Searches Conducted before 01-06-2015 would also come under Amendment brought by FA 2015 in Sec. 153C: SC

Case Details: ITO vs. Vikram Sujitkumar Bhatia - [2023] 149 taxmann.com 123 (SC)

Judiciary and Counsel Details

• • M.R. Shah & B.V. Nagarathna, JJ.

Facts of the Case

A search was conducted in 2013 on the premises of a business group. During the search proceedings, no original document was received by the Assessing Officer (AO) belonging to assessee. Only a hard disk was seized that contained references to the assessee’ name.

Assessee-individual filed its return of income for the relevant assessment year by declaring business income from a partnership firm and other incomes. After the search proceedings, the AO initiated the proceedings under section 153C against the assessee based on seized material. A Panchnama was prepared before 01-06-2015. However, notice was issued under section 153C after 01-06-2015.

Section 153C pertains to the assessment of the income of any other person. Under the unamended Section 153C, the proceeding against other persons (other than the searched person) was based on the seizure of books of account or documents seized or requisitioned “belongs or belong to” a person other than the searched person. The Finance Act 2015, w.e.f., 01-06-2015, amended section 153C by replacing the words “belongs or belong to” with the words “pertains or pertain to”.

On receiving notice, the assessee claimed that there were only references to the assessee’s name, and thus the AO could not have initiated proceedings under the amended provisions of section 153C. The matter reached the Apex Court.

Supreme Court Held

The Supreme Court held that the Delhi High Court, in the case of Pepsico India Holdings Private Limited [2014] 50 taxmann.com 299 (Delhi) interpreted the expression “belong to”. The High Court observed and held that there is a difference and distinction between “belong to” and “pertain to. The HC gave a very narrow and restrictive meaning to the expression/word “belongs to” and held that the ingredients of Section 153C have not been satisfied.

The observation made by the Delhi High Court led to a situation where, though incriminating material pertaining to a third party/person was found during search proceedings under section 132, the Revenue could not proceed against such a third party.

This necessitated the legislature to clarify by substituting the words “belongs or belong to” to the words “pertains or pertain to” and to remedy the mischief that was noted pursuant to the judgment of the Delhi High Court.

If the assessee’s submission is accepted, i.e., although the incriminating materials were found from the premises of the searched person, they may still not be subjected to the proceedings under Section 153C solely on the ground that the search was conducted before the amendment. In this case, the very object and purpose of the amendment to Section 153C, which is to substitute the words “belongs or belong to” for the words “pertains or pertain to” shall be frustrated.

Any interpretation which may frustrate the very object and purpose of the Act/Statute shall be avoided by the Court. If the interpretation as canvassed by the assessee was accepted, in that case, even the object and purpose of the section shall be frustrated.

Section 153C is a machinery provision that has been inserted to assess persons other than the searched person under Section 132. As per the settled position of law, the Courts, while interpreting machinery provisions of a taxing statute, must give effect to its manifest purpose by construing it in such a manner as to effectuate the object and purpose of the statute.

Therefore, the amendment brought to Section 153C vide Finance Act 2015 shall apply to searches conducted under Section 132 before 01.06.2015, i.e., the date of the amendment.