Legality of Retrospective Taxation

In an interesting interface of fiscal law provisions with constitutional law tenets, a recently reported decision of the Karnataka High Court in context of ‘Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’ [Black Money law] is the talk of the town. Failure to disclose any foreign asset was made punishable under the Black Money law. Criminal action was initiated against various parties who owned foreign assets but did not report them as such assets did not exist when the law was enacted. Examining the challenge, the High Court has quashed the criminal proceedings holding that Article 20(1) of the Constitution of India – which grants protection from ex post facto criminal prosecution – will apply in its full vigour to injunct application of Black Money law to past cases. In essence, the High Court has declared the criminal law related provisions to be prospective in operation. Following judicial precedents to the effect that “the object of Article 20 of the Constitution is law in force, actually in force and not a law deemed to be in force”, the High Court has declared that the deeming fiction in the Black Money law making it retrospective cannot operate in the wake of constitutional prohibition against conviction for actions which took place before the law came into force. The High Court has summarised the legal position to state; “Non-disclosure of an assessment of the tax return for the year 2007-08 or 2009-10 cannot be used to criminally prosecute these petitioners, for an act that has come into force in the year 2015. The law, as on the date alleged, was not the law of such disclosure of assessment. Therefore, the criminal law cannot be set into motion against the petitioners in the aforesaid facts of the case, as it cannot pass muster of Article 20 of the Constitution of India.”   #ExPostFactoLaws #CriminalAction #TaxLaw #TaxLaws #ConstitutionalProtection #TaxEvasion #TaxEnforcement [Crm.P. 101368/2019 dt. 07.06.2019]

𝗖𝗮𝗻 𝗚𝗦𝗧 𝗯𝗲 𝗹𝗲𝘃𝗶𝗲𝗱 𝗼𝗻 𝘀𝗲𝗿𝘃𝗶𝗰𝗲𝘀 𝗽𝗿𝗼𝘃𝗶𝗱𝗲𝗱 𝗯𝘆 𝗮 𝗰𝗹𝘂𝗯 𝗼𝗿 𝗮𝘀𝘀𝗼𝗰𝗶𝗮𝘁𝗶𝗼𝗻 𝘁𝗼 𝗶𝘁𝘀 𝗼𝘄𝗻 𝗺𝗲𝗺𝗯𝗲𝗿𝘀 — 𝗲𝘀𝗽𝗲𝗰𝗶𝗮𝗹𝗹𝘆 𝘄𝗵𝗲𝗻 𝘁𝗵𝗲 𝗹𝗮𝘄 𝘄𝗮𝘀 𝗮𝗺𝗲𝗻𝗱𝗲𝗱 𝗿𝗲𝘁𝗿𝗼𝘀𝗽𝗲𝗰𝘁𝗶𝘃𝗲𝗹𝘆 𝘁𝗼 𝗲𝗻𝗮𝗯𝗹𝗲 𝘁𝗵𝗶𝘀? ☑️ 𝐓𝐡𝐞 𝐅𝐚𝐜𝐭𝐬: • The Indian Medical Association – Kerala State Branch (IMA) runs various welfare schemes (social security, health, legal aid, pensions) for its member-doctors.   • In 2021, an amendment to the GST law (Section 7(1)(aa), CGST Act) retrospectively (from July 1, 2017) deemed clubs and members as separate persons — to tax these services.   • Based on this, IMA was served notices with GST demands, interest, penalties, and personal liability on past office bearers. ☑️𝐓𝐡𝐞 𝐉𝐮𝐝𝐠𝐦𝐞𝐧𝐭: 𝐊𝐞𝐫𝐚𝐥𝐚 𝐇𝐢𝐠𝐡 𝐂𝐨𝐮𝐫𝐭 𝐒𝐚𝐲𝐬 𝐍𝐎 In a significant ruling (W.A. No. 1659/2024, April 2025), the Court: 1. 𝙎𝙩𝙧𝙪𝙘𝙠 𝙙𝙤𝙬𝙣 𝙩𝙝𝙚 𝙙𝙚𝙚𝙢𝙞𝙣𝙜 𝙛𝙞𝙘𝙩𝙞𝙤𝙣 𝙖𝙨 𝙪𝙣𝙘𝙤𝙣𝙨𝙩𝙞𝙩𝙪𝙩𝙞𝙤𝙣𝙖𝙡. ⏺️ Held that Section 7(1)(aa), Section 2(17)(e), and the Explanation violate Article 246A and 366(12A) of the Constitution. ⏺️ Parliament cannot expand its taxing power through legal fiction in a statute. 