April 2021, the new regime has specified different authorities for granting sanctions under Section 151. The new regime is beneficial to the assesse because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime. Therefore, in terms of Ashish Agarwal (supra), after 1 April 2021, the prior approval must be obtained from the appropriate authorities specified under Section 151 of the new regime. The effect of Section 151 of the new regime is thus: (i) If income escaping assessment is less than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) no notice could be issued after the expiry of three years; and (ii) If income escaping assessment is more than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) after three years after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.

76Copy pinpoint76. Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under Section 148 to issue a reassessment notice. Section 151 of the new regime does not prescribe a time limit within which a specified authority has to grant sanction. Rather, it links up the time limits with the jurisdiction of the authority to grant sanction. Section 151(ii) of the new regime prescribes a higher

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level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the assessing officer with the strict time limits prescribed under Section 151 affects their jurisdiction to issue a notice under Section 148.

77Copy pinpoint77. Parliament enacted TOLA to ensure that the interests of the Revenue are not defeated because the assessing officer could not comply with the pre-conditions due to the difficulties that arose during the COVID-19 pandemic. Section 3(1) of TOLA relaxes the time limit for compliance with actions that fall for completion from 20 March 2020 to 31 March 2021. TOLA will accordingly extend the time limit for the grant of sanction by the authority specified under Section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(i) has an extended time till 30 June 2021 to grant approval. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(2) has time till 31 March 2021 to grant approval. The time limit for Section 151 of the old regime expires on 31 March 2021 because the new regime comes into effect on 1 April 2021.

78Copy pinpoint78. For example, the three year time limit for assessment year 2017-2018 falls for completion on 31 March 2021. It falls during the time period of 20 March 2020 and 31 March 2021,contemplated under Section 3(1) of TOLA. Resultantly, the authority specified under Section 151(i) of the new regime can grant sanction till 30 June 2021.

79Copy pinpoint79. Under Finance Act 2021, the assessing officer was required to obtain prior approval or sanction of the specified authorities at four stages: a. Section 148A(a) – to conduct any enquiry, if required, with respect to the information which suggests that the income chargeable to tax has escaped assessment; b. Section 148A(b) – to provide an opportunity of hearing to the assessee by serving upon them a show cause notice as to why a notice under Section 148 should not be issued based on the information that suggests that income chargeable to tax has

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escaped assessment. It must be noted that this requirement has been deleted by the Finance Act 2022;129 c. Section 148A(d) – to pass an order deciding whether or not it is a fit case for issuing a notice under Section 148; and d. Section 148 – to issue a reassessment notice.

80Copy pinpoint80. In Ashish Agarwal (supra), this Court directed that Section 148 notices which were challenged before various High Courts “shall be deemed to have been issued under Section 148-A of the Income Tax Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of Section 148-A(b).” Further, this Court dispensed with the requirement of conducting any enquiry with the prior approval of the specified authority under Section 148A(a). Under Section 148A(b), an assessing officer was required to obtain prior approval from the specified authority before issuing a show cause notice. When this Court deemed the Section 148 notices under the old regime as Section 148A(b) notices under the new regime, it impliedly waived the requirement of obtaining prior approval from the specified authorities under Section 151 for Section 148A(b). It is well established that this Court while exercising its jurisdiction under Article 142, is not bound by the procedural requirements of law.130

81Copy pinpoint81. This Court in Ashish Agarwal (supra) directed the assessing officers to “pass orders in terms of Section 148-A(d) in respect of each of the assesses concerned.” Further, it directed the assessing officers to issue a notice under Section 148 of the new regime “after following the procedure as required under Section 148-A.”Although this Court waived off the requirement of obtaining prior approval under Section 148A(a) and Section 148A(b), it did not waivethe requirement for Section 148A(d) and Section 148. Therefore, the assessing officer was required to obtain prior approval of the specified authority according to Section 151 of the new regime before passing an order under Section 148A(d) or issuing a notice under Section 148.

129 Section 45, Finance Act 2022 130 Allahabad High Court Bar Association v. State of U P (2024) 6 SCC 267 [27.³]

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These notices ought to have been issued following the time limits specified under Section 151 of the new regime read with TOLA, where applicable.

