TMI Blog2013 (3) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied (ii) that the explanation of the term 'infrastructure facility' was changed to besides others, a road including toll road instead of hitherto existing expression 'road' and (iii) that the requirement of transferring the infrastructural facilities developed by the enterprise to the Central or the State Government or the local authority within the time stipulated in the agreement was done away with. Thus to conclude these changes, however, would not alter the situation vis-a-vis the impugned amendment. These legislative changes did enlarge the scope of the deduction and in a sense, made it available to certain assessees who would not have been, but for the changes eligible for such deduction. Nevertheless, the basic requirement of the enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining infrastructure facility was not done away with. In other words, even the amended section 80IA(4) with effect from 1.4.2002 could be construed as not including execution of works contract as one of the eligible activities for claiming deduction. The explanation attempts to clarify that deduction under section 80-IA(4) would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt controversy. 3. The case of the petitioner is that it is engaged in the business of developing infrastructure. Till introduction of the impugned amendment, deductions were available to all undertakings and enterprises executing infrastructure development projects and it was not insisted that the assessee itself must develop such infrastructure facilities by investing its own funds. Such explanation, therefore, changes the very complexion of the deductions which were available for years together and, thus creates a levy with retrospective effect. The petitioner challenges such explanation on various grounds. In particular, the grievance is against the retrospective operation of such amendment. 4. On the other hand, the case of the respondents, emerging from the affidavits filed is that there is clear distinction between a 'developer' and a 'contractor'. All along, the benefits intended under section 80IA(4) of the Act were for a developer and not for a contractor. The explanation only puts the issue beyond controversy. The amendment was within the legislative competence of the Parliament. It is not shown to be arbitrary or unreasonable. 5. On the basis of such facts, learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court declared such levy and collection illegal on the ground that excise duty and cess were not part of the sale price. Such judgment became final and conclusive. The Legislature thereafter passed a retrospective law increasing the rate of sales tax. The Supreme Court finding that such Amendment Act was passed with the object of retaining the amount collected which would nullify the judgment of the High Court, the amendment was held unconstitutional and invalid. (ii) In the case of Lohia Machines Ltd. v. Union of India, [1985] 152 ITR 308 (SC), wherein, in the minority dissenting view, in a Five Judge Bench, it was observed as under : "The power and competence of the Parliament to amend any statutory provision with retrospective effect cannot be doubted. Any retrospective amendment to be valid must however be reasonable and not arbitrary and must not be violative of any of the fundamental rights guaranteed under the Constitution. The mere fact that any statutory provision has been amended with retrospective effect does not by itself make the amendment unreasonable. Unreasonableness or arbitrariness of any such amendment with retrospective effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the decision of the Supreme Court in the case of National Agricultural Coop. Marketing Federation v. Union of India, 260 ITR 548, wherein it was observed that the legislative power either to introduce enactments for the first time or to amend the enacted law with retrospective effect is not only subject to the question of competence but is also subject to several judicially recognized limitations. It was observed that retrospectivity must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional. (v) Decision in the case of Star India P. Ltd. v. Commissioner of Central Excise, [2006] 208 ITR 321 (SC) was cited wherein it was held that though liability may be created with retrospective effect, the liability to pay interest being in the nature of quasi-punishment, such law cannot be given retrospective effect. (vi) Reliance was also placed on a decision of Division Bench of this Court dated 12.3.2012 in Special Civil Application No.17722 of 2011, in the case of Parixit Industries Pvt Ltd. v. Asstt. Commissioner of Income Tax, 207 Taxman 140, wherein Division Bench of this Court in the context of ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try 47. The Legislature was, therefore, competent to levy a fee for rendering services in connection with the maintenance, supervision and control over the religious institutions and it was competent to levy the fee retrospectively. If the amounts received by the State have been expressly regarded as fee collected by the Commissioner under the provisions as amended and account has to be made on that footing between the Government and the Commissioner, challenge to the vires of S. 82(2) must fail. (iii) In the case of J.K. Jute Mills Co. v. State of U.P., AIR 1961 SC 1534, it was observed as under: "15. The