2013 (3) TMI 416 - HC - Income Tax

Explanation inserted in sub-section (4) of section 80IA by Finance Act No.2 of 2009 challenged - Sub-section (4) of section 80IA provides for certain deduction of income from the eligible business and primarily pertains to infrastructure development & by adding the impugned explanation it is provided that that nothing contained in the section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person and executed by an undertaking or enterprise - petitioner contested against retrospective effect of such amendment - Held that - It is true that with effect from 1.4.2002 some significant changes were made in the said provisions. As already noticed three of these changes which are material such were (i) that sub-section (4) of section 80IA now required the enterprise to carry on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. This was in contrast to the previous requirement of all three conditions being cumulatively satisfied (ii) that the explanation of the term infrastructure facility was changed to besides others, a road including toll road instead of hitherto existing expression road and (iii) that the requirement of transferring the infrastructural facilities developed by the enterprise to the Central or the State Government or the local authority within the time stipulated in the agreement was done away with. Thus to conclude these changes, however, would not alter the situation vis-a-vis the impugned amendment. These legislative changes did enlarge the scope of the deduction and in a sense, made it available to certain assessees who would not have been, but for the changes eligible for such deduction. Nevertheless, the basic requirement of the enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining infrastructure facility was not done away with. In other words, even the amended section 80IA(4) with effect from 1.4.2002 could be construed as not including execution of works contract as one of the eligible activities for claiming deduction. The explanation attempts to clarify that deduction under section 80-IA(4) would not be available in case of execution of works contract. The fact that such interpretation of the existing provisions of sub-section (4) of section 80IA of the Act, even without the aid of the explanation was possible is not disputable. Even without the aid of the explanation, it was possible to contend that such expression did not include an enterprise executing a works contract. The impugned explanation was purely explanatory in nature and did not a mend the existing statutory provisions, the question of levying any tax with retrospective effect would not arise. The explanation did not restrict or aim to restrict the provisions of deduction. If it did so, certainly a question of reasonableness in the context of retrospective operation would arise. In the present case, the explanation only supplied clarity where, at best confusion was possible in the unamended provision. In the result, petition dismissed.

Summary

Issues Involved:
1. Challenge to the vires of the explanation inserted in sub-section (4) of section 80IA of the Income Tax Act, 1961.
2. Retrospective application of the amendment.
3. Distinction between 'developer' and 'contractor'.
4. Legislative competence and reasonableness of the amendment.
5. Judicial precedents and their applicability.

Detailed Analysis:

1. Challenge to the vires of the explanation inserted in sub-section (4) of section 80IA of the Income Tax Act, 1961:
The petitioner challenged the explanation inserted in sub-section (4) of section 80IA by Finance Act No.2 of 2009, which clarified that the deductions under this section do not apply to businesses in the nature of works contracts awarded by any person and executed by an undertaking or enterprise. The petitioner argued that this explanation changes the nature of deductions available under section 80IA(4), which were previously available to all undertakings and enterprises executing infrastructure development projects without the necessity of the assessee investing its own funds.

2. Retrospective application of the amendment:
The petitioner contended that the retrospective application of the amendment from 1.4.2000 creates a levy that did not exist before, thus infringing Articles 14 and 19(1)(g) of the Constitution. The retrospective operation was argued to be harsh, unreasonable, and without any discernible reasons from contemporaneous materials. The counsel for the petitioners relied on several judicial precedents to support the argument that retrospective amendments must be reasonable and justified.

3. Distinction between 'developer' and 'contractor':
The respondents argued that the benefits under section 80IA(4) were always intended for developers and not contractors. The explanation was meant to clarify this distinction and was within the legislative competence of the Parliament. The respondents contended that the amendment did not introduce a new levy but clarified the existing provision to prevent misuse.

4. Legislative competence and reasonableness of the amendment:
The court recognized the considerable latitude of the Parliament in framing and implementing taxing statutes, including retrospective amendments. It was noted that the Parliament has the competence to enact laws retrospectively if necessary. The court examined whether the explanation materially changed the existing provision or merely clarified it. It was held that the explanation was clarificatory in nature and did not introduce a fresh levy or withdraw existing deductions.

5. Judicial precedents and their applicability:
The court reviewed several judicial precedents cited by both parties. It was noted that an explanation is typically meant to clarify ambiguities in the statute and does not usually expand the scope of the main provision. However, if the language of the explanation suggests otherwise, full effect must be given to the legislative intent. The court concluded that the explanation in question clarified the distinction between a developer and a contractor and did not alter the existing statutory provisions.

Conclusion:
The court dismissed the petitions, holding that the explanation was clarificatory and did not introduce a new levy or withdraw existing deductions. The retrospective application of the amendment was found to be reasonable and within the legislative competence of the Parliament. The interim relief was extended till 30th April 2013, but the request for a certificate to appeal was declined.