F. Section 148 notices issued in June-September 2022

i. Scope of Article 142

82Copy pinpoint82. Article 142 empowers this Court to pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it.131 The discretionary jurisdiction exercised by this Court under Article 142 is of the widest amplitude.132 The Constitution has left it to the judicial discretion of this Court to decide the scope and limits of its jurisdiction to render substantial justice in matters coming before it.133 The expression “any cause or matter” mentioned under Article 142 includes every kind of proceeding pending before this Court.134 Article 142 allows this Court to give precedence to equity over law, provided the exercise of the discretion is consistent with constitutional provisions and after due consideration of substantive provisions instatutory law.135

83Copy pinpoint83. In Prem Chand Garg v. The Excise Commissioner,136 Justice P B Gajendragadkar (as the learned Chief Justice then was), speaking for the majority, observed that the order made by this Court under Article 142 “must not only be consistent with the fundamental rights guaranteed by the Constitution, but it cannot even be inconsistent with the substantive provisions of the relevant statutory laws.” However, in Union Carbide Corpn.Ltd. v. Union of India,137 Justice Venkatachaliah (as the learned Chief Justice then was), speaking for the majority, clarified Prem Chand Garg (supra) by observing that

131 Article 142, Constitution. [It reads: “142(1) The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it, and any decree so passed or order so made shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, in such manner as President may by order prescribe.” 132 Jose Da Costa v. Bascora Sadasiva Sinai Narcornim (1976) 2 SCC 917 [37] 133 Ganga Bishan v. Jai Narain (1986) 1 SCC 75 [5] 134 Delhi Judicial Service Association v. State of Gujarat (1991) 4 SCC 406 [50] 135 Shilpa Sailesh v. Varun Sreenivasan, 2023 SCC OnLine SC 544 [12] 136 [1963] Supp. 1 SCR 885 : 1962 SCC OnLine SC 37 137 [1991] Supp. 1 SCR 381 : (1991) 4 SCC 584 [83]

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ordinary laws cannot limit the constitutional powers of this Court under Article 142. The learned Judge further observed that in exercising its jurisdiction under Article 142, this Court will “take note of the express prohibitions in any substantive statutory provision based on some fundamental principles of public policy and regulate the exercise of its power and discretion accordingly.”

84Copy pinpoint84. In Supreme Court Bar Association v. Union of India, 138 a Constitution Bench held that the powers under Article 142 cannot be exercised to supplant substantive law applicable to the matter pending before this Court. In Allahabad High Court Bar Association v. State of Uttar Pradesh,139 a Constitution Bench laid down the following parameters for the exercise of the jurisdiction under Article 142: “27.¹. The jurisdiction can be exercised to do complete justice between the parties before the Court. It cannot be exercised to nullify the benefits derived by a large number of litigants based on judicial orders validly passed in their favour who are not parties to the proceedings before this Court; 27.². Article 142 does not empower this Court to ignore the substantive rights of the litigants; and 27.³. While exercising the jurisdiction under Article 142 of the Constitution of India, this Court can always issue procedural directions to the courts for streamlining procedural aspects and ironing out the creases in the procedural laws to ensure expeditious and timely disposal of cases. This is because, while exercising the jurisdiction under Article 142, this Court may not be bound by procedural requirements of law. However, while doing so, this Court cannot affect the substantive rights of those litigants who are not parties to the case before it. The right to be heard

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before an adverse order is passed is not a matter of procedure but a substantive right.” (emphasis supplied)

85Copy pinpoint85. In M Siddiq v. Suresh Das,140 a Constitution Bench observed that Article 142 embodies the concept of justice, equity, and good conscience. This Court further observed that Article 142 empowers the court to pass an order which accords with justice: “1026. The extraordinary constitutional power to pass any decree or an order which, in the opinion of this Court is necessary for doing complete justice embodies the idea that a court must, by necessity, be empowered to craft outcomes that ensure a just outcome. When a court is presented before it with hard cases, they follow an interpretation of the law that best fits and justifies the existing legal landscape — the Constitution, statutes, rules, regulations, customs and common law. Where exclusive rule-based theories of law and adjudication are inadequate to explain either the functioning of the system or create a relief that ensures complete justice, it is necessary to supplement such a model with principles grounded in equitable standards. The power under Article 142 however is not limitless. It authorises the Court to pass orders to secure complete justice in the case before it. Article 142 embodies both the notion of justice, equity and good conscience as well as a supplementary power to the Court to effect complete justice.” (emphasis supplied)

