[Opinion] Clarificatory Amendments in Tax Law Need Not Be Retrospective

V K Subramani – [2025] 177 taxmann.com 324 (Article)

Frequent Changes in Legal Provisions

Legal provisions often undergo frequent amendments for several reasons — to close loopholes, bring untaxed items under the tax net, clarify ambiguities in existing statutes, or simplify overly complex provisions. Such changes fall within the exclusive domain of the lawmakers, while the role of the courts is confined to interpreting the law. However, if the drafting is not precise, it can either allow taxpayers to escape liability through technical gaps or impose unintended hardships.

Role of the Judiciary in Interpretation

Courts must limit themselves to interpreting the law as enacted, without stepping into the legislative domain. At times, however, a slight deviation from the strict language of the provision may be permissible if it is necessary to give effect to the clear legislative intent. The Supreme Court, in K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597 (SC), recognised that such “mild violence” to statutory language could be justified to achieve the intended purpose of the legislature.

Legislative Corrections Through Finance Acts

In the current era, lawmakers often address ambiguities in tax provisions by amending them in the subsequent Finance Act. This practice ensures that any confusion or loophole is rectified without prolonged litigation. A recent example is the computation of undisclosed income of the block period in search cases under section 158BB. Initially, the provision was poorly drafted in the Finance (No. 2) Act, 2024, but was reworked and retrospectively amended by the Finance Act, 2025, with effect from 1 September 2024, to clarify the intended position.

Need for Further Fine-Tuning

Despite the amendments, certain practical concerns remain unaddressed. In my view, section 158BB still requires further fine-tuning to ensure relief is granted in cases where entries have been duly recorded in regularly maintained books of account, but the income tax return was not filed before the search or seizure, and the ‘due date’ under section 139(1) had already expired. Addressing such situations would ensure a fair balance between preventing tax evasion and avoiding undue hardship to compliant taxpayers.

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