GVK Industries v. ITO

Facts

• GVK Industries challenged certain amendments to the Income Tax Act that were given retrospective effect
• The retrospective operation sought to impose tax liability for past periods when the assessee had arranged affairs based on the then-existing law
• The assessee argued that retrospective taxation violated Art.14 (equality) and Art.265 (no tax without authority of law)

Issue

1. Whether the legislature has unfettered power to impose retrospective taxation, or whether such power is subject to constitutional limitations.

Held

• Legislature has plenary power to enact retrospective tax legislation
• However, this power is not absolute; it must satisfy the test of reasonableness under Art.14
• Retrospective taxation that creates impossible compliance, is confiscatory, or destroys vested rights without rational basis may be struck down
• Art.265 requires that taxation must be by "authority of law" which includes the requirement that the law be reasonable

Ratio Decidendi

Legislative power to impose retrospective tax exists but is circumscribed by constitutional limitations. Retrospective taxation must be reasonable and not create impossible burdens. The touchstone is Art.14 read with Art.265: the law must have a rational nexus with the object sought to be achieved.