Justice Done or Undone | A Paradigm Shift in the Concept of Direct Tax Laws

P. Roychaudhuri – [2022] 138 taxmann.com 224 (Article)

It was a settled position in law that tax laws do not operate on the basis of equity. The Hon’ble Supreme Court way back in the year 1973 in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 had observed that if two reasonable constructions of a taxing provision are possible, then the construction which favours the taxpayers must be adopted.

This was before the Apex Court on 04.05.2022 in the case of Union of India v. Ashish Agarwal [2022] 138 taxmann.com 64 has come to the rescue of a beleaguered Income Tax Department and perhaps for the first time in a tax matter has invoked its extraordinary inherent power under Article 142 of Constitution of India to “do complete justice” by saving the power of the Income Tax Department to reassess Income Tax Returns in the teeth of statutory prohibitions.

The power to do ‘complete justice’ in a way is a power that gives advantage to equity over law but the concept of equity is unheard of in tax jurisprudence. The Court in Ashish Agarwal’s case ruled in favour of Revenue regarding the controversy over the procedure to be adopted by the Revenue in reassessment proceedings.

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