Vivek Jalan
Overview
The Supreme Court's ruling in Income Tax Officer vs. Vikram Sujitkumar Bhatia reinforces a key principle of tax law—that the Income Tax Act must be interpreted to achieve its objective of taxing undisclosed income and preventing tax evasion. The judgment clarifies the applicability of the amended Section 153C, holding that proceedings against a non-searched person can be initiated based on documents that "pertain to" them, even if the original search occurred before the amendment. The decision underscores that statutory amendments should be construed in a manner that advances the legislative intent rather than allowing technical interpretations to defeat tax enforcement. This ruling is likely to influence future litigation, particularly in reassessment and search-related cases.
The purpose of the Income Tax Act is to tax the income generated in India by self-assessment made by the assesses or by bringing the evaders to tax by proceedings under the Act. The amendments to the Act would have to be interpreted in consonance with this basis principle. This is laid down by a recent judgement of The Hon’ble Apex Court in the case of INCOME TAX OFFICER Vs VIKRAM SUJITKUMAR BHATIA [2023-VIL-07-SCDT] and this judgement can be a precedent to many judgements which may be pronounced in Income Tax Assessment cases in the years to come, especially those under Section148.
Section 153C allows the revenue department to proceed against a party other than the person who is being searched, if incriminating articles against the "other person" is found during the search. Section 153C initially used the word "belong/belongs to". So, if any books of accounts or documents which "belong/belongs to" a person other than the person who is being searched are 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 contention of the revenue that Section 153C is a machinery provision and hence its manifest purpose should be given effect to was sometimes accepted by the Court. However, thereafter the words were substituted by "pertains or pertain to".
In the present case, even though the search under Section 132 was initiated prior to the amendment to Section 153C w.e.f. 01.06.2015, the books of account or documents or assets were seized by the AO of the non-searched person only on 25.04.2017, which is subsequent to the amendment, therefore, when the notice under Section 153C was issued on 04.05.2018, the provision of the law existing as on that date, i.e., the amended Section 153C, shall be applicable, was held.
It was held that the object and purpose of Section 153C is to address persons other than the searched person. If the submission on behalf of the assessees that despite the fact that the incriminating materials have been found in the form of books of account or documents or assets relating to them from the premises of the searched person, still they may not be subjected to the proceedings under Section 153C solely on the ground that the search was conducted prior to the amendment is accepted, in that case, the very object and purpose of the amendment to Section 153C, which is by way of substitution of the words "belongs or belong to" to the words "pertains or pertain to" shall be frustrated. Any interpretation, which may frustrate the very object and purpose of the Act / Statute shall be avoided by the Court and hence this decision.
It seems that now counsel and tax practitioners should thus take note of this judgement and even look into the merits of the cases when arguing on purely technical grounds.
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