TaxTMI 
TaxTMI 
2013 (10) TMI 1081
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....llate Tribunal is right in law in holding that the assessee has used only synthetic essence as flavouring agent in the manufacture of soft drinks and does not cover items of the Eleventh Schedule, even after the Explanation was added to item 5 by the Finance Act, 1987 ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee is entitled for investment allowance under section 32A of the Income-tax Act even after the insertion of Explanation under item 5 of the Eleventh Schedule by the Finance Act, 1987, which is merely clarificatory in character and should govern the assessment prior to the assessment year 1988-89 also in view of the Andhra Pradesh High Court's decision in the case of N. T. R. Estate v. CIT [1986] 157 ITR 285 (AP) ? The two questions referred to in R. C. No. 125 of 1999 are as follows : "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in deleting the disallowance of interest on the ground that the Revenue ha....
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....e observing that the assessee advanced amounts to its subsidiary from out of the borrowed amounts from banks. This was affirmed by the Commissioner of Income-tax (Appeals) but the Appellate Tribunal concluded in favour of the assessee holding that the Department failed to prove the nexus between the borrowed amounts and the advances made. The investment allowance was allowed by the Tribunal. The first issue In both the cases, the Assessing Officer and the Commissioner of Incometax (Appeals) disallowed the investment allowance on the ground that the assessees used synthetic essences in the manufacture of soft drinks and beverages. The senior standing counsel for income-tax relies on section 32A(2)(iii) and item 5 of the Eleventh Schedule, in arguing for an answer in favour of the Revenue. He also relies on the decisions of the Calcutta and the Madras High Courts in CIT v. Black Diamond Beverages Ltd. [1993] 201 ITR 48 (Cal) and CIT v. Soft Beverages P. Ltd. [2005] 272 ITR 270 (Mad). According to him, blended flavouring concentrates shall include and shall be deemed to have always included synthetic essences in any form. This Explanation is being clarificatory, he would urge that i....
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....was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twentyfive per cent. of the actual cost of the ship, aircraft, machinery or plant to the assessee : (Provisos and Explanation omitted as not relevant for this case). (2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely : (a) a new ship or new aircraft acquired after the 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft ; (b) any new machinery or plant installed after the 31st day of March, 1976- (i) for the purposes of business of generation or distribution of electricity or any other form of power ; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or (iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule : (Proviso and Exp....
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.... held as follows (page 273) : "The amendment, despite a particular date having been fixed as the date from which it will take effect, even when it is not made retrospective, if found to be clarificatory in the sense that even without the aid of that amendment the unamended provision was capable of comprehending what was sought to be made clear by the amendment, the amendment made subsequently does not have the effect of restricting the meaning of the original entry and the width of the entry remains the same. The facet of its content which had either been misconstrued or had not been recognized is only brought out when the clarificatory amendment is effected. The fact that this amendment was made effective from April 1, 1988, therefore, does not in any way have the effect of denuding the original entry of a part of its content. The synthetic essence being but one form of a blended flavouring concentrate was a blended flavouring concentrate before the amendment as also after the amendment." The counsel for the assessees rely on ITO v. M. C. Ponnoose [1970] 75 ITR 174 (SC), Delhi Cloth and General Mills Co. Ltd. v. CIT [1994] 208 ITR 785 (Delhi), CIT v. Rajasthan Mercantile Co. Lt....
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....iii) The purpose of Declaratory Act is to remove a doubt as to the meaning of an existing law or to correct a construction considered erroneous by the Legislature. If a Declaratory Act is by way of an Explanatory Act, one should see whether it is intended to supply an obvious omission or clear up doubts as to the meaning of the previous Act. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous; (iv) If a statute is curative, or a mere declarative, retrospective operation is generally intended ; and (v) In determining the nature of the Act, substance is more important than the form. If the provision is clear and unambiguous, the question of treating the amending Act as declaratory would not arise, even if the amending Act uses the expression "for the removal of doubts" which itself is not conclusive as to an amendment being clarificatory or declaratory in nature. In Agriculture Market Committee, this court, after referring to *Brij Mohan v. CIT [1979] 120 ITR 1 (SC) ; [1979] 4 SCC 118 ; AIR 1979 SC 1897, Allied Motors P. Ltd. v. CIT [1997] 224 ITR 677 (SC) ; [1997] 3 SC....
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....ITR 825 (SC) intend just to clarify blended flavouring concentrates as also including synthetic essences and stop there or did the lawmakers intended to deny for the yester years, the benefit of investment allowance to all those assessees who are indeed using synthetic essences in the manufacturing of aerated waters ? We have no doubt that the Finance Act, 1987, has no retrospective effect of disqualifying those manufacturers of aerated waters using synthetic essences from claiming the investment allowance under section 32A(1). The language of the Explanation, however, has given the scope for the argument that clarificatory in nature should be given retrospective effect. This again begs the question whether retrospectivity is with regard to the construing the blended flavouring concentrates as always-in the past, present and future including synthetic essences or the retrospectivity was with reference to the effect of section 32A(2)(iii), which denied the investment allowance to all those manufacturers of articles or things enumerated in the Eleventh Schedule. We are convinced that the Explanation though clarificatory was never intended to deny the investment allowance during the ....
