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2005 (9) TMI 253 - AT - Income TaxInterpretation of a statute - Exemption u/s 10(23G) - Infrastructure Capital - Industrial undertaking - investment by way of equity shares - computation of book profits - generation of power - whether the amendment by way of inserting of Explanation regarding investments made before the first day of June, 1998, is a prospective legislation or a declaratory legislation and thus has to be construed as retroactive? - HELD THAT:- When the Explanation is read with Circular No. 772 dated 23-12-1998, issued by Central Board of Direct Taxes on the Explanatory Note to provisions relating to Direct Taxes, paragraph 10.3, it is clear that this Explanation is a declaratory statute inserted to supply an obvious omission and to clear doubts. The new Act, i.e. "Explanation 2"; is to explain an earlier Act and thus would be without object unless constructed retrospectively. The law applicable to investments made prior to 1-6-1998 is declared to remove doubts. Thus, we are of the opinion that the Explanation is declaratory or explanatory and has to be construed as retrospective as it is retroactive in nature. The second issue is the argument of the revenue that the investment should have been made between the first day of April, 1998 and the first day of June, 1998 for being eligible for the deduction. A plain reading of Explanation 2, as introduced by Finance Act, 1999, does not permit such an interpretation. All that it says is that the investment should be made before the first day of June, 1998. Even going by the speech of the Hon'ble Finance Minister or by the Board's circular, we do not find at any place a mention that the investment in question for the purposes of claiming exemption under Explanation to section 10(23G), as introduced by the Finance Act, 1999, should have been made between 1-4-1998 and 1-6-1998. On the contrary, by Finance Act, 1997, 'infrastructure facility', to the extent relevant to this case, is defined as "a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1-4-1993". This implies that the investment should have been made prior to 1-4-1993, as, otherwise, it would never be possible for a company to generate power on 1-4-1993. It would be anomalous to hold that the generation should start on or after 1993 but the investment should be made on or after 1-4-1998. Looking at the issue from another angle, if a long-term capital gain has to arise in 1997, as contemplated by the Act, then the investment must necessarily be made much before that date. For these reasons, we agree with the argument of the learned counsel for the assessee that as the investment in question was made prior to 1-6-1998, Explanation 2 is squarely applicable to the case of the assessee. Having come to this conclusion, the next question before us is as to which are the provisions of the Act that are applicable to the assessee's case as the investment in question was made prior to 1-6-1998. A plain reading of Explanation 2 introduced by Finance Act, 1999, shows that the provision as it stood immediately before its amendment by Finance (No.2) Act, 1998 (21 of 1998) shall apply to such income. The term "immediately before" means provision existing in the Finance Act, 1997, has to be applied in this case. As section 10(23G) as it existed immediately before amendment by Finance (No.2) Act, 1998, clearly states that any income by way of long-term capital gain of an infrastructure capital fund is exempt under section 10(23G), we have no hesitation whatsoever in holding that the capital gain in question is exempt from tax under section 10(23G) as per the provisions of the statute existing in 1997 read with Explanation 2 introduced by Finance Act, 1999. Explanation 2 mandates that income by way of longterm capital gain of an infrastructure capital company from investments made before 1-6-1998, by way of shares in any enterprise which is an infrastructure facility shall not be included in the total income, i. e., it shall not form part of total income. Thus, this ground of the assessee is allowed. Coming to the computation of book profits, i.e. reduction of this long- term capital gain, which is exempt under section 10(23G), from the book profits of the company under the special provisions of section 115JB, we are of the considered opinion that the revenue authorities have committed an error, as the disallowance is in violation of sub-section (2) of section 115JB, Explanation (ii), which reads as follows:- "(ii) the amount of income to which any of the provisions of section 10 or section l0A or section 10B or section 11 or section 12 apply, if any such amount is credited to the profit and loss account;" Thus, this ground of the assessee is also allowed. In the result, the appeals of the assessee are allowed in part and the appeal of the revenue is dismissed.
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