Reopening of Assessment Vis-a-Vis Finance Minister's Assurance and CBDT Instruction

Abstract

Retrospective amendments have always been a bone of contention in taxation laws. Sometimes to cure the defects pointed out by courts in the fiscal legislation and sometimes (by being accompanied by validation laws) to take away vested rights of the citizens, retrospective amendments are not unknown to tax jurisprudence. Even though they may be criticized on grounds of unreasonableness or unfairness and the legislature making such amendments may not be beyond reproach, still the competence of the legislature to make retrospective amendments in taxation laws is duly acknowledged and judicially upheld.

The Finance Act, 2012 has introduced a number of retrospective amendments to the Income Tax Act, 1961 with some of the amendments being introduced with effect from 1st April 1962 i.e. the date on which the 1961 Act come into force. The law to this regard is well settled that once a retrospective amendment is validly enacted than it is in the fitness of things as also incumbent upon the judicial authorities to decide the pending lis upon the strength of such retrospective amendment. However the Finance Minister has given a solemn assurance to the Parliament that the retrospective amendments introduced in the Finance Act, 2012 will not be the basis for reopening of assessments which have already been finalized before the enactment of such retrospective amendments. This assurance has also been affirmed in a subsequent CBDT Instruction.

This paper revisits the law relating to reopening of assessments in the context of retrospective amendments as applicable in India and examines the correctness of the Finance Minister’s assurance and the CBDT’s instruction from a purely legal theory perspective.

Keywords: retrospective amendment, income tax, India, reopening of assessment

JEL Classification: K11, K23, K34, K49, N45, E62, H25, H26