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TMI Blog2018 (2) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2013, C.A. No. 6733 of 2013, C.A. No. 6191 of 2013, C.A. No. 8921 of 2013, C.A. No. 6192 of 2013, C.A. No. 3355 of 2015, C.A. No. 7167 of 2013, C.A. No. 8376 of 2013, C.A. No. 7172 of 2013, C.A. No. 7170 of 2013, C.A. No. 9183 of 2013, C.A. No. 8341 of 2013, C.A. No. 7168 of 2013, C.A. No.8256 of 2013, C.A. No. 7171 of 2013, C.A. No. 7974 of 2013, C.A. No. 8342 of 2013, C.A. No. 7173 of 2013, C.A. No. 8343 of 2013, C.A. No. 8933 of 2013, C.A. No. 8909 of 2013, C.A. No. 9832 of 2013, C.A. No. 9833 of 2013, C.A. No. 9184 of 2013, C.A. No. 3359 of 2015, C.A. No. 1436 of 2018 @ SLP(C) No. 36388 of 2014, C.A. No. 3781 of 2015, C.A. No. 3358 of 2015, C.A. No. 1437 of 2018 @ SLP(C) No. 18398 of 2015, C.A. No. 6294 of 2015, C.A.No.1438 of 2018 @ SLP(C) No. 19303 of 2015, C.A.No.1439 of 2018 @ SLP(C) No. 20478 of 2015, C.A. No. 7892 of 2015, C.A. No. 9251 of 2015, C.A. No. 9252 of 2015, C.A. No. 14525 of 2015, C.A. No. 8178 of 2016, C.A. No. 8177 of 2016, C.A. No. 3279 of 2016, C.A.No.1440 of 2018 @ SLP(C) No. 23624 of 2016, C.A.No.1441 of 2018 @ SLP(C) No. 16185 of 2016, C.A. No. 5044 of 2016, C.A. No. 5417 of 2016, C.A. No. 6019 of 2016, C.A.No.1442 of 2018 @ SLP(C)No.26278 of 2016, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his appeal when alongwith several appeals were heard on 16.11.2016, this Court noticed that in batch of cases, four questions have arisen. The present batch of cases of which Civil Appeal No. 2165 is a leading case relates only to Question No.2, which is to the following effect: "Whether sub-section (2) and sub-section (3) of Section 14A inserted with effect from 01.04.2007 will apply to all pending assessments? Whether Rule 8D is retrospectively applicable?" 3. All these appeals raising only above question of law have been heard together and are being decided by this common judgment. For deciding all these appeals, it shall be sufficient to refer facts and proceedings in Civil Appeal No. 2165 of 2012. FACTS Civil Appeal No. 2165 of 2012 4. This appeal has been filed against the judgment of Bombay High Court dated 12.09.2011 in Income Tax Appeal (L) No. 947 of 2011 by which judgment the High Court has dismissed the appeal filed by the Commissioner of Income Tax following an earlier judgment of the Bombay High Court dated 12.08.2010 in the case of Godrej Boyce and Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax, Mumbai & Anr., reported in (2010) 328 ITR 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in the assessment year in question as contended by learned counsel for the revenue. 8. We have heard Shri Yashank Adhyaru, learned senior counsel, Shri Arijit Prasad, learned counsel for the appellant Shri S.K. Bagaria, learned senior counsel, Shri Ajay Vohra, learned senior counsel and other learned counsel have been heard for different assessees in this batch of appeals. "SUBMISSIONS" 9. Learned counsel for the appellant (revenue) submit that provisions of Section 14A being clarificatory in nature and Rule 8D is a procedural provision which provided only a machinery for the implementation of sub-sections (2) and (3), Rule 8D is retrospective in nature. The machinery provisions by which the charging section is to be implemented or workable are to be given retrospective effect, which is co-terminus with the period of operation of the main charging provision. The charging section i.e. Section 14A admittedly being retrospective, the machinery provision, i.e. Rule 8D has also to be retrospective. 10. Learned counsel for the revenue has placed reliance on judgments of this Court, i.e., Commissioner of Wealth Tax, Meerut Vs. Sharvan Kumar Swarup & Sons, (1994) 6 SCC 623; Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing for the assessee in Civil Appeal arising out of SLP (C) 16185 of 2016 submits that Revenue has already agreed before the ITAT that matter be remitted to Assessing Officer for fresh decision in light of judgment of the Bombay High Court in Godrej and Boyce Manufacturing Company (supra), hence, it had no jurisdiction to file an appeal before the High Court. He submits that High Court has rightly dismissed the appeal of the Revenue, relying on the judgment of the Bomabay High Court in Godrej and Boyce Manufacturing Company (supra) after noticing the fact that no interim order was passed by this Court in Special Leave Petition filed against the said judgment. It has been submitted by Shri Rizvi that no other question arose in the appeal before the High Court hence the Revenue has approached this Court by filing this Special Leave Petition without any basis. Relevant Statutory Provisions 14. Rule 8D has been framed to give effect to the provisions of Section 14A sub-section (2) and (3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The statutory scheme as delineated by Section 14A has to be understood before correctly appreciating the nature and purport of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47 of the Act to disallow expenditure incurred to earn exempt income by applying the provisions of newly inserted section 14A of the Act." 17. By Finance Act, 2002, a statutory provision was also inserted by way of proviso to Section 14A. What was clarified by the Circular have been statutorily engrafted in the proviso to the following effect: "Provided that nothing contained in this section shall empower the assessing officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the Ist day of April, 2001." 