1999 (7) TMI 24 - HC - Income Tax

Issues Involved:
1. Constitutionality of Section 12 of the Finance Act, 1995.
2. Retrospective amendment of the definition of "plant" in Section 43(3) of the Income-tax Act, 1961.
3. Validity of excluding tea bushes from the definition of "plant".
4. Alleged double deduction on tea bushes.

Detailed Analysis:

1. Constitutionality of Section 12 of the Finance Act, 1995:
The petitioners sought a declaration that Section 12 of the Finance Act, 1995, which amended the definition of "plant" in Section 43(3) of the Income-tax Act, 1961, is ultra vires, illegal, and void under the Constitution of India. The court examined whether the amendment exceeded legislative competence or violated any fundamental rights guaranteed under Part III of the Constitution. The court cited the Supreme Court's ruling in State of A.P. v. McDowell and Co., emphasizing that a law can be struck down only on grounds of lack of legislative competence or violation of fundamental rights. The court concluded that the amendment was within legislative competence and did not violate any constitutional provisions.

2. Retrospective Amendment of the Definition of "Plant":
The amendment excluded tea bushes from the definition of "plant" with retrospective effect from April 1, 1962. The petitioners argued that this retrospective amendment was unjustified as it unsettled settled law. The court noted that the power of Parliament to enact laws with retrospective effect is not in question. The court observed that the retrospective effect was intended to resolve the controversy arising from judicial pronouncements that had broadened the definition of "plant" to include tea bushes. The court found that the retrospective amendment was neither unreasonable nor arbitrary, as it aimed to prevent double deductions and ensure consistency in tax treatment.

3. Validity of Excluding Tea Bushes from the Definition of "Plant":
The petitioners contended that tea bushes should be regarded as "plant" and thus eligible for depreciation under Section 32 of the Act. They cited various judicial decisions supporting a broad interpretation of "plant." The court examined the legislative intent behind the amendment, which was to prevent double deductions-one for replacement cost under Rule 8(2) of the Income-tax Rules and another for depreciation. The court concluded that the exclusion of tea bushes from the definition of "plant" was a valid exercise of legislative power aimed at preventing double deductions.

4. Alleged Double Deduction on Tea Bushes:
The petitioners argued that there was no double deduction, as depreciation and replacement costs were different types of expenditures. The court disagreed, stating that Rule 8(2) allowed a deduction for the entire replacement cost of tea bushes, and granting depreciation on the same expenditure would result in a double deduction. The court noted that while different provisions of the Act allowed for both depreciation and revenue expenditure on the same machinery, these were distinct types of expenditures. In contrast, the replacement cost and depreciation on tea bushes pertained to the same expenditure. The court upheld the legislative decision to exclude tea bushes from the definition of "plant" to prevent such double deductions.

Conclusion:
The court dismissed the writ petitions, upholding the constitutionality and validity of Section 12 of the Finance Act, 1995, and the retrospective amendment of the definition of "plant" in Section 43(3) of the Income-tax Act, 1961. The court found no constitutional infirmity in the exclusion of tea bushes from the definition of "plant" and ruled that the legislative intent to prevent double deductions was justified. The respondents were awarded costs of Rs. 1,000.

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