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TMI Blog1998 (6) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer"), thereafter sent an intimation dated February 14, 1990, accepting the said return showing a total loss of Rs. 1,94,13,440 and stating therein that a net amount of Rs. 6,035 was refundable to the assessee. Thereafter, the assessee was served with a notice dated October 20, 1992, under section 154/155 of the Act informing the assessee that the said intimation was required to be amended as there was a mistake apparent from the record in allowing depreciation under section 32 of the Act. By the said notice, the assessee was given an opportunity to be heard and was also asked to send written reply to the said notice. The assessee then sent a written reply dated November 25, 1992 and also submitted at the hearing that there was a mistake in claiming depreciation on plant and machinery which has not been put to use during the period under assessment and that the depreciation amount of Rs. 49,78,255 claimed in the return be restricted to Rs. 1,08,267, but since even after such correction of the depreciation amount, the assessee still suffered loss during the period under assessment and no income-tax as such was payable by the assessee, additional tax should not be levied in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Allahabad High Court in the case of Indo-Gulf Fertilizers and Chemicals Corporation Ltd. v. Union of India [1992] 195 ITR 485. By order dated December 14, 1992, the Assessing Officer rejected the said contention of the assessee stating that no condition has been laid down in section 143(1A) of the Act that additional tax could be levied only if income-tax was payable on the total income after adjustment. Aggrieved, the petitioners have moved this court for a declaration that section 143(1A) of the Act is ultra vires, illegal, unconstitutional and void and for quashing the order dated December 14, 1992, of the Assessing Officer. Sub-section (1A) was introduced in section 143 of the Act by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989, and it read as follows : "(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a) of sub-section (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall,--- (i) further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent. of the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onverted into income, the Assessing Officer shall,--- (A) in a case where the increase in income under sub-clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent. on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1); (B) in a case where the loss so declared is reduced under sub-clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income-tax) equal to twenty per cent. of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1); (C) where any refund is due under sub-section (1), redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng which comes in, it is not income according to the natural meaning of the word "income" and cannot by any rational sense be regarded as a citizen's income. Dr. Saraf further argued that the definition of "income" given in section 2(24) of the Act being not exhaustive but inclusive will have the same meaning as the word "income" occurring in entry 82, List I of the Seventh Schedule to the Constitution and, therefore, would not cover "loss". He pointed out that "total income" has been defined in section 2(45) of the Act to mean the total amount of income as referred to in section 5, computed in the manner as laid down in the Act and that the loss which is sought to be subjected to additional income-tax under section 143(1A) of the Act does not come within the scope of total income as indicated in section 5 of the Act. According to Dr. Saraf, even though section 4 of the Act provides that income-tax shall be charged for any assessment year in accordance with, and "subject to the provisions including the provisions for levy of additional income-tax", section 143(1A) of the Act which provides for levy of additional income-tax cannot override the provisions of section 5 of the Act. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I of the Seventh Schedule to the Constitution must be widely construed as has been held by the Supreme Court in the case of Navinchandra Mafatlal v. CIT [1954] 26 ITR 758, and so construed it will not only include the traditional view of the term "income" but also "deemed income" or "notional income". He contended that in the case of Navnit Lal C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198, the Supreme Court has observed that in considering the question as to whether a particular item in the hands of a citizen can be regarded as his income or not, it would be inappropriate to apply the tests traditionally prescribed by the Income-tax Act as such, and held that the fiction created by the Legislature by the impugned provision for taxing an amount advanced to a shareholder as a loan as the payment of dividend to him was within the competence of Parliament. He pointed out that in the said case of Navnit Lal C. Javeri [1965] 56 ITR 198 (SC), the Supreme Court took note of its decision in the case of Sardar Baldev Singh v. CIT [1960] 40 ITR 605, in which a similar fiction created by section 23A of the 1922 Act treating the undistributed portion of assessable income of the company as dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act would show that the Legislature has treated the difference in the figure of loss as returned by the assessee and the figure of loss as intimated by the Assessing Officer after