2017 (5) TMI 262 - HC - Income Tax

Vires of clause (i) of explanation 1 to Section 115JB(2) in its prospective and retrospective operation - Held that - The provision impugned in the present writ petition was considered in Whirlpool of India Limited & Anr. (2013 (3) TMI 414 - DELHI HIGH COURT) and it has been held that, no new levy has been proposed to be made by the amendment. The nature of the levy has been changed. It merely cures a provision of vice. The amendment made is not ultra vires or unconstitutional.

Summary

Issues:
Challenge to the vires of clause (i) of explanation 1 to Section 115JB(2) of the Income Tax Act, 1961 in its prospective and retrospective operation.

Comprehensive Analysis:

The petitioners contested the constitutional validity of clause (i) of Explanation 1 to Section 115JB(2) of the Income Tax Act, 1961, inserted by the Finance (No.2) Act, 2009 with retrospective effect from April 1, 2001. They argued that the amendment imposed a new financial burden retrospectively from 2001, which was not anticipated at the time. The petitioners highlighted that the amendment conflicted with the directions and prudential norms of the Reserve Bank of India, impacting non-banking financial companies significantly. They emphasized that the retrospective imposition of fiscal liability was oppressive and confiscatory, violating Articles 14, 19(1)(g), and 265 of the Constitution.

The petitioners' counsel referred to legal precedents and contended that the retrospective amendment lacked justification and was a legislative overreach. They argued that the legislature cannot nullify the effect of a judgment by retrospectively amending the law without disclosing valid reasons. The counsel stressed that the amendment disregarded the principles of fairness and transparency, especially when no defect existed in the original legislation. They further pointed out that the retrospective imposition of tax on provisions for bad debts and diminution in asset value undermined the true and fair presentation of income, as required by accounting norms.

In response, the advocate for the revenue relied on a decision of the Delhi High Court and argued that the contentions raised by the petitioners had been addressed in that case. The revenue's counsel maintained that the amendment was valid and necessary, as determined by the court in a previous judgment. They urged the court to dismiss the writ petition based on the precedent set by the Delhi High Court and the lack of new grounds raised by the petitioners.

Ultimately, the High Court dismissed the writ petition challenging the constitutional validity of the retrospective amendment to Section 115JB(2). The court found that the issues raised by the petitioners had been considered in a prior judgment and did not warrant a different conclusion. The court distinguished other legal precedents cited by the petitioners, emphasizing that the retrospective amendment in question did not propose a new levy but rather corrected an existing provision. The court rejected the petitioners' arguments against the retrospective effect of the amendment, concluding that it did not violate established legal principles and did not create undue hardship or injustice.

In conclusion, the High Court upheld the constitutional validity of the retrospective amendment to Section 115JB(2) and dismissed the writ petition, emphasizing that the amendment rectified a legal provision without introducing a new levy, thus validating the retrospective application of the amendment.