India’s Constitution empowers Parliament to make extra-territorial law (Article 245). Hence, in the Finance Bill placed before Parliament last week, provisions have been incorporated in several sections of the income-tax law to change the law. The technique adopted is to insert several explanations to the statutory provisions considered by the Supreme Court in the Vodafone judgement. These explanations are said to be clarificatory and for removal of doubts, and are operative from 1962.
Three points need to be answered: (i) whether our government is competent to undo the effect of the Vodafone decision by legislatively validating the Executive’s act; (ii) whether the government’s decision to do so is fair and reasonable; (iii) whether the proposed provisions would affect the inflow of FDI.
It is settled that the legislature cannot declare any decision of a court of law to be of no effect. It can however pass an amending act to remedy the defects pointed out by a court of law. As a legislature has the competence to pass a measure with retrospective effect, it can pass an amending act to have effect from a date which is past. There is nothing in our Constitution which creates any fetter on the legislature’s jurisdiction to amend laws with retrospective effect and validate transactions effected in the past.
There can be good ground to believe that as the economic matrix was inIndia, and as the incidence of the ‘transfer’ has an obvious incidence and bearing on the Indian enterprise and its assets, the attempt in the Vodafone case to deflect the incidence of taxation away from Indiawas neither fair nor reasonable. The Vodafone transaction causes wrongful loss to the country where the theatre of commercial operations exist, and causes wrongful gains to some non-resident players staging transactions in Cayman Islands, which you may not be able even to locate on a big map.
It is wrong to say that the Government’s action would adversely affect incoming FDI intoIndia. The transaction in the Vodafone case was not designed to bring any FDI toIndia. No FDI came toIndiabecause of that deal. It was simply an unfair attempt to reap the whole benefit of capital gains through structuring transaction of transfer outsideIndiafor the gains of some non-residents.
I understand the Supreme Court has dismissed the government’s review petition against the Vodafone judgement. It is too early and unwise to comment on the shape of things to come.
( I gratefully acknowledge that this short article was published in the Hindustan Times of March 20, 2012)
My short article, ‘Govt within its rights to make retrospective law’, published on March 21, 2012 in the Hindustan Times, has evoked much interest, and has raised a number of points as to the reach of the ‘retrospective provisions’, and how they are likely to operate under our legal system. The context for this reflection is the much discussed Vodafone Case. I summarise in this short article the principles in the light of which the various retrospective provisions of the Finance Bill, if enacted, would work.
The provisions of the Finance Bill, to which retrospective effect is being given, are ex facie valid because they are within the legislative competence of the Parliament, and because they would not offend Article 13 of our Constitution that grants to our Supreme Court the power of judicial review. Our Supreme Court’s Constitution Bench had stated with masterly brevity in Indira Gandhi v. Raj Narain AIR 1975 SC: “The rendering of a judgment ineffective by changing the basis by legislative enactment is not encroachment on judicial power because the legislation is within the competence of the legislature.” In that case the challenge to Article 329A(4) of the Constitution succeeded because it had excluded judicial review to immunize Mrs Gandhi’s election from judicial scrutiny; but her appeal was allowed and the cross-appeal dismissed because of the retrospective application of the Election Laws (Amendment) Act, 1975 had altered law.
The sweep of the retrospective amendment can be wide though it cannot pertain to criminal matters. The plea of inconvenience cannot be advanced against the exercise of legislative sovereignty. It was held that the validity of the imposition of sales tax with retrospective effect cannot be challenged even on the ground that it was not possible for the sellers to pass on such tax to the consumers.
In the context of the Vodafone Case, it can be said that the proposed retrospective provisions of the Finance Bill, when enacted, would not be an exercise of legislative judgement superseding or modifying the Supreme Court’s decision in Vodafone. They are sought to change the law from 1962 so that the governing law for deciding the issues in the Vodafone would be as they would stand by our Parliament. In effect, the legal foundation of the Vodafone Judgement is sought to be legislatively altered. The effect of the law, as it reigns at a particular point of time, must be given. It is interesting to notice a wonderful sync and synergy between the two great organs of the State illustrated through the principle that when judiciary declares a law ultra vires, it ceases to have effect though it is not erased; and when legislature knocks down the legal foundation on which a judgement stands, it ceases to operate though it is not erased.
Once the proposed provisions become the law of the land, the Income-tax Act would operate de novo on the facts of the Vodafone Case in the light of law as altered. All points of disputes would come to be governed by the altered provisions Facts would be investigated and examined by the income-tax authorities, and courts, to determine relevant adjudicative facts. Both the chargeability of capital gains and the process of tax recovery would be done in accordance with the law as it stands altered. The established proposition of law is ‘that the Constitution and the laws bind every court in India, and that though the courts are free to interpret, they are not free to overlook or disregard the Constitution and the laws.’
My Autobiographical Memoir, On the Loom of Time, published, in Oct. 2011, by Taxmann Publications (P) Ltd 59/32 New Rohtak Road, New Delhi 110005 ( e-mail: email@example.com), is now in the market. Its Foreword has been written by Justice R,C, Lahoti, a former CJI; and it has received high appreciation from Noam Chomsky, John Carry Sims, Shanti Bhushan, Sr. Advocate and former Law Minister of India, Justice Rajindar Sachar (former CJ of the Delhi High Court), Dr. Justice Bharuka, and others. The Chief Justice of India has conferred on me a Certificate of Honour for writing this book. It was done on the Law Day in the gathering of the lawyers, Judges of the Supreme Court and the Delhi High Court..
I have put on the homepage of my website http://www.shivakantjha.org and on my twitter http://twitter.com/#!/shivakantjha: (i) a short write-up on the book (ii) its Contents, and (iii) a Critique of the book. These materials will help you decide whether it is worthwhile to go through the book. You may look into the two book-reviews which have come to my notice: their links are thus mentioned—
If ever you cast you glace through the book, I would request you to let me have your suggestions, comments, or reflections on topics dealt with in the book so that I can correct/enrich/modify the text wherever it may be found worthwhile to do so. If you find any difficulty in getting this book, please let me know that on my e-mail so that I can tell the Publishes to see that you get that soon.