Author: Sanjana Dwivedi, (School of Law, UPES)
INTRODUCTION: This article will talk about retrospective amendments which are no doubt falls to be a part of many debates and controversy. This article will tell that whether these amendments are valid or not by the purview of the constitution. As retrospective amendments are just about taxation laws and applicable mostly there in India so, this paper will only talk about retrospective amendments to taxation laws or statutes. What are retrospective amendments? Retrospective amendments are those amendments of the law, which was valid and constitutional for certain period of time or date in the past but now has been amended.
What is the applicability of retrospective amendments in India? A retrospective amendment can be made by parliament or state legislature of any law in any case which does not effect the other provisions of the constitution. A judgment made by judiciary if found with any flaws then it can be reversed or cured by the legislature retrospectively, by making the judgment ineffective.
What are retrospective taxes? Retrospective tax basically means extra charge or other tax by the method of amendment from certain date mentioned from the past. Retrospective tax is nothing more than just an addition of two different words where retrospective means applying something from past dates and tax means just a new tax on some amount or transaction. Let’s understand with an example: imposition of certain direct or indirect tax transferred from Finance Act, 2012 with retrospective effect of 1961. Section 14A was introduced retrospectively from 1962 into 2001 which said that rejection of outgoing payments (expenditure) related to exempted income. Retrospective taxes will always contain extra or additional tax imposition whereas, retrospective amendments may not have extra imposition of tax.
SIGNIFICANCE OF THE DEVELOPMENT: The significance of this development is not as such very vast in nature to talk about but there have been certain very important amendments to the taxation statutes which are mentioned below: If we look at the present scenario than till now the most debatable and controversial amendment made retrospectively was the initiation of indirect transactions in the purview of tax by Finance Act, 2012. After this in the case of Vodafone the Supreme Court stated that Sec. 9 is not capable of allowing authorities to impose tax on the capital gain came out from indirect transactions of Indian companies whereas, the transfer made was in two foreign companies from the foreign company which had most of its share in Indian company. After this ruling of the court the no. of transactions made and the tax bygone by taxation authorities was increased in big numbers. Section 9 of income tax act, 1961 was then amended by govt. of India after this case and finance act, 2012 as well and stated that if an organization is established or considered to be situated in India and its shares or values of its assets is derived by assets located in India only. Also, any capital acquiring its minimal value from shares situated in India was came under tax imposition. Government did not stopped the new imposition of taxes instead stated this as an effective/working retrospective since 1962. That in whole sense meant that after this case the transfers were to be done already and decision of the apex court can be conduct to taxes with retrospective amendment.
Why retrospective amendments in taxes important and what is the reasoning? It happens very frequently that these amendments are just done to make some of the judicial pronouncements void because they have extended its limits and went far away from the intention of legislature or the amendments are made just to cure the defected law. It gives benefit to taxpayers mostly just to resolve the difficulties which are considered as challenges to taxpayers. For example, in the case of indivisible or composite businesses the Apex court in one of its ruling before 2001, stated that principle of apportionment cannot be applied & expenditure sustained in income exempt earning could not be apportioned and rejected because of indivisibility. After this ruling in 2001 Section 14A was added which gave the green light to the disallowance of outing income sustained by taxpayers in accordance with the excepted income and this process will not be interrupted by the composite category of business. After a while, the government introduced some regulations stating the process in which the amount for apportioned and disallowed can be recognized. Tax department or authorities stated this amendment as a clarification to legislative intentions though it was also an apex court ruling. IMPACT OF THE AMENDMENTS ON TAXATION STATUTES: Introduction of the retrospective amendments of taxation into this present situation or system was difficult in every way, for example, it was immensely difficult and full of burdens for the government to execute and was hard for people to inculcate. The very unpredictable levy of taxes containing retrospective effects started a big transaction of money flow in the reverse manner which means from people to gov. The increment in the money flow started resulting in the short of credits for public and which leaves the public with large amount of taxes. Abusive powers to legislature: The power of legislature recently had been corrupted or distorted for the enactment of retrospective amendments in taxation statutes. The Finance Act, 2009 can be the major example of this where it excused certain retrospective changes in the Income Tax Act the unaccompanied part of altering the binding nature to ‘inconvenient’ interpretation. Hence, the intention of explaining the provision, these legislations had put so much unexpected load on the taxpayers. The first analysis that can be made about abusive powers if legislation is that, the legislation is in certain position which anyways have the power to do retrospective amendments and no matter how hard people try they have to follow that, so rather than fighting against it the people starts to pay accordingly. Secondly, its always been observed that government generally amends or changes the law which is undergoing in the process or have been decided by Supreme Court, whereas retrospective amendments are applied only when the Supreme court extends it limit and gives decision against the intention of legislature. So, for this purpose retrospective amendments have came into picture, which just go contrary to the decisions. Thirdly, it has been observed that if this situation goes on than retrospective amendments will start and come in the way of decisions made by tribunals.
