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2017 (4) TMI 1036 - HC - Income TaxRestriction on multiplicity of claims of deductions - Validity of Section 80(5) and the fourth proviso to S.10B (1) - whether Section 80(5) inserted by Finance Act, 2009 with effect from 01.04.2003 and the fourth proviso to S.10B (1)inserted by the Finance Act, 2006 w.e.f. 01.04.2006 as arbitrary, discriminatory, unreasonable, and violative of Article 14 of the Constitution of India? Held that - As far as Section 80A (5) was concerned, it was added to prevent multiplicity of claims of deductions with respect to the same transactions, under the Act. The insertion of the impugned provisions does not curtail any vested rights that the petitioner or assessee had, but only imposes upon them a duty, an obligation to claim deductions in a timely manner and in the return so filed. The right to claim such deductions still vests in the assessees who are eligible for it. The other perspective in such cases is that the impugned provisions are interwoven into the mechanism which Parliament found appropriate to create for the purpose of claiming deductions. In such cases, (unlike in cases where no such benefits are sought) the assessee has to necessarily claim the benefit while filing a return within the time, under Section 139 (1). These provisions are rather like limitation periods, which are statutes of repose ( Limitation is a statute of repose. The fourth proviso to Section 10B (1) is a qualifying proviso and it only seeks to limit the general provision in Section 10B (1) with a further stipulation or condition. As held in State of A.P. v. Nallamilli Ramli Reddi, (2001 (8) TMI 1396 - SUPREME COURT) Article 14 of the Constitution of India permits reasonable classification on fulfillment of two factors (a) that the classification must be found on intelligible differentia which distinguishes persons grouped together from others who are left out of the group, and (b) that differentia must have a reasonable connection with the object sought to be achieved. As discussed earlier, the objective behind insertion of the impugned provisions was to defeat multiple claims of deductions and to ensure better tax compliance. Thus, the impugned provisions (fourth proviso to Section 10B (1) and Section 80A (5)) so inserted acknowledge the existence of persons owning 100% EOUs and seek to limit their time to claim deductions under the Act. The decision in Sham Bhar Khandige v. Agricultural I.T.O., AIR (1962 (8) TMI 67 - SUPREME COURT , is authority for the proposition that where there are more than one methods of assessing a tax and the Legislature selects one among such many, the Court will not be justified to invalidate the law on the ground that the Legislature should have adopted another method, which in the opinion of the Court, is more reasonable or appropriate, the exception being where the court is convinced that the method adopted is capricious and fanciful. Thus with the addition of the fourth proviso to Section 10B(1) of the Act, the manner of claiming deduction is now time barred under the provisions of the Section 139(1) and relief cannot be granted after expiry of the time mentioned in Section 139(1). Thus, Parliament acted within its power to differentiate between a return of income filed under Section 139(1) and a belated return filed under Section 139(4) for the purposes of deductions claimed Section 10B(1). For the foregoing reasons, the order of the CIT (A) has to be and is upheld; the challenge to the provisions has to fail.
Issues Involved:
1. Validity of Section 80A(5) of the Income Tax Act, 1961. 2. Validity of the fourth proviso to Section 10B(1) of the Income Tax Act, 1961. 3. Alleged violation of Article 14 of the Constitution of India. 4. Discrimination between different sets of assessees. 5. Interpretation of beneficial legislation. Issue-wise Detailed Analysis: 1. Validity of Section 80A(5) of the Income Tax Act, 1961: The petitioner challenges Section 80A(5), inserted by the Finance Act, 2009, which mandates that deductions under Section 10A, 10AA, 10B, 10BA, or any provision of Chapter VI-A must be claimed in the return of income. The petitioner argues that this provision is arbitrary and violates Article 14 of the Constitution. The court, however, finds that the provision was introduced to prevent multiple claims of deductions for the same profits and to ensure timely filing of returns for better tax compliance. The court upholds the validity of Section 80A(5), stating that it does not curtail any vested rights but imposes a duty to claim deductions in a timely manner. 2. Validity of the Fourth Proviso to Section 10B(1) of the Income Tax Act, 1961: The petitioner also challenges the fourth proviso to Section 10B(1), inserted by the Finance Act, 2006, which stipulates that no deductions under Section 10B are permitted if not claimed before the due date specified under Section 139(1). The petitioner argues that this provision is discriminatory and unreasonable. The court, however, finds that the provision was introduced to ensure timely filing of returns and to prevent misuse of tax incentives. The court upholds the validity of the fourth proviso to Section 10B(1), stating that it is a reasonable classification with a rational nexus to the objective of improving tax compliance. 3. Alleged Violation of Article 14 of the Constitution of India: The petitioner argues that both Section 80A(5) and the fourth proviso to Section 10B(1) are violative of Article 14 of the Constitution, which guarantees equality before the law. The court, however, finds that the provisions do not violate Article 14 as they are based on reasonable classification and have a rational connection with the objective of improving tax compliance. The court states that in fiscal and economic matters, Parliament has wide discretion to innovate and experiment, and such provisions are necessary to streamline the process of claiming deductions. 4. Discrimination Between Different Sets of Assessees: The petitioner contends that the provisions discriminate between assessees who file returns within the due date and those who file belated returns. The court finds that the classification is justified as it ensures timely filing of returns and proper scrutiny of claims. The court states that the provisions are like limitation periods, which are statutes of repose that define the status or relationship of the party concerned. The court upholds the provisions, stating that they do not create any arbitrary or unreasonable classification. 5. Interpretation of Beneficial Legislation: The petitioner argues that the provisions should be interpreted liberally as they are part of beneficial legislation intended to promote economic growth. The court, however, finds that the provisions are not meant to frustrate the objective of the beneficial legislation but to ensure timely compliance and prevent misuse. The court states that the provisions are necessary to maintain the integrity of the tax system and to ensure that deductions are claimed in a timely and orderly manner. Conclusion: The court upholds the validity of Section 80A(5) and the fourth proviso to Section 10B(1) of the Income Tax Act, 1961, stating that they are reasonable and necessary for improving tax compliance and preventing misuse of tax incentives. The court dismisses the writ petition, stating that the provisions do not violate Article 14 of the Constitution and do not create any arbitrary or unreasonable classification. The court also finds that the provisions are necessary to ensure timely filing of returns and proper scrutiny of claims.
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