2. 𝙍𝙚𝙖𝙛𝙛𝙞𝙧𝙢𝙚𝙙 𝙩𝙝𝙚 𝙋𝙧𝙞𝙣𝙘𝙞𝙥𝙡𝙚 𝙤𝙛 𝙈𝙪𝙩𝙪𝙖𝙡𝙞𝙩𝙮. ⏺️ A club and its members are one and the same — there is no “supply” between them. ⏺️ The amendment destroys mutuality, which the Constitution protects. 3. 𝘾𝙖𝙡𝙡𝙚𝙙 𝙩𝙝𝙚 𝙧𝙚𝙩𝙧𝙤𝙨𝙥𝙚𝙘𝙩𝙞𝙫𝙚 𝙡𝙚𝙫𝙮 𝙖𝙧𝙗𝙞𝙩𝙧𝙖𝙧𝙮. ⏺️ Demanding tax from 2017 when the law was introduced in 2021 is unfair. ⏺️ Violates constitutional and fundamental rights of citizens. ☑️𝐁𝐎𝐍𝐔𝐒: 𝐂𝐚𝐥𝐜𝐮𝐭𝐭𝐚 𝐂𝐥𝐮𝐛 𝐂𝐚𝐬𝐞 – 𝐓𝐡𝐞 𝐏𝐫𝐞𝐜𝐞𝐝𝐞𝐧𝐭 𝐓𝐡𝐚𝐭 𝐒𝐭𝐢𝐥𝐥 𝐇𝐨𝐥𝐝𝐬 The 2019 Supreme Court ruling in Calcutta Club v. Union of India held: ✅ Clubs and associations cannot be taxed for services to members — because of mutuality. ✅ Even the 46th Constitutional Amendment only covered goods, not services. ✅ So service tax was invalid, and now, GST can’t override that without a constitutional amendment. The Kerala High Court reinforced that this principle remains unchanged — and unshakeable. ☑️ 𝐖𝐡𝐲 𝐓𝐡𝐢𝐬 𝐌𝐚𝐭𝐭𝐞𝐫𝐬: This is a massive win for hundreds of associations — from professional bodies and chambers to cooperative groups — all of whom exist for the benefit of their members. Do you think laws should go back in time to make retrospective amendments to collect taxes? Or should fairness and intention matter more than revenue? Let’s discuss in comments. #GST #KeralaHighCourt #Mutuality #ClubTaxation

The Tax Appeal Tribunal (Patel v Commissioner, TAT E628/2025) has held that KRA cannot lawfully disallow carried-forward losses as far as the 5-year cap is concerned. The Tribunal’s ruling adopted the Appellant’s argument on legitimate-expectation and finality principles. It held that the 2025 Finance Act amendment on tax losses carry-forward is prospective and cannot be read to erase loss entitlements accrued under the earlier indefinite regime in the absence of clear transitional language — a result driven by the presumption against retrospectivity and other authorities the Tribunal cited. On legacy migration, the Tribunal also found KRA failed to discharge the high evidential burden required to show fraud, willful or gross neglect; the missing decade-old documents and system migrations did not satisfy that threshold. Accordingly, disallowance of the carried losses was unjustified. Practical implications for taxpayers (from this ruling) 1. Finance Act 2025’s five-year cap should not, on its face, extinguish loss entitlements already accrued under the prior indefinite regime where no clear transitional clause exists. 2. Tax attributes already relied upon in planning and used in returns have protection from retroactive legislative claw-back, absent explicit statutory language. 3. KRA retains power to reassess outside limitation periods only where cogent, positive evidence of fraud or wilful neglect is proven — mere absence of old records or ledger migration anomalies is ordinarily insufficient.

