The Finance Bill, 2007 has many proposals that are to be made operative with retrospective effect. There are 84 clauses in the Bill, of which 73 relate to income-tax and 11 to wealth tax. Nearly 30 per cent of the provisions are to be operative retrospectively in certain instances from as early as 1975, 1976, 1994 and 1996. Some instances of retrospective operations are presented in the Table.

What's retrospective legislation

Retrospective legislation implies ex-post-facto law. In simple words, it relates to a situation where some of the provisions are made operative before the law is enacted . In other words, , retrospective law is a law which looks back.

Legal basis

Retrospective legislation have been accepted by courts. Parliament has plenary powers of legislation and, subject to certain constitutional restrictions, can legislate prospectively and retrospectively. However, there can be grounds to oppose them if such laws affect substantive and vested rights. They also need to be viewed on the ground that the Government has to be slow in making such laws and wholesale changes to the income-tax and wealth tax laws retrospectively, as proposed in the Finance Bill, 2007, can be contested on grounds of excessive use of such power without application of mind.

Procedural and substantive law

It is well established by a number of court decisions that a subject cannot claim any right as to procedure, which can be varied according to the exigencies of the administration. However, the same cannot be said to apply to substantive law conferring vested rights, which cannot be taken away by retrospective legislation.

According to the Oxford Law Dictionary (5th edition, 2003), for retrospective/retroactive legislation, there is presumption that statutes are not intended to have retroactive effect.

Misconceived retrospective operation

The legal position in respect of a substantive law is that the legislature does not intend to enact law which operates oppressively and unreasonably. But that is what many provisions in the Finance Bill, 2007 propose to do. An example of this is addition of an Explanation after sub-section (13) of Section 80-IA. When once a decision was taken by the Finance Act, 1999, that tax holiday benefit would be available to a person, who develops or operates or maintains an infrastructure facility (as against the earlier requirement of giving the benefit only to a person who carried out the three activities in an integrated way of development, operation and maintenance) and some persons took the work, say, of development only, may be on works contract basis, they acted perfectly in accordance with the law as it then existed and, hence, it would be most unfair to go back on that law retrospectively from April 1, 2000, and withdraw the benefit.

Earlier decision, even at the cost of some revenue, need to be left undisturbed. Taking resort to retrospective legislation in such a situation and withdrawing the benefit already utilised at the cost of investment (may be heavy) brings down the credibility of the Government, besides making the tax law complicated and proliferating legislation. There are many more such instances in the Bill.

The way out

If the Government feels that the earlier decision(s) was/were incorrectly taken, it can make corrections prospectively as has been done in the case of Section 14A of the I-T Act. In Section 14A, which was earlier made to be operative from April 1, 1962, by the Finance Act, 2001, on taxpayers' protect, a proviso was added by the Finance Act, 2002 with effect from May 11, 2001 the date of coming into operation of Section 14A to the effect that nothing contained in Section 14A shall empower the assessing officer (AO) to reopen past cases or pass any order enhancing the assessment or reducing the refund already granted.

Likewise, it can also be provided that the assessees too cannot claim any rights or benefits in respect of the period prior to the coming into force of the amended law, whose operation can be made prospective.

The correction of existing provisions noticed consequent to Supreme Court decisions indicates inefficiency in enacting a provision initially inasmuch as it failed to depict the correct legislative policy and purpose. That being so, the loss of revenue in the past should be borne by the Revenue and not be passed on to the taxpayers by retrospective amendments. To do so would unfair and unjust.

T. N. Pandey
(The author is a former chairman of the CBDT.)