2003 (3) TMI 3 - SC - Income Tax

Co-operative society - constitutional validity of section 80P(2)(a)(iii) - grant of deduction of the profits made by the societies by the marketing of agricultural produce - submission of the appellant as to the possible adverse economic impact of the amendment on farmers and primary societies is not a consideration which is relevant to a decision on its validity, particularly when there is no factual basis for such assertion is laid

Issues Involved:
1. Construction and constitutional validity of Section 80P(2)(a)(iii) of the Income-tax Act, 1961.
2. Retrospective amendment of Section 80P(2)(a)(iii) by the Income-tax (Second Amendment) Act, 1998.
3. Impact of the retrospective amendment on past assessments and its constitutionality.

Detailed Analysis:

1. Construction and Constitutional Validity of Section 80P(2)(a)(iii):
The appellants, a co-operative society, challenged the interpretation and constitutional validity of Section 80P(2)(a)(iii) of the Income-tax Act, 1961. Initially, the exemption under this section was construed to benefit all co-operative societies, from village to apex levels, as per several High Courts and the Supreme Court. This was reversed in Assam Co-operative Apex Marketing Society Ltd. v. CIT, where the court held that the exemption was intended only for basic level societies and that "produce of its members" meant produce actually grown by its members. This interpretation was later overturned by a larger bench in Kerala State Co-operative Marketing Federation Ltd. v. CIT, which held that the phrase should be construed as including any society engaged in marketing agricultural produce "belonging to" its members.

2. Retrospective Amendment by the Income-tax (Second Amendment) Act, 1998:
Following the 1998 decision, the legislature amended Section 80P(2)(a)(iii) to replace "of its members" with "grown by its members" retrospectively from April 1, 1968. The appellants argued that this retrospective amendment was unconstitutional as it imposed a tax burden on apex societies for the past 31 years without a validating provision. The Delhi High Court upheld the amendment, stating that the legislature was competent to enact laws with retrospective effect.

3. Impact and Constitutionality of the Retrospective Amendment:
The Supreme Court noted that the legislative power to enact laws retrospectively is subject to certain limitations, including reasonableness and the requirement that the words used must clearly imply retrospective operation. The court held that the amendment did not constitute a statutory overruling of its previous decision but rather a legislative change. It emphasized that the amendment was a permissible exercise of legislative power to clarify the legislative intent and rectify the statute.

The court dismissed the argument that the amendment imposed an unreasonable financial burden, noting that the legislative background showed a continuation of the status quo ante rather than a new levy. It also clarified that the amendment could not revive time-barred assessments and would only apply to pending assessments. The court rejected the appellant's argument regarding the adverse economic impact on farmers and primary societies, stating that such considerations were not relevant to the validity of the amendment.

Conclusion:
The Supreme Court dismissed the appeal, upholding the retrospective amendment of Section 80P(2)(a)(iii) and confirming its constitutionality. The court found that the legislative intent was to benefit primary co-operative societies and that the amendment was a valid exercise of legislative power to clarify the statute's meaning. The decision emphasized that the amendment did not constitute an impermissible legislative overruling of judicial decisions and was not unreasonably retrospective.

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