86Copy pinpoint86. The exercise of the jurisdiction under Article 142 is meant to supplement the existing legal framework to do complete justice between the parties.141 In a given circumstance, this Court can supplement a legal framework to craft a just outcome when strict adherence to a source of law and exclusive rule-based theories create inequitable results.142

140 [2019] 18 SCR 1 : (2020) 1 SCC 1 [1023] 141 Vinay Chandra Mishra, In re (1995) 2 SCC 584 [46]; Delhi Development Authority v. Skipper Construction Co. (P) Ltd. (1996) 4 SCC 622 [16] 142 M Siddiq (supra) [1019]; [1026]

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87Copy pinpoint87. The directions issued by this Court under Article 142 cannot be considered as a ratio because they are issued based on the peculiar facts and circumstances of the cause or matter before this Court.143 In State v. Kalyan Singh,144 this Court observed that a judgment has two components: (a) declaration of law; and (b) directions. In Bir Singh v. Mukesh Kumar,145 it was held that what is binding on all courts under Article 141146 is the declaration of law, and not the directions issued under Article 142.147

88Copy pinpoint88. This Court has exercised its jurisdiction under Article 142 in tax matters where the actions of the Revenue are not in accordance with the law.148 In Whirlpool of India Ltd. v. CIT,149 this Court directed the Income Tax Officer to give effect to the order of the Income Tax Appellate Tribunal by disallowing a particular deduction. In CIT v. Greenworld Corporation,150 the issue before this Court was whether a Commissioner of Income Tax151 appropriately issued directions under Section 263 of the Income Tax Act to an assessing officer to reopen assessments. It was held that the facts of the case did not merit the CIT to issue directions to the assessing officer. Consequently, this Court termed the reassessment notice issued by the assessing officer to be illegal and exercised its jurisdiction

143 J & K Public Service Commission v. Narinder Mohan (1994) 2 SCC 630 [11]. 144 (2017) 7 SCC 444. [22. […] It is important to notice that Article 142 follows upon Article 141 of the Constitution, in which it is stated that the law declared by the Supreme Court shall be binding on all courts within the territory of India. Thus, every judgment delivered by the Supreme Court has two components — the law declared which binds courts in future litigation between persons, and the doing of complete justice in any cause or matter which is pending before it.] 145 (2019) 4 SCC 197 [30] 146 Article 141, Constitution of India. [It reads: “141. Law declared by Supreme Court to be binding on all courts – The law declared by the Supreme Court shall be binding on all courts within the territory of India.”] 147 Also see State of Punjab v. Rafiq Masih (2014) 8 SCC 883 [12]. [12. […] The Court has compartmentalized and differentiated the relief in the operative portion of the judgment by exercise of powers under Article 142 of the Constitution as against the law declared. The directions of the Court under Article 142 of the Constitution, while moulding the relief, that relax the application of law or exempt the case in hand from the rigour of the law in view of the peculiar facts and circumstances do not comprise the ratio decidendi and therefore lose its basic premise of making it a binding precedent. This Court in the qui vive has expanded the horizons of Article 142 of the Constitution by keeping it outside the purview of Article 141 of the Constitution and declaring it a direction of the Court that changes its complexion with the peculiarity in the facts and circumstances of the case.”] 148 See Prashanti Medical Services & Research Foundation v. Union of India (2020) 14 SCC 785 [30] 149 (2000) 9 SCC 62 150 [2009] 8 SCR 175 : (2009) 7 SCC 69 151 “CIT”

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under Article 142 to direct the reopening of the assessment by an appropriate assessing authority.

