1992 (10) TMI 1 - SC - Income Tax

Scientific Research - controversy with regard to the retrospective amendment of section 80J - computation of business income for purposes of income-tax - allowance of depreciation - deduction u/s35(2)(iv)

Summary

Issues Involved:
1. Interpretation of statutory provisions regarding deductions under the Income-tax Act.
2. Retrospective amendment of Section 35(2) by the Finance (No. 2) Act, 1980.
3. Constitutionality of retrospective tax provisions.

Detailed Analysis:

1. Interpretation of Statutory Provisions:
The primary issue revolves around the interpretation of two provisions related to the computation of business income for income-tax purposes. The provisions in question are Section 10(2)(vi) and Section 10(2)(xiv) of the Indian Income-tax Act, 1922, and their counterparts in the Income-tax Act, 1961, Sections 32 and 35 respectively.

- Section 10(2)(vi) provided for a depreciation allowance on capital assets used in business.
- Section 10(2)(xiv) allowed for deductions of capital expenditure on scientific research related to the business, spread over five consecutive years.

The court noted that if both provisions were applied simultaneously, it would result in a double allowance for the same expenditure, which was not the legislative intent. The provisions of clauses (d) and (e) of the proviso to Section 10(2)(xiv) and their counterparts in the 1961 Act (Section 35(2)(iv) and (v)) were designed to prevent this double deduction.

2. Retrospective Amendment by the Finance (No. 2) Act, 1980:
The Finance (No. 2) Act, 1980, amended Section 35(2)(iv) to explicitly state that no deduction shall be allowed under Section 32 for the same or any other previous year if a deduction has been allowed under Section 35 for capital expenditure on scientific research. This amendment was made retrospective from April 1, 1962.

The court examined whether the pre-1980 provisions were ambiguous and whether the 1980 amendment was merely clarificatory. It concluded that the pre-1980 provisions were clear and did not permit a double deduction. The amendment was seen as clarifying the legislative intent rather than introducing a new burden.

3. Constitutionality of Retrospective Tax Provisions:
The assessees contended that the retrospective effect of the amendment was unreasonable and violated their fundamental rights under Articles 14 and 19(1)(g) of the Constitution. They argued that it imposed an unexpected and onerous burden.

The court rejected this argument, stating that the Legislature has the competence to enact retrospective tax provisions, especially when they clarify existing ambiguities or correct legislative defects. The court referred to previous judgments (e.g., Rai Ramkrishna v. State of Bihar) to support this view. It held that the 1980 amendment did not violate constitutional provisions as it was clarificatory in nature and did not impose a new burden.

Conclusion:
The court concluded that the pre-1980 provisions did not permit a double deduction for the same expenditure. The 1980 amendment was merely clarificatory and did not introduce a new burden. Therefore, the retrospective effect of the amendment was constitutional. The writ petitions were dismissed without any order as to costs.