The Supreme Court, on 6th April 2023, by way of the judgement rendered in Income Tax Officer v. Vikram Sujitkumar Bhatia¹held that the amendment to Section 153C of the Income Tax Act of 1961 brought by the Finance Act of 2015 will retrospectively apply to the searches (under Section 132 of the Income Tax Act) which were conducted prior to the date of amendment².

HISTORY OF SECTION 153C OF THE INCOME TAX ACT, 1961 AND THE AMENDMENT OF 2015
In order to develop a holistic understanding of Section 153C of the Income Tax Act, it is essential to analyse Section 153A in tandem. Section 153A specifies a process for determining income in the case of a searched individual. The Assessing Officer has the ability to define an individual’s assessment for the six assessment years immediately preceding the year of search. Section 153C of The Income Tax Act, 1961 provides that where a search is conducted on a person and undisclosed assets/documents indicating undisclosed income are found as belonging to or pertaining to "other person" other than, searched person", then in that case, proceedings under Section 153A would be undertaken against the "other person". Essentially, Section 153C of the Income Tax Act, 1961 relates to the assessment of income of any person other than the one referred to under Section 153A of the Act. Under Section 153C, the assessing officer must be satisfied that there is existence of an incriminating article against the ‘other person’ which belongs to the ‘other person’ such as undisclosed income or assets. Prior to the amendment of 2015, the words that were used in section 153C were ‘belong to or belongs to’.

However, in 2014, the Delhi High Court, in the matter of Pepsico India Holdings Pvt. Ltd. V. Assistant Commissioner of Income Tax³observed that the word ‘belong to or belongs to’ should not be confused or mistaken with the word ‘relates to or refers to’ since the former has a much narrower ambit than the latter. The Delhi High Court further clarified that provisions of Section 153C of the Income Tax Act cannot be invoked unless such incriminating material expressly belongs to the ‘other person’ or the third party.

Thereafter, Section 153C of the Income Tax Act was amended by the Finance Act, 2015 and the word ‘belongs or belong to’ under Section 153C of the Income Tax Act was replaced with ‘pertains or pertain to’ which provided a wider horizon to the powers vested with the Revenue Department to conduct the search under Section 132 of the Income Tax Act on any such ‘other person’ specified under Section 153C of the Act.

PRESENT DISPUTE
The primary issue in the present dispute was regarding the applicability of the 2015 amendment to the searches which were undertaken prior to the date of the said amendment i.e., 01.06.2015. The Supreme Court opined in the favour of the Revenue Department and held that the amendment to Section 153C of the Income Tax Act brought about by the Finance Act of 2015 shall be applicable to searches undertaken before the date of the said amendment. The Court granted retrospective effect to Section 153C by noting that the 2015 amendment was specifically brought to tackle any such situation similar to the one in Pepsico India Holdings. The Supreme Court also observed that it is a settled position of law that the Courts while interpreting machinery provisions of a taxing statute, 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 Court also observed that if the argument of the assessee is accepted that despite the fact that incriminating material have been found from the premises of assessee, they shall not be subjected to the provisions of Section 153C merely on the basis of such search having been undertaken prior to 2015, it would frustrate the entire object and purpose of the act/statute.

In conclusion, the apex court has taken a significant step towards clarifying the air of confusion around the scope and ambit of the powers of the Revenue Department under Section 153C of the Income Tax Act as per the amendment of 2015 vis-a-vis any incriminating article found which pertains to any such ‘other person’ in a search undertaken prior to the date of amendment.

By - Prachi Pandey