115BBE- Validity of retrospective amendment.
The art of taxation consists of so plucking the goose as to obtain the largest amount of feathers with the smallest amount of hissing. [Jean Baptiste Colbert]
This article aims at highlighting the retrospective amendment in provisions of section 115 BBE of the Income Tax Act, 1961 and its applicability.
The objective of section 115 BBE of the Income Tax Act was to curb the practice of laundering of unaccounted money by taking advantage of basic exemption limit. Provisions of section 115BBE is invoked when income includes any income in the nature of Section 68 or section 69 or Section 69A or Section 69B or Section 69C or Section 69D. For better understanding current provisions of section 115BBE is reproduced below for the ready reference:
'115BBE. (1) Where the total income of an appellant,-
(a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or
(b) determined by the Assessing officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of- ……”
the income-tax payable shall be the aggregate of --
(i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent.; and
(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).
(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance[or set off of any loss] shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a)[and clause (b)] of sub-section (1).
115BBE- Pre- amendment?
Section 115BBE of the act specifically levies tax on such unexplained items deemed as income at the flat rate of 30 percent (Plus surcharge and cess as applicable) irrespective of slab of income. No deduction is available for any expenditure or allowance while computing such deemed income. Amendment in provisions of section 115BBE was introduced during the period of demonetisation in parliament by Finance Minister Late Arun Jaitley ji and got presidential assent 15th December, 2016 with retrospective date of 1st April, 2016 to make it more harsh for taxing the unexplained income as per the provisions of Section 68 or 69 or 69A or 69B or 69C or 69D
115BBE- Post- amendment? (Taxation laws second amendment, 2016)
Need for amendment:
We all know that our Prime Minister Shree Narendra Modi ji announced the demonetisation of old currency on 8th November, 2016 to curb the black money from the Indian financial system and to stop the terror activity.
Demonetisation of old currency enables the Tax payers to deposit their hard earned money in the bank accounts. However, some of the person with malafide intention can take the benefit of Pre- amended law under section 115BBE of the Income Tax Act, 1961 and convert their unexplained money to explained with payment of 30 percent tax plus applicable surcharges only.
What's the amendment?
Amendment to section 115BBE by taxation laws second amendment by taxation laws Second amendment Act, 2016 was made to increase the tax rate to 77.25 percent (60% Tax + 25% Surcharge on Tax + 3% cess on tax and Surcharge) from 35.535 percent.
A brief explanation of section 115BBE and its amendments is discussed supra, moving further to our discussion in the topic:
What is retrospective amendment?
Retrospective law is made to affect acts or facts occurring, or rights occurring before it came into force. Every statute which takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability in respect to transactions or considerations already past. Retroactive statute means a statute which creates a new obligation on transactions or considerations already part or destroys or impairs vested rights. Retrospective amendments to the tax law completely upset the applecart and make a mockery of business models which take into account certain concessions and incentives. Retrospective legislation did occur from time to time but for the most it was designed to deal with some Court verdict which upset the existing law or upset the existing understanding of the law.
In case of section 115BBE the amendment got the president assent on 15th December, 2016 and same is applicable from 01st April, 2016 which is in the nature of retrospective.
Is Retrospective taxation- Valid?
Many times retrospective amendment in the tax laws which was prejudicial to the interest of tax payer and same was challenged before the appellate authorities. Most of the cases favours the taxpayer and treats the retrospective amendment bad-in-law and nullity. For the same tax payer can rely on the following judgments:
The Hon'ble Apex Court in the case of Karimtharuvi Tea Estate Ltd. Vs State of Kerala as reported in  60 ITR 262 (SC) re-iterated a settled position of law and held as under:
'10. Now, it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into, force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force.”
The Hon'ble Kerala High Court in the case of CIT Vs S.A. Wahab as reported in  48 Taxman 362 (Kerala) has held as under:
'6. We are of the opinion that though the subject to the charge is the income of the previous year, the law to be applied is the law that is in force in the assessment year, unless the law is changed. In fact, what has to be looked into is the law of income-tax. The provision of the Act as it stands on the 1st April of a financial year must apply for that year. Further, since the law that has to be applied is the law as it stands on the 1st April of a financial year, any amendments in the Act, which come into force after 1st April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. This position has been made clear by the Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd.  42 ITR 589 and in Karimtharuvi Tea Estate Ltd. v. State of Kerala  60 ITR 262.”
The Hon'ble Gujarat High Court in the case of Avani Exports Vs CIT as reported in  23 taxmann.com 62 (Guj.) has held as under:
'Although in taxing statute laxity is permissible and after giving a benefit to the assessee based on some specific conditions, such benefit can definitely be curtailed out, the same must be effective from a future date and not from an earlier point of time. If after inducing a citizen to arrange his business in a manner with a clear stipulation that if the existing statutory conditions are satisfied, in that event, he would get the benefit of taxation and thereafter, the revenue withdraws such benefit and imposes a new condition which the citizen at that stage is incapable of complying whereas if such promise was not there, the citizen could have arranged his affairs in a different way to get similar or at least some benefit, such amendment must be held to be arbitrary and if not, an ingenious artifice opposed to law. In the instant case, the object of the amendment, as it appears from the statements of the Finance Minister while moving the bill, is to get rid of the alleged wrong decision of the Tribunal interpreting the then provision of the statute in a way beneficial to the assessee, which according to the Finance Minister, was never the intention of the legislature. If such be the position, the revenue has definitely right to challenge the decision of the Tribunal as a wrong one before the higher forum, but on a plea of delay in disposal of appeal if filed, without challenging the decision of the Tribunal before the High Court or the Supreme Court, the revenue cannot curtail such benefits by proposing amendment, incorporating a new provision in the Statute from an anterior date. According to the existing law enacted by the Parliament itself, wrong orders passed by a Tribunal should be challenged by aggrieved party before the appropriate High Court and if such party is aggrieved, by order of the High Court, he should move to the Supreme Court.
In view of the various judicial pronouncement, cited hereinabove, it is manifest that the provisions of section 115BBE of the Income Tax Act did not stand amended as on first day of April for the Financial Year 2016-17, it would not apply to the assessment for that year, even if the assessment is actually made after the amendments have come into force.
No specific judgment is available which proves retrospective amendment in the provisions of section 115BBE(1) is invalid. The debate on retrospective and prospective application of amendment is endless and in a taxing statute the demand for the earlier years on account of the retrospective application of law can wipe out the net worth of Tax payers. Tax payers typically want the best of both worlds - any new incentive to be retrospective and a fresh levy, prospective. The solution possibly lies in balancing the two and making it clear that any new levy or change has to be only prospective.
Disclaimer: The views expressed herein above are solely author's personal views/opinion. This is an informational article and should not be considered as legal opinion. The possibility of any errors and omissions in the article cannot be ruled out.
Tags income tax