89Copy pinpoint89. In Ashish Agarwal (supra), this Court: (i) upheld the judgments of the High Courts; and (ii) deemed the notices issued under Section 148 of the old regime as show cause notices issued under Section 148A(b) of the new regime. By agreeing with the judgments of the High Courts, this Court laid down the law that the provisions of the new regime will be applicable for all the reassessment notices issued under Section 148 after 1 April 2021. As a result of this holding, all the reassessment notices issued in terms of Section 148 of the old regime would have been declared invalid. Therefore, this Court deemed the reassessment notices issued under the old regime after 1 April 2021 as show cause notices issued under Section 148A(b) of the new regime.

90Copy pinpoint90. In Ashish Agarwal (supra), this Court rendered its decision on the premise that the Revenue issued approximately ninety thousand notices under the old regime and all of them were the subject matter of writ petitions before the High Courts: “4. At this stage, it is required to be noted that approximately 90,000 such reassessment notices under Section 148 of the unamended Income Tax Act were issued by the Revenue after 1-4-2021, which were the subject-matter of more than 9000 writ petitions before various High Courts across the country and by different judgments and orders, the particulars of which are as above, the High Courts have taken a similar view and have set aside the respective reassessment notices issued under Section 148 on similar grounds.” Further, this Court directed that its directions “shall be applicable PAN INDIA”: “29. The present order shall be applicable PAN INDIA and all judgments and orders passed by the different High Courts on the issue and under which similar notices which

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were issued after 1-4-2021 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. 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 9000 appeals. We also observe that the present order shall also govern the pending writ petitions, pending before various the High Courts in which similar notices under Section 148 of the Act issued after 1-4-2021 are under challenge.” (emphasis supplied) The purpose of this Court in deeming the reassessment notices issued under the old regime as show cause notices under the new regime was two-fold: (i) to strike a balance between the rights of the assesses and the Revenue which issued approximately ninety thousand reassessment notices after 1 April 2021 under the old regime; and (ii) to avoid any further appeals before this Court by the Revenue on the same issue by challenging similar judgments and orders of the High Courts (arising from approximately nine thousand writ petitions).

91Copy pinpoint91. Ashish Agarwal (supra) was primarily concerned with the validity of the reassessment notices issued between 1 April 2021 and 30 June 2021 under the old regime. The scope of the directions in Ashish Agarwal (supra) applied PAN INDIA, including all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021, as is evident from the following observation of this Court: “26. There is a broad consensus on the aforesaid aspects amongst the learned ASG appearing on behalf of the Revenue and the learned Senior Advocates/learned counsel appearing on behalf of the respective assessees. We are also of the opinion that if the aforesaid order is passed, it will strike a balance between the rights of the Revenue as well as the respective assessees as because of a bona fide belief of the officers of the Revenue in issuing approximately 90,000 such

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notices, the Revenue may not suffer as ultimately it is the public exchequer which would suffer.” (emphasis supplied)

92Copy pinpoint92. This Court specifically mentioned that its directions would also apply to three categories: (i) the judgment and order passed by the High Court of Judicature at Allahabad; (ii) all judgments and orders passed by the different High Court on the issue where notices issued under Section 148 of the old regime after 1 April 2021 were set aside; and (iii) writ petitions pending before various High Courts in which notices under Section 148 of the old regime issued after 1 April 2021 are under challenge.152 The Court mentioned the above three categories to clarify that the general nature of its directions will also give a quiet us to the matters that have already been adjudicated or are pending adjudication before judicial forums. The operation of the directions cannot be limited to the above three categories, especially when this Court has specifically held that “the present order shall be applicable PAN INDIA.”

93Copy pinpoint93. In Ashish Agarwal (supra), this Court was aware of the fact that it could not have used its jurisdiction under Article 142 to affect the vested rights of the assesses by deeming Section 148 notices under the old regime as Section 148 notices under the new regime. Hence, it deemed the reassessment notices issued under the old regime as show cause notices under Section 148A(b) of the new regime. Further, the Court directed the Revenue to provide all the relevant material or information to the assesses and thereafter allowed the assesses to respond to the show cause notice by availing all the defences, including those available under Section 149. Thus, the Court balanced the equities between the Revenue and the assesses by giving effect to the legislative scheme of reassessment as contained under the new regime. It supplemented the existing legal framework of the procedure of reassessment under the Income Tax Act with a remedy grounded in equitable standards.

