Repeated Retrospective Amendments

It is a fundamental principle of tax law is that the law which is to be applied has to be the once which is in force during the assessment year, unless provided otherwise expressly or impliedly.[1] This applies to charging sections and other substantive provisions but does not apply to procedural provisions,[2] but a procedural provision, to the extent to which it is possible, would not be interpreted in a manner which would impact the finality of tax or reopen liability which had been barred.[3] Retrospective amendments are valid if they are meant to correct anomalies in the statute, remove technical defects, prevent highly abusive schemes of tax planning and expand the tax base.[4] Factually though, upholding retrospectivity in tax matters is ambivalent.[5] There must be a uniformity in the reasoning adopted in the judgments, as it would indeed benefit the taxpayers, particularly in light of Nani Palkhivala™s statement that retrospective amendments are a ˜bureaucrat™s dream and a taxpayer™s nightmare.™[6]

Another issue is that currently, it is unfortunate that the Executive, after losing cases before courts, often resorts to amending taxing statutes retrospectively.[7] Probably the most well-known instance in this regard is the Vodafone tax dispute. In Vodafone,[8] the Supreme Court ruled in favour of the Vodafone Group in the dispute between Vodafone and the Income Tax Department, involving a sum of approximately 12,000 crore. The government sought to nullify this decision by making certain retrospective amendments in the Income Tax Act of 1961 vide the Finance Act of 2012.[9] Retrospective amendments which have been made to the Central and state tax statutes have been upheld in most cases.[10] However, only recently the practice of attempting a back-door entry has started,[11] and it is hoped that the Executive does not continue this practice, as it is in clear violation of the principles of separation of powers[12] and the independence of the judiciary, which form the Basic Structure of the Constitution.[13]

Though these principles form the Basic Structure of the Constitution, only constitutional amendments can be tested against the touchstone of the Basic Structure. Thus, it seems that the only remedy left to the affected persons is to invoke Art. 14 of the Constitution- that the retrospective amendments are arbitrary in nature, as if a retrospective taxing statute introduces an element of unreasonableness, the restrictions imposed by it may be open to a serious challenge of unconstitutionality.[14]


[1] Reliance Jute and Industries Ltd. V. Commissioner of Income-Tax, AIR 1980 SC 251.

[2] Commissioner of Wealth Tax, Meerut v. Shravan Kumar Swarup, JT 1994 (6) SC 446.

[3] Income-Tax Officer v. S.K. Habibullah, AIR 1962 SC 918.

[4] Kanga Palkhivala and Vyas, The Law of Income-tax, Vol. I, (9th edn., 2012).

[5] Id., at supplement.

[6] Preface, Kanga Palkhivala and Vyas, The Law of Income-tax, Vol. I, (9th edn., 2012).

[7] R. Santhanam, Should Indirect Taxes Be Levied Retrospectively, 41, (2000) 4 Comp LJ; T.C.A. Sangeetha, Retrospective Amendments and Reassessments, 164, (2005) 193 ctr (Articles).

[8] Vodafone International Holdings v. Union of India, (2012) 1 Comp LJ 225 (SC).

[9] (Last visited on August 14, 2013); Final Report on General Anti Avoidance Rules (GAAR) in Income-Tax Act of 1961, 16 available at  (Last visited on August 14, 2013).

[10] State of Uttar Pradesh v. Synthetics and Chemicals Ltd., (1980) 2 SCC 241; Escorts Ltd. v. Union of India, (1993) 1 SCC 249; Match Industries Pvt. Ltd. v. State of Tamil Nadu, AIR 1996 SC 1916; Mafatlal Industries Pvt. Ltd. v. Union of India, (1997) 5 SCC 536; State Bank Staff Union v. Union of India, AIR 2005 SC 3446.

[11] See generally, R. Santhanam, supra note 46 and T.C.A. Sangeetha, supra note 46.

[12] Kesavananda Bharati v. State of Kerala, AIR 1973 SC 1461.

[13] Minerva Mills v. Union of India, AIR 1980 SC 1789.

[14] Rai Ramakrishna v. State of Bihar, 1964 (1) SCC 897.

Tags: Income taxIncome Tax Act 1961Retrospective AmendmentsVodafone

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