2004 (9) TMI 709 - HC - Income Tax

Summary

Issues:
Interpretation of rule 6AA of the Income Tax Rules, 1962 for the assessment year 1981-82 regarding weighted deduction under section 35B(1)(b)(ix) of the Income Tax Act, 1961.

Detailed Analysis:
The High Court was tasked with interpreting the application of rule 6AA of the Income Tax Rules, 1962 for the assessment year 1981-82 concerning the weighted deduction under section 35B(1)(b)(ix) of the Income Tax Act, 1961. The respondent, a registered firm engaged in the manufacture and export of shoe uppers, contested the assessment framed on various grounds. The CIT(A) withdrew the weighted deduction in respect of specific items, citing that they were not covered under any sub-clause of section 35B, supported by the insertion of rule 6AA by the Income Tax (8th Amendment) Rules, 1981 effective from 1-8-1981.

In the subsequent appeal, the Tribunal overturned the CIT(A)'s decision, asserting that sub-clause (ix) of clause (b) of sub-section (1) of section 35B was always in existence, and activities prescribed under it were to be considered part of sub-clause (ix). The Tribunal held that as the sub-clause was operative on 1-4-1981, the respondent was eligible for the benefit under sub-clause (ix), contrary to the CIT(A)'s view that rule 6AA was not applicable for the assessment year 1981-82.

The revenue's counsel argued that rule 6AA, prescribing the activities for weighted deduction, was inserted by the Income Tax (8th Amendment) Rules, 1981, effective from 1-8-1981, and thus not applicable for the assessment year 1981-82. The counsel contended that the law in force at the beginning of the assessment year should apply, citing relevant legal precedents to support this position.

The High Court examined previous decisions, including those by the Calcutta High Court and the Gauhati High Court, which emphasized that rule 6AA did not have retrospective operation. The Calcutta High Court held that the rule's insertion from 1-8-1981 did not apply retrospectively to the assessment year 1980-81. The Gauhati High Court also affirmed that rule 6AA was substantive law without retrospective effect, concurring with the Calcutta High Court's interpretation.

Ultimately, the High Court concurred with the Calcutta High Court and the Gauhati High Court, ruling that rule 6AA did not have retrospective operation for the assessment year 1981-82. Consequently, the respondent could not claim weighted deduction for items falling under sub-clause (ix) of section 35B(1)(b) as prescribed by rule 6AA, which was inserted on 1-8-1981. The Court answered the question in favor of the revenue and against the assessee, with no order as to costs.