Delhi HC Strikes down certain parts of ICDS Provisions & CBDT Notifications
A division bench of the Delhi High Court, today struck down parts II, III, VI, VII and VII of the Income Computation and Disclosure Standards (ICDS) and certain connected Notifications and circulars issued by the Central Board of Direct Taxes (CBDT) finding that the same as unconstitutional. The bench comprising Justices S Muralidhar and Prathiba M Singh had upheld the constitutional validity of the remaining Income Computation and Disclosure Standards. In the petition, the petitioners, The Chamber of Tax Consultants and Anr, had impugned the constitutionality of Section 145 of the Income Tax Act and the connected notifications requiring compliance with Income Computation and Disclosure Standards. The Central Government, last year notified 10 Income Computation and Disclosure Standards (ICDS) vide Notification w.e.f 1.4.2015. In the light of representations received from stakeholders, Expert Committee appointed by the CBDT had revised the above notification as per Notification No.87/2016. Both the notifications are challenged in the petitions. Senior Counsel S. Ganesh, who appeared for the petitioners, submitted before the Court that the effect of the ICDS was to modify the basis of taxation. For taxation purposes, profits are now required to be computed as per commercial accounting principles but to the extent now modified by the provisions of the ICDS. He further argued that by this, the parliament has delegated some of its essential legislative powers relating to chargeability and computation of taxable income to the Central Government which is not permissible under law. According to the petitioners, the delegation to the Central Government and further sub-delegation by the Central Government to the CBDT would amount to abdication of legislative powers and excessive delegation by the Parliament. It was also contended that there is a violation of right to equality guaranteed under Article 14 of the Constitution as there was no reasonable basis on which such differentiation or classification can be made for the applicability of the ICDS since the Assessee following cash system of accounting would escape from the implications and compliance requirement of the ICDS. The petitioners also challenged the validity of the notifications issued by the CBDT in connection with ICDS provisions contending that the same violates the provisions of Article 19(1)(g) of the Constitution. With regard to the argument on delegation of essential legislative power, the bench noted that where there is a binding judicial precedent, by virtue of Articles 141 and 144 of the Constitution, it is not open to the executive to override it unless there is an amendment to the Act by way of a validation law. “To that extent, Section 145 (2), as amended, has to be read down to restrict power of the Central Government to notify ICDS that do not seek to override binding judicial precedents or provisions of the Act. The power to enact a validation law is an essential legislative power that can be exercised, in the context of the Act, only by the Parliament and not by the executive. If Section 145 (2) of the Act as amended is not so read down it would be ultra vires the Act and Article 141 read with Article 144 and 265 of the Constitution,” the bench said. The bench, also accepted the petitioners contention that non-acceptance of the concept of prudence in ICDS I is contrary to the provisions of the Act.
Dear Nikhil, please give us some insight about the impact of the above Judgement on the Returns already filed and to be filed.