🔎Cairn v India (part I post)- one of the largest investor-state tax related arbitration dispute to date - reveals why: ➲ calling changes in tax law as "clarificatory" by the authors of such changes often create a smoke-screen to the illegal retroactive negative tax consequences (cf. para. 3 of ATAD and the OECD and the EC narratives) -focus of this post; ➲ "aggressive tax planning" is a populistic policy term of no or little legal importance altogether (Cf. para. 80 of the Court of Justice of the European Union judgment in X BV case) - focus of the next post post. The attached print screen comes from my latest lectures at BI Norwegian Business School & Universitetet i Oslo. It illustrates that Cairn Energy UK wanted to enter into Bombay Stock Exchange (now: BSE) through a locally established subsidiary (CIL). To ensure a very high entry value of CIL's shares, assets of 27 subsidiaries operating in oil & gas sector in India were consolidated and eventually transferred to CIL (the Indian subsidiary aiming to on on BSE) in a series of incremental stages (CIHL Acquisition). It resulted from offshore indirect transfers (OITs) of shares. Capital gains stemming from such OITs were clearly outside the Indian jurisdiction to tax at the time of CIHL Acquisition. Supreme Court of India confirmed it in 2012 - Vodafone International Holdings BV v Union of India (2012) 6 SCC 613. The Court stated that section 9(1)(i) of Income Tax Act (ITA) does not impose a charge to tax on the sale of shares in foreign incorporated companies since these shares are not "assets situate in India" even though the assets owned by such companies may be so situated. Side note: Peter Hongler during his presentation for IFA Norway on 16 Oct 2024 called taxation of gains from OITs as an example of taxation beyond jurisdiction to tax, which is compatible with international custom, while the UTPR is not. My take: if not an international investment agreement (IIA), or a DTT as the case may be, custom alone is of no or little legal value to prevent such taxation.  📣India decided to overturn its own highest court's judgment in 2012 by adding to the ITA " Explanation 5", calling it only a "clarificatory" change: "For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India." 💡The Tribunal did not buy the "clarificatory" argument at all. It was clearly a substantive and "grossly unfair" change in ITA (para. 1816). P.s.: ➢ Do you agree with the OECD argument that the PPT only mirrors "a guiding principle", e.g. that addition of the PPT to DTTs is only clarificatory in nature? ➢ Do you know other examples of "clarificatory" tax changes in domestic or international tax law?

You can do everything right in a property deal — and still get taxed twice. Welcome to India’s Real Estate 𝐝𝐨𝐮𝐛𝐥𝐞-𝐭𝐚𝐱 𝐭𝐫𝐚𝐩. You buy a flat. You pay the negotiated price. The transaction is genuine. And yet… Both the Buyer and the Seller receive Income-tax notices. Here’s how it happens. You purchase a property for 𝟏 𝐂𝐫𝐨𝐫𝐞. The Stamp Duty Value (Circle Rate) is 𝟏.𝟎𝟖 𝐂𝐫𝐨𝐫𝐞. Market price vs government value — a common gap. Earlier, the law punished both sides. 🚩 𝐅𝐨𝐫 𝐭𝐡𝐞 𝐒𝐞𝐥𝐥𝐞𝐫 (𝐒𝐞𝐜𝐭𝐢𝐨𝐧 𝟓𝟎𝐂 / 𝟒𝟑𝐂𝐀): “You under-reported sale consideration. We’ll tax you on ₹1.08 Cr.” 