9911796707
TMI Blog1994 (7) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... t Taxes under section 295 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), as per the assessment order annexure "A". According to the petitioners, the second petitioner came into existence in the assessment year 1984-85 and, for the first time, during the assessment year 1986-87 produced a feature film in Kannada. In respect of this petitioner for the assessment year 1986-87, the Deputy Commissioner computed the income of this petitioner by application of rule 9A of the Rules. The petitioners claim that they have been employing the mercantile system of accounting and contend that the assessing authorities did not find fault with the method of accounting employed by the petitioner, nor have they stated that the accounts maintained by them were incorrect or incomplete in any particulars, much less did they record any finding that the method of accounting employed by the petitioners was such that the income could not properly be deduced therefrom. It is, therefore, contended that in the absence of findings as aforesaid the respondents could not have applied rule 9A of the Rules for computing the income of the petitioners. Rule 9A of the Rules came to be introd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s inserted by the Income-tax (Seventh Amendment) Rules, 1976, is violative of article 14 of the Constitution and liable to be struck down. Subsequently, by amendment of the Rules, rule 9A was substituted with effect from April 2, 1986, by a new sub-rule and sub-rules (5), (6) and (7) thereof have been omitted. Thereby there is no difference in the method of accounting or computation of income or deductions between the regional language feature film and a non-regional language feature film. The petitioners contend that though the amendment with effect from 1986 becomes applicable with retrospective effect inasmuch as there is no substitution of the rule (sic). A Division Bench before which this question came up, referred the same for consideration by the Full Bench and the Full Bench by its opinion rendered on December 22, 1993 (see Verghese (V.) v. Deputy CIT [1994] 210 ITR 511 (Kar)) held that the assessing authority has jurisdiction to complete the assessment by invoking old sub-rule (1) of rule 9A. The petitioners have also contended that the said rule is ultra vires the Act inasmuch as the, same is contrary to section 145 thereof. Section 145 of the Act provides that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to make a rule providing for a mode of accounting under the rules. Rule 9A provides for deduction in respect of expenditure on production of feature films. It is not a mode of accounting that is provided in the provisions at all. Therefore, the contention advanced on behalf of the petitioners that it is a mode of accounting that is provided under the relevant rule is only misconceived. The manner in which the deductions will have to be arrived at is provided in the rules. In Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 (SC), the validity of rule 19A was challenged. The question that came up in that case was as to framing of rules. And the Supreme Court upheld the validity of the said rule which provided for exclusion of all borrowed moneys including long-term borrowings from computation of the capital employed and enacted that computation of the capital employed should be made as on the first day of the computation period and it is held that such a provision was not outside the rule making power. In the present case, where a mode of deduction is provided under rule 9A, it cannot be said that the same falls outside the scope or the purposes of the Act. The said provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year" the right of exhibition in respect of some of the territories if the film is not released for exhibition proportionate cost of production shall be at least 90 days before the end of the allowed as deduction "previous year" certain proportionate cost of production shall be allowed as deduction Proportion Proportion Cost of production equivalent to sum mentioned in realisation will be allowed as deduction. Table A ------------ X Cost of production 100 will be the allowable deduction. It is only in the case of regional language films that the condition "provided the film is released for exhibition at least 90 days before the end of the previous year" is set forth. In the case of non-regional language films such a proviso is not there at all. A perusal of the relevant rules would disclose that it makes into two classes of films which are sold in the previous year or exhibited in the previous year and provided that the film is released for exhibition at least 90 days before the end of the previous year. And if the film is not released for exhibition at least 90 days before the end of the previous year, certain proportionate cost shall be allowed. It is not clear from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sense of not being reasonable, but in the sense that it is manifestly arbitrary. In England, the judges would say 'Parliament never intended the authority to make such rules. They are unreasonable and ultra vires'..." It was explained that in India, arbitrariness is not a separate ground, since it will come within the embargo of article 14 of the Constitution. In India, any enquiry into the vires of delegated legislation must be confined to the grounds on which plenary legislation may be questioned, on the ground that it is contrary to the statute under which it is made, that it is contrary to other statutory provisions or that it is so arbitrary that it could not be said to be in conformity with the statute or that it offends article 14 of the Constitution. On the facts and circumstances of the case, a subordinate legislation may be struck down as arbitrary or contrary to statute if it fails to take into account very vital facts which either expressly or by necessary implication are required to be taken into consideration by the statute or the Constitution. The mere fact that the rule had been laid before Parliament in terms of section 296 of the Act would not elevate the rule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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