It is cardinal principle of the tax law that the law to be applied is the law in force in the assessment year unless otherwise provided expressly or by necessary implication. The charges on income of the previous year and the substantive law of that year must be applied. The law which is in force on the 1st day of April of the assessment year following the previous year should be applied. This principle emanates from the following decisions.
CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC)
The respondent steamship was requisition by the Government during the world war, and was lost by enemy action on 16-3-1944. The Government paid compensation therefor, to the respondents on three different dates i.e., on 17-7-1944, 22-2-1944 and 10-8-1946. Thereupon the revenue authorities sought to tax the amount of Rs. 9,26,532 representing the difference between cost price and the written down value under the provision to section 10(2)(viii) of 1922 Act in the relevant assessment year. The respondent contended that since the amount had been received in the year previous thereto, they could not, therefore, be include in the income of the company for the year of assessment. The ITO however, rejected the aforesaid contention. The HC allowed the appeal.
Before SC, the revenue contended that the proviso though it came into force on May 5, 1946, was really intended to operate from April 1, 1946. The SC rejected the contention and observed that “but we are construing the proviso. In terms, it is not retrospective, and we cannot import into its construction matters which are ad extra legis, and thereby alter its true effect.”
Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 (SC) (5J Bench)
For the assessment year 1957-58, the appellant-company was assessed to agricultural income-tax under the Kerala Agricultural Income-tax Act, 1950. In the assessment, a surcharge at the rate of 5 per cent, on the agricultural income-tax and super-tax was also levied and collected from the appellant under the provisions of the Surcharge Act.
The Appellant contended that the Surcharge Act which came into force only from September 1, 1957, did not have any retrospective effect, the surcharge could not be levied for AY 1957-58.
The SC observed that “it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into, force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force.”
The SC held that in the instant case, there is no escape from the conclusion that the Surcharge Act not being retrospective by express intendment, or necessary implication, it cannot be made applicable from April 1, 1957, as the Act came into force on September 1, of that year. The Surcharge Act having come into force on September 1, 1957, and the said Act not being retrospective in operation, it could not be regarded as law in force at the commencement of the year of assessment 1957-58. Since the Surcharge Act was not the law in force on April 1, 1957, no surcharge could be levied under the said Act against the appellant in the assessment year 1957-58.
Reliance Jute & Industries Ltd. v. CIT [1979] 120 ITR 921 (SC)
The assessee was carrying on the business of manufacturing jute goods. It had carried forward business loss of Rs. 15,50,189 in respect of the AY 1950-51. For the AY 1960-61, the assessee claimed set off of this unabsorbed loss against the business income of the current year. The ITO rejected the claim on the ground that this loss related to 1950-51 and could not be carried forward for more than eight years.
On appeal to SC, it was held that “It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implications. On that principle, it is abundantly clear that, for the assessment year 1960-61, it is section 14(1) that is in force in that assessment year which has to be applied. There is no question of the assessee possessing any vested right under the law as it stood before the amendment. The assessment for one assessment year cannot, in the absence of a contrary provision, be affected by the law in force in another assessment year. A right claimed by an assessee under the law in force in a particular assessment year is ordinarily available only in relation to a proceeding pertaining to that year.”
The SC observed that since the provisions of section 24(2), as amended in 1957, govern the assessment for the AY 1960-61, the High Court is right in affirming that the unabsorbed loss of Rs. 15,50,189 of the AY 1950-51 cannot be carried forward for more than eight years and, consequently, cannot be set off against the business income of AY 1960-61.