🚩 𝐅𝐨𝐫 𝐭𝐡𝐞 𝐁𝐮𝐲𝐞𝐫 (𝐒𝐞𝐜𝐭𝐢𝐨𝐧 𝟓𝟔(𝟐)(𝐱)): “You received a benefit of ₹8 Lakhs. That’s taxable income.” One transaction. Two deemed incomes. Zero real gain. This is what made real-estate litigation explode. Then came the 𝐒𝐚𝐟𝐞 𝐇𝐚𝐫𝐛𝐨𝐮𝐫 𝐑𝐮𝐥𝐞. The Legislature finally acknowledged a simple truth: Circle Rates are rigid. Markets are not. So a 𝟏𝟎% 𝐭𝐨𝐥𝐞𝐫𝐚𝐧𝐜𝐞 𝐛𝐚𝐧𝐝 was introduced. If the difference between actual consideration and stamp duty value is within 10%: ✅ No addition for the Seller. ✅ No addition for the Buyer. ✅ Deal accepted as genuine. Simple. Logical. Fair. But the department argued one thing. “This relief is prospective. It applies only to future transactions.” That argument has now collapsed. In 2025, ITAT Mumbai and Pune Benches held the 10% rule to be 𝐜𝐮𝐫𝐚𝐭𝐢𝐯𝐞 𝐚𝐧𝐝 𝐫𝐞𝐭𝐫𝐨𝐬𝐩𝐞𝐜𝐭𝐢𝐯𝐞. ⚖️ 𝐇𝐚𝐦𝐢𝐝𝐚 𝐌𝐮𝐧𝐢𝐫 𝐂𝐡𝐚𝐠𝐚𝐧𝐢 𝐯. 𝐈𝐓𝐎 ⚖️ 𝐒𝐚𝐢 𝐄𝐬𝐬𝐞𝐧 𝐃𝐞𝐯𝐞𝐥𝐨𝐩𝐞𝐫𝐬 𝐯. 𝐏𝐂𝐈𝐓 The principle is clear: When valuation variance is reasonable, legal fiction must yield to market reality. If the gap is within 10%, Sections 50C and 56(2)(x) cannot be weaponised. 💡 𝐀 𝐜𝐫𝐢𝐭𝐢𝐜𝐚𝐥 𝐜𝐨𝐦𝐩𝐥𝐢𝐚𝐧𝐜𝐞 𝐭𝐚𝐤𝐞𝐚𝐰𝐚𝐲: Always fix consideration through Account Payee Cheque or banking channels on the 𝐃𝐚𝐭𝐞 𝐨𝐟 𝐀𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭. If you do this, even a higher circle rate on the date of registration becomes irrelevant. Because taxation is meant to capture 𝐫𝐞𝐚𝐥 𝐢𝐧𝐜𝐨𝐦𝐞. Not hypothetical gains. Not deemed imaginations. Save this. It protects both buyers and sellers. #RealEstateTax #IncomeTaxIndia #Section50C #TaxLitigation #CACommunity #HomeBuyers #ModiFramework

The Kalachand v MRA judgment raises key concerns on retrospective tax legislation First of all, I was very surprised to see that, by agreement before the Supreme Court, a constitutional challenge was referred back to the ARC. In my view, only the Supreme Court can test the validity of a law, and this has always been the position of the State before the ARC, including when represented by the Attorney General. This raises significant implications: once the matter goes to the ARC and then returns to the Supreme Court, the Court of Civil Appeal will never have the opportunity to rule on it, since any further appeal from a Supreme Court decision in such a context will lie directly to the Judicial Committee. Not to forget that the bench of the ARC comprises of only one legal practitioner! At first sight two points already stand out where the ARC, in my opinion, clearly erred. First, the reliance on D’Unienville is entirely misplaced. That case was not about retrospective legislation. It concerned the impact of a new law on fixed-term contracts whose effects extended into the present. It did not involve changing the law for prior years, but rather dealing with future consequences of past actions after a change in law. Second, there was indeed a dispute in the IFS case. The Commissioner insisted on applying the law before the date it was actually gazetted, and still the Supreme Court held that a law can only take effect from its date of publication, notwithstanding that the legislator had fixed a commencement date two years earlier. It is also a troubling signal to the business community that Mauritius continues to adopt retrospective tax legislation. The previous Minister of Finance had made this a recurring practice, to the detriment of legal certainty. I make an appeal to the present government to take a clear stand on this issue and send the correct signal to investors. Retrospective taxation undermines credibility and confidence, and it is difficult to argue that such measures are reasonably expected in a democratic society governed by the rule of law. Major jurisdictions have already recognised the harm caused. India, for example, no longer authorises retrospective tax legislation because of the instability and investor distrust it creates. Moreover, this practice risks placing Mauritius in breach of commitments under our Investment Promotion and Protection Agreements, which guarantee fairness, legal certainty, and protection against arbitrary fiscal measures. As we seek to reinforce Mauritius as a reliable and competitive jurisdiction, legal predictability is essential. Retrospective tax measures undermine the integrity of the tax system and the confidence of the business community. This issue deserves urgent and serious consideration. Johanne Hague Medina T. Gavin Glover SC Rajesh Ramloll Mauritius Finance Dheerend Puholoo Business Mauritius Nabiil Shamtally Fariis Jahangeer Mohd Irshad Cassam Laulloo Dhaneshwar Damry