power of a legislature to enact a law with reference to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the legislature to enact a law, which is either prospective or retrospective." (iv) In the case of Entertainment Tax Officer v. Ambae Picture Palace, [1994] 1 SCC 209, it was observed as under : "13. If the Parliament or the State Legislatures have competence to legislate, they can do so prospectively as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory body, as the case may be, within the period stipulated in the agreement; (iii) the enterprise starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995." Notes on clauses for introduction of such amendment stated as under: Clause 19 seeks to amend section 80IA of the Income-tax Act relating to deduction in respect of profits and gains from industrial undertakings, etc. in certain cases. The proposed amendment seeks to enlarge the scope of deduction under section 80IA. It is proposed to provide hundred per cent deduction from the profits and gains of an enterprise carrying on the business of development, maintenance and operation of infrastructure facility for the initial five assessment years and thereafter thirty per cent, of such profits and gains. The deduction will be available if the enterprise (a) is owned by a company or consortium of companies registered in India; (b) enters into an agreement with the Central or a State Government or a local authority or any other statutory body for development, maintenance and operation of a new infrastructure facility; (c) transfers such infrastruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undertaking and the Government concerned. The tax holiday will be in respect of income derived from the use of the infrastructure facilities developed by them. The five year period will be counted from the year in which the infrastructure facility become operational. It will apply in respect of infrastructure facilities becoming operational on or after 1.4.1995." With effect from 1.4.2000, the Legislature split the existing section 80IA into two separate sections, section 80IA and 80IB. For our limited purpose, we may record that sub-section (4A) which formed part of erstwhile section 80IA was renumbered as sub-section (4) of newly recast section 80IA. 10. The next significant legislative change came with effect from 1.4.2002, wherein the language used in sub-section (4) of section 80IA was materially altered. Such amended sub-section (4) of section 80IA with effect from 1.4.2002 read as under: "(4) This section applies to (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfills all the following conditions, name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... changed to refer to road including toll road. Further, the requirement of the enterprise fulfilling the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other authority, as the case may be, within the period stipulated in the agreement was done away with. 11. Explaining such proposed amendment, explanatory memorandum for the Finance Bill 2001 recorded as under: "Under the existing provisions of section 80IA, roads, highways, bridges, airports, ports and rail systems are regarded as infrastructure facilities and the enterprises engaged in developing or operating and maintaining or developing, operating and maintaining such infrastructure are entitled to a tax holiday for five years and a deduction of 30% of profits for the next five years. The benefit may be availed by an enterprise in ten consecutive years out of fifteen years beginning with the year in which such enterprise develops the infrastructure facility. An enterprise claiming such benefit has to enter into an agreement with the Central or State Government or a local authority or any other statutory authority, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, Industrial Parks and Special Economic Zones. The tax benefit was introduced for the reason that industrial modernization requires a massive expansion of and qualitative improvement in infrastructure (viz. expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction works or any other works contract. Accordingly, it is proposed to clarify that the provisions of section 80IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where an person makes the investment and himself executes the development work, i.e. carries out the civil construction work, he will be eligible for tax benefit under section 80IA. In contract to this, person who enters into a contract with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect retrospectively from 1st April 2000 and will, accordingly apply in relation to assessment year 2000-2001 and subsequent years." 13. These, in the nutshell, are the relevant legislative changes brought about by the Parliament from time to time. The central question is, whether in the present case, the explanation below sub-section (13) to section 80IA introduced by the Finance Act No.2 of 2009 with effect from 1.4.2000 transgresses the legislative competence of the Parliament. 