Understanding TOLA's Impact on India's Income Tax Regime Changes

Impact of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020

Enacted on September 29, 2020, and effective from March 31, 2020, TOLA was created to alleviate compliance challenges arising from the COVID-19 pandemic and subsequent lockdowns. It specifically applies to "specified acts" as defined in Section 2(1)(b)(ii), which includes the Income Tax Act, 1961.

In this context, the Central Government released four notifications on March 30, 2020, June 24, 2020, March 31, 2021, and April 27, 2021. These notifications collectively extended the operational time limits under TOLA until June 30, 2021, covering the period from March 20, 2020, to April 30, 2021. Therefore, for issuing reassessment notices under Section 148 after April 1, 2021, the Revenue must consider:

Time limits established by Section 149 of the new regime.
Extensions provided by TOLA and its related notifications.

Notably, Section 3(1) of TOLA begins with a non obstante clause, indicating that it supersedes any conflicting provisions in the Income Tax Act. This implies that TOLA's provisions will prevail over those in the Income Tax Act when inconsistencies arise regarding reassessment notices. However, it is important to clarify that the non obstante clause does not extend the three-year limitation under Section 149(1)(b) of the new regime or the six-year limitation for assessments exceeding one lakh under the old regime.

Under the amended regime, assessments with income below 50 lakh must conclude as per Section 149(1)(b) and cannot be pursued further. The procedural safeguards introduced by Section 148A must also be adhered to.

Example of the Impact

For instance, during the assessment year 2013-14, the six-year limitation under Section 149 expired on March 31, 2020. The applicability of TOLA allows notices to be issued up until June 30, 2021, under the extended limits. Compliance must follow the procedures set forth in the new regime. If a notice is issued between April 1, 2021, and June 30, 2021, the new regime's procedural requirements must be observed, as affirmed by the Hon’ble Supreme Court in Ashish Agarwal.

Some respondents argued that TOLA only applies to the old regime and not the Finance Act 2021. However, the Hon’ble Court rejected this interpretation, citing legal principles regarding substitution amendments, whereby a new provision replaces an older one. Thus, the Finance Act 2021, which amended the Income Tax Act, remains subject to TOLA's provisions following April 1, 2021. As outlined in Section 2 of TOLA, the Income Tax Act continues to qualify as a specified act, and its amendments do not negate the applicability of its provisions.

Conclusion

The applicability of TOLA and the interaction between the old and new regimes of the Income Tax Act—particularly regarding the Finance Act 2021—resulted in multiple appeals from the revenue department against various High Court rulings. On October 3, 2024, the Hon’ble Supreme Court, led by Chief Justice Dr. D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra, ruled in favor of the revenue department. The court overturned previous High Court judgments, affirming that TOLA continues to apply alongside the Income Tax Act after April 1, 2021, for actions specified under the amended provisions that should have occurred between March 20, 2020, and March 31, 2021.