2018 (4) TMI 136 - HC - Income Tax

Disallowance u/s 40(a)(ia) - retrospective application of second proviso to Section 40(a)(ia) of the Act - Held that - It is not disputed that Section 40(a)(ia) proviso is for the benefit of Assessee. When a provision has been made in fiscal statute for benefit of Assessee in absence of any express provision or a provision which by necessary implication gives a different impression such provision which is beneficial to Assessee must be read and given effect to retroactively and reiterating this principle Constitution Bench of Apex Court in Commissioner of Income Tax Vs. Vatika Township 2014 (9) TMI 576 - SUPREME COURT as held that the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Dogmatically framed the rule is no more than a presumption and thus could be displaced by out weighing factors - Decided in favour of Assessee

Summary

Issues Involved:
1. Retrospective application of the second proviso to Section 40(a)(ia) of the Income Tax Act, 1961.
2. Divergent judicial views on the retrospective nature of the amendment to Section 40(a)(ia).

Detailed Analysis:

1. Retrospective Application of the Second Proviso to Section 40(a)(ia):
The primary issue was whether the second proviso to Section 40(a)(ia) of the Income Tax Act, 1961, which was amended, should be applied retrospectively or prospectively. The appellant, Principal Commissioner of Income Tax, argued that the amendment was not curative but prospective, effective from April 1, 2013. This argument was based on the Division Bench Judgment of the Kerala High Court in ITA No. 278 of 2014, decided on July 3, 2015, which held that the amendment was prospective.

Conversely, the respondent relied on the Division Bench judgment of the Delhi High Court in Commissioner of Income Tax Vs. Ansal Land Mark Township Private Ltd (2015) and the Supreme Court judgment in Commissioner of Income Tax (Central)-I Vs. Vatika Township Private Limited (2015), which suggested that beneficial provisions in fiscal statutes should be applied retrospectively unless expressly stated otherwise.

The court reviewed these authorities and concluded that the second proviso to Section 40(a)(ia) is for the benefit of the Assessee. Citing the Constitution Bench of the Supreme Court in Commissioner of Income Tax Vs. Vatika Township, the court reiterated that beneficial provisions must be read and given effect to retroactively unless explicitly stated otherwise. The Supreme Court had emphasized that legislation presumed not to have retrospective operation unless clearly intended by the legislature, especially when it conferred benefits without imposing corresponding detriments.

2. Divergent Judicial Views:
The second issue was the conflicting judicial opinions on the retrospective application of the amendment to Section 40(a)(ia). The Kerala High Court had taken a different stance, ruling that the amendment was prospective. However, the Allahabad High Court found no reason to deviate from the principles laid down by the Supreme Court and the Delhi High Court. The court noted that the Kerala High Court did not benefit from the authority of the Constitution Bench in Commissioner of Income Tax Vs. Vatika Township, which provided a clear guideline on the retrospective application of beneficial provisions.

Conclusion:
The Allahabad High Court, aligning with the Supreme Court and the Delhi High Court, held that the second proviso to Section 40(a)(ia) should be applied retrospectively, benefiting the Assessee. The court dismissed the appeal, answering the questions in favor of the Assessee and against the Revenue. The writ petition was deemed to lack merit and was dismissed accordingly.