14. It is now well settled that there is always a presumption of constitutionality whenever a legislation enacted by the Parliament or the State Legislature is questioned on the ground of unconstitutionality and the burden is on the petitioner bringing such a challenge. In the case of J K v. T.N. Khosa, AIR 1974 SC 1, a Constitution Bench of the Supreme Court, observed that there is always a presumption in favour of the constitutionality of an enactment and the burden is on him who attacks it to show that there has been a clear transgression of the constitutional principles. It was observed as under : "24. This submission is erroneous in its formulation of a legal proposition governing onus o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment or the State Legislature can be challenged, in the case of Aditya Birla Nuvo Limited v. Municipal Corporation of the City of Surat, reported in 2013(1) GLR 304, a Division Bench of this Court made the following observations : "16. .... Parameters for examining the validity of the legislation either of the Centre or the State Legislation are somewhat different from the parameters on which the statutory provisions enacted under delegated legislation can be judged. The grounds on which a statutory provision enacted by the State or Central Legislature can be struck down are lack of legislative competence or being in conflict with any of the provisions contained in fundamental rights or other articles of the Constitution. In case of State of Madhya Pradesh v. Rakesh Kohli and another reported in (2012) 6 Supreme Court Cases 312, the Apex Court observed that : "This Court has repeatedly stated that legislative enactment can be struck down by a Court only on two grounds, namely (i) that the appropriate legislature does not have the competence to make the law, and (ii) that it does not take away or abridge any of the fundamental rights enumerated in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary. It is in this sense that the expression "arbitrary" was used in Para-7." 15. In the present case, it is not even the case of the petitioners that the Parliament lacked legislative competence to enact the law. It was, however, their case that the enactment being unreasonable and arbitrary, violates Articles 14 and 19(1)(g) of the Constitution. 16. Before examining the nature of the amendment and its effect in law, we may refer to some of the decisions of the Supreme Court recognizing the considerable latitude in the Parliament in framing a taxing statute. In the case of Hiralal Ratan Lal v. S.T.O., S.III, Kanpur, AIR 1973 SC 1034, the Apex Court observed as under: "19. It must be noticed that generally speaking the primary purpose of the levy of all taxes is to raise funds for public good. Which person should be taxed, what transaction should be taxed or what goods should be taxed, depends upon social, economic and administrative considerations. In a democratic set up it is for the legislature to decide what economic or social policy it should pursue or what administrative consideration it should bear in mind." In the case of P.M. Ashwathanarayana Set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In M. P. V. Sundararamier and Co. v. State of Andhra Pradesh, 1958 SCR 1422: (AIR 1958 SC 468), this court had occasion to consider the validity of a law enacted by Parliament giving retrospectively operation to laws passed by the State legislatures imposing a tax on certain sales in the course of inter-State trade. One of the contentions raised against the validity of this legislation was that, having regard to the terms of Art. 286 (2), the retrospective legislation was not within the competence of Parliament." In the case of S.T. Swamiar (supra), the Apex Court observed that the fact that retrospective legislation may be enacted is not open to question. The observations made in the case of J.K. Jute Mills Co. (supra) to the effect that the power of the Legislature to enact law with reference to the topic entrusted to it is unqualified subject only to any limitation imposed by the Constitution and that in exercise of such power, it will be competent for the Legislature to enact a law which is either prospective or retrospective, were noted with approval. In the case of Entertainment Tax Officer (supra), the Supreme Court observed as under : "13. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , power is conferred upon the Central Government to provide for exemption from duty of goods, either wholly or partly, and with or without conditions, as may be called for in public interest. We see no warrant for reading any limitation into this power. If the public interest demands that the exemption should be absolute, the Central Government can do so. Similarly, if the public interest demands that exemption should be granted only subject to certain conditions it can provide such conditions. Then again if the public interest demands that conditions specified should relate to a stage subsequent to the date of clearance it can do so. The guiding factor is the public interest." In the case of State of A.P. v. McDowell Co., [1996] 3 SCC 709, it was observed: "No enactment can be struck down by just saying that it is arbitrary or unreasonable. Some or other constitutional infirmity has to be found before invalidating an Act. An enactment cannot be struck down on the ground that court thinks it unjustified. Parliament and the legislatures composed as they are of the representatives of the people, are supposed to know and be aware of the needs of the peopl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gap left in the statute, to suppress a mischief, to clear a doubt or as is often said to make explicit what was implicit. 