Central Government and CBDT has no power to amend Income-tax Act (including Schedules)
September, 28th 2017
The Commissioner of Income Tax & Anr. Versus S.V. Gopala Rao & Ors. 2017 (9) TMI 589 - SUPREME COURT
SV. Gopala Rao And Others Versus Commissioner of Income-Tax - 2004 (8) TMI 96 - ANDHRA PRADESH High Court
Notification no. 9995 dated 01.03.1996
Provisions relating to Income-tax:
We find provisions relating to Income-tax in the Income-tax Act, 1961 and Finance Act of every year. These are main enactments which are passed by the Parliament and assented by the President of India.
Income Tax Rules 1962, and various other Rules regarding procedures and forms followed and used in various proceedings under the Act.
The Income-tax Act is the main Act and the Rules framed thereunder are sub-ordinate legislations. Such sub-ordinate legislations can be framed / amended by prescribed Government and / or prescribed authorized authority as the case may be. However, subject to compliance of procedures prescribed.
Rules in Schedules of Income-tax Act are part of Act:
Schedules to the Income-tax Act are part and parcel of the Income-tax Act. There are the First Schedule to the Fourteenth Schedule in the Act. Out of these fourteen Schedules some have been omitted with effect from respective prescribed date for such omission.
In schedules provisions are described as Rules being Rules contained in respective Schedule. This is so mentioned in the Schedule by way of definition clause or by way of some Explanation or other provision.
However, they are part and parcel of the Act and are main legislation and are not subordinate legislation. Therefore, these Schedules can only be amended by an amendment Act to amend the Income-tax Act. Law and procedure relating to enactment, to amend the Act is applicable to amend any such Schedule.
These Schedules to the Income-tax Act, cannot therefore, be amended by any authority who is empowered to amend subordinate legislations for example the CBDT who can amend the Income Tax Rules by way of notification, but cannot amend the Act.
Wrong and ultra-virse amendment of Second Schedule:
Vide NOTIFICATION NO. S.O.164(E) DATED 1-3-1996 Rule 68B in the Second Schedule was amended by a notification. The notification is analysed below by reproducing its text with highlights added:
In exercise of the powers conferred by clause (a) of sub-section (2) of section 119 of the Income-tax Act, 1961 (43 of 1961), read with rule 111B of the Income-tax Rules, 1962, the Central Government hereby specifies that the time limit of 3 years for sale of attached immovable property under rule 68B of Schedule II to the Income-tax Act, 1961 (43 of 1961), is to be extended to 4 years from the end of the financial year in which the order giving rise to a demand of any tax, interest, fine, penalty or any other sum for the recovery of which immovable property has been attached, has become conclusive under the provisions of section 245-I or, as the case may be, final in terms of provisions of Chapter XX. The rule 68B stands amended to that extent.
S. N. Shende,
Member (R & A) and Additional Secretary to the Government of India.
[No. 9995/F. No. 275/138/95-IT(B)]
In the above notification reference is made to S. 119(2) (a) and Rule 111B of the Income-tax Rules. However, these are not to empower the Central Government or the CBDT to amend the Income-tax Act (including Schedules). Therefore, the notification was ultravirse the Act.
Rule 68B in the second Schedule to the Act:
The Rule 68B was originally inserted by the Finance Act, 1992 , w.e.f. 01.06.1992. Thus the insertion of the Rule was duly made by following procedure to amend the Income-tax Act.
However, vide Notification no. 9995 dated 01.03.1996 the Rule, so inserted by the Parliament, was amended to extend period allowed to sell property to recover tax, by one year. On reading of provisions, including its history, it seems that there have not been amendment to the Rule in the Schedule by way of amendment of the Act.
Therefore, the limitation, as provided originally, is still applicable and it is not revised.
The revision so made was held invalid by The High Court of Andhra Pradesh vide judgment 09 August 2004. The said judgment has now been approved by the Supreme Court vide judgment dated 13.07.2017
Case of Shri S.V. Gopala Rao:
This case related to challenge of sale of property to recover tax arrears of assesse, as the sale was beyond period prescribed in the Act but within extended limitation by the said notification. Thus the validity of the notification and amendment made by such notification was challenged and considered. As noted above, amendment was made by way of a notification and not by amending the Act. The High court and now the Supreme Court has held the notification and the amendment as invalid.
The courts considered S. 119 and held that legislative provisions set out in the Act cannot be amended by issue of circular by The CBDT. The notification was also not in nature to remove difficulty. Such action of issuing circular which has effect of amendment of Act is ultra vires.