adjustments as a deemed, fictional or notional income for the purpose of levy of additional income-tax. Mr. Usgaocar further submitted that the scheme of the Act would show that the total income is the result of computation after excluding deductions and allowances and, therefore, does not mean only positive income simpliciter but a combination of heads of receipts and heads of expenditure and the end-product of such a combination may be a loss. He referred to the observations of the Supreme Court in the case of CIT v. Harprasad and Co. P. Ltd. [1975] 99 ITR 118, that the concept of carry forward of loss does not stand in vacuo and that it involves the notion of set-off and the sole purpose is to set-off the loss against the profits of a subsequent year. According to Mr. Usgaocar, therefore, when an assessee files a return claiming loss, his intention is to have the said loss carried forward and set it off against the profits of the subsequent year. Loss, therefore, has a direct nexus with the income th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in the case of any person, the total income, as a result of adjustments made by the Assessing Officer under clause (a) sub-section (1), exceeded the total income declared in the return by any amount, the Assessing Officer would have to further increase the amount of tax by an additional income-tax calculated at the rate of twenty per cent. of the tax payable on such excess amount and where any refund is due, reduce the amount of such refund by an amount equivalent to the additional income-tax calculated at the said rate. The aforesaid provision introduced by the Direct Tax Laws (Amendment) Act, 1989, therefore, levied an additional income-tax on the difference between the total income as declared in the return and the total income arrived at as a result of adjustments made by the Assessing Officer. The obvious intent of such a provision was to ensure that the assessee declared his total income in the return correctly, and where an assessee either deliberately or negligently made a mistake in the declaration of his total income, he was liable to pay additional income-tax or was not entitled to refund of the amount equivalent to additional income-tax, as the case may be. Though th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn was reduced. The assessees concerned then moved the Delhi High Court and the Allahabad High Court and the two High Courts held that no additional income-tax can be imposed on the assessee where, after such adjustments, the assessee still had a loss and did not have any income liable to tax under the Act. Thereafter, by the Finance Act, 1993, clause (a) of sub-section (1A) of section 143 of the Act was substituted with retrospective effect from April 1, 1989, levying additional tax not only in cases where as a result of adjustments made by the Assessing Officer, the income declared by any person in the return was increased but also in cases where loss declared by such person in the return was reduced or was converted into income. The intent of the Legislature in making the aforesaid provision again was to ensure that the assessee also declared his loss in the return correctly and where the assessee made a mistake in the declaration of his loss in the return, either deliberately or negligently, and in the adjustments made by the Assessing Officer the loss was reduced or converted into income, he was liable to pay additional income-tax. Here also, the levy of such additional in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26. In the said case, of Hindustan Steel Ltd. [1972] 83 ITR 26, the Supreme Court held that under the provisions of the Orissa Sales Tax Act, 1947, penalty will not be imposed unless the party obliged acted deliberately in defiance of law. In the said case, the court was not called upon to decide as to whether any provision in the Orissa Sales Tax Act, 1947, was a tax or a penalty. One has to look at the plain language of sub-section (1A) of section 143 of the Act to find out what the said provision intended. As has been held by the Supreme Court in the case of Polestar Electronic (Pvt.) Ltd. v. Addl. CST [1978] 41 STC 409 if the language of a statute is clear and explicit, effect must be given to it, for in such a case the words best declare the intention of the law-giver and it would not be right to refuse to place on the language of the statute the plain and natural meaning which it must bear on the ground that it produces a consequence which could not have been intended by the Legislature. So construed, it is clear from clause (a) of sub-section (1A) of section 143 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as authorising the imposition of a tax but also as authorising an enactment which prevents the tax imposed being evaded. If it were not to be so read, then the admitted power to tax a person on his own income might often be made infructuous by ingenious contrivances. Experience has shown that attempts to evade the tax are often made." Entry 54, List I of the Seventh Schedule to the Government of India Act, 1935, is the same as entry 82, List I of the Seventh Schedule to the Constitution of India and these entries authorise the Union Legislature to make laws in respect of tax on income and the Supreme Court in the later decision in the case of Union of India v. A. Sanyasi Rao [1996] 219 ITR 330, cited by Mr. Usgaocar, has construed entry 82, List I of the Seventh Schedule to the Constitution similarly to include all subsidiary and ancillary matters. The object of clause (a) of sub-section (1A) of section 143 in imposing penalty