18. By Finance Act, 2006, Section 14A was numbered as sub-section (1) and after sub-section (1) sub-sections (2) and (3) were inserted w.e.f. 01.04.2007 to the following effect: "(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 14A, however, no method of computing the expenditure incurred in relation to income which does not form part of the total income has been provided for. Consequently, there is considerable dispute between the taxpayers and the Department on the method of determining such expenditure. 11.2 In view of the above, a new sub-section (2) has been inserted in section 14A so as to provide that it would be mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with such method as may be prescribed. However, the Assessing Officer shall follow the prescribed method if, having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of the total income. Provisions of sub-section (2), will also be applicable in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income. 11.3 Applicability From assessment year 200708 onwards." 21. Income Tax Rules, 1962 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceed to consider the submissions raised by learned counsel for the parties on the question in issue. Important Principles of Statutory Interpretation 23. The legislature has plenary power of legislation within the fields assigned to them, it may legislate prospectively as well as retrospectively. It is a settled principle of statutory construction that every statute is prima facie prospective unless it is expressly or by necessary implications made to have retrospective operations. Legal Maxim "nova constitutio futuris formam imponere debet non praeteritis", i.e. 'a new law ought to regulate what is to follow, not the past', contain a principle of presumption of prospectively of a statute. 24. Justice G.P. Singh in "Principles of Statutory Interpretation" (14th Edition, in Chapter 6) while dealing with operation of fiscal statute elaborates the principles of statutory interpretation in the following words: "Fiscal legislation imposing liability is generally governed by the normal presumption that it is not retrospective and it is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. If we apply this principle of interpretation, it is clear that sub-section (6) of Section 171 applies only to a situation where the assessment of a Hindu undivided family is completed under Section 143 or Section 144 of the new Act. It can have no application where the assessment of a Hindu undivided family is completed under the corresponding provisions of the old Act. Such a case would be governed by Section 25A of the old Act which does not impose any personal liability on the members in case of partial partition and to construe sub-section (6) of Section 171 as applicable in such a case with consequential effect of casting of the members personal liability which did not exist under Section 25A, would be to give retrospective operation to sub-section (6) of Section 171 which is not warranted either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot backward. As was observed in Phillips v. Eyre6, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd.7 Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire gamut of retrospective operation of fiscal statutes was revisited by this Court in a Constitution Bench judgment in CIT v. Vatika Township (P) Ltd. in the following manner: (SCC p. 24, paras 3335) "33. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: (AIR p. 1339, para 8) '8. ... The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived from Section 115 of the Code of Civil Procedure, and the legislature has by the amending Act not attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act.' 34. It would also be pertinent to mention that assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect insert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws: "42.1. "Notes on Clauses" appended to the Finance Bill, 2002 while proposing insertion of proviso categorically states that "this amendment will take effect from 162002". These become epigraphic** words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospective depicting clear intention of the legislature. It can be seen from the same Notes that a few other amendments in the Income Tax Act were made by the same Finance Act specifically making those amendments retrospective. For example, Clause 40 seeks to amend Section 92F. Clause (iiia) of Section 92F is amended "so as to clarify that the activities mentioned in the said clause include the carrying out of any work in pursuance of a contract" (emphasis supplied). This amendment takes effect retrospectively from 142002. Various other amendments also take place retrospectively. The Notes on Clauses show that the legislature is fully aware of three concepts: (i) prospective amendment with effect from a fixed date; (ii) retrospective amendment with effect from a fixed anterior date; and (iii) clarificatory amendments which are retrospective in nature." 30. It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mere date of enforcement of statutory provisions does not conclude that the statute is prospective in nature. The nature and content of statute have to be looked into to find out the legislative scheme and the nature, effect and consequence of the statute. 34. The submissions which have been much pressed by the counsel for revenue is that the Section 14A of the Act being clarificatory in nature having retrospective operation, Rule 8D, which is a machinery provisions have also to be held to be retrospective to make machinery provisions workable. 