20. In the case of S. Sundaram Pillai v. V.R. Pattabhiraman, AIR 1985 SC 582, the Apex Court observed that an explanation added to a statutory provision is not a substantive provision, but as the plain meaning of the word itself shows, it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision. It was observed as under: "52. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is - (a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explain the Article and must be interpreted accordinging to its own tenor and it was an error to explain the Explanation with the aid of the Article to which it was annexed. We have to remember what was held in Dattatraya Govind Mahajan v. State of Maharashtra, AIR 1977 SC 915 (928): (1977) 2 SCR 790, that mere description of a certain provision, such as "Explanation" is not decisive of its true meaning. It is true that the orthodox function of an explanation is to explain the meaning and effect of the main provision to which it is an explanation and to clear up any doubt or ambiguity in it, but ultimately it is the intention of the legislature which is paramount and mere use of a label cannot control or deflect such intention. State of Bombay v. United Motors (supra) laid down that the interpretation must obviously depend upon the words used therein, but this must be borne in mind that when the provision is capable of two interpretations, that should be adopted which fits the description. An explanation is different in nature from a proviso for a proviso excepts, excludes or restricts while an explanation explains or clarifies. Such explanation or clarifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and intendment of the 'Explanation' are determined by its own words. An Explanation, depending on its language, might supply or take away something from the contents of a provision. It is also true that an Explanation may - this is what Sri Ramachandran suggests in this case - be introduced by way of abundant caution in order to clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative errors and to place what the legislature considers to be the true meaning beyond controversy or doubt. Hypothetically, such can be the possible purpose of an 'Explanation' cannot be doubted. But the question is whether in the present case, Explanation I inserted into S. 40(b) in the year 1984 has had that effect." (emphasis supplied by us). 25. In the case of CIT v. Gold Coin Health Food P. Ltd., (supra), the Apex Court observed as under: "6. It would be of some relevance to take note of what this court said in Virtual's case (2007) 9 SCC 665. Pointing out some of the important tests at paragraph 51 it was observed that even if the statute does contain a statement to the effect that the amendment is clarificatory or declaratory, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contract awarded by any person, be it the Central or the State Government, executed by the undertaking or enterprise seeking such an exemption. That there is an intrinsic difference between developing an infrastructure facility and executing a works contract, in our opinion, can hardly be disputed. 28. In the case of CIT v. Radhe Developers, [2012] 341 ITR 403 (Guj.), a Division Bench of this Court had an occasion to examine these aspects in the context of a deduction provided under section 80IB(10) of the Act for development of housing projects. The Revenue had contended that since the assessees did not own the lands in question and only developed the same for and on behalf of some one else would not be eligible for the deduction in question. This Court examined the question what can be the meaning of the term 'develop' and who consequently can be stated to be a 'developer'. Noting that section 80IB(10) of the Act provides for deduction to an undertaking engaged in the business of developing and constructing housing projects and does not provide that the land must be owned by the assessees seeking such deduction, it was held that the assessees cannot be treated as works contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enroll members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence. 36. We have noted at some length, the relevant terms and conditions of the development agreements between the assessees and the land owners in case of Radhe Developers. We also noted the terms of the agreement of sale entered into between the parties. Such conditions would immediately reveal that the owner of the land had received part of sale consideration. In lieu thereof he had granted development permission to the assessee. He had also parted with the possession of the land. The development of the land was to be done entirely by the assessee by constructing residential units thereon as per the plans approved by the local authority. It was specified that the assessee would bring in technical knowledge and skill required for execution of such project. The assessee had to pay the fees to the Architects and Engineers. Additionally, assessee was also authorized to appoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r first before appropriating any part of the sale consideration of the housing units for his benefit. In short, assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. Land owner would receive a fix predetermined amount towards the price of land and was thus insulated against any risk. 37. By no stretch of imagination can it be said that the assessee acted only as a works contractor...." 