2018 (10) TMI 1604 - HC - Income Tax

Taxability of subsidy - scheme for grant of subsidy to Marathi feature films - capital receipt or revenue receipt - Challenge to proviso to Rule 9A of the Income Tax Rules, 1962 as ultra vires - Held that - In the light of the above submissions of Mr. Naniwadekar and the position in law emerging from the discussion in the foregoing paragraphs, we are of the view that interest of justice would be served by not examining presently the issue of constitutional validity and legality of the provisio to Rule 9A. In the event, the Commissioner passes an order which is adverse to the interest of the petitioner, then, while challenging it in Appeal before the Tribunal, the petitioner can rely upon the view taken by the Tribunal in several cases after introduction of the proviso. The petitioner can persuade the Tribunal to pass an order consistent with its earlier views and, in the event, the facts and circumstances are found to be identical, we have no doubt in our mind that the Tribunal will render a judgment in accordance with law. While rendering such a judgment, it will note the rival contentions and equally make reference to the earlier views of the Tribunal. All this would emerge in the speaking order.

Summary

Issues:
Challenge to the constitutional validity of the proviso to Rule 9A of the Income Tax Rules, 1962.

Analysis:
The petitioner challenged the proviso to Rule 9A of the Income Tax Rules, 1962, as ultra vires the main provisions of the Act, specifically Section 295, Sections 4, and 37. The petitioner argued that the proviso brought non-taxable items into the tax net, contrary to the judgment that deemed the subsidies as capital receipts. The Court noted the reluctance to examine constitutional validity unless necessary for justice and refrained from expressing an opinion if justice could be served without it.

The petitioner, a producer of Marathi feature films, received subsidies under a scheme introduced by the State of Maharashtra. The Assessing Officer reduced the subsidy amount from the cost of production while computing the cost under Rule IXA. The petitioner challenged this in Appeal, which was disposed of without addressing the subsidy treatment issue. The Court emphasized that the petitioner was willing to cooperate with the authorities and refrained from examining the constitutional validity issue at present.

The Court opined that justice would be served by not examining the constitutional validity issue immediately. If an adverse order is passed by the Commissioner, the petitioner can challenge it before the Tribunal, relying on the Tribunal's earlier views post the introduction of the proviso. The Court highlighted the petitioner's opportunity to convince the First Appellate Authority based on the Tribunal's views and emphasized the authority's duty to consider all contentions in its speaking order.

The Court clarified that it had not expressed any opinion on the rival contentions and made the Rule absolute without costs. It instructed the Revenue Officials to refrain from coercive recovery measures until the decision of the First Appellate Authority, emphasizing the need to keep the process in abeyance. The Court left open the possibility for the petitioner to press the issue of the proviso's legality and validity in the future, even after the disposal of the Writ Petition.