A Division Bench of the Patna High Court observed that Sub section (5A) inserted by amendment of Finance Act,2017 has no retrospective effect.
The question of law raised in the writ petitions, filed under Article 226 of the Constitution of India, is as to whether sub-section (5A) of Section 45 of the Act; inserted by the Finance Act, 2017, with effect from 01.04.2018, apply retrospectively.
The petitioners also contended that if it is held to be prospective, as is the consequence of the express words employed in the Finance Act, then it would violate Article 14 of the Constitution of India on the ground of invidious discrimination between the same class of persons.
It was lso argued that sub-section (5A) has been brought into the Income Tax Act to remove unintended consequences of the earlier provision for computation of capital gains on a conjoint reading of Sections 2(47)(v), 45 & 48 of the Income Tax Act.
An amendment can be taken as impliedly retrospective only when it is intended at removing an obvious anomaly or correcting a blatant error or obliterating an absurdity or bringing it in consonance with any other law or the Constitution.
By the Finance Act, 2017, sub-section (5A) was inserted under sub-section (5) of Section 45 and the explanation thereto. As per sub-section (5A) with respect to capital gains arising to an assesse who is an individual or a Hindu undivided family from the transfer of capital asset, being land or building or both, under a specified agreement shall be chargeable to Income Tax as income of the previous year in which certificate of completion for the whole or part of the project is issued by the competent authority.
The Bench of Chief Justice K. Vinod Chandran and Justice Madhuresh Prasad observed that “ we are of the opinion that sub-section (5A) inserted by way of an amendment in the Finance Act, 2017, expressly stated to be effective from 01.04.2018 cannot be treated as retrospective, for reason of the express words employed and there can be no intendment ferreted out, so as to deem it impliedly retrospective.”
The Court also noted that the consequences as per Section 45 of the Income Tax Act, for a person who transfers a capital asset as contemplated under Section 2(47)(v) of the Income Tax Act insofar as having to compute the total income by including the capital gains accrued in the previous year in which a transfer was affected, when the JDA was entered into prior to 01.04.2018 was not an unintended consequence.
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