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TMI Blog2013 (3) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... structure development. By adding the impugned explanation, the Legislature provided that that nothing contained in the section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person and executed by an undertaking or enterprise. This explanation is added with retrospective effect from 1.4.2000. It is this amendment which has given rise to the present controversy. 3. The case of the petitioner is that it is engaged in the business of developing infrastructure. Till introduction of the impugned amendment, deductions were available to all undertakings and enterprises executing infrastructure development projects and it was not insisted that the assessee itself must develop such infrastructure facilities by investing its own funds. Such explanation, therefore, changes the very complexion of the deductions which were available for years together and, thus creates a levy with retrospective effect. The petitioner challenges such explanation on various grounds. In particular, the grievance is against the retrospective operation of such amendment. 4. On the other hand, the case of the respondents, emerging from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself would be rendered unconstitutional since such amendment would be creating a levy of tax with retrospective effect without any justification. 5.3 In support of his contentions, the counsel relied on the following decisions: (i) In the case of D. Cawasji & Co. v. State of Mysore, [1984] 150 ITR 648 (SC), in which it was found that the Government had levied and collected sales tax on excise duty and cess. High Court declared such levy and collection illegal on the ground that excise duty and cess were not part of the sale price. Such judgment became final and conclusive. The Legislature thereafter passed a retrospective law increasing the rate of sales tax. The Supreme Court finding that such Amendment Act was passed with the object of retaining the amount collected which would nullify the judgment of the High Court, the amendment was held unconstitutional and invalid. (ii) In the case of Lohia Machines Ltd. v. Union of India, [1985] 152 ITR 308 (SC), wherein, in the minority dissenting view, in a Five Judge Bench, it was observed as under : & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Reliance was also placed on the decision of the Supreme Court in the case of Tata Motors v. State of Maharashtra, AIR 2004 SC 3618, wherein it was observed that: "15. It is no doubt true that the legislature has the powers to make laws retrospectively including tax laws. Levies can be imposed or withdrawn but if a particular levy is sought to be imposed only for a particular period and not prior or subsequently it is open to debate whether the statute passes the test of reasonableness at all. In the present case, the High Court sustained the enactment by adverting to Rai Ramkrishna's case when the benefit of the rule had been withdrawn for a specific period." (iv) Reliance was also placed on the decision of the Supreme Court in the case of National Agricultural Coop. Marketing Federation v. Union of India, 260 ITR 548, wherein it was observed that the legislative power either to introduce enactments for the first time or to amend the enacted law with retrospective effect is not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lagging. When the Government realized that private investment and participation was necessary to create such infrastructural facilities. In support of his contentions, counsel relied on following decisions : (i) In the case of Union of India v. Madan Gopal Kabra, AIR 1954 SC 158, wherein even while accepting that the Constitution has no retrospective operation, it was observed that it is not correct to say that in bringing into existence new legislatures and conferring on them certain powers of legislation, the Constitution operated retrospectively. With such observations, challenge to a taxing statute on the ground that the same was retrospective in operation was rejected. (ii) In the case of S.T. Swamiar v. Commissioner, H.R. & C.E., AIR 1963 SC 966, wherein the State legislation levying fee with retrospective operation was upheld. It was observed as under: "20. The State Legis1ature has power to levy a fee under the Seventh Schedule, List III, Entry 28 read with Entry 47. The Legislature was, therefore, competent to levy a fee for rendering services in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive changes. 9. Section 80IA of the Act was introduced for the first time in the year 1991, granting deduction of income from industrial undertakings, etc. in certain cases. Infrastructure development was not contained in the said provision at the inception. Sub-section (4A) was introduced in section 80IA of the Act with effect from 1.4.96 making deduction applicable to any enterprise carrying on developing, maintaining and operating any infrastructure facility subject to fulfillment of the conditions contained therein. Sub-section (4A) as it originally stood at the time of its introduction with effect from 1.4.96 read as under: "(4A) This section applies to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility which fulfills all the conditions, namely:- (i) the enterprise is owned by a company registered in India or by a consortium of such companies: (ii) the enterprise has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing, maintaining and operating a new infra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial undertaking set up in specified backward State/districts, a five year full tax holiday is allowed. For undertakings entitled to the five year full tax holiday, normal deduction of 25%(30% for companies) is allowed for the balance period after the five year holiday. Industrial moderanisation requires a massive expansion of, and qualitative improvement in, infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfill the requirements of the country within a reasonable time frame. In many countries the BOT (build-operate-transfer) or the BOOT (build- own-operate-transfer) concepts have been utilised for developing new infrastructure. Applying commercial principles in the operation of infrastructure facilities can provide both managerial and financial efficiency. In view of this, it is proposed to allow a five year tax holiday for any enterprise which builds, maintains and operates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operating