Wednesday, September 17, 2014

SC discusses on evils of retro law; proviso to sec. 113 levying surcharge in block assessment cases held prospective

SC discusses on the evils of retrospective law while upholding the principle "that unless a contrary intention appears, a law is presumed to be prospective”.


The question of law that arose for consideration before the Supreme Court was as to whether the proviso to Section 113 inserted by the Finance Act, 2002 was to operate prospectively or was clarificatory and curative in nature and, therefore, had retrospective operation?

The Supreme Court held as under:

1)Of the various rules guiding how legislation had to be interpreted, one established rule was that unless a contrary intention appeared, legislation was presumed not to be intended to have a retrospective operation. The idea behind the rule was that a current law should govern current activities. Law passed now could not apply to the events of the past.

2)If we do something today, we do it keeping in view the law in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law was founded on the bed rock that every human being was entitled to arrange his affairs by relying on the existing law and would not find that his plans had been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward.

3)The basis of the principle against retrospectivity is the principle of 'fairness‟, which must be the basis of every legal rule. There could not be imposition of any tax without the authority of law. Such a law had to be unambiguous and had to prescribe the liability to pay taxes in clear terms.

4)If the concerned provision of the taxing statute was ambiguous and vague and was susceptible to two interpretations, the interpretation which favoured the subjects, as against there the revenue, had to be preferred. This was established principle of statutory interpretation, to help finding out as to whether particular category of assessee was to pay a particular tax or not?.

5)No doubt, with the application of this principle, Courts made endeavour to find out the intention of the Legislature. At the same time, this very principle was based on "fairness" doctrine as it laid down that if it was not very clear from the provisions of the Act as to whether the particular tax was to be levied to a particular class of persons or not; the subject should not be fastened with any liability to pay tax. Thus, the proviso to Section 113 imposing a surcharge was held to be prospective with effect from 01.06.2002 – CIT v. Vatika Township (P.) Ltd. [2014] 49 249 (SC)