9911796707
TMI Blog2000 (6) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the claim of the Appellant Company was made with an intention to defraud the revenue and as such the Learned Commissioner of Income Tax (Appeals) ought to have issued appropriate orders in this regard.' 3. The assessee-company run a jewellery shop, selling primarily silver items. It also owned Hotel JASS Oberoi, Khajuraho, which was given to the Oberoi group of hotels on an operational agreement. The facts concerning the matter, to be stated succinctly, are that on the basis of auditor's report in form No. 10CCAD, in which the receipts of convertible foreign exchange were computed at Rs. 83,15,526, the profit derived from providing of services of foreign tourists was worked out at Rs. 4,65,528, for which deduction was claimed under section 80HHD of the Incometax Act. 'Indirect receipts' of convertible foreign exchange, amounting to Rs. 71,36,312, included in the total receipts of Rs. 83,15,526, were assumed to qualify f or deduction in view of Explanation to section 80HHD(2) of the Income-tax Act. The said Explanation was inserted in the provision of section 80HHD, alongwith sub-section (2A), by the Finance (No. 2) Act, 1991 w.e.f.1-4-1992. The Assessing Officer refused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on clauses of the Finance (No. 2) Bill, 1991, the relevant portion of which reads under: 'Sub-clause (b) seeks to insert an Explanation at the end of sub-section (2) to clarify that payment received by an assessee in Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer, from a tour operator or a travel agent on behalf of foreign tourists, shall be deemed to have been received by the assessee in convertible foreign exchange, if the person making the payment furnishes to the assessee a certificate specified in the proposed new sub-section (2A). TheId.counsel emphasised that the use of the word 'to clarify' indicated that the Explanation was by way of clarification and, if that was so, it was pleaded that the same would have retrospective operation. In this connection our attention was invited to the decision of the Madras High Court in the case of ITO v. D. Manoharlal Kothari [1999] 236 ITR 357, the head note of which reads as under: "An Explanation cannot be treated as an amendment because the purpose of an Explanation is to explain or to clear any mental cobwebs surrounding the meaning of a statutory provision and to prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficult to apply them in practice. From the law settled by the Supreme Court in various cases, the illustrative though no exhaustive, principles which emerge with regard to retrospective operation may be set out as under : (i) The general rule of interpretation is that every statute or statutory rule is prospective unless it is expressly or by necessary implication made to have retrospective effect. (ii) A statute is not to be given a retrospective operation so as to affect, alter or destroy an existing right or create a new liability or obligation. (iii) A statute which effects substantive rights is presumed to be prospective in operation, unless made retrospective, either expressly or by necessary intendment or the manifest purpose compels one to construe it as such. (iv) It cannot be said to be an invariable rule that a statute could not be retrospective unless so expressed in the very terms of the provision. The statutes which are curative or merely declaratory of the provisions or which relate to matters of procedure may have retrospective effect unless the result would be to create new liabilities or obligations. (v) With a view to finding out whether a provision is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ists. 7.2 It appears that it was pointed by the assessees that in many cases, the foreign tourists visitIndiaon a package tour and make payment in foreign exchange, in one lump sum, to a tour operator inIndia. The tour operator thereafter makes payments to the hotels where the tourist groups are lodged. Since the foreign exchange was received only by the tour operator, it was only he who could claim the tax concession under section 80HHD and the hotel owner was denied the benefit of the said section, even though the payment for service to the foreign tourists rendered by the hotel constituted the major portion of the expenditure incurred by the foreign tourists in India. With a view to securing the benefit under section 80HHD for all the segments of the tourism industry, section 80HHD was amended by the Finance Act, 199 1, w.e.f. 1-4-1992, by inserting, inter alia, Explanation to sub-section (2) and sub-section (2A), which read as under: 'Explanation.-For the purposes of this sub-section, any payment received by an assessee, engaged in the business of a hotel or of a tour operator or of a travel agent, in Indian currency obtained by conversion of foreign exchange brought into I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts in relation thereto in convertible foreign exchange. In effect, even if the person, say a tour operator, received the entire foreign exchange, he would not be legally entitled to claim benefit under section 80HHD in the context of whole of the amount because the entire services to the foreign tourists were not provided by it, there being a hotel or air line also which provided services. No problem would have arisen if the foreign tourist separately made payments in foreign currency for services rendered by each segment. In that situation each one of them could claim benefit of section 80HHD for the convertible foreign exchange received by it for services rendered by it. The problem was posed when any one of them received the foreign exchange and in turn made payment to others who rendered the services, in Indian currency. The amendment did not in any way affect, alter or destroy the right of the person who received the whole of the foreign exchange. The manifest purpose of the provision, therefore, compels one to construe it as retrospective. 8.1 The object of introducing the provisions of section 80HHD is very clear. Even at the cost of repetition we would point out that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to subserve. in the case of D. Manoharlal Kothari, relied upon by the assessee, the Madras High Court has held that when the Explanation serves the purpose of clarification of the existing law, there is no question of any prospective or retrospective operation of the Explanation. If the Explanation to section 80HHD is read so as to harmonise with and clear up the ambiguity in the main provision, it has to be given a retrospective effect. 8.4 In Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677, it has been held by the Apex Court that the provisions of the first proviso, which was inserted by the Finance Act, 1987, w.e.f. 1-4-1988, was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation, and is of clarificatory nature. Therefore, it has to be treated as retrospective w.e.f.1-4-1984, the date on which section 43B was inserted by the Finance Act, 1983. It would be useful to refer to the following observations of the Hon'ble Supreme Court at page 686 : "Therefore, in the well known words of Judge Learned Hand, one cannot make a fortress out of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedural one. The Id. D.R. has also expressed a fear that if deduction on the entire amount has been claimed by the person who received the convertible foreign exchange, there would be a double deduction. We have already said that the person who receives the foreign exchange is not entitled to claim relief in relation to the whole of the amount, because the relief is admissible only on services being rendered by it. In any case, on realising a lacuna in law, the provisions were amended by the Finance Act, 1994, w.e.f. 1-4-1995, so as to provide that the first recipient of foreign exchange would be entitled to deduction under section 80HHD in respect of the amount retained by him and not in respect of amount which represents payments passed on to the other assessees. We are presently not concerned with the question whether this provision is retrospective or not. 9.1 On a careful consideration of the facts and circumstances of the case in its entirety and in view of the foregoing discussion we hold that the above referred amendments made by the Finance Act, 1992 by introducing Explanation to section 80HHD(2) and sub-section (2A) are retrospective in nature. We would, therefore, s ..... 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