iii. Effect of the legal fiction

94Copy pinpoint94. Before we proceed, we need to bear in mind three important periods:

152 Ashish Agarwal (supra) [27] and [29]

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i. The period up to 30 June 2021 – this period is covered by the provisions of the Income Tax Act read with TOLA; ii. The period from 1 July 2021 to 3 May 2022 – the period before the decision of this Court in Ashish Agarwal (supra); and iii. The period after 4 May 2022 – the period after the decision of this Court in Ashish Agarwal (supra). This period is covered by the directions issued by this Court in Ashish Agarwal (supra) and the provisions of the Income Tax Act read with TOLA. a. Third proviso to Section 149

95Copy pinpoint95. The third proviso to Section 149 reads thus: “Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded.”

96Copy pinpoint96. The third proviso excludes the following periods to calculate the period of limitation: (i) the time allowed to the assessee under Section 148A(b); and (ii) the period during which the proceedings under Section 148A are “stayed by an order or injunction of any court.”

97Copy pinpoint97. A legal fiction is a supposition of law that a thing or event exists even though, in reality, it does not exist.153 The word “deemed” is used to treat a thing or event as something, which otherwise it may not have been, with all the attendant consequences.154 The effect of a legal fiction is that “a position which otherwise would not obtain is deemed to obtain under the circumstances.”155 In K Prabhakaran v. P Jayarajan,156 Chief Justice R C Lahoti, speaking for the majority, observed that: “39. […] While pressing into service a legal fiction it should not be forgotten that legal fictions are created only

153 Gajraj Singh v. STAT (1997) 1 SCC 650 [22] 154 CIT v. Calcutta Stock Exchange, 1959 SCC OnLine SC 126 [5]; Sudha Rani Garg v. Jagdish Kumar (2004) 8 SCC 329 [11] 155 Gajraj Singh (supra) [22] 156 [2016] 3 SCR 390 : (2005) 1 SCC 754

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for some definite purpose and the fiction is to be limited to the purpose for which it was created and should not be extended beyond that legitimate field. A legal fiction presupposes the existence of the state of facts which may not exist and then works out the consequences which flow from that state of facts. Such consequences have got to be worked out only to their logical extent having due regard to the purpose for which the legal fiction has been created. Stretching the consequences beyond what logically flows amounts to an illegitimate extension of the purpose of the legal fiction.”

98Copy pinpoint98. A legal fiction is created for a definite purpose and it should be limited to the purpose for which it is enacted or applied. It is a well-established principle of interpretation that the courts must give full effect to a legal fiction by having due regard to the purpose for which the legal fiction is created.157 The consequences that follow the creation of the legal fiction “have got to be worked out to their logical extent.”158 The court has to assume all the facts and consequences that are incidental or inevitable corollaries to giving effect to the fiction.159

99Copy pinpoint99. In Ashish Agarwal (supra), this Court created a legal fiction by deeming the Section 148 notices issued under the old regime as show cause notices under Section 148A(b) of the new regime. The purpose of the legal fiction was to enable the Revenue “to proceed further with the reassessment proceedings as per the substituted provisions” of the Income Tax Act. Accordingly, all the reassessment notices issued under the old regime were deemed to always have been show cause notices issued under Section 148A(b) of the new regime. The fiction replaced Section 148 notices with Section 148A(b) notices with effect from the date when the notices under Section 148 of the old regime were issued between 1 April 2021 and 30 June 2021, as the case may be. This ensured the continuance of the reassessment process initiated by the Revenue from 1 April 2021 to 30 June 2021 under the old regime.

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100Copy pinpoint100. Importantly, this Court in Ashish Agarwal (supra) did not quash the reassessment notices issued under Section 148 of the old regime. In Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association,160 a three-Judge Bench of this Court explained the distinction between quashing an order and staying the operation of an order thus: “10. […] Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence.” The reassessment proceedings erroneously initiated by the Revenue under the old regime were not wiped out from existence. Consequently, the Revenue was not required to start the procedure of reassessment afresh after the decision of this Court in Ashish Agarwal (supra).