and maintaining a new infrastructure facility (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995. Provided that where an infrastructure facility is transferred on or after the 1st day of April 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment or public authority after the stipulated period. In other words, the required condition for availing of this benefit is that transfer under BOT (Build, Own, Transfer) or BOOT (Build, Own, Operate and Transfer) schemes has to be met. Investments in infrastructure has to compete with investment in other sectors and must therefore be attractive. There is, in particular, a need to encourage investment in the area of surface transport, water supply, water treatment system, irrigation project, sanitation and sewerage system or solid waste management systems. The Bill, therefore, proposes to relax the existing two tier benefit to provide a ten year tax holiday. Keeping in view the capital intensive nature, the higher allowances of depreciation in the initial years in such enterprise and the need for improved cash flows, it is further proposed that for an infrastructure facility in the nature of a road including a toll road, bridge, rail system, highway project, water supply project, sanitation, sewerage and solid waste management system i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in a case where an person makes the investment and himself executes the development work, i.e. carries out the civil construction work, he will be eligible for tax benefit under section 80IA. In contract to this, person who enters into a contract with another person (i.e. undertaking or enterprise referred to in section 80IA) for executing works contract, will not be eligible for the tax benefit under section 80IA. This amendment will take retrospective effect from 1st April, 2000 and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years." The above explanation was substituted by a new explanation by Finance Act No. 2 of 2009 with effect from 1.4.2000. Such explanation which is under challenge before us reads as under: "Explanation: For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of works contract awarded by any person (including the Central or Sate Government and executed by the undertaking o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature is questioned on the ground of unconstitutionality and the burden is on the petitioner bringing such a challenge. In the case of J & K v. T.N. Khosa, AIR 1974 SC 1, a Constitution Bench of the Supreme Court, observed that there is always a presumption in favour of the constitutionality of an enactment and the burden is on him who attacks it to show that there has been a clear transgression of the constitutional principles. It was observed as under : "24. This submission is erroneous in its formulation of a legal proposition governing onus of proof and it is unjustified in the charge that the record discloses no evidence to show the necessity of the new rule. There is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles, 1959 SCR 279, 297 (b) = (AIR 1958 SC 538). Ram Krishan Dalmia v. Justice S. R. Tendolkar. A rule cannot be struck down as discriminatory on any a priori reasoning. "That where a party seeks to impeach the validity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Legislation are somewhat different from the parameters on which the statutory provisions enacted under delegated legislation can be judged. The grounds on which a statutory provision enacted by the State or Central Legislature can be struck down are lack of legislative competence or being in conflict with any of the provisions contained in fundamental rights or other articles of the Constitution. In case of State of Madhya Pradesh v. Rakesh Kohli and another reported in (2012) 6 Supreme Court Cases 312, the Apex Court observed that : "This Court has repeatedly stated that legislative enactment can be struck down by a Court only on two grounds, namely (i) that the appropriate legislature does not have the competence to make the law, and (ii) that it does not take away or abridge any of the fundamental rights enumerated in part-III of the Constitution or any other constitutional provisions." 17. It is often suggested that a law enacted by the parliament or the State Legislature can be struck down only on one ground namely that of legislative competence. In such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the enactment being unreasonable and arbitrary, violates Articles 14 and 19(1)(g) of the Constitution. 16. Before examining the nature of the amendment and its effect in law, we may refer to some of the decisions of the Supreme Court recognizing the considerable latitude in the Parliament in framing a taxing statute. In the case of Hiralal Ratan Lal v. S.T.O., S.III, Kanpur, AIR 1973 SC 1034, the Apex Court observed as under: "19. It must be noticed that generally speaking the primary purpose of the levy of all taxes is to raise funds for public good. Which person should be taxed, what transaction should be taxed or what goods should be taxed, depends upon social, economic and administrative considerations. In a democratic set up it is for the legislature to decide what economic or social policy it should pursue or what administrative consideration it should bear in mind." In the case of P.M. Ashwathanarayana Setty v. State of Karnataka, AIR 1989 SC 100, the Apex Court observed as under: "30. The problem is indeed, a complex one not free from its own p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion will be the same as regards laws imposing tax on sale of goods, In M. P. V. Sundararamier and Co. v. State of Andhra Pradesh, 1958 SCR 1422: (AIR 1958 SC 468), this court had occasion to consider the validity of a law enacted by Parliament giving retrospectively operation to laws passed by the State legislatures imposing a tax on certain sales in the course of inter-State trade. One of the contentions raised against the validity of this legislation was that, having regard to the terms of Art. 286 (2), the retrospective legislation was not within the competence of Parliament." In the case of S.T. Swamiar (supra), the Apex Court observed that the fact that retrospective legislation may be enacted is not open to question. The observations made in the case of J.K. Jute Mills Co. (supra) to the effect that the power of the Legislature to enact law with reference to the topic entrusted to it is unqualified subject only to any limitation imposed by the