on persons who do not declare their income or loss in the return correctly is to ensure that the assessees file their returns without mistake and do not either deliberately or negligently understate their income or inflate their losses in the returns resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrespective of as to whether the mistake made by the assessee in his declaration of income or loss is bona fide or deliberate; (ii) no opportunity of hearing whatsoever is provided to the assessee before additional income-tax is imposed and (iii) additional income-tax under the said provision is payable even where no income-tax is payable in case where as a result of adjustments made by the assessee, the final figure is still a loss. He further submitted that in so far as sub-section (1A) imposes additional income-tax even in cases where no income-tax is payable, it is a colourable exercise of power and is a fraud on the Constitution and is confiscatory in nature and violative of the right of a person to his property under article 300A of the Constitution. Mr. Usgaocar, on the other hand, submitted that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional provisions and this rule is based on the judicially recognized and accepted assumption that the Legislature understands and correctly appreciates the needs of its own people and its laws are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be an order for the purpose of also section 246 which provides for appealable orders. He submitted that if an assessee is aggrieved by any adjustment in the intimation sent under section 143(1) of the Act, he can always file an appeal or revision against the said intimation and in case the adjustments made by the Assessing Officer are altered in such an appeal or revision, the additional income-tax levied under sub-section (1A) of section 143 of the Act will accordingly be altered. According to Mr. Usgaocar, therefore, the impugned amendment in so far as it imposes additional income-tax to the extent of only twenty per cent. of the tax that would have been chargeable on the amount of adjustments made in respect of the income or loss as declared by the assessee for the mistakes committed by the assessee in the declaration of his income or loss in his return is not unreasonable or arbitrary and is not violative of article 14 of the Constitution. Once the court finds that a law or an amendment is within the legislative competence of the Legislature, it has to assume that the Legislature while enacting the law or the amendment properly appreciated the need for enacting the law or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said scheme is that the assessee should not be called upon by the Assessing Officer to produce evidence and justify his return of income or loss, the said object would be frustrated if a provision was made therein for giving opportunity of hearing to the assessee before the Assessing Officer imposed additional income-tax as a result of the adjustments made by the Assessing Officer in the income or loss declared by the assessee. The Legislature, however, has thought it fit to provide a hearing to the assessee in respect of the adjustments made by the Assessing Officer after the intimation containing the adjustments is sent to the assessee by stating in the Explanation to section 143 of the Act that the intimation is deemed to be an order appealable or revisable under sections 246 and 264 of the Act, respectively. What is provided therefore against the tax, interest and additional income-tax as levied in the intimation after the adjustments are made by the Assessing Officer is a post-decisional hearing at the hearing in the appeal or revision that may be filed by the assessee against the intimation and such post-decisional hearing is consistent with the object of the new scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 993), and for the assessment year 1991-92 filed on December 31, 1991 (in Civil Rule No. 2089 of 1993), because even after the adjustments made by the Assessing Officer in the intimations sent to the assessees, the final figures were losses. But it is because of the retrospective effect that has been given by the Finance Act, 1993, that the impugned amendment though made in the year 1993 is effective from April 1, 1989, and the petitioners have been made liable to pay additional income-tax of Rs. 5,62,480 and Rs. 8,09,290 for the adjustments made in the losses declared by the assessees in Civil Rule No. 2072 of 1993 and Civil Rule No. 2089 of 1993, respectively. Dr. Saraf pointed out that similarly no penalty was payable by the assessees under section 271(1)(c) of the Act because under the said provision penalty was to be paid at a minimum rate of the tax and at the maximum rate of three times the tax that was evaded, and since no tax was payable by an assessee having a loss, the two assessees were also not liable for any penalty under the said section 271(1)(c) of the Act. He cited the decision of A. N. Sen J., in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be a loss. Against the said decisions of the Delhi High Court and the Allahabad High Court, the Union of India has filed special leave petitions before the Supreme Court, which are pending, but in the meanwhile, the Legislature, in the Finance Act, 1993, has clarified the law by amending sub-section (1A) of section 143 of the Act providing therein that additional income-tax is payable not only where the income as declared by the assessee is increased but also where the loss as declared by the assessee is either reduced or converted into income