35. It is to be noted that Section 14A was inserted by Finance Act, 2001 and the provisions were fully workable without their being any mechanism provided for computing the expenditure. Although Section 14A was made effective from 01.04.1962 but Proviso was immediately inserted by Finance Act, 2002, providing that Section 14A shall not empower assessing officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessees under Section 154, for any assessment year beginning on or before 01.04.2001. Thus, all concluded transactions p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from application of different methods of valuation respecting properties of a similar nature and character. The view taken by the High Courts, in our opinion, cannot be said to be erroneous." 39. This Court in the above case held that Rule 1BB shall be applicable even prior to the enforcement of the rule holding that the said rule merely provides a choice amongst well known and well settled modes of valuation. It was held that even in the absence of Rule 1BB, it would not have been objectionable to adopt the mode of valuation embodied in Rule 1BB, namely, the mode of capitalisation of income on a number of years purchased value. The said judgment is, clearly, distinguishable in context of issue which has arisen before us. In the present case, methodology as provided under Rule 8D was neither a well known nor well settled mode of computation. The new mode of computation was brought in place by Rule 8D. No Assessing Officer, even in his imagination could have applied the methodology, which was brought in place by Rule 8B. Thus, retrospective operation of Rule 8B cannot be accepted on the strength of law laid down by this Court in the above case. 40. The next judgment relied by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the date of the filing of the return. It is of relevance to note that when any loss is returned in any return it need not necessarily be the loss of the previous year concerned. It may also include carried forward loss which is required to be set up against future income under Section 72 of the Act. Therefore, the applicable law on the date of filing of the return cannot be confined only to the losses of the previous accounting years." The three-Judge Bench, after noticing the earlier cases and principles of the statutory interpretation recorded following conclusion in para 21: "21. Above being the position, the inevitable conclusion is that Explanation 4 to Section 271(1)(c) is clarificatory and not substantive. The view expressed to the contrary in Virtual case, (2007) 9 SCC 665 is not correct." The above case is also clearly distinguishable and not applicable in the facts of the present case. It was held that amendments were clarificatory in nature, hence shall operate retrospectively. 42. The Revenue has also relied on the judgment of this Court in Commissioner of Income Tax-III versus Calcutta Knitwears, Ludhiana, (2014) 6 SCC 444. The above judgment has been relied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year. Answer to the reference 37. When we examine the insertion of proviso in Section 113 of the Act, keeping in view the aforesaid principles, our irresistible conclusion is that the intention of the legislature was to make it prospective in nature. This proviso cannot be treated as declaratory/statutory or curative in nature." Reasons in support "39. The first and foremost poser is as to whether it was possible to make the block assessment with the addition of levy of surcharge, in the absence of proviso to Section 113? In Suresh N. Gupta itself, it was acknowledged and admitted that the position prior to the amendment of Section 113 of the Act whereby the proviso was added, whether surcharge was payable in respect of block assessment or not, was totally ambiguous and unclear. The Court pointed out that some assessing officers had taken the view that no surcharge is leviable. Others were at a loss to apply a particular rate of surcharge as they were not clear as to which Finance Act, prescribing such rates, was applicable. It is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been stated: "17. Ordinarily, a subordinate legislation should not be construed to be retrospective in operation. The Circular Letter dated 752003 was given a prospective effect. The father of the respondent died on 1952000. There is nothing to show that even Circular dated 982000 had been given retrospective effect. In any view of the matter, as the State of Jharkhand in the Circular Letter dated 752003 adopted the earlier circular letters issued by the State of Bihar only in respect of cases where death had occurred after 15102000 i.e. the date from which the State of Jharkhand came into being, the High Court, in our opinion, committed a serious error in giving retrospective effect thereto indirectly which it could not do directly. Reasons assigned by the High Court, for the reasons aforementioned, are unacceptable." There is no indication in Rule 8D to the effect that Rule 8D intended to apply retrospectively. 48. Applying the principles of statutory interpretation for interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of sub-section (2) and sub-section (3) of Section 14A as well as purpose and intent of Rule 8D coupled with the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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