Constitution and that in exercise of such power, it will be competent for the Legislature to enact a law which is either prospective or retrospective, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tamil Nadu, [1992] 2 SCC 643 : (1992 AIR SCW 899) and Subhash Photographics v. Union of India, (1993) 4 J.T. (SC) 116 : (1993 AIR SCW 2871)]. Since the Parliament cannot constantly monitor the needs of and the emerging trends in the economy and is in no position to engage itself in day-to-day regulation and adjustment of import- export trade accordingly, power is conferred upon the Central Government to provide for exemption from duty of goods, either wholly or partly, and with or without conditions, as may be called for in public interest. We see no warrant for reading any limitation into this power. If the public interest demands that the exemption should be absolute, the Central Government can do so. Similarly, if the public interest demands that exemption should be granted only subject to certain conditions it can provide such conditions. Then again if the public interest demands that conditions specified should relate to a stage subsequent to the date of clearance it can do so. The guiding factor is the public interest." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To put it differently, if the effect of the explanation is to withdraw the existing deductions, the question of the same being unreasonable or arbitrary would arise. 19. To be able to judge the question, we need to first understand the nature of the explanation. Ordinarily, an explanation is introduced by the Legislature for clarifying some doubts or removing confusion which may be possible from the existing provisions. Normally, therefore, an explanation would not expand the scope of the main provision and the purpose of the explanation would be to fill a gap left in the statute, to suppress a mischief, to clear a doubt or as is often said to make explicit what was implicit. 20. In the case of S. Sundaram Pillai v. V.R. Pattabhiraman, AIR 1985 SC 582, the Apex Court observed that an explanation added to a statutory provision is not a substantive provision, but as the plain meaning of the word itself shows, it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision. It was observed as under: "52. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with approval in the case of S. Sundaram Pillai (supra): 22. In the case of M/s. Aphali Pharmaceuticals Ltd. v. State of Maharashtra, AIR 1989 SC 2227, the Supreme Court observed as under: "32. An Explanation, as was found in Bihta Marketing Union v. Bank of Bihar, AIR 1967 SC 389: (1967) 1 SCR 848, may only explain and may not expand or add to the scope of the original section. In State of Bombay v. United Motors, AIR 1953 SC 252 : (1953) SCR 1069, it was found that an Explanation could introduce, a fiction or settle a matter of controversy. Explanation may not be made to operate as "exception" or "proviso". The construction of an Explanation, as was held in Collector of Customs v. G. Dass and Co., AIR 1966, SC 1577, must depend upon its terms and no theory of its purpose can be entertained unless it is to be inferred from the language used. It was said in Burmah Shell Oil Ltd. v. Commercial Tax Officer, AIR 1961 SC 315: (1961) 1 SCR 902, that the explanation was meant to explain the Article and must be interpreted accordinging to its own tenor and it was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he result that the exercise of power by the Commissioner under the said section has to be subject to the instructions issued by the Board from time to time. The Explanation empowers the Board to issue orders, instructions or directions for the proper composition of the offences under Section 279(2) of the Act and further specifically provides that directions for obtaining previous approval of the Board can also be issued. Reading Section 279(2) along with the Explanation, there is no manner of doubt that the Commissioner has to exercise the discretion under Section 279(2) of the Act in conformity with the instruc tions issued by the Board from time to time." 24. In the case of M/s. Keshavji Ravji & Co. v. Commissioner, AIR 1991 SC 1806, it was observed as under: 14. Re: Contention (e) Sri Ramachandran urged that the introduction, in the year 1984, of Explanation I to S. 40(b) was not to effect or bring about any change in the law, but was intended to be a mere legislative exposition of what the law has always been. An 'Explanation', gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n explanation, full effect to the contents of the explanation would be given as would emerge from the plain language of the provision. 27. In the present case, therefore, from both the angles, namely, whether the explanation aims to expand the prevailing provision and whether being in the nature of a tax statute, such change can be permitted with retrospective effect, it would be crucial for us to discern the true effect of such explanation. In this context, we may recall that the impugned explanation below sub-section (13) to section 80IA starts with an expression "for the removal of doubts, it is hereby declared that" and provides that nothing contained in this section shall apply to in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person including the Central or State Government and executed by the undertaking or enterprise referred to in sub-section (1). Thus the explanation in question was introduced for the removal of doubts and it declared that nothing containing in sub-section (4) would apply to a business in the nature of works contract. We may recall that sub-section (4) of section 80IA even after amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entialities of real estate. b. Oxford Advanced Learners Dictionary of Current English Fourth Indian Edition giveshttp://10.225.19.9/applications/index_db.php meaning of the term 'developer' as persons or company that develops land. c. Random House Dictionary of the English Language, the following can be found. Develop: a. To bring out the capabilities or possibilities of; bring to a more advanced or effective state. b. To cause to grow or expand. Developer: a. The act or process of developing; progress. b. Synonym: Expansion, elaboration, growth, evolution, unfolding, maturing, maturation. d. Webster Dictionary, the following definitions emerge: a. To realize the potential of; b. To aid in the growth of Strength, develop the biceps, &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... professionals. He