TaxTMI 
TaxTMI 
2018 (2) TMI 115
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...., C.A. No. 127 of 2015, C.A.No.1435 of 2018 @ SLP(C) No. 21845 of 2013, C.A. No. 6313 of 2013, C.A. No. 6733 of 2013, C.A. No. 6191 of 2013, C.A. No. 8921 of 2013, C.A. No. 6192 of 2013, C.A. No. 3355 of 2015, C.A. No. 7167 of 2013, C.A. No. 8376 of 2013, C.A. No. 7172 of 2013, C.A. No. 7170 of 2013, C.A. No. 9183 of 2013, C.A. No. 8341 of 2013, C.A. No. 7168 of 2013, C.A. No.8256 of 2013, C.A. No. 7171 of 2013, C.A. No. 7974 of 2013, C.A. No. 8342 of 2013, C.A. No. 7173 of 2013, C.A. No. 8343 of 2013, C.A. No. 8933 of 2013, C.A. No. 8909 of 2013, C.A. No. 9832 of 2013, C.A. No. 9833 of 2013, C.A. No. 9184 of 2013, C.A. No. 3359 of 2015, C.A. No. 1436 of 2018 @ SLP(C) No. 36388 of 2014, C.A. No. 3781 of 2015, C.A. No. 3358 of 2015, C.A. No. 1437 of 2018 @ SLP(C) No. 18398 of 2015, C.A. No. 6294 of 2015, C.A.No.1438 of 2018 @ SLP(C) No. 19303 of 2015, C.A.No.1439 of 2018 @ SLP(C) No. 20478 of 2015, C.A. No. 7892 of 2015, C.A. No. 9251 of 2015, C.A. No. 9252 of 2015, C.A. No. 14525 of 2015, C.A. No. 8178 of 2016, C.A. No. 8177 of 2016, C.A. No. 3279 of 2016, C.A.No.1440 of 2018 @ SLP(C) No. 23624 of 2016, C.A.No.1441 of 2018 @ SLP(C) No. 16185 of 2016, C.A. No. 5044 of 2016, C.A. No.....
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.... Chandra Prakash, AOR JUDGMENT ASHOK BHUSHAN, J. Delay Condoned. Leave granted. 2. This appeal when alongwith several appeals were heard on 16.11.2016, this Court noticed that in batch of cases, four questions have arisen. The present batch of cases of which Civil Appeal No. 2165 is a leading case relates only to Question No.2, which is to the following effect: "Whether sub-section (2) and sub-section (3) of Section 14A inserted with effect from 01.04.2007 will apply to all pending assessments? Whether Rule 8D is retrospectively applicable?" 3. All these appeals raising only above question of law have been heard together and are being decided by this common judgment. For deciding all these appeals, it shall be sufficient to refer facts and proceedings in Civil Appeal No. 2165 of 2012. FACTS Civil Appeal No. 2165 of 2012 4. This appeal has been filed against the judgment of Bombay High Court dated 12.09.2011 in Income Tax Appeal (L) No. 947 of 2011 by which judgment the High Court has dismissed the appeal filed by the Commissioner of Income Tax following an earlier judgment of the Bombay High Court dated 12.08.2010 in the case of Godre....
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.... Rule 8D of Income Tax Rules is prospective in operation as held by the High Court or it is retrospective in operation and shall also be applicable in the assessment year in question as contended by learned counsel for the revenue. 8. We have heard Shri Yashank Adhyaru, learned senior counsel, Shri Arijit Prasad, learned counsel for the appellant Shri S.K. Bagaria, learned senior counsel, Shri Ajay Vohra, learned senior counsel and other learned counsel have been heard for different assessees in this batch of appeals. "SUBMISSIONS" 9. Learned counsel for the appellant (revenue) submit that provisions of Section 14A being clarificatory in nature and Rule 8D is a procedural provision which provided only a machinery for the implementation of sub-sections (2) and (3), Rule 8D is retrospective in nature. The machinery provisions by which the charging section is to be implemented or workable are to be given retrospective effect, which is co-terminus with the period of operation of the main charging provision. The charging section i.e. Section 14A admittedly being retrospective, the machinery provision, i.e. Rule 8D has also to be retrospective. 10. Learned counsel for the ....