101Copy pinpoint101. Under Section 148A(b), the assessing officer has to comply with two requirements: (i) issuance of a show cause notice; and (ii) supply of all the relevant information which forms the basis of the show cause notice. The supply of the relevant material and information allows the assessee to respond to the show cause notice. The deemed notices were effectively incomplete because the other requirement of supplying the relevant material or information to the assesses was not fulfilled. The second requirement could only have been fulfilled by the Revenue by an actual supply of the relevant material or information that formed the basis of the deemed notice.

102Copy pinpoint102. While creating the legal fiction in Ashish Agarwal (supra), this Court was cognizant of the fact that the assessing officers were effectively inhibited from performing their responsibility under Section 148A until the requirement of supply of relevant material and information to the assesses was fulfilled. This Court lifted the inhibition by directing the

160 [1997] 3 SCR 931 : (1992) 3 SCC 1

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assessing officers to supplythe assesses with the relevant material and information relied upon by the Revenue within thirty days from the date of the judgment. Thus, during the period between the issuance of the deemed notices and the date of judgment in Ashish Agarwal (supra), the assessing officers were deemed to have been prohibited from proceeding with the reassessment proceedings.

103Copy pinpoint103. In VLS Finance Limited v. Commissioner of Income Tax,161 a two-Judge Bench of this Court was called upon to interpret Explanation 1 to Section 158BE of the Income Tax Act. Section 158BE provides the time limit for completion of block assessments. Explanation 1 to the provision excludes“period during which the assessment proceedings is stayed by an order or injunction of any court” from the period of limitation. This Court held that the exclusion of the period of limitation has to be computed “rationally and practically” in the following terms: “18. As a general rule, therefore, when there is no stay of the assessment proceedings passed by the court, Explanation 1 to Section 158-BE of the Act may not be attracted. However, this general statement of legal principle has to be read subject to an exception in order to interpret it rationally and practically. In those cases where stay of some other nature is granted than the stay of the assessment proceedings but the effect of such stay is to prevent the assessing officer from effectively passing assessment order, even that kind of stay order may be treated as stay of the assessment proceedings because of the reason that such stay order becomes an obstacle for the assessing officer to pass an assessment order thereby preventing the assessing officer to proceed with the assessment proceedings and carry out appropriate assessment.” (emphasis supplied)

104Copy pinpoint104. Section 11-A of the Land Acquisition Act 1894 mandated the Collector to make an award under Section 11 within two years from the date of publication of the declaration. The explanation to the provision

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allowed exclusion of “the period during which any action or proceeding to be taken in pursuance of the said declaration is stayed by an order of a court.”This Court has consistently interpreted the phrase “stay of action or proceedings” to mean any type of order passed by a court, which, in one way or another, prohibits or prevents the authorities from passing an award.162 Therefore, any order of a court that prevents or prohibits an authority from passing an order can be treated as a stay order.

105Copy pinpoint105. A direction issued by this Court in the exercise of its jurisdiction under Article 142 is an order of a court. The third proviso to Section 149 of the new regime provides that the period during which the proceedings under Section 148A are stayed by an order or injunction of any court shall be excluded for computation of limitation. During the period from the date of issuance of the deemed notice under Section 148A(b) and the date of the decision of this Court in Ashish Agarwal (supra), the assessing officers were deemed to have been prohibited from passing a reassessment order. Resultantly, the show cause notices were deemed to have been stayed by order of this Court from the date of their issuance (somewhere from 1 April 2021 till 30 June 2021) till the date of decision in Ashish Agarwal (supra), that is, 4 May 2022.

106Copy pinpoint106. In Ashish Agarwal (supra), this Court directed the assessing officers to provide relevant information and materials relied upon by the Revenue to the assesses within thirty days from the date of the judgment. A show cause notice is effectively issued in terms of Section 148A(b) only if it is supplied along with the relevant information and material by the assessing officer. Due to the legal fiction, the assessing officers were deemed to have been inhibited from acting in pursuance of the Section 148A(b) notice till the relevant material was supplied to the assesses. Therefore, the show cause notices were deemed to have been stayed until the assessing officers provided the relevant information or material to the assesses in terms of the direction issued in Ashish Agarwal (supra). To summarize, the combined effect of the legal fiction and the directions issued by this

162 Abhey Ram v. Union of India (1997) 5 SCC 421 [9]; Indore Development Authority v. Manoharlal (2020) 4 SCC (Civ) 496 [301]; Maharashtra Vidarbha Irrigation Development Corporation v. Mahesh (2022) 2 SCC 772 [39].