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....31 ITR 597 (SC) ; [1981] 4 SCC 173 ; AIR 1981 SC 1922, Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) ; [1976] 1 SCC 254, Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 (SC) ; [1976] 1 SCC 324 and Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) ; [1980] 2 SCC 31. We quote hereinbelow, from various legislative documents. Notes on Clauses in the Finance Bill 1987 ([1987] 165 ITR (St.) 144) "Clause 75 seeks to amend items 5 and 22 of the Eleventh Schedule to the Income-tax Act. Under item 5 of the Eleventh Schedule, aerated waters in the manufacture of which blended flavouring concentrates in any form are used are one of the non-priority articles or things to which section 32AB and other sections of the Act would not be applicable in certain cases. It is proposed to make a clarificatory amendment in the item to indicate that blended flavouring concentrates would include, and would have included, synthetic essences in any form. The Explanation below item 22 of the Schedule defines 'office machines and apparatus' to include all machines and apparatus used in offices for data processing. It is proposed to make a clarificator....
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.... Schedule to the Income-tax Act 43.1 The Eleventh Schedule to the Income-tax Act lists non-priority products. The manufacturers of these products are denied tax concessions under section 32AB and other sections of the Act. Item No. 5 of the Eleventh Schedule relates to 'aerated waters' in the manufacture of which 'blended flavouring concentrates in any form are used". It has been found that certain persons manufacturing aerated waters are using synthetic essence and are claiming the benefit on the ground that synthetic essence cannot be included in the expression 'blended flavouring concentrates in any form'. As this was not the intention of the Legislature, the Amending Act has inserted an Explanation to item 5 of the Eleventh Schedule which clarifies that blended flavouring concentrates would include the synthetic essences in any form 43.3 This amendment will come into force from 1st April, 1988, and will, accordingly, apply in relation to the assessment year 1988-89 and subsequent years." (emphasis supplied) The deduction of investment allowance under section 32A was denied as non-priority articles or things. However, the Government experienced that the manufacturers of aerat....
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....ning the powers of the land revenue officials to attach the shares. The challenge was upheld by the High Court of Kerala, who declined to give retrospective effect to notification empowering the Tahsildar. In the appeal, the Revenue contended before the Supreme Court that the State Government could invest the Tahsildar with the powers of the Tax Recovery Officer with effect from the date prior to the date of notification, i.e., retroactively or retrospectively. Observing that the courts will not ascribe retrospectivity to new laws affecting rights unless by express words or necessary implication it appears that such was the intention of the Legislature, rejected the plea of the Revenue and held (page 178 of 75 ITR) : "It may next be considered whether by saying the new definition of 'Tax Recovery Officer' substituted by section 4 of the Finance Act, 1963, 'shall be and shall be deemed always to have been substituted', it could be said that by necessary implication or intendment the State Government had been authorized to invest the officers mentioned in the notification with the powers of a Tax Recovery Officer with retrospective effect. The only effect of the substitution made by....
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....sees were entitled in the computation of their total income for the purpose of payment of tax under the Income-tax Act, 1961, during the relevant period prior to April 1, 1976. Explanation below item 5 of the Eleventh Schedule Applying the above principles, we are of the considered opinion that the phrase "shall be deemed always to have included" in the Explanation to item 5 only clarifies that blended flavouring concentrates shall include synthetic essences. It is a fiction which has limited effect. Construing section 4 of the Finance Act, 1963, which contain the similar phrase, i.e., "shall be and shall be deemed always to have been substituted", the Supreme Court in Ponnoose held that legal fiction could not be extended beyond its legitimate field and the said words could not be construed to embody conferment of power retrospectively. The recent decision of the Full Bench of this court in T. Rev. No. 233 of 2010 and batch, dated June 27, 2011, to which one of us (VVSR J.) is a member, summed up the effect of legal fiction while construing a statute. "A legal fiction is created only for some definite purpose. The fiction is to be limited to the purpose for which it was create....
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....he Tribunal's finding is based on the fresh material brought before the Income-tax Appellate Tribunal and, therefore, it could not have allowed such evidence. The senior counsel for income-tax would rely on rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 ("the ITAT Rules", for brevity). Per contra, the senior counsel for Sarvaraya Sugars submits that it is a question of fact, which does not require any consideration by the High Court under section 256(2). According to him, when a question of fact on which a finding has been recorded by the Tribunal, the jurisdiction of the High Court to express opinion is barred. He relied on India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC), M. A. Jabbar v. CIT [1968] 68 ITR 493 (SC), Karnani Properties Ltd.v. CIT [1971] 82 ITR 547 (SC) ; [1971] 3 SCC 568, CIT v. Park Hotel P. Ltd. [1996] 2 SCC 15 and Thiru Arooran Sugars Ltd. v. CIT [1997] 227 ITR 432 (SC). In the return of income for 1985-86, Sarvaraya Sugars claimed Rs. 17 lakhs interest payment on the secured and unsecured loans obtained by it from the banks. Section 36(1)(iii) allows the deduction of amount of interest paid in respect of capital borrowed for the purpose of business ....