would appoint Sub-contractor or labour contractor for execution of the work. The assessee was authorized to admit the persons willing to join the scheme. The assessee was authorised to receive the contributions and other deposits and also raise demands from the members for dues and execute such demands through legal procedure. In case, for some reason, the member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the the full FSI as per the existing rules and regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80IA even after the amendment in the year 2002 envisaged deduction in case of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. Even without the aid of the explanation, it was possible to contend that such expression did not include an enterprise executing a works contract. Particularly, bearing in mind the observations made by this Court in the case of Radhe Developers (supra), there would certainly be a demarcation between developing the facility and execution of works contract awarded by an agency engaged in developing such facility. 30. We may examine the issue from the angle of legislative changes. We have already noticed in the earlier portion of this judgment that from the inception in the year 1996, benefits under such deduction, then covered under sub-section (4A) of section 80IA of the Act were available to an enterprise engaged in developing, maintaining and operating any infrastructure facility. From time to time, legislative changes have been made to suit the requirements of the changing conditions. The explanatory memorandum contemporaneous to the introduction of sub-section (4A) from 1.4.96 has already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other countries in developing infrastructure facilities, deduction was introduced. The principal idea behind granting deduction was to achieve rapid growth in infrastructure development with private participation. Specific period was also stipulated which must form part of the agreement between the undertaking and the Government within which the infrastructure facilities so developed would be transferred. It was explained that the tax holiday was in respect of the income derived in use of of the infrastructure facilities developed by them. 31. From the inception, thus the concept of development of infrastructure through private participation was clearly discernible. Principal purpose was to infuse private investment in such projects to speed up infrastructure development which required massive expansion. Even after bifurcation of section 80IA into section 80IA and section 80IB, with effect from 1.4.2000, this fundamental concept was not discarded. Sub-section (4) which formed part of the recast section 80IA did not carry any material changes from the earlier provisions of sub-section (4A) of section 80IA whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need for improved cash flows, it is further proposed that for an infrastructure facility in the nature of a road including a toll road, bridge, rail system, highway project, water supply project, sanitation, sewerage and solid waste management system in place of two-tier tax holiday, a ten year tax holiday may be availed consecutively out of twenty years beginning from the year in which the undertaking begins operating the infrastructure facility. In the case of other infrastructure, namely, for airport, port, inland port and inland waterways, it is also proposed to relax the existing two tier fiscal incentive. The Bill proposed an identical ten year tax holiday that may be availed in a block of fifteen years. It is also proposed to do away with the mandatory requirement that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or any other statutory authority. 34. Clearly, thus, post 1.4.2002 also, the involvement of the enterprise in developing infrastructure facility when the claim was covered under such expression was essential. In the same context, we must understand the expression "developing or operating and maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as at best possible of a confusion. If that be so, the explanation must be seen as one being in the nature of plain and simple explanation and not either adding or subtracting anything to the existing statutory provision. When we hold that the impugned explanation was purely explanatory in nature and did not mend the existing statutory provisions, the question of levying any tax with retrospective effect would not arise. If we agree with the submission of the counsel for the petitioners that such explanation restricted or aimed to restrict the provisions of deduction, certainly a question of reasonableness in the context of retrospective operation would arise. In the present case, however, we have come to the conclusion that the explanation only supplied clarity where, at best confusion was possible in the unamended provision. In that view of the matter, this cannot be seen as a retrospective levy even if we were to accept that withdrawal of a deduction would amount to a fresh levy. 37. Much stress was laid by the petitioners on the decision of this Court in the case of Parixit Industries Pvt. Ltd. (supra) to contend that the impugned explanation did not in any manner alter the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Court was thus of the opinion that introduction of the explanation in question did not amount to introduction of a new provision of law with retrospective operation. The assessee was, therefore, given the benefit of deduction considering the then explanation which was introduced with effect from 1.4.2007, which according to the Court was substantially the same and any attempt on the part of the Revenue, therefore, to reopen the assessment would be in the nature of second opinion. Thus, we do not think that we have stated anything which runs contrary to the ratio in the case of Parixit Industries Pvt. Ltd (supra). In fact, the context of the said decision was entirely different from the challenge being considered by us in the present group of petitions. 38. In that view of the matter, challenge to the vires of the explanation must fail. In the result, all the petitions are dismissed. Rule is discharged. Interim relief is vacated. 39. At this stage, learned counsel Shri Soparkar for the petitioners made two requests. He stated that the interim relief previously granted be continued f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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