Enhanced 60% Tax Under Amended S. 115BBE Can’t Be Imposed Retrospectively: Rajasthan HC

The Rajasthan High Court has held that the enhanced tax regime introduced through the Taxation Laws (Second Amendment) Act, 2016 cannot be retrospectively applied to income earned before the amendment came into force so the enhanced 60% tax under amended Section 115BBE of the Income Tax Act cannot be imposed retrospectively. The bench of Justice Arun Monga and Justice Sunil Beniwal has observed that The amendment to Section 115BBE came into force on 01.04.2017 i.e. the first day of financial year 2017-18. For FY 2016-17, the law in force on 01.04.2016, prescribing a rate of 30%, must govern. The enhanced rate of tax @60% came into force on 01.04.2017 and can apply only from that date, i.e. for financial year 2017-18 onwards. The controversy traces its roots to the demonetisation announcement made on 8 November 2016, when ₹500 and ₹1,000 currency notes were withdrawn from circulation. During the demonetisation period, Deepak Maratha, a jewellery and bullion trader from Jodhpur, deposited ₹66.17 lakh in cash, including specified bank notes, into his bank accounts. The deposits were claimed to be business receipts generated in the ordinary course of trade. Subsequently, the Taxation Laws (Second Amendment) Act, 2016 was notified on 15 December 2016. The amendment drastically altered Section 115BBE by increasing the tax rate on unexplained income covered under Sections 68 to 69D from 30% to 60%, while also introducing a surcharge and a separate penalty provision under Section 271AAC. The effective tax burden on such income rose to approximately 83.25%. The petitioner filed his income tax return for Assessment Year 2017-18 declaring income of ₹7.92 lakh. His case was later selected for scrutiny. The Assessing Officer rejected the books of account under Section 145(3), held that the cash deposits of ₹66.17 lakh during the demonetisation period were unexplained, and added the amount to the petitioner’s income under Section 68. Tax was then levied at the enhanced rate of 60% under the amended Section 115BBE, and penalty proceedings under Section 271AAC were also initiated. Aggrieved by the retrospective application of the enhanced tax provisions, the petitioner approached the High Court. Core Legal Question The central issue before the Division Bench comprising Justice Arun Monga and Justice Sunil Beniwal was whether the amended Section 115BBE and newly inserted Section 271AAC could be applied: Retrospectively from 1 April 2016, From 15 December 2016, when the amendment was notified, or Prospectively from 1 April 2017, the date expressly mentioned in the amendment. The petitioner contended that the amendment was substantive in nature because it imposed a substantially higher tax burden and introduced a new penalty mechanism. Such provisions, it was argued, could not be applied retrospectively to transactions already completed before the amendment came into force. According to the petitioner, the enhanced levy transformed a 30% tax liability into an effective burden exceeding 83%, which amounted to imposing a new fiscal obligation after the event had already occurred. The petitioner further argued that the amendment itself clearly stated that it would take effect from 1 April 2017, thereby demonstrating Parliament’s intention that it operate prospectively rather than retrospectively. The Income Tax Department defended the amendment by arguing that Parliament possesses the constitutional authority to enact retrospective fiscal legislation. It contended that the amendment was introduced during Financial Year 2016-17 itself and received Presidential assent on 15 December 2016, well before the end of the financial year. According to the Revenue, the timing of the amendment was directly linked to the demonetisation exercise and the legislative intent was to curb and tax unaccounted money deposited during that period. Therefore, the enhanced tax rate should apply to all unexplained income arising during Financial Year 2016-17. The High Court undertook an extensive examination of the Income Tax Act and the constitutional framework governing taxation. The Court observed that while Parliament undoubtedly possesses the power to enact retrospective tax laws, such retrospectivity must either be expressly provided or clearly emerge from the legislative scheme. Mere legislative competence does not automatically justify retrospective operation. The Bench relied heavily on Section 4 of the Income Tax Act, which provides that income tax is charged according to the law applicable for the relevant assessment year. The Court also referred to the Supreme Court’s landmark decision in Karimtharuvi Tea Estate Ltd. v. State of Kerala (1966), wherein it was held that the Income Tax Act as it stands on the first day of April of a financial year governs assessments for that year, and amendments introduced after that date ordinarily do not apply unless the legislature specifically provides otherwise. The Court highlighted the distinction between ordinary business income taxed under normal slab rates and unexplained income taxed under special penal provisions such as Sections 68 to 69D. It noted that the amended Section 115BBE imposed a significantly harsher regime, including a flat tax rate of 60%; additional surcharge; disallowance of deductions and set-offs; and a separate penalty under Section 271AAC. According to the Bench, these changes were substantive rather than procedural and therefore could not be presumed to operate retrospectively. Case Details Case Title: Deepak Maratha Versus UOI Citation: JURISHOUR-1563-HC-2026(RAJ) Case No.: D.B. Civil Writ Petition No. 3625/2020 Date: 27/05/2026 Counsel For Appellant: Sandeep Bhandawat Counsel For Respondent: K.K. Bissa Click Here To Read Order Read More: Reopening Based on Insight Portal Information Without Seized Material is Invalid: ITAT

Enhanced 60% Tax Under Amended S. 115BBE Can’t Be Imposed Retrospectively: Rajasthan HC

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