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107Copy pinpoint107. The third proviso to Section 149 allows the exclusion of time allowed for the assesses to respond to the show cause notice under Section 149A(b)to compute the period of limitation. The third proviso excludes “the time or extended time allowed to the assessee.” Resultantly, the entire time allowed to the assessee to respond to the show cause notice has to be excluded for computing the period of limitation. In Ashish Agarwal (supra), this Court provided two weeks to the assesses to reply to the show cause notices. This period of two weeks is also liable to be excluded from the computation of limitation given the third proviso to Section 149. Hence, the total time that is excluded for computation of limitation for the deemed notices is: (i) the time during which the show cause notices were effectively stayed, that is, from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information or material by the assessing officers to the assesses in terms of the directions in Ashish Agarwal (supra); and (ii) two weeks allowed to the assesses to respond to the show cause notices. b. Interplay of Ashish Agarwal with TOLA

108Copy pinpoint108. The Income Tax Act read with TOLA extended the time limit for issuing reassessment notices under Section 148, which fell for completion from 20 March 2020 to 31 March 2021, till 30 June 2021. All the reassessment notices under challenge in the present appeals were issued from 1 April 2021 to 30 June 2021 under the old regime. Ashish Agarwal (supra) deemed these reassessment notices under the old regime as show cause notices under the new regime with effect from the date of issuance of the reassessment notices. The effect of creating the legal fiction is that this Court has to imagine as real all the consequences and incidents that will inevitably flow from the fiction.163 Therefore,the logical effect of the creation of the legal

163 East End Dwellings Co. Ltd. v. Finsbury Borough Council, [1952] AC 109. [Lord Asquith, in his concurring

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fiction by Ashish Agarwal (supra) is that the time surviving under the Income Tax Act read with TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notices, including issuance of reassessment notices under Section 148 of the new regime. The surviving or balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30 June 2021.

109Copy pinpoint109. If this Court had not created the legal fiction and the original reassessment notices were validly issued according to the provisions of the new regime, the notices under Section 148 of the new regime would have to be issued within the time limits extended by TOLA. As a corollary, the reassessment notices to be issued in pursuance of the deemed notices must also be within the timelimit surviving under the Income Tax Act read with TOLA. This construction gives full effect to the legal fiction created in Ashish Agarwal (supra) and enables both the assesses and the Revenue to obtain the benefit of all consequences flowing from the fiction.164

110Copy pinpoint110. The effect of the creation of the legal fiction in Ashish Agarwal (supra) was that it stopped the clock of limitation with effect from the date of issuance of Section 148 notices under the old regime [which is also the date of issuance of the deemed notices]. As discussed in the preceding segments of this judgment, the period from the date of the issuance of the deemed notices till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra)has to be excluded from the computation of the period of limitation. Moreover, the period of two weeks granted to the assesses to reply to the show cause notices must also be excluded in terms of the third proviso to Section 149.

111Copy pinpoint111. The clock started ticking for the Revenue only after it received the response of the assesses to the show causes notices. After the receipt of the reply, the assessing officer had to perform the following

opinion, observed: “If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.”] 164 See State of A P v. A P Pensioners Association (2005) 13 SCC 161 [28]. [This Court observed that the “legal fiction undoubtedly is to be construed in such a manner so as to enable a person, for whose benefit such legal fiction has been created, to obtain all consequences flowing therefrom.”]

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responsibilities: (i) consider the reply of the assessee under Section 149A(c); (ii) take a decision under Section 149A(d) based on the available material and the reply of the assessee; and (iii) issue a notice under Section 148 if it was a fit case for reassessment. Once the clock started ticking, the assessing officer was required to complete these procedures within the surviving time limit. The surviving time limit, as prescribed under the Income Tax Act read with TOLA, was available to the assessing officers to issue the reassessment notices under Section 148 of the new regime.

