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INTRODUCTION

Parliament is endowed with plenary powers of legislation, and that it is competent to legislate with prospective or retrospective effect but power to legislate retrospectively is upheld by Courts with a Caveat that such retrospective legislation should not be “unreasonable”. The reasonableness of each retroactive tax statute will depend on the circumstances of each case. Before going into the details of reasonableness and validity of taxing statutes, it is important to understand its meaning which is described as below:

 

The term retrospective statute is defined as

“A statute is to be deemed to be retrospective, which takes away or impairs any vested right acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability in respect to transactions or considerations already past.”

 

The same term with respect to an enactment may be defined as below: [1]

 

(i)   Affecting an existing contract; or

(ii)  Reopening up of past, closed and completed transaction; or

(iii) Affecting accrued rights and remedies; or

(iv)  Affecting procedure.

 

RETROSPECTIVE AMENDMENT AND ITS VALIDITY

 

“Nova Constitutio Futuris Formam Imponere Debet Non Praeteritis”

 

A New Statute/ Amendment should affect the future not the Past because in general, first and strong presumptions of any law enacted for the first time or amending the enacted law, is its prospective applicability.[2]  Even Lopes, L.J. observed that

 

Every statute which takes away or impairs vested rights acquired under existing laws, or creates a new obligation or imposes a new duty, or attaches a new disability in respect of transactions already past, must be presumed to be intended not to have a retrospective effect.[3]

 

But as I discussed earlier, power of retrospective legislation does exist which is not only subject to the question of competence but is also subject to several judicially recognized limitations[4] In order to determine the validity of retrospective law the court has to take into account all relevant surrounding facts and circumstances.[5] The first and foremost is

 

“Tax Statutes may be retrospective if the legislature clearly so intends”

                                                                                                                                   -Sutherland

 

The same fact has been again and again observed in numerous SC judgments. It has been held that a law will be retrospective only if the words used must expressly provide or necessarily imply retrospective operation.[6]  Retrospective operation is not taken to be intended unless that intention is manifested by express words or necessary implication; there is a subordinate rule to the effect that a statute or a section in it is not to be construed so as to have larger retrospective operation than its language renders necessary.[7] In other words close attention must be paid to the language of the statutory provision for determining the scope of the retrospectivity intended by Parliament.

 

As I discussed earlier, it is conceivable that cases may arise in which the retrospective operation of a taxing or other statute may introduce such an element of unreasonableness that the restrictions imposed by it may be open to serious challenge as unconstitutional like introduction of any element against the Principle of Equity which is enshrined in Article 14 of the Constitution. The principle can be illustrated with the following example.

 

Retrospective imposition of a tax on some peoples for some period without any definite reason is unconstitutional. Even, in the case of Rai Ramkrishna & Ors. v. Stateof Bihar[8], the Hon’ble Court quashed imposition of retrospective tax because it found imposition against principle of equity and it was held that if the retrospective feature of a law is unreasonable, arbitrary and burdensome the statute cannot be sustained. In general, income taxes are valid although retroactive, if they affect prior but recent transaction.

 


[1] Judicial Dictionary (13th Edn.) K.J. Aiyar, Butterworth, p. 857,

[2] Keshvan Madhavan Memon v. State of Bombay, 1951 SCR 228

[3] Amireddi Raja Gopala Rao v. Amireddi Sitharamamma, 1965 (3) SCR 122

[4] National Agricultural Co-operative Marketing Federation of India v. Union of India, [2003] 260 ITR 548 (SC).

[5] Jawaharmal v. State of Rajasthan, AIR 1966 SC 764. 

[6] J.P. Jani, ITO v. Induprasad Devshanker Bhatt [1969] 72 ITR 595 (SC).

[7] India & Anr., 2006 (2) SCC 740

[8] 1964 (1) SCC 897

 


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