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....iance on various decisions of this Court, which shall be referred to while considering the submissions in detail. 13. Shri S.S.H. Rizvi, learned counsel appearing for the assessee in Civil Appeal arising out of SLP (C) 16185 of 2016 submits that Revenue has already agreed before the ITAT that matter be remitted to Assessing Officer for fresh decision in light of judgment of the Bombay High Court in Godrej and Boyce Manufacturing Company (supra), hence, it had no jurisdiction to file an appeal before the High Court. He submits that High Court has rightly dismissed the appeal of the Revenue, relying on the judgment of the Bomabay High Court in Godrej and Boyce Manufacturing Company (supra) after noticing the fact that no interim order was passed by this Court in Special Leave Petition filed against the said judgment. It has been submitted by Shri Rizvi that no other question arose in the appeal before the High Court hence the Revenue has approached this Court by filing this Special Leave Petition without any basis. Relevant Statutory Provisions 14. Rule 8D has been framed to give effect to the provisions of Section 14A sub-section (2) and (3) of the Income Tax Act, 1961 (her....
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....Board have considered this matter and hereby directs that the assessments where the proceedings have become final before the first day of April, 2001 should not be reopened under section 147 of the Act to disallow expenditure incurred to earn exempt income by applying the provisions of newly inserted section 14A of the Act." 17. By Finance Act, 2002, a statutory provision was also inserted by way of proviso to Section 14A. What was clarified by the Circular have been statutorily engrafted in the proviso to the following effect: "Provided that nothing contained in this section shall empower the assessing officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the Ist day of April, 2001." 18. By Finance Act, 2006, Section 14A was numbered as sub-section (1) and after sub-section (1) sub-sections (2) and (3) were inserted w.e.f. 01.04.2007 to the following effect: "(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does n....
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....ncome under Chapter-IV of the said Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act. In the existing provisions of section 14A, however, no method of computing the expenditure incurred in relation to income which does not form part of the total income has been provided for. Consequently, there is considerable dispute between the taxpayers and the Department on the method of determining such expenditure. 11.2 In view of the above, a new sub-section (2) has been inserted in section 14A so as to provide that it would be mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with such method as may be prescribed. However, the Assessing Officer shall follow the prescribed method if, having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of the total income. Provisions of sub-section (2), will also be appli....
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....f the previous year." 3. For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets." 22. After setting out the legislative scheme of Section 14A and Rule 8D, now, we proceed to consider the submissions raised by learned counsel for the parties on the question in issue. Important Principles of Statutory Interpretation 23. The legislature has plenary power of legislation within the fields assigned to them, it may legislate prospectively as well as retrospectively. It is a settled principle of statutory construction that every statute is prima facie prospective unless it is expressly or by necessary implications made to have retrospective operations. Legal Maxim "nova constitutio futuris formam imponere debet non praeteritis", i.e. 'a new law ought to regulate what is to follow, not the past', contain a principle of presumption of prospectively of a statute. 24. Justice G.P. Singh in "Principles of Statutory Interpretation" (14th Edition, in Chapter 6) while dealing with operation of fi....
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....se a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English courts is that "all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective" and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. If we apply this principle of interpretation, it is clear that sub-section (6) of Section 171 applies only to a situation where the assessment of a Hindu undivided family is completed under Section 143 or Section 144 of the new Act. It can have no application where the assessment of a Hindu undivided family is completed under the corresponding provisions of the old Act. Such a case would be governed by Section....
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.... today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre6, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd.7 Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clea....
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.... plainly discriminatory or provides no procedural machinery for assessment and levy of tax or that is confiscatory, courts will be justified in striking down the impugned statute as unconstitutional; (v) The other factors being period of retrospectivity and degree of unforeseen or unforeseeable financial burden imposed for the past period; (vi) Length of time is not by itself decisive to affect retrospectivity." (Jayam and Co. case1, SCC Online Mad para 85) 18. The entire gamut of retrospective operation of fiscal statutes was revisited by this Court in a Constitution Bench judgment in CIT v. Vatika Township (P) Ltd. in the following manner: (SCC p. 24, paras 3335) "33. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: (AIR p. 1339, para 8) '8. ... The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising r....
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.... take effect from 01.04.2007. The last paragraph of memorandum was to the following effect: "this amendment will take effect from 01.04.2007 and will accordingly, apply in relation to the assessment year 200708 and subsequent years" 29. The Constitution Bench of this court in the Commissioner of Income Tax and ors. Vs. Vatika Township Pvt. Ltd., (Supra), has taken into consideration the notes of clause appended to the Finance Bill to decipher the nature of the legislative scheme. In paragraph 42.1, Constitution Bench stated as follows: "42.1. "Notes on Clauses" appended to the Finance Bill, 2002 while proposing insertion of proviso categorically states that "this amendment will take effect from 162002". These become epigraphic** words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospective depicting clear intention of the legislature. It can be seen from the same Notes that a few other amendments in the Income Tax Act were made by the same Finance Act specifically making those amendments retrospective. For example, Clause 40 seeks to amend Section 92F. Clause (iiia) of Section 92F is amended "so as to ....