after adjustments made by the Assessing Officer in the intimation sent to the assessee. According to Mr. Usgaocar, there was no unreasonableness or arbitrariness at all in making the impugned amendment retrospective with effect from April 1, 1989, by the Finance Act, 1993. While it is true that the judgment of A. N. Sen J., in the case of Lohia Machines Ltd. [1985] 152 ITR 308 (SC) is a minority judgment, the proposition of law relating to the validity of a retrospective amendment has been laid down in the said judgment after considering several decisions of the Supreme Court rendered earlier on the subject, which I would now like to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a retrospective operation, its aim being to effectuate and to carry out the object for which the earlier principal Act had been enacted. Again in the case of Hira Lal Rattan Lal v. STO [1973] 31 STC 178, the Supreme Court further held that the amendment of the Act was necessitated because of the Legislature's failure to bring out clearly in the principal Act its intention to separate the processed or split pulses from the unsplit or unprocessed pulses and that the retrospective amendment became necessary as otherwise the State would have to refund large sums of money. In the case of State of Gujarat v. Ramanlal Keshav Lal Soni [1983] 2 SCC 33, the Supreme Court held that the Legislature is undoubtedly competent to legislate with retrospective effect to take away or impair any vested right acquired under existing laws but since the laws are made under a written Constitution, and have to conform to the does and don'ts of the Constitution, neither prospective nor retrospective laws can be made so as to contravene fundamental rights. After considering the aforesaid decisions of the Supreme Court on the point, A. N. Sen J., held in the case of Lohia Machines Ltd. v. Union of India [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax under the Act. To cure the lacuna or phraseology in the said sub-section (1A) of section 143 of the Act, the impugned amendment has been made by the Finance Act, 1993 with retrospective effect from April 1, 1989. The object of the impugned amendment was therefore to remove the defects in the phraseology used in sub-section (1A) of section 143 of the Act. Such removal of defects in the phraseology of a provision has been described as "small repairs" in a passage in 73 Harvard Law Review 692 at page 705 which was quoted with the approval by the Constitution Bench of the Supreme Court in the case of Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1970] 75 ITR 603. The said passage was to the following effect : "It is necessary that the Legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called 'small repairs'. Moreover, the individual who claims that a vested right has arisen from the defect is seeking a windfall since had the Legislature's or administrator's action had the effect it was intended to and could have had, no such right would have arisen. Thus, the interest in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilizers and Chemicals Corporation Ltd. v. Union of India [1992] 195 ITR 485 and it was held that no additional income-tax was payable under the said provision by an assessee who had filed an incorrect return of his loss and after the adjustments made by the Assessing Officer the assessee continued to have a loss and did not have any income which was liable to tax. In the said decisions, the Delhi High Court and the Allahabad High Court have also considered Explanation (i) to the said sub-section (1A) as it stood prior to the Finance Act, 1993, which, according to Mr. Usgaocar, indicated that additional income-tax was to be levied where the loss was reduced as a result of the adjustments. I also agree with the said decisions of the Delhi High Court and the Allahabad High Court because I do not find any clear provision in sub-section (1A) of section 143 of the Act as it stood prior to the Finance Act, 1993, to show that additional income-tax was to be levied also where the loss declared by a person in the return is reduced as a result of the adjustments. Similarly, under section 271(1)(c) an assessee who had concealed the particulars of his income or had furnished inaccurate particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result of the adjustments made by the Assessing Officer under section 143(1) of the Act is, therefore, unreasonable and arbitrary and ultra vires article 14 of the Constitution. Mr. Usgaocar cited the decisions of the learned single judge of the Kerala High Court in the case of Kerala State Coir Corporation Ltd. v. Union of India [1994] 210 ITR 121, of the Division Bench of the Madhya Pradesh High Court in the case of Sanctus Drugs Pharmaceuticals (P.) Ltd. v. Union of India [1997] 225 ITR 252 and of the learned single judge of the Madras High Court in the case of Sukra Diamond Tools Pvt. Ltd. v. Deputy CIT [1998] 229 ITR 682, wherein the impugned amendment by the Finance Act, 1993, with retrospective effect from April 1, 1989, has been held to be intra vires the Constitution. While I agree with the conclusions in the said decisions of the Kerala High Court, the Madhya Pradesh High Court and the Madras High Court that the impugned amendment to section 143(1A) of the Act substituted by the Finance Act, 1993, is constitutionally valid, with great respect to the brother judges who have rendered the aforesaid judgments, I am unable to persuade myself to take a view that the retr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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