2003 (3) TMI 758 - SC - Income Tax

Supreme Court upholds retrospective tax law amendment, emphasizing legislative power

National Agricultural Co-operative Marketing Federation of India Ltd. and Ors. Versus Union of India (UOI) and Ors.

The appeal challenging the retrospective amendment of Section 80P(2)(a)(iii) of the Income Tax Act, 1961 was dismissed by the Supreme Court. The court ... - Issues Involved:1. Construction and Constitutional validity of Section 80P(2)(a)(iii) of the Income Tax Act, 1961.2. Retrospective amendment of Section 80P(2)(a)(iii) by the Income Tax (2nd Amendment) Act, 1999.3. Competence of the legislature to enact laws with retrospective effect.4. Impact of the amendment on previously finalized assessments.5. Economic impact of the amendment on farmers and primary societies.Issue-wise Detailed Analysis:1. Construction and Constitutional Validity of Section 80P(2)(a)(iii):The appellant, a co-operative society, contested the interpretation and constitutional validity of Section 80P(2)(a)(iii) of the Income Tax Act, 1961, which provides for deductions on profits made by societies from marketing agricultural produce. Historically, the section was interpreted to benefit all levels of co-operative societies, from village to apex. However, the Supreme Court in Assam Cooperative Apex Marketing Society v. CIT (1993) restricted this benefit to primary societies, interpreting 'produce of its members' as produce actually grown by its members. This interpretation was later overruled by a larger bench in Kerala Cooperative Marketing Federation Ltd. v. CIT (1998), which held that 'produce of its members' included produce 'belonging to' its members.2. Retrospective Amendment of Section 80P(2)(a)(iii):Following the 1998 decision, the legislature amended Section 80P(2)(a)(iii) to replace 'of its members' with 'grown by its members,' effective retrospectively from April 1, 1968. The appellants challenged this amendment, claiming it was unconstitutional as it imposed a tax retrospectively for 31 years, affecting apex societies' financial stability and contradicting the legislative intent to benefit all societies marketing agricultural produce.3. Competence of the Legislature to Enact Laws with Retrospective Effect:The court affirmed the legislature's power to enact laws retrospectively, provided the words used expressly or clearly imply such operation. The amendment in question was deemed to have retrospective effect, as it substituted the word 'of' with 'grown by,' effectively altering the law from its original enactment date. The court held that this did not constitute a statutory overruling of the Kerala Cooperative decision but rather a legitimate legislative change.4. Impact of the Amendment on Previously Finalized Assessments:The court addressed concerns about the amendment's impact on previously finalized assessments. It clarified that the amendment could not authorize reopening assessments barred by limitation. The Solicitor General's concession that the amendment would apply only to pending assessments was noted, but the court emphasized that the amendment's limited operation inherently restricted it to assessments not yet finalized.5. Economic Impact on Farmers and Primary Societies:The appellant argued that the amendment would adversely affect farmers and primary societies by reducing their returns. However, the court found this argument irrelevant to the amendment's validity, particularly in the absence of concrete factual evidence or representation from the affected parties.Conclusion:The appeal was dismissed, with the court upholding the amendment's constitutionality and retrospective application. The court emphasized that legislative changes to correct or clarify statutory provisions are permissible, provided they do not contravene constitutional principles or reopen time-barred assessments. The potential economic impact on farmers and primary societies was deemed outside the scope of constitutional review in this context.