Facts of the Case

The petitioner, Western UP Power Transmission Co. Ltd., is a company engaged in the business of transmission and distribution of electricity in the State of Uttar Pradesh. A search and seizure operation under Section 132 of the Income-tax Act was conducted at the petitioner’s premises on 11.10.2019. Thereafter, notices under Sections 153C and 143(2) were issued by the Assessing Officer on 18.03.2021 for Assessment Years 2014-15 to 2019-20 and AY 2020-21 respectively. The petitioner filed an application for settlement under Section 245C of the Income-tax Act on 22.03.2021 before the Income Tax Settlement Commission (ITSC) along with payment of tax and interest as prescribed.

At the relevant time, the Finance Bill, 2021 had been introduced in Parliament on 01.02.2021 proposing abolition of the ITSC and replacement by an Interim Board of Settlement, but the Bill had not yet received Presidential assent. The ITSC declined to process the application citing the proposed amendments. The petitioner approached the Delhi High Court. During pendency, the Finance Bill received Presidential assent on 01.04.2021 and became the Finance Act, 2021 with retrospective effect from 01.02.2021.

Issues Involved

Whether settlement applications filed under Section 245C between 01.02.2021 and 31.03.2021 could be treated as invalid due to retrospective amendments introduced by the Finance Act, 2021, whether the petitioners had acquired vested rights upon filing such applications, and whether such applications were required to be treated as pending applications to be adjudicated by the Interim Board of Settlement.

Petitioner’s Arguments

The petitioner contended that when the settlement application was filed on 22.03.2021, the Finance Bill, 2021 had not become law and the ITSC was legally in existence till 31.03.2021. It was argued that the retrospective abolition of ITSC could not take away vested rights already accrued to the petitioner. The petitioner relied on judicial precedents from the Bombay, Madras, Gujarat and Calcutta High Courts, particularly Sar Senapati Santaji Ghorpade Sugar Factory, Jain Metal Rolling Mills and Vetrivel Infrastructure, which held that applications filed during the interregnum period were valid and could not be rendered non est by retrospective amendment. It was further argued that such applications qualified as “pending applications” under Section 245A(eb) and were required to be adjudicated by the Interim Board.

Respondent’s Arguments

The Revenue contended that settlement is a statutory concession and no vested right accrues to an assessee merely by filing an application. It was argued that Parliament, in its legislative wisdom, abolished the ITSC with effect from 01.02.2021 and fixed a cut-off date, which was a policy decision not amenable to judicial review. The Revenue further contended that retrospective amendments were valid and that applications filed after 01.02.2021 were not maintainable.

Court Order / Findings

The Delhi High Court examined the legislative scheme of Chapter XIX-A, the amendments introduced by the Finance Act, 2021, and the concept of vested rights. The Court noted that multiple High Courts had consistently held that applications filed between 01.02.2021 and 31.03.2021 could not be invalidated retrospectively. The Court relied extensively on the reasoning of the Madras High Court in Jain Metal Rolling Mills and the Bombay High Court in Sar Senapati Santaji Ghorpade Sugar Factory, both of which had been upheld by the Supreme Court through dismissal of SLPs.

The Court held that Section 245C(5), as amended, only prohibits filing of applications prospectively and cannot nullify applications already filed before the Finance Act, 2021 came into force. It was observed that if the legislature intended to invalidate such applications, it would have expressly provided that applications filed after 01.02.2021 shall be null and void. The Court further held that the petitioners acquired a vested right to have their applications treated as valid pending applications and to be adjudicated in accordance with the amended framework by the Interim Board.

Important Clarification

The Court clarified that retrospective fiscal amendments cannot extinguish vested procedural rights unless the statute expressly or by necessary implication so provides. Settlement applications validly filed when the statutory forum existed cannot be rendered non est by subsequent retrospective amendments. All such applications are required to be treated as pending applications under Section 245A(eb) and decided by the Interim Board of Settlement.

Final Outcome

The writ petition filed by Western UP Power Transmission Co. Ltd. was allowed. The Delhi High Court directed that the settlement application filed by the petitioner on 22.03.2021 shall be treated as a valid and pending application and be adjudicated by the Interim Board of Settlement in accordance with law.

Link to download order-  https://www.mytaxexpert.co.in/uploads/1769506695_WESTERNUPPOWERTRANSMISSIONCOLTDVSINCOMETAXSETTLEMENTCOMMISSIONANDORS..pdf

 

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