VALIDITY OF RETROSPECTIVE AMENDMENTS WITH CASE LAWS: There had already been so many judgments ruled by the Apex court but the applicability and legitimacy of retrospective amendments had always been in the debates and controversies. The subjectivity of this concept is very wide. There the certain important judgments which are mentioned below: CIT v. Vatika Township Private Limited In this case the Apex court just clarified the retrospective vs. prospective operation of tax related amendments and stated that: Firstly, the court observed that the interpretation of the law until expressly written, the legislative statute will be presumed to not to consist any retrospective operations. The main objective behind this observation of the court was that law always should focus on present scenario. The concept of ‘Lex Prpspicit non respicit’ was upheld by court which meant that ‘the law does not look backward but forward’. The concept of legislation which says that statute introduced does not change in accordance with the past applied just on the belief of the existing law in present time, seemed contrary with the retrospective amendments. ‘Justice & fairness’ should always be the root of every existing law but the principle of retrospective amendments was against it. In this case the Apex Court ruled that the amendments which comes as a loss to the taxpayers and is a burden to them should not be considered as retrospective amendments. The court further concluded that in deciding the applicability of any provision will be prospective or retrospective, the focus will be on the language of the amending provisions, the intention of legislature & the difficulties which the amendment bring to the taxpayers. McDonalds India Pvt. Ltd. Vs. CST In this case the dispute was about the fairness and equity of the retrospective validity of one explanation added in Rule 6 of Service Tax Rules, 1994. This case was heard by the bench of two of CESTAT, Delhi, they ruled that the underlying concept for discovering the retrospective effect made by legislation is just on the principle of fairness. Hence, the legislature who amends or repeals or changes the law to cure it which put duties or give certain mandate obligations or attach some liability or disability will be treated as prospective until unless the legislature expressly states the retrospective nature of such changes or amendment. The court further concluded that the introduction of explanation in Rule 6 will be having prospective effects for the submission of service taxes in accordance with the entries mentioned in books of account. Vodafone International Holdings vs UOI The most important and prestigious judgment until this time was of Vodafone. In this case the Supreme Court held contrary to the revenue and pulled the direct taxing demands of billion dollars down. Furthermore the government in the Finance Act, introduced a retrospective explanation for the Income-tax Act, 1961, and amended the said law to make sure that international transactions like for example the Vodafone-Hutchison agreement of $11.08 billion is taxable. The concept of retrospective amendments has always been in talks and debates and criticized as well in all over the places and also made India as an underrated market for investments. The Apex court in the past had held that the deal is not taxable in India.
CONCLUSION: To conclude it and from above mentioned source it is evident that the courts have identified that if the amendment made retrospectively is giving burden to taxpayers than it will not be held as legal only on the principle of ‘fairness’. Though, it depends upon the Apex Court in the future if they stick to the same view. In accordance with the decisions made and further developments it is evident that the government does not have any rights to make difficulties and give hardships to the taxpayers in the process of fixing any uncured law related to tax. To avoid any further confusions or anything the legislature should draft the laws with appropriate amount of seriousness. These amendments have another drawback which is that it makes the public criticize about the government and lead to unstable economy. The public or citizens just get affected by these retrospective amendments so the legislature or ruling government should take every responsibility. These amendments should not be allowed regularly rather should be allowed in every rare cases in the situations where there is serious errors & omissions in the statute. The court should be practical about these errors rather being theoretical the court must get evidences of such situation related to taxes. Although, the court now have ruled that retrospective amendments are constitutionally valid, but with all the difficulties it create it is very evident to conclude that everything said by or declared by the legislature can always not be reasonable, fair and just.
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