In C.A. No.911 of 2022-SC- Amendment brought to Sec.153C of Income Tax Act, 1961 by Finance Act, 2015 will be applicable to searches conducted u/s 132 before date of amendment, rules Top Court
Justices M.R. Shah & B.V. Nagarathna [06-04-2023]

Read Judgment: Income Tax Officer v. Vikram Sujitkumar Bhatia 

Tulip Kanth

New Delhi, April 7, 2023: While noting that any interpretation, which may frustrate the very object and purpose of the Act / Statute shall be avoided by the Court, the Supreme Court has held that the 2015 amendment brought to Sec.153C of Income Tax Act, 1961 shall be applicable to searches conducted u/s 132 before date of amendment.

“Therefore, it is observed and held that the amendment brought to Section 153C of the Act, 1961 vide Finance Act, 2015 shall be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of the amendment”,the Division Bench of Justice M.R. Shah & B.V. Nagarathna asserted.

The factual background of this case was such that the original writ petitioner, an individual filed his Return of Income for the Assessment Year (A.Y.) 2012-13 on September 11, 2012 declaring total income of Rs 44,73,820 as business income from a partnership firm and other income. A search came to be conducted on various premises of H.N. Safal Group and the Assessing Officer initiated proceedings against the assessee under Section 153C by issuing a notice.

A hard-disk was seized, which contained an excel sheet with the data of the computer of the searched person, wherein there were references to the petitioner's name. On receiving the details, the original writ petitioner raised objections to the proceedings under Section 153C that the Officer could not have initiated proceedings against him inasmuch as the condition precedent for invoking Section 153C of the Act as it stood on the date of the search, namely, that the Officer should have been satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to the person other than the searched person, was not satisfied. 

The Assessing Officer rejected the objections. The original writ petitioner filed the writ petition before the High Court. Similar notices under Section 153C were challenged by other persons – persons other than the searched persons by way of different writ petitions. 

The High Court observed that Section 153C as amended w.e.f. June 1, 2015 by Finance Act, 2015 shall not be made applicable with respect to the searches conducted prior to June 1, 2015 and allowed the writ petitions while setting aside the notice as well as the respective assessment orders. The impugned common judgment of the High Court was the subject matter of appeals before the Apex Court.

In the pre-amended Section 153C, the words used were “belongs” or “belong to a person other than the searched person”. In Pepsico India Holdings Private Limited Vs. Assistant Commissioner of Income Tax, the Delhi High Court had interpreted the expression “belong to” and observed that there was a difference and distinction between belong to and pertain to. 

According to the Bench,  the High Court view gave a very narrow and restrictive meaning to the expression / word “belongs to". To remove the basis of the observation made by the Delhi High Court, Section 153C came to be amended by substituting the words “belongs” or “belong to" with the words  “pertains” or “pertain to” insofar as the books of account and documents were concerned. 

The Bench opined that as per proviso to Section 153C as inserted vide Finance Act, 2005, and the effect of the said proviso is that it creates a deeming fiction wherein any reference made to the date of initiation of search is deemed to be a reference made to the date when the Assessing Officer of the non-searched person receives the books of account or documents or assets seized etc. 

“Thus, in the present case, even though the search under Section 132 was initiated prior to the amendment to Section 153C w.e.f. 01.06.2015, the books of account or documents or assets were seized by the Assessing Officer of the non-searched person only on 25.04.2017, which is subsequent to the amendment, therefore, when the notice under Section 153C was issued on 04.05.2018, the provision of the law existing as on that date, i.e., the amended Section 153C shall be applicable”, the Bench held.

Reiterating that while interpreting machinery provisions of a taxing statute, Courts must give effect to its manifest purpose by construing it in such a manner so as to effectuate the object and purpose of the statute, the Bench opined that the object of Section 153C is to address the persons other than the searched person. Even as per the unamended Section 153C, the proceeding against other persons (other than the searched person) was on the basis of the seizure of books of account or documents seized or requisitioned belongs or belong to a person other than the searched person.

The Bench was of the view that the Delhi High Court interpreted the words belong to restrictively and/or narrowly and which 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, which necessitated the legislature / Parliament 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.

“Therefore, if the submission on behalf of the respective respondents – assessees that despite the fact that the incriminating materials have been found in the form of books of account or documents or assets relating to them from the premises of the searched person, still they may not be subjected to the proceedings under Section 153C solely on the ground that the search was conducted prior to the amendment is accepted, in that case, the very object and purpose of the amendment to Section 153C, which is by way of substitution of the words belongs or belong to to the words pertains or pertain to shall be frustrated”, the Bench clarified. 

Thus, quashing the judgment of the High Court, the Bench held that the amendment brought to Section 153C vide Finance Act, 2015 shall be applicable to searches conducted under Section 132  before June 1, 2015, i.e., the date of the amendment.