29. In our, opinion, what the explanation aims to achieve is to clarify that deduction under section 80IA(4) of the Act would not be available in case of execution of works contract. The fact that such interpretation of the existing provisions of sub-section (4) of section 80IA of the Act, even without the aid of the explanation was possible, in our opinion, is not disputable. As noted, sub-section (4) of section 80IA even after the amendment in the year 2002 envisaged deduction in case of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. Even without the aid of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment between the undertaking and the Government concerned. The tax holiday will be in respect of income derived from the use of the infrastructure facilities developed by them. The five year period will be counted from the year in which the infrastructure facility become operational. It will apply in respect of infrastructure facilities becoming operational on or after 1.4.1995." Thus at the very first stage, deduction was made available to draw additional resources for fulfilling the requirements of the country of rapid improvement in infrastructure such as, expressways, highways, airports, ports, etc. in which areas development was found to be deficient. Adopting the module of BOT or BOOT utilized by several other countries in developing infrastructure facilities, deduction was introduced. The principal idea behind granting deduction was to achieve rapid growth in infrastructure development with private participation. Specific period was also stipulated which must form part of the agreement between the undertaking and the Government within which the infrastructure facilities so developed would be transferred. It was explained that the tax holiday was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natory memorandum explaining such legislative amendments. It was explained that investment in infrastructure has to compete with the investment in other sectors and must therefore be attractive. There is, therefore, in particular a need to encourage investment in the area of surface transport, water supply, water treatment system, irrigation project, sanitation and sewerage system or solid waste management systems. The bill therefore, proposed to relax the existing system to provide for a ten year tax holiday. Significantly, it was stated that keeping in view the capital intensive nature, the higher allowances of depreciation in the initial years in such enterprise and the need for improved cash flows, it is further proposed that for an infrastructure facility in the nature of a road including a toll road, bridge, rail system, highway project, water supply project, sanitation, sewerage and solid waste management system in place of two-tier tax holiday, a ten year tax holiday may be availed consecutively out of twenty years beginning from the year in which the undertaking begins operating the infrastructure facility. In the case of other infrastructure, namely, for airport, port, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xecuted by an undertaking. 36. We, therefore, notice that from the inception, deduction was envisaged for development of infrastructure facilities with private participation. Of course, post 2002, certain relaxations were granted and in addition to extending tax holiday period, requirement for claiming such deduction was split into developing or operating and maintaining or developing, operating and maintaining infrastructure facility. The Revenue could therefore, legitimately contend that no such deduction was envisaged for mere execution of works contract. If this was the position, in our understanding, what the explanation, did was to clarify a statutory provision which was at best possible of a confusion. If that be so, the explanation must be seen as one being in the nature of plain and simple explanation and not either adding or subtracting anything to the existing statutory provision. When we hold that the impugned explanation was purely explanatory in nature and did not mend the existing statutory provisions, the question of levying any tax with retrospective effect would not arise. If we agree with the submission of the counsel for the petitioners that such explanation r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already pointed out that the Assessing Officer has now given a second thought over the same materials and according to him, as the assessee is a contractor or supplier of irrigation products, it cannot be called a developer of any new infrastructural facility. 26. From the materials placed before him by the petitioner, the Assessing Officer earlier did not arrive at such conclusion and thus, the amended Explanation subsequently added cannot be of any help to him in arriving at the second opinion based on the alleged new law." The Court was thus of the opinion that introduction of the explanation in question did not amount to introduction of a new provision of law with retrospective operation. The assessee was, therefore, given the benefit of deduction considering the then explanation which was introduced with effect from 1.4.2007, which according to the Court was substantially the same and any attempt on the part of the Revenue, therefore, to reopen the assessment would be in the nature of second opinion. Thus, we do not think that we have stated anything which runs contrary to the ratio in the case of Parixit Industries Pvt. Ltd (supra). In fact, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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