2015 Amendment To S. 153C Income Tax Act Applicable To Searches Conducted Before Date Of Amendment: Supreme Court

The Supreme Court has observed that amendment made to Section 153C of the Income Tax Act through the Finance Act, 2015, shall be applicable to searches conducted before the date of amendment, i.e., 01.06.2015.

A Bench of Justice MR Shah and Justice BV Nagarathna observed and held that, "the amendment brought to Section 153C of the Act, 1961 vide Finance Act, 2015 shall be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of the amendment."

Notably, Section 153C originally allowed the revenue department to take action against a third party if incriminating items were found during a search, using the term "belong/belongs to." However, in 2014, the Delhi High Court interpreted this term narrowly. It ruled that "belong" doesn't mean "relates to" or "refers to." It was held that if photocopies are found, it doesn't mean the document "belongs" to that person. To address this, the Finance Act 2015 amended Section 153C, replacing "belong/belongs to" with "pertain/pertains to."

In this case, the question before the Supreme Court was whether this amendment applied to searches conducted before 2015.

While considering the question, the Court deemed it necessary to consider the reason, object, and purpose of the amendment. In that context, the Court observed that, "even the unamended Section 153C pertains to the assessment of income of any other person. The object and purpose of Section 153C is to address the persons other than the searched person. Even as per the unamended Section 153C, the proceeding against other persons (other than the searched person) was on the basis of the seizure of books of account or documents seized or requisitioned “belongs or belong to” a person other than the searched person."

The Court observed that if the submission on behalf of the assessees, that despite the fact that the incriminating materials have been found in the form of books of account or documents or assets relating to them from the premises of the searched person, still they may not be subjected to the proceedings under Section 153C solely on the ground that the search was conducted prior to the amendment is accepted, "the very object and purpose of the amendment to Section 153C, which is by way of substitution of the words “belongs or belong to” to the words “pertains or pertain to” shall be frustrated. As observed hereinabove, any interpretation, which may frustrate the very object and purpose of the Act / Statute shall be avoided by the Court. If the interpretation as canvassed on behalf of the respective respondents is accepted, in that case, even the object and purpose of Section 153C namely, for assessment of income of any other person (other than the searched person) shall be frustrated."

In light of the same, the impugned judgment and order of the High Court was held to be unsustainable.

Cause Title: Income Tax Officer vs Vikram Sujitkumar Bhatia

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