The Supreme Court delivered a landmark verdict on Thursday as it ruled that searches conducted before June 1, 2015 would also come under the amendment brought by the Finance Act 2015 in Section 153C of the Income Tax Act, 1961.
The Bench of Justice M.R. Shah and Justice C.T. Ravikumar passed the orders on a bunch of 115 applications filed by the Revenue department against the Delhi High Court order of 2014 in the PepsiCo India Ltd vs Assistant Commissioner of Income Tax case.
The High Court had given a restrictive meaning to the words belong in Section 153C in the case PepsiCo India Ltd vs Assistant Commissioner of Income Tax.
The High Court had held that the word used in the Section could not be confused as “relates to” or “refers to”. If photocopies of a document were seized from a person, it cannot be said that the document “belongs” to that person, as the originals were with someone else.
It further held that if a registered sale deed was found during the search premises, it could not ‘belong’ to the vendor, though the vendor’s name was mentioned there.
Modifying the High Court order, the Supreme Court ruled that Section 153C allowed the Revenue department to proceed against a party other than the person who was being searched, if incriminating articles against the ‘other’ person were found during the search.
It said Section 153C initially used the word ‘belong/belongs to’. If any books of accounts or documents which ‘belong/belongs to’ a person other than the person who was being searched was discovered during the search proceedings, Section 153C enabled the department to proceed against the ‘other person’ if the materials indicated undisclosed income or assets.
The amendment brought by the Finance Act, 2015 in Section I53C was to substitute the words ‘belong/belongs to’ with ‘pertain/pertains to,’ as pronounced in the High Court order.
The bunch of appeals filed before the Apex Court asked whether this amendment would apply to searches undertaken before the 2015 amendment.
Placing reliance on the objects and reasons of the 2015 amendment, the Bench noted that the 2015 amendment was specifically brought to remove the basis of the Delhi High Court verdict.
It noted that since the observation made by the High Court was coming in way of suppressing the very mischief which the legislature intended to suppress, it necessitated the amendment to Section 153C.
It was necessary to give effect to the manifest intention of the legislature while interpreting the provision. Once the primary intention was ascertained and the object and purpose of the legislature was known, it became the duty of the court to give a purposive and functional interpretation, noted the top court of the country.
It further accepted the contention of the Revenue department that since Section 153C was a machinery provision, its manifest purpose should be given effect to.
The Apex Court said the 2015 amendment was a case of substitution of words, whereby ‘belong/belongs’ was replaced with ‘pertain/pertains’. The Bench, while referring to the precedents, noted that the amendment by substitution had the effect of wiping the earlier provision off the statute book as if the unamended provision never existed.
Rejecting the argument of assessees that retrospective application of the amendment would affect the substantive rights of individuals, the top court of the country said that even the un-amended Section 153C pertained to the assessment of income of any other person, adding that even if the submission was attractive, it deserved to be rejected.
Regarding the object and purpose of Section 153C, even when it was not amended, the Supreme Court said it was to address the persons other than search persons.
Allowing the batch of 115 appeals filed by the revenue against the High Court’s judgments which refused to allow the retrospective application of the amendment, the Supreme Court held :”The question whether the amendment brought to Section 153C of Income Tax Act by Finance Act 2015 would be applicable to searches conducted under Section 132 of the Income Tax Act before June 1, 2015, i.e the date of the amendment is answered in favour of revenue and against the assessees.
It is held that amendment brought to Section 153C by Finance Act 2015 shall be applicable to searches conducted under Section 132 of the Act before 01.06.2015, i.e the date of amendment.
(Case title: Income Tax Officer vs Vikram Sujitkumar Bhatia and 114 connected cases)