Retrospective legislation cannot infringe on vested rights without explicit constitutional provision, reinforcing the need for clarity in legislative intent concerning eligible rights.

Headnote:(A) Income Tax Act, 1961 - Sections 245A, 245B, 245C, 245D, 245M, and provisions introduced by the Finance Act, 2021 - Amendment challenged as unconstitutional and infringing fundamental rights - Petitioners, income tax assessees, argue that retroactive application of the amendment restricts their statutory right to approach the Income Tax Settlement Commission (ITSC), which was abolished by the Finance Act effective from 01.02.2021 - The court considered whether the Circular dated 28.09.2021 imposing eligibility criteria based on a cut-off date is arbitrary and violates the Act - The court found that while the State can legislate retrospectively, such enactments must not infringe on vested rights without express provision - It determined that the petitioners had a vested right to pursue settlement applications before the ITSC until its abolition, which included cases pending during the interregnum period between the legislative changes - Therefore, the court read down the retrospective cutoff date to 31.03.2021 for assessing pending applications. (Paras 1, 8, 35, and 42)

(B) Legislative Retrospectivity - The principle of law that retrospective legislation cannot affect vested rights is upheld - The requirement for explicit legislative intent when such rights are impacted is affirmed. (Paras 37, 38, and 39)

Facts of the case:
Petitioners challenge amendments to the Income Tax Act, claiming these retroactively strip them of rights to file applications with the ITSC, which was operational until 31.01.2021. They assert their applications were submitted in good faith while the Act was still in force.

Findings of Court:
Amendments without clear provisions infringing on vested rights are unconstitutional. The court reads down the cutoff date fixed by the amendment to allow pending applications until 31.03.2021.

Issues: Whether the retrospective application of the Finance Act, 2021 violates petitioners' rights and whether the Circular's eligibility criteria are lawful.

Ratio Decidendi: The court established that while legislative bodies can enact laws with retrospective effects, they must safeguard existing vested rights unless explicitly stated otherwise.

Result: Writ petitions partly allowed; predicated applications are recognized as valid pending applications.

COMMON ORDER

(Order of the Court was made by Mr. Justice. D.Bharatha Chakravarthy)

All these writ petitions are connected to each other and are filed with two sets of prayers. The petitioners pray for a writ of declaration, declaring the amendment to the Income Tax Act, 1961 in Section 245-A by inserting Sub-Clause (da), (ea) and (eb), 245B, 245BC,245BD, proviso to 245C, 245D, 245DD, 245F, 245G, 245H and insertion of new Section 245AA and 245M by way of Sections 54 to 65, Finance Act, 2021 with retrospective effect from 01.02.2021 as arbitrary, illegal and void and infringing the fundamental rights conferred under Article 14,19(i)(g), 20, 20 (2) and 21 of the Constitution of India, 1950, thus unenforceable and unconstitutional.

2.The petitioners also challenge the order issued by the Department of Revenue, Ministry of Finance, in F.No.299/22/2021-Dir(Inv.III)/174 dated 28.09.2021 in as much as it restricted the filing of the application before the Interim Board for Settlement only by the assesses who were eligible to file the application for settlement on 31.01.2021.

3.The factual background of the case is that the petitioners are all assessees of Income Tax. The matters pertaining to assessments and re- opening etc., were pending and they have either approached or contemplating approaching the Settlement Commission as per Chapter XIX-A of the Income Tax Act, 1961 (hereinafter the Act). Originally, under Chapter XIX-A of the Act, the eligible assessees were entitled to approach the Settlement Commission (hereinafter ITSC) at any stage of a case relating to them and the ITSC will consider their cases as per the parameters and will grant relief by passing orders providing for the terms of settlement of the case. Thus, the eligible assessees had the additional option of resolution of the dispute by approaching ITSC. According to the petitioners, they are eligible and their cases are complex in nature and it would be uncertain to pursue the regular remedies and it would be beneficial for them to settle the issue.

4.While so, by the Finance Act, 2021, which was notified on 01.04.2021, the ITSC was abolished and an Interim Board was constituted to deal with the pending applications. A proviso to Section 245B was inserted which reads as follows :-

“Provided that the income tax settlement commission so constituted shall cease to operate on or after the first day of February 2021”

Section 245C(5) inserted by the Act, mandated that no application shall be made under this section on or after the first day of February, 2021, which reads thus:-

“(5). No application shall be made under this section on or after the 1^st day of February 2021.”

5.The Finance Act, 2021, was made retrospective in operation with effect from 01.02.2021. The reason which was mentioned for the said cut-off date is that the Bill was introduced in the Parliament on the said date. However, as per the existing provisions, in the month of February and March, 2021, in respect of their ‘cases’ the petitioners had made applications before the ITSC.

6.Be that as it may, considering the difficulty of the assessees, on account of the sudden and retrospective amendment, in exercise of its powers under Section 119(2) of the Act, a press release was issued on 07.09.2021 and thereafter an Order in the nature of a Trade Circular was issued on 28.09.2021 extending the time limit for filing applications before the Interim Board upto 30.09.2021. However, paragraph (4) of the said Order reads thus:-

“4. The above relaxation is available to the applications filed:-

(i) by the assessees who were eligible to file application for settlement on 31.01.2021 for the assessment years for which the application is sought to be filed (relevant assessment years); and

(ii) where the relevant assessment proceedings of the assessee are pending as on the date of filing of the application for settlement. “

7.As a matter of fact, immediately after the introduction of the Bill before the Parliament, fresh appli

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2023 Supreme(Online)(Mad) 84326

Retrospective legislation cannot infringe on vested rights without explicit constitutional provision, reinforcing the need for clarity in legislative intent concerning eligible rights.

Cases Referred (4)