Declaratory tax amendment held retrospective, applying to pending proceedings and rendering the reference applications infructuous.

An amendment introducing Explanation 2 to section 40(b) of the Income-tax Act was treated as declaratory, intended to remove doubts about the provision's meaning and effect. A declaratory amendment ordinarily operates retrospectively, so it applied to pending reference proceedings even though it was stated to come into force from 1-4-1985. On that basis, the proposed reference became unnecessary, the pending proceedings were rendered infructuous, and the applications were rejected because no useful question survived for adjudication.

---

---

Issues: Whether the amendment introducing Explanation 2 to section 40(b) of the Income-tax Act, 1961 operated retrospectively so as to govern pending proceedings, and whether the reference applications therefore became infructuous.

Analysis: The amendment was treated as declaratory in nature, intended to remove doubts about the meaning and effect of section 40(b). A declaratory provision is ordinarily retrospective and applies to pending matters. On that basis, although the amendment was stated to come into force from 1-4-1985, it would govern the pending reference proceedings and the question referred would have to be answered in favour of the assessee under the amended Explanation.

Conclusion: The amendment applied to the pending proceedings, making the proposed reference unnecessary and infructuous.

Final Conclusion: The applications were rejected as no useful reference survived for adjudication.

Ratio Decidendi: A declaratory statutory amendment that removes doubts as to the meaning or effect of an existing provision applies retrospectively to pending proceedings and may render the reference or proceedings infructuous.

---