Budget 2026 | Income-tax | Litigation Reset via Legislation Budget 2026 sends a clear strategic signal: when judicial outcomes go against the Revenue, the statute will step in to recalibrate the position. Key moves worth tracking: 1. Employees’ PF / ESI contributions: The due date for allowability is proposed to align with the return filing date, softening years of hard-line disallowance litigation driven by technical timing mismatches. 2. Section 144C and limitation under Section 153: A retrospective clarification on limitation effectively neutralises the impact of the Roca Bathroom ruling, reinforcing the Revenue’s stance on time computation. 3. JAO vs FAO jurisdiction debate: The proposed retrospective insertion of Section 147A aims to override notices issued under Section 151A, exclusively closing the jurisdictional controversy in favour of the Department. 4. DIN-centric technical challenges: With the introduction of Section 292BA, assessment orders are insulated from invalidation merely due to absence of a DIN, provided they remain otherwise verifiable. The broader message is unambiguous: procedural infirmities will no longer derail substantive assessments, at least with retrospective effect. Expect fewer technical knockouts, greater retrospective certainty, and a clear policy direction where litigation risk is increasingly managed through legislative intervention rather than interpretational battles. #Budget2026 #IncomeTax #TaxLitigation #DirectTax #LegislativeAmendments #IndianTax #PolicyShift

#SupremeCourt’s Ruling on Retrospective #MiningTaxes: #ImpactAcrossStates** Supreme Court of India has upheld the authority of state governments to collect taxes on mining activities retrospectively, dating back to April 1, 2005. This decision has broad implications for the mining sector across multiple states, affecting both public and private entities involved in mineral extraction. #KeyAspects of the #SupremeCourt’s #Ruling: By Shiv Mangal Sharma Aura & Company, India's Premier & 1st eLaw Firm (The Auraleague) 1. #RetrospectiveTaxation:** The Court’s decision allows states to impose taxes on mining activities that occurred as far back as 2005. This retrospective application of taxes may come as an unexpected liability for many companies, which previously operated under the assumption that such taxes could not be applied to past transactions. 2. #InstallmentBasedPaymentPlan To mitigate the financial impact on mining companies, the Supreme Court has introduced a payment plan allowing companies to settle these back taxes in 12 annual installments, starting from April 1, 2026. The Court has also waived any interest or penalties on these payments, providing relief to companies facing significant financial obligations. 