The Supreme Court examined whether the amendment brought to Section 153C of the Income Tax Act, 1961 by the Finance Act, 2015, substituting the expression “belongs or belong to” with the expression “pertains or pertain to”, would apply to searches conducted under Section 132 of the Act prior to 01 June 2015, where the satisfaction note and notice under Section 153C were issued after the date of amendment.

The case arose out of a search conducted in September 2013 at the premises of a third party. During the course of the search, digital data and documents were seized which did not belong to the respondents but contained information relating to them. At the time of the search, Section 153C permitted proceedings against a person other than the searched person only where the seized material “belonged to” such other person. Subsequently, by the Finance Act, 2015, with effect from 01.06.2015, Section 153C was amended to widen its scope by including documents that “pertain to” or contain information relating to such other person.

The satisfaction note in the present case was recorded by the Assessing Officer of the searched person in April 2017, and the material was thereafter transmitted to the Assessing Officer having jurisdiction over the respondents. Notices under Section 153C were issued in May 2018. The Gujarat High Court quashed the notices and consequential assessments, holding that the amended provision could not be applied retrospectively to searches conducted prior to 01.06.2015, as it affected substantive rights of the assessees.

The Supreme Court reversed the judgment of the High Court. The Court held that Section 153C is a machinery provision and that the amendment introduced by way of substitution was intended to cure a mischief arising from the restrictive interpretation of the expression “belongs to” adopted by the Delhi High Court in Pepsico India Holdings Pvt. Ltd. v. ACIT. The amendment was held to be clarificatory and declaratory in nature, designed to give effect to the legislative intent of bringing within the tax net persons against whom incriminating material is found during search, even if such material does not strictly “belong” to them.

The Court further held that, by virtue of the proviso to Section 153C, the relevant date for invoking jurisdiction against a person other than the searched person is the date on which the seized material is received by the Assessing Officer having jurisdiction over such person. Since, in the present case, the satisfaction note and transfer of material occurred after 01.06.2015, the amended provision was applicable notwithstanding that the search itself had been conducted earlier.

Relying on the principles governing amendment by substitution, as laid down in Shamrao V. Parulekar v. District Magistrate and Zile Singh v. State of Haryana, the Court held that the amended provision must be read as if it had always formed part of the statute, unless a contrary intention appears. The Court also observed that no vested right accrues to an assessee merely because a search was conducted prior to the amendment, and that issuance of notice under Section 153C does not ipso facto fasten liability.

Accordingly, the Supreme Court held that the amendment to Section 153C applies to searches conducted prior to 01.06.2015 where the satisfaction note and notice are issued after the amendment came into force. The impugned judgments of the Gujarat High Court were set aside, and the matters were remanded to the High Court for consideration of other issues left undecided.

Source Link - https://api.sci.gov.in/supremecourt/2019/40444/40444_2019_4_1502_43248_Judgement_06-Apr-2023.pdf

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