2004 (1) TMI 61 - HC - Income Tax

Amendment inserting sub-section (4B) in section 80HHC through the Finance Act, 1999, with effect from April 1, 1992, namely, the date since when the Central Board of Direct Taxes Circular No. 600 dated May 23, 1991, was made effective.- Vires of the amendment Held that retrospective operation of sub-section (4B) of section 80HHC introduced by the Finance Act of 1999 with retrospective effect from April 1, 1992, is not violative of article 14 and article 19(1)(g) of the Constitution and is therefore not ultra vires - deduction under section 80HHC is allowed after apportionment on the 40 per cent. component exigible under the Act.

Summary

Issues Involved:
1. Validity of Circular No. 600, dated May 23, 1991, issued by the CBDT.
2. Impact of the amendment inserting sub-section (4B) in section 80HHC by the Finance Act, 1999, with retrospective effect from April 1, 1992.
3. Retrospective operation of sub-section (4B) of section 80HHC and its potential violation of articles 14 and 19(1)(g) of the Constitution.

Issue-Wise Detailed Analysis:

1. Validity of Circular No. 600, dated May 23, 1991:
The respondents challenged the vires of Circular No. 600, dated May 23, 1991, as it was inconsistent with rule 8 of the Income-tax Rules, 1962, read with section 2(1A) of the Income-tax Act, 1961, in relation to deduction under section 80HHC. The single judge held that the interpretation of the CBDT in the circular was incorrect and declared that the circular was not applicable to the petitioners.

2. Impact of the Amendment Inserting Sub-section (4B) in Section 80HHC:
During the appeals, sub-section (4B) was inserted in section 80HHC through the Finance Act, 1999, with retrospective effect from April 1, 1992. The Department argued that the appeal had become infructuous due to this amendment. However, the respondents contended that the amendment did not affect the single judge's decision. The court granted leave to challenge the vires of sub-section (4B) concerning its retrospectivity.

The court examined whether the amendment was clarificatory in nature, which would justify its retrospective application. It was concluded that the amendment aimed to clarify the legislative intent already expressed in the statute, thereby making the retrospectivity of the amendment intra vires.

3. Retrospective Operation of Sub-section (4B) of Section 80HHC:
The court analyzed whether the retrospective operation of sub-section (4B) violated articles 14 and 19(1)(g) of the Constitution. It was noted that if the amendment was clarificatory, it would be valid. The court found that the amendment did not introduce anything new but clarified the existing law, thus upholding its constitutionality.

The court further discussed the implications of rule 8 and section 80HHC concerning the computation of mixed income from the sale of tea grown and manufactured by the seller. It was determined that the deduction under section 80HHC should be made after apportionment of non-agricultural and agricultural income under rule 8, aligning with the legislative intent and constitutional provisions.

Conclusion:
The appeal succeeded to the extent that sub-section (4B) introduced through the Finance Act, 1999, was upheld as clarificatory and constitutionally valid. The writ petition challenging the circular became redundant due to the amendment. The deduction under section 80HHC is allowed after apportionment on the 40 percent component exigible under the Act. The assessment should proceed accordingly, and there was no order as to costs.