1993 (12) TMI 34 - HC - Income Tax

Assessment Year, Business Expenditure, Business Income, Income Tax Act, Income Tax Rules, Law Applicable To Assessment, Taxing Statutes

Summary

Issues Involved:
1. Whether the substitution of rule 9A(1) of the Income-tax Rules, 1962, amounts to repeal and whether the General Clauses Act will apply.
2. Whether the assessing authority has jurisdiction to complete the assessment by invoking the old sub-rule (1) of rule 9A which stood substituted by a new sub-rule at the time of making the assessment.

Detailed Analysis:

Question No. 1:
The primary issue is whether the substitution of rule 9A(1) by a new sub-rule amounts to a repeal of the old rule and whether such repeal would attract the General Clauses Act, particularly section 6. The court examined the statutory provisions and relevant case laws to determine the nature of the substitution.

The court noted that rule 9A(1) was modified by the Income-tax (Second Amendment) Rules, 1986, which replaced certain sub-rules and deleted the distinction between regional and non-regional language films. The court referred to several Supreme Court decisions to elucidate the difference between "substitution" and "repeal."

In State of Maharashtra v. Central Provinces Manganese Ore Co. Ltd., the Supreme Court clarified that substitution does not necessarily imply repeal and re-enactment. Similarly, in Koteswar Vittal Kamath v. K. Rangappa Baliga and Co., the court emphasized that substitution involves two steps: the old rule ceases to exist, and the new rule comes into effect. The court also referred to Rayala Corporation (Pvt.) Ltd. v. Director of Enforcement, where it was held that section 6 of the General Clauses Act does not apply to the repeal of a rule.

Based on these precedents, the court concluded that the substitution of rule 9A(1) did not amount to a repeal of the old rule. Even if it did, section 6 of the General Clauses Act would not apply, as it pertains to the repeal of Central Acts or Regulations, not rules. Therefore, the answer to Question No. 1 is in the negative.

Question No. 2:
The court examined whether the assessing authority could invoke the old rule 9A(1) for assessments made after the new rule came into effect. The new rule 9A, effective from April 2, 1986, explicitly stated in sub-rule (8) that it would not apply to assessment years commencing before April 1, 1987. This indicated the rule-making authority's intention to make the new rule prospective.

The court emphasized that the machinery provisions for computation of income, including section 37 and rule 9A, are essential for assessing income tax liability. The new rule did not retrospectively repeal the old rule for assessment years ending on or before March 31, 1987. Therefore, the old rule 9A(1) remained applicable for those assessment years.

The court referred to Felcon Tyres Ltd. v. Union of India and other decisions, concluding that changes in machinery provisions do not affect the charge of income tax for earlier assessment years. Thus, the assessing authority had the jurisdiction to complete assessments using the old rule 9A(1) for assessment years prior to April 1, 1987.

The answer to Question No. 2 is in the affirmative, in favor of the Revenue and against the assessee. The reference was answered accordingly.