3. #WidespreadImpact: This ruling affects all entities engaged in mining activities since 2005 across various states. These companies must now reassess their financial records, calculate the taxes due under the new guidelines, and prepare for the payment schedule set by the Supreme Court. #Implications for the #MiningSector: - **Financial Adjustments:** Companies will need to revise their financial strategies to accommodate the unexpected tax liabilities, which could be substantial, particularly for those with extensive mining operations. - **Increased State Revenue:** The ruling provides states with an opportunity to enhance their revenue through the collection of back taxes, which could be used for public projects and infrastructure development. - **Legal Clarity:** The decision brings much-needed clarity to the taxation of mining activities, resolving previous uncertainties and setting a precedent that could influence future legal and regulatory frameworks. This Supreme Court ruling marks a critical development for the mining sector nationwide, with significant financial and legal consequences for all parties involved. #SupremeCourtRuling #MiningTaxes #RetrospectiveTaxation #StateRevenue #LegalClarity #MiningSectorImpact #FinancialLiabilities #PublicPolicy #IndiaMining #GovernmentRevenue

𝗥𝗲𝘁𝗿𝗼𝘀𝗽𝗲𝗰𝘁𝗶𝘃𝗲 𝗜𝗻𝘁𝗲𝗿𝘃𝗲𝗻𝘁𝗶𝗼𝗻𝘀 𝗶𝗻 𝗧𝗮𝘅 𝗟𝗮𝘄: 𝘐𝘯𝘵𝘦𝘯𝘵 𝘃𝘀 𝘛𝘪𝘮𝘪𝘯𝘨 𝘙𝘦𝘵𝘳𝘰𝘴𝘱𝘦𝘤𝘵𝘪𝘷𝘦 𝘢𝘮𝘦𝘯𝘥𝘮𝘦𝘯𝘵𝘴 proposed in the 𝘍𝘪𝘯𝘢𝘯𝘤𝘦 𝘉𝘪𝘭𝘭, 2026 on 1 Feb have now entered the Statute These amendments intend to resolve - in Revenue's favor - four disputes pending before the Supreme Court: (1) Time limit for passing Transfer Pricing Order [Pfizer Healthcare vs DCIT [2023] 151 Taxmann.com 200 (Madras High Court)] (2) Time limit for passing "Draft Assessment Order" and "Final Assessment Order" [ACIT vs Shelf Drilling [2025] 177 Taxmann.com 262 (Supreme Court)] (3) Are income-tax notices or orders invalidated if DIN (Document Identification Number) is not mentioned? [CIT vs Brandix Mauritius Holdings Ltd [2024] 158 Taxmann.com 247 (Supreme Court) CIT vs Sutherland Global Services Inc [2025] 175 Taxmann.com 897 (Madras High Court)] (4) Who has the authority to issue reassessment notices: “Jurisdictional Assessing Officer” or “Faceless Assessing Officer”? [Hexaware Technologies Limited vs ACIT [2024] 162 Taxmann.com 225 (Bombay High Court)] 𝗣𝗼𝗹𝗹 🗳️ At a forum of businesses and professionals, a Mentimeter poll was conducted to understand their sentiment around these retrospective amendments The results were as under: ➡️ 67% felt such amendments should ideally be introduced when the first signs of controversy appear, rather than at a much later stage when disputes have already reached the Supreme Court ➡️ Hence, 70% felt that retrospective amendments, at this stage, raised concerns, particularly given the time and resources already spent by the businesses on litigation ➡️ At the same time, 74% supported the "rationale for the retrospective amendments" as reflected in "Explanatory Memorandum to the Finance Bill, 2026" (The Memorandum is extracted in the attached PDF file) ➡️ In short: Participants supported the 𝘐𝘯𝘵𝘦𝘯𝘵 - but were wary of the 𝘛𝘪𝘮𝘪𝘯𝘨 𝗔𝗻𝗼𝘁𝗵𝗲𝗿 𝗼𝗻𝗴𝗼𝗶𝗻𝗴 𝗱𝗶𝘀𝗽𝘂𝘁𝗲 There is a separate dispute currently before the Tax Tribunal (for which no retrospective amendment has been proposed) Taxpayers contend that: • Assessment notices - which do not specify whether the scrutiny is ‘limited’, ‘complete’ or ‘compulsory manual’ - fail the test of legality • Consequently, such notices - and the resulting assessments - are invalid When asked whether a retrospective amendment may be introduced in the future to resolve this dispute: ➡️ 82% of participants voted in the affirmative 𝗘𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗣𝗮𝘁𝘁𝗲𝗿𝗻 𝗶𝗻 𝗧𝗮𝘅 𝗟𝗶𝘁𝗶𝗴𝗮𝘁𝗶𝗼𝗻 • Going forward, Businesses may focus their energies on ‘substantive’ grounds ("merits" of the case) • Tax Litigation is less likely to centre only around procedural lapses by the Revenue