MRUGESH VINODBHAI PATEL vs. DEPUTY DIRECTOR OF INCOME TAX

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SCA/1975/2022HC GujaratGJHC24004440202207 September 2022Bench: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR,HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI6 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the Special Civil Applications, quashing the impugned attachment order and all consequential proceedings. The Court relied on the Supreme Court's judgment in Civil Appeal No. 5783 of 2022 (dated 23.08.2022). The Supreme Court had held that the 2016 Amendment Act prescribed substantive provisions and that its in rem forfeiture provisions, being punitive, could only be applied prospectively, not retroactively. Consequently, authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to 25.10.2016, the date the 2016 Act came into force. As a result, all such prosecutions or confiscation proceedings initiated for pre-2016 transactions were to stand quashed. The High Court found this declaration squarely applicable to the present case. The Court also noted that any questions left open by the Supreme Court in paragraph 18.1(f) of its judgment would also apply to the facts of this case.

What were the facts?

The petitioner, Chaganbhai Bholidas Patel, filed multiple Special Civil Applications challenging attachment orders passed under Section 24(3) of the Benami Transactions (Prohibition) Amendment Act, 2016, and consequential proceedings. The petitioner sought to quash these orders and proceedings, arguing that the provisions of the 2016 Amendment Act were prospective. The respondents included the Deputy Director of Income Tax (Initiating Officer), the Union of India, and the Adjudicating Authority under the Benami Transactions (Prohibition) Act, 1988. The assessment years are not specified. The core of the dispute revolves around the retrospective application of the 2016 Amendment Act.

What were the issues?

1. Whether the provisions of the Benami Transactions (Prohibition) Amendment Act, 2016, are prospective in nature, and consequently, whether notices and orders issued to the petitioner under the Act are liable to be quashed? (Question of law, turning on the interpretation of the Benami Transactions (Prohibition) Amendment Act, 2016). Assessee's contention: The petitioner argued that the 2016 Amendment Act is prospective. They relied on the principle that penal provisions, including forfeiture, cannot be applied retrospectively unless expressly stated, and that such application would violate constitutional provisions. Revenue's contention: The revenue contended that the 2016 Amendment Act could be applied retrospectively. They likely argued that the Act was procedural or that the transactions in question fell within its ambit even if the amendment was prospective, though their specific arguments are not detailed in the judgment.

Which sections of the Income-tax Act were involved?

Section 24(3),Section 18(1),Section 24,Section 2(19),Section 2(1),Section 3(2),Section 5

AI-generated summary — verify with the full judgment below

C/SCA/7704/2021 ORDER DATED: 07/09/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 7704 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 1975 of 2022 With R/SPECIAL CIVIL APPLICATION NO. 4462 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 6809 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 6883 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 6903 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 6836 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 6808 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 6832 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 6833 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 7705 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 7473 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 7475 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 7927 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 17644 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 16427 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 16601 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 17649 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 17653 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 17648 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 17652 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 17654 of 2021 Page 1 of 6

C/SCA/7704/2021 ORDER DATED: 07/09/2022 With R/SPECIAL CIVIL APPLICATION NO. 17658 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 17657 of 2021 With R/SPECIAL CIVIL APPLICATION NO. 17646 of 2021 ================================================== CHHAGANBHAI BHOLIDAS PATEL Versus DEPUTY DIRECTOR OF INCOME TAX ================================================== Appearance: MR. JAINISH P SHAH(7033) for the Petitioner(s) No. 1 MS. JIGNA J SHAH(7004) for the Petitioner(s) No. 1 MR M.R. BHATT, SENIOR ADVOCATE FOR M R BHATT & CO.(5953) for the Respondent(s) No. 1 MR DEVANG VYAS, ADDITIONAL SOLICITOR GENERAL OF INDIA for the Respondent(s) No. 2, 3 ================================================== CORAM:HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR and HONOURABLE MR. JUSTICE ASHUTOSH J. SHASTRI

Date : 07/09/2022 COMMON ORAL ORDER (PER : HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR) 1. We have heard Mr. S.N. Soparkar, learned Senior Advocate appearing on behalf of Ms. Nupur D. Shah for the petitioner, Mr. M.R. Bhatt, learned Senior Advocate appearing for respondent No.1 namely the Initiating Officer as defined under Section 2(19) read with Sections 18(1), 24 of the Prohibition of Benami Property Transactions Act, 1988 (for short ‘the Act’) and Mr. Devang Vyas, learned Additional Page 2 of 6

C/SCA/7704/2021 ORDER DATED: 07/09/2022 Solicitor General of India appearing for respondent Nos.2 and 3 viz., Union of India and Adjudicating Authority as defined under Section 2(1) read with Sections 18(1)(d) and 24(3) of the Act. Perused the records. 2. Petitioner has prayed for quashing of the attachment order passed under Section 24(3) of the Benami Transactions (Prohibition) Amendment Act, 2016 and the all consequential proceedings initiated pursuant thereto. 3. In this petition, essentially petitioner is seeking for writ of certiorari to declare the provisions of Benami Transactions (Prohibition) Amendment Act, 2016 being prospective and consequently the notices issued to the petitioner and quashing of the orders passed pursuant to the same. 4. Having heard the learned advocates appearing for the parties, we are of the considered view that aforesaid issue is no more res integra in view of the judgment of the Hon’ble Apex Court rendered in Civil Appeal No.5783 of 2022 dated 23.8.2022 whereunder Hon’ble Apex Court after considering the contentions raised thereunder as well as relevant provisions of Page 3 of 6

C/SCA/7704/2021 ORDER DATED: 07/09/2022 the Act pressed into service, has arrived at the following conclusion: “18.1 In view of the above discussion, we hold as under: a) Section 3(2) of the unamended 1988 Act is declared as unconstitutional for being manifestly arbitrary. Accordingly, Section 3(2) of the 2016 Act is also unconstitutional as it is violative of Article 20(1) of the Constitution. b) In rem forfeiture provision under Section 5 of the unamended Act of 1988, prior to the 2016 Amendment Act, was unconstitutional for being manifestly arbitrary. c) The 2016 Amendment Act was not merely procedural, rather, prescribed substantive provisions. d) In rem forfeiture provision under Section 5 of the 2016 Act, being punitive in nature, can only be applied prospectively and not retroactively. e) Concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior Page 4 of 6

C/SCA/7704/2021 ORDER DATED: 07/09/2022 to the coming into force of the 2016 Act, viz., 25.10.2016. As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed. f) As this Court is not concerned with the constitutionality of such independent forfeiture proceedings contemplated under the 2016 Amendment Act on the other grounds, the aforesaid questions are left open to be adjudicated in appropriate proceedings.” 5. As could be seen from the aforesaid judgment, it has been clearly held by the Hon’ble Apex Court that authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, viz., 25.10.2016 and as a consequence thereof, all such prosecutions and confiscation proceedings which had been initiated came to be quashed. 6. In that view of the matter, we are of the considered view prosecution and initiation of proceedings in the instant case being pursuant to the Amendment Act the declaration made by the Hon’ble Apex Court in paragraph 18(e) would squarely be Page 5 of 6

C/SCA/7704/2021 ORDER DATED: 07/09/2022 applicable and as such, impugned attachment order stands quashed and all consequential proceedings initiated thereto. We also make it clear that question which has been kept open by the Hon’ble Apex Court in paragraph 18.1(f), would squarely be applicable to the facts on hand also. With aforesaid observation, Special Civil Application stands allowed and we make no order as to costs. (ARAVIND KUMAR,CJ) (ASHUTOSH J. SHASTRI, J) Bharat Page 6 of 6

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