The law on retrospective application of substantive law is extremely clear, and states that no law which infringes upon the rights of an individual can be permitted to apply retrospectively. In fact, Article 20(1) of the Constitution of India, 1950 (‘Constitution’) codifies this very principle in that no person can be tried for an offence which was not an offence as per law at the time of commission. Although, made applicable largely in the case of criminal legislation, the SC in Union of India v. Ganpati Dealcom^[1] (‘Ganpati Dealcom’) had the occasion to examine validity of Section 3(2) (which prescribes punishment for benami transactions) of the Benami Transactions (Prohibition) Act, 1988 (‘Original Act’) as amended by the Benami Transactions (Prohibition) Amendment Act, 2016 (‘Amending Act’) vis-à-vis Article 20(1) of the Constitution.

With regards to the retrospective applicability of the Amending Act, the SC held that since the provisions were sought to be ‘replaced’ by much wider provisions, the same could not be made to apply retrospectively to transactions which took place prior to the Amending Act coming into effect in 2016. The SC observed that the scheme of provisions of the Original Act, i.e. Section 2(a) (which defines ‘benami transactions’) read with Section 3 (on the initiation of criminal proceedings) and Section 5 (property of benami liable to acquisition) were arbitrary and contrary to the scheme of the Constitution. Recently, while recalling^[2] Ganpati Dealcom, the SC noted that the constitutionality of the Original Act was never challenged in the decision and thus the same could not have been adjudicated upon in the absence of a pending lis between the parties.

Accordingly, the civil appeal has been restored for fresh adjudication, with liberty to parties aggrieved by decisions that were decided by placing reliance upon Ganpati Dealcom to file review petitions. It would now be interesting to see how the Prohibition of Benami Property Transactions Appellate Tribunal and High Courts ) would sustain future challenges to retrospective application. The Revenue might justify its stand vis-à-vis the defence of continuous cause of action, i.e. continuous holding of property gives a new cause of action^[3]. However, whether the argument can be sustained in light of the principle enshrined under Article 20(1) of the Constitution remains to be seen.

Interestingly, the retrospective applicability of provisions of the Black Money Act, 2015 (‘BM Act’) is also sub judice before the SC. The Karnataka High Court (‘Karnataka HC’)^[4] has recently held that an action initiated under the BM Act to proceed against undisclosed income and assets pertaining to an Assessment Year prior to the coming into effect of the BM Act, would be invalid. The Karnataka HC had similarly ruled that criminal offences envisaged under its provisions were not law prior to 2015 and, hence, any proceeding pertaining to those years is barred by virtue of Article 20(1) of the Constitution. It would be pertinent to note that the SC has since, stayed the operation of this judgement while it has admitted a Special Leave Petition against this decision.^[5]

[1]    Union of India v. Ganpati Dealcom, (2022) 141 taxmann.com 389 (SC).

[2]    Union of India v. Ganpati Dealcom, (2024) 167 taxmann.com 525 (SC).

[3]    Refer to the ‘What’s Up in Tax!!’ publication, ‘Benami Property – Evolution of Fresh Jurisprudence Regarding Retrospective Application of Amended Definition’, February 16, 2024, https://www.azbpartners.com/bank/benami-property-evolution-of-fresh-jurisprudence-regarding-retrospective-application-of-amended-definition.

[4]    Dhanashree Ravindra Pandit v. ITD, (2024) 466 ITR 1 (Karnataka HC).

[5]    ITD v. Dhanashree Ravindra Pandit, SLP No. 11016/2024 (SC).