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....n 14A were inserted, it was with effect from 01.04.2006 which was mentioned in clause 1(2) of Finance Act, 2006 which was to the following effect: "1(2). Save as otherwise provided in this Act, Sections 2 to 57 shall be deemed to have come into force on the 1st day of April, 2006." Rule 8D which was inserted by notification dated 24.03.2008. Rule 1 sub-rule (2) provides as under: "1. (1) These rules may be called the Income-tax (Fifth Amendment) Rules, 2008. (2). They shall come into force from date of their publication in the Official Gazette." It is, however, well settled that the mere date of enforcement of statutory provisions does not conclude that the statute is prospective in nature. The nature and content of statute have to be looked into to find out the legislative scheme and the nature, effect and consequence of the statute. 34. The submissions which have been much pressed by the counsel for revenue is that the Section 14A of the Act being clarificatory in nature having retrospective operation, Rule 8D, which is a machinery provisions have also to be held to be retrospective to make machinery provisions workable. 35. It is to be note....
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....in Rule 1BB, namely, the method of capitalisation of income on a number of years' purchase value. The rule was intended to impart uniformity in valuations and to avoid vagaries and disparities resulting from application of different modes of valuation in different cases where the nature of the property is similar." 25. On a consideration of the matter we are persuaded to the view that Rule 1BB is essentially a rule of evidence as to the choice of one of the well accepted methods of valuation in respect of certain kinds of properties with a view to achieving uniformity in valuation and avoiding disparate valuations resulting from application of different methods of valuation respecting properties of a similar nature and character. The view taken by the High Courts, in our opinion, cannot be said to be erroneous." 39. This Court in the above case held that Rule 1BB shall be applicable even prior to the enforcement of the rule holding that the said rule merely provides a choice amongst well known and well settled modes of valuation. It was held that even in the absence of Rule 1BB, it would not have been objectionable to adopt the mode of valuation embodied in Rule 1BB....
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....sion "any' by "if any". This was not a substantive amendment which created a penalty for the first time. The amendment by the Finance Act as specifically noted in the Notes on Clauses makes the position clear that the amendment was clarificatory in nature and would apply to all assessments even prior to Assessment Year 200304." 41. The three Judge Bench also referred to Departmental Circular dated 24.07.1976, which was found relevant for interpreting for finding out the nature of the amended provision. The three Judge Bench, further held in Para 16 to the following effect: "16. The law is well settled that the applicable provision would be the law as it existed on the date of the filing of the return. It is of relevance to note that when any loss is returned in any return it need not necessarily be the loss of the previous year concerned. It may also include carried forward loss which is required to be set up against future income under Section 72 of the Act. Therefore, the applicable law on the date of filing of the return cannot be confined only to the losses of the previous accounting years." The three-Judge Bench, after noticing the earlier cases and principl....
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.... case, the Court was not considering the question of prospectivity or retrospectivity of the machinery provision, hence the above case also does not help the appellant in the present case. 44. The Constitution Bench in Commissioner of Income Tax (Central)I, New Delhi versus Vatika Township (supra), after noticing the principle of Statutory Interpretation, as noted above, has laid down the following in para 36, 37 and 39: "36. In CIT v. Scindia Steam Navigation Co. Ltd., AIR 1961 SC 1633, this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year i.e. the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year. Answer to the reference 37. When we examine the insertion of proviso in Section 113 of the Act, keeping in view the aforesaid principles, our irresistible conclusion is that the intention of the legislature was to make it prospective in nature. This proviso cannot be treated as declaratory/statutory or curative in....
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....of expenditure brought in force w.e.f. 24.03.2008 has been given a gobye and a new method has been brought into force w.e.f. 02.06.2016, by interpreting the Rule 8D retrospective, there will be a conflict in applicability of 5th & 14th Amendment Rules which clearly indicates that the Rule has a prospective operation, which has been prospectively changed by adopting another methodology. 47. One of the submissions raised by the learned counsel for the assessee also needs to be noticed. Learned counsel for the assessee submits that it is well settled that subordinate legislation ordinarily is not retrospective unless there are clear indication to the same. Reliance has been placed on judgment of this Court in State of Jharkhand & Ors. Vs. Shiv Karampal Sahu, (2009) 11 SCC 453. In para 17 following has been stated: "17. Ordinarily, a subordinate legislation should not be construed to be retrospective in operation. The Circular Letter dated 752003 was given a prospective effect. The father of the respondent died on 1952000. There is nothing to show that even Circular dated 982000 had been given retrospective effect. In any view of the matter, as the State of Jharkha....