Retrospective Taxation - Fair? No; Legal? Yes!
THERE is so much debate going on about the fairness of retrospective legislation – all because of a 11000 Crore dispute the Income Tax Department has with a mobile phone company, but the Supreme Court has consistently upheld the right of Parliament to legislate with backdate!
In 1971, everyone thought that Mrs Indira Gandhi was elected to the Lok Sabha from Rae Bareily, but the Allahabad High Court unseated her and she got the election laws amended retrospectively to undo the High Court verdict. The Supreme Court upheld the retrospective legislation and consequently her election observing that the power of the Legislature to pass a law includes a power to pass it retrospectively.
The following observations of the Supreme Court may be worth a look.
All taxation, as shown by its very nature and object, is in the interest of the general public because it is a contribution for governmental expenditure from all persons who in some measure are entitled to its benefit.
The needs of the revenue cannot be known to the courts and cannot be determined by them, and the sources of revenue are entirely within the knowledge of the legislature and it is for that department of the State to determine how the burden will be distributed and why, because that department is the policy making body and is familiar with the economics and the resources of the country and its needs. It is for that department in its discretion to select anything for taxation or to exclude it.
If the Legislature decides to levy a tax, it may levy such tax either prospectively or even retrospectively.
It is necessary that the legislature should be able to cure defects in statues. No individual can acquire a vested right from a defect in a statute and seek a windfall from the legislature's mistakes. Validity of legislations retroactively curing defects in taxing statues is well recognised and courts, except under extraordinary circumstances, would be reluctant to override the legislative judgment as to the need for and the wisdom of the retrospective legislation.
Taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of government amongst those who benefit from it.
It is open to the legislature to remove the defect pointed out by the court or to amend the definition or any other provision of the Act in question retrospectively. In this process, it cannot be said that there has been an encroachment by the legislature over the power of the judiciary.
Tailspark: The Supreme Court had in the very famous Ranadey Micronutrients case - observed, Consistency and discipline are of far greater importance than the winning or losing of court proceedings .