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2013 (3) TMI 414 - HC - Income TaxMAT - Retrospective amendment to section 115JB by the Finance (No. 2) Act, 2009 by insertion of clause (i) to Explanation 1 with retrospective effect from 1-4-2001 inserted so as to provide that any provision for diminution the value of any asset will also be included in the computation of book profit under section 115JB challenged Held that - There is no merit in the contention of the petitioner that the amendment has brought into effect a new tax levy which is outside the scope of section 115JB. The purpose of the Explanation is to broaden the base amount on which tax is payable by the company. No new levy is imposed. The tax-base stands widened by the amendment in as much as the amount or amounts set aside as provision for diminution in the value of any asset and debited to the profit and loss account shall be added to the book profit. Since the amendment does not provide for any new levy of income tax, there is no question of it being struck down on the ground of retrospectivity. The nature of the tax has not undergone any change and it still remains a tax on the book profit of the company. It is perfectly open to the legislature to prescribe how the book profit of a company can be computed and this it has done by first enacting that the book profit should be the figure of the profit as per the profit and loss account prepared in accordance with parts II and III of the Companies Act and then by prescribing, in Explanation 1, the items by which the said book profit may either be increased or reduced. Section 4 of the Income Tax Act, 1961 lays the charge of tax on the total income of the previous year of every person. Section 2(45) defines total income as meaning the total amount of income referred to in section 5, computed in the manner laid down in this Act . To challenge the retrospectivity of the amendment it is necessary for the petitioner to show that the retrospective operation so completely alters the character of the tax as to take it outside the limits of the entry which gives the legislature competence to enact the law. Section 115JB is not a beneficial provision intended to give a fiscal incentive to the assessee as it targeted corporate entities for imposing a Minimum Alternate Tax on their book profit. Therefore, assessee s reliance on judgement of Lohia Machines Ltd. & Anr. v. Union of India 1985 (1) TMI 1 - SUPREME COURT doesn t help his case. The present case is not one of encroachment of the legislature upon the judicial power. Parliament did not attempt to validate the add-back of the provision for bad and doubtful debts by validating the action of the income tax authorities without changing the statutory basis. The amending Act cured the statutory provision of the vice from which it suffered and it was given retrospective effect which was quite within the competence of the legislature. The usefulness of the statement of objects and reasons is limited to these aspects and no authority has been cited before us to show that the absence of any reason or justification given in the statement of objects and reasons for an amendment would invalidate the legislative action and would render the amendment unconstitutional on that ground alone. Reading more into the statement of objects and reasons would lead to this absurd result, namely, that if sufficient justification for the law is shown in the statement of objects and reasons, then the law must be held to be valid and constitutional irrespective of the question whether it offends the relevant provisions of the Constitution or exceeds the judicially recognised limitations on the legislative powers. It would result in an absurd situation which cannot be countenanced. Thus The amendment made is not ultra vires or unconstitutional. In the result Writ Petition dismissed but with no order as to costs.
Issues Involved:
1. Retrospectivity of the amendment to Section 115JB of the Income Tax Act, 1961. 2. Validity of the retrospective amendment. 3. Justification for the retrospective amendment. 4. Discrimination and reasonableness of the retrospective amendment. 5. Refund of tax paid due to the retrospective amendment. Issue-wise Detailed Analysis: 1. Retrospectivity of the Amendment to Section 115JB: The petitioner challenged the retrospective amendment made to Section 115JB of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009, which inserted clause (i) to Explanation 1 with retrospective effect from 01.04.2001. The amendment required the addition of the amount set aside as provision for diminution in the value of any asset to the book profit for tax computation. 2. Validity of the Retrospective Amendment: The court held that the amendment did not introduce a new tax or levy but merely broadened the tax base by including provisions for diminution in the value of assets in the book profit. It was deemed a valid exercise of legislative power, as income tax is a single tax on the total income of the assessee, and the adjustment to book profit was within the scope of Section 115JB. 3. Justification for the Retrospective Amendment: Although the statement of objects and reasons did not explicitly justify the amendment, the court found that the absence of such justification did not invalidate the amendment. The court emphasized that the constitutionality of a law should be judged on its terms and judicially recognized limitations on legislative powers, not solely on the statement of objects and reasons. 4. Discrimination and Reasonableness of the Retrospective Amendment: The court rejected the contention that the amendment was discriminatory or unreasonable. It noted that the amendment aimed to address the issue of companies making provisions for bad and doubtful debts to reduce their book profits, thereby avoiding tax. The retrospective amendment was seen as a necessary measure to ensure equity and prevent companies from exploiting the absence of specific provisions in Section 115JB. 5. Refund of Tax Paid Due to the Retrospective Amendment: The petitioner sought a refund of the tax paid based on the recomputed book profit due to the retrospective amendment. The court held that the claim for a refund could not be entertained in the writ petition as there was a separate remedy prescribed under Chapter XIX of the Income Tax Act. The petitioner was advised to pursue the remedy under Section 237 and Section 239 of the Act or seek relief under Section 119(2)(b) from the CBDT for any genuine hardship. Conclusion: The writ petition was dismissed, and the court upheld the validity and constitutionality of the retrospective amendment to Section 115JB of the Income Tax Act, 1961. The court also provided guidance on the appropriate remedy for the petitioner's claim for a refund of the tax paid due to the amendment.
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