112Copy pinpoint112. Let us take the instance of a notice issued on 1 May 2021 under the old regime for a relevant assessment year. Because of the legal fiction, the deemed show cause notices will also come into effect from 1 May 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days [days between 1 May 2021 and 30 June 2021] to issue a notice under Section 148 of the new regime. This time starts ticking for the assessing officer after receiving the response of the assessee. In this instance, if the assessee submits the response on 18 June 2022, the assessing officer will have sixty- one days from 18 June 2022 to issue a reassessment notice under Section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under Section 148 of the new regime will end on 18 August 2022.

113Copy pinpoint113. In Ashish Agarwal (supra), this Court allowed the assesses to avail all the defences, including the defence of expiry of the time limit specified under Section 149(1).In the instant appeals, the reassessment notices pertain to the assessment years 2013-2014, 2014-2015, 2015-2016, 2016-2017, and 2017-2018. To assume jurisdiction to issue notices under Section 148 with respect to the relevant assessment years, an assessing officer has to: (i) issue the notices within the period prescribed under Section 149(1) of the new regime read with TOLA; and (ii) obtain the previous approval of the authority specified under Section 151. A notice issued without complying with the preconditions is invalid as it affects the jurisdiction of the assessing officer. Therefore, the reassessment notices issued under Section 148 of the new regime, which are in pursuance of the deemed notices, ought to be issued within the time limit surviving under the Income Tax Act read with TOLA. A reassessment notice issued beyond the surviving time limit will be time-barred.

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G. Conclusions

114Copy pinpoint114. In view of the above discussion, we conclude that: a. After 1 April 2021, the Income Tax Act has to be read along with the substituted provisions; b. TOLA will continue to apply to the Income Tax Act after 1 April 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between 20 March 2020 and 31 March 2021; c. Section 3(1) of TOLA overrides Section 149 of the Income Tax Act only to the extent of relaxing the time limit for issuance of a reassessment notice under Section 148; d. TOLA will extend the time limit for the grant of sanction by the authority specified under Section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(i) has extended time till 30 June 2021 to grant approval; e. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(2) has extended time till 31 March 2021 to grant approval; f. The directions in Ashish Agarwal (supra) will extend to all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021; g. The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices; and h. The assessing officers were required to issue the reassessment notice under Section 148 of the new regime within the time limit

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surviving under the Income Tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside;

115Copy pinpoint115. The judgments of the High Courts rendered in Union of India v. Rajeev Bansal,165 Keenara Industries Pvt. Ltd. v. ITO, Surat,166 J M Financial and Investment Consultancy Services Pvt. Ltd. v. ACIT,167 Siemens Financial Services Pvt. Ltd. v. DCIT,168 Geeta Agarwal v. ITO,169 Ambika Iron and Steel Pvt Ltd v. PCIT,170 Twylight Infrastructure Pvt Ltd v. ITO,171 Ganesh Dass Khanna v. ITO,172 and other judgments of the High Courts which relied on these judgments, are set aside to the extent of the observations made in this judgment.

116Copy pinpoint116. The appeals filed by the Revenue are accordingly allowed. The appeals filed by the assesses will be governed by reasons discussed in this judgment.

117Copy pinpoint117. The transfer petitions are disposed of.

118Copy pinpoint118. Pending application(s), if any, stand disposed of.

Result of the case: Matters disposed of.

† Headnotes prepared by: Ankit Gyan

165 Writ Tax No. 1086 of 2022 (Allahabad High Court) 166 R/Special CA No. 17321 of 2022(High Court of Gujarat) 167 WP No. 1050 of 2022 (High Court of Judicature at Bombay) 168 [2023] 457 ITR 647 (High Court of Judicature at Bombay) 169 DB Civil Writ Petition No. 14794 of 2022 (High Court of Judicature at Rajasthan) 170 WP(C) No. 20919 of 2021 (High Court of Orissa) 171 WP(C) No. 16524/2022 (High Court of Delhi) 172 [2024] 460 ITR 546 (High Court of Delhi)