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2018 (12) TMI 1330 - HC - Income TaxSection 94(8) as retrospective in operation or prospective - Dividend stripping in buying and selling of shares and units - Avoidance of tax by certain transactions in securities - whether bonus shares are distributed out of the benefit earned during the year and then, when there are no profits, bonus shares can be allotted out of accumulated results? - Held that - Considering the general scope and purview of the Income Tax Act, the remedy sought to be applied and the former state of the law and what the legislature contemplated, we are of the clear view that sub-Section (8) of Section 94 was intended to be prospective. As pointed out by the Hon ble Supreme Court of India in the case of Gold Coin Health Food (P) Ltd. 2008 (8) TMI 5 - SUPREME COURT ), that the law is well settled that the applicable provision would be the law as it existed on the date of filing of the return and when any loss is returned in any return, it need not necessarily be the loss, as the previous year is concerned. Therefore, the applicable law on the date of filing of the return cannot be confined only to the losses of the previous accounting years. We are of the clear view that the Tribunal committed error in reversing the order passed by the CIT(A)as sub-Section (8) of Section 94 is neither curative nor declaratory of the previous law, which has to be held to be prospective in operation. - Decided in favour of the assessee
Issues Involved:
1. Whether Section 94(8) of the Income Tax Act, 1961, is retrospective in operation or prospective. 2. Whether the Income Tax Appellate Tribunal committed an error in law by holding that Section 94(8) is to operate retrospectively when the statute did not expressly or impliedly so declare. Detailed Analysis: Issue 1: Retrospective or Prospective Operation of Section 94(8) The primary issue in this case is whether Section 94(8) of the Income Tax Act, 1961, which deals with bonus stripping, is retrospective or prospective in operation. The Tribunal had held that Section 94(8) operates retrospectively, equating it with dividend stripping under Section 94(7). Arguments by the Respondent/Revenue: The Revenue contended that the Assessing Officer, while completing the assessment, did not reference Section 94(8), which was inserted with effect from April 1, 2005. They argued that the Tribunal's decision to apply Section 94(8) retrospectively was correct, as it was meant to clarify existing provisions and prevent revenue leakage. Arguments by the Appellant/Assessee: The assessee argued that Section 94(8) should be considered prospective, as the statute did not expressly or impliedly declare it to be retrospective. The CIT(A) had also held that Section 94(8) is effective from the assessment year 2005-2006, and the assessment year under consideration was 2004-2005. Court's Analysis: The court examined the Notes on Clauses for the Finance Act 2004, which clearly stated that the amendments to Section 94, including the insertion of sub-Section (8), would take effect from April 1, 2005, and apply to the assessment year 2005-2006 and subsequent years. The court also referred to the Central Board of Direct Taxes' clarification, which reiterated the prospective application of Section 94(8). The court further relied on the Supreme Court's decision in Zile Singh vs. State of Haryana, which established that statutes are prima facie prospective unless expressly or by necessary implication made retrospective. The court noted that Section 94(8) was a new provision and not a substitution or explanation of an existing one, making it prospective in nature. Issue 2: Error in Tribunal's Decision on Retrospectivity The Tribunal had declared Section 94(8) to be retrospective, which the court found to be beyond its jurisdiction. The court emphasized that the Tribunal cannot grant declaratory relief on the prospective or retrospective nature of a statute. Court's Conclusion: The court concluded that the Tribunal erred in holding Section 94(8) to be retrospective. The court held that Section 94(8) is prospective, effective from April 1, 2005, and applicable to the assessment year 2005-2006 and subsequent years. The court restored the order passed by the Commissioner of Income Tax (Appeals)-IX, Chennai, and answered the substantial questions of law in favor of the assessee. Final Judgment: The appeal filed by the assessee was allowed, the order passed by the Tribunal was set aside, and the order passed by the Commissioner of Income Tax (Appeals)-IX, Chennai, dated December 6, 2007, was restored. The substantial questions of law were answered in favor of the assessee, with no costs awarded.
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