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2015 (3) TMI 854 - SUPREME COURT

2015 (3) TMI 854 - SUPREME COURT - [2015] 372 ITR 746 (SC) - Validity of the retrospective amendment to Section 143(1A) - whether the retrospective effect given to the amendment would be arbitrary and unreasonable inasmuch as the provision, being a penal provision, would operate harshly on assessees who have made a loss instead of a profit, the difference between the loss showed in the return filed by the assessee and the loss assessed to income tax having to bear an additional income tax at the .....

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xpression "income" contained in Section 143 (1A) would be wide enough to include losses also. That being the case, on facts here there is in fact no retrospective imposition of additional tax - such tax was imposable on losses as well from 1989 itself.

Even on a reading of Section 143 1(a) which is referred to in Section 143 (1A), a loss is envisaged as being declared in a return made under Section 139. It is clear, therefore, that the retrospective amendment made in 1993 would only b .....

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facts and circumstances from which a reasonable inference can be drawn that the assessee has, in fact, attempted to evade tax lawfully payable by it. Subject to the aforesaid construction of Section 143 (1A), we uphold the retrospective clarificatory amendment of the said Section and allow the appeals. The judgments of the Division Bench of the Gauhati High Court, to held that the retrospective effect given to the amendment would be arbitrary and unreasonable inasmuch as the provision, being a .....

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would be arbitrary and unreasonable inasmuch as the provision, being a penal provision, would operate harshly on assessees who have made a loss instead of a profit, the difference between the loss showed in the return filed by the assessee and the loss assessed to income tax having to bear an additional income tax at the rate of 20%. 2. It may be mentioned at the outset that the same provision in its retrospective operation has been upheld by the Kerala, Madhya Pradesh, Rajasthan, Karnataka and .....

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these appeals are as follows. The respondent-herein in its annual return for assessment years 1989-1990 and 1991-1992 showed a loss of ₹ 1,94,13,440/- and ₹ 1,80,22,480/- respectively. By an assessment order dated 14.12.1992, the Assessing Officer levied an additional tax under Section 143 (1A) of ₹ 5,62,490/- and ₹ 8,09,290/- respectively for the two assessment years in question calculated in the manner provided in the Section. 4. Being aggrieved by the order dated 14.12 .....

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eed with the Single Judge and dismissed the two writ appeals before it. 5. Shri Neeraj Kaul, learned Additional Solicitor General of India appearing on behalf of the appellants stated that the amendment made to Section 143 (1A) with retrospective effect was merely clarificatory and that even without such amendment, the same position would obtain qua losses as would obtain qua profits inasmuch as the expression "income" would comprehend both profits as well as losses. He cited a number .....

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adjustments made under the first proviso to clause (a) of sub-section (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall, - (i) further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1); (ii) where any refund is due .....

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ccordingly, and, - (i) in a case where the additional income-tax is increased, the Assessing Officer shall serve on the assessee a notice of demand under Section 156; (ii) in a case where the additional income-tax is reduced, the excess amount paid, if any, shall be refunded. Explanation. - For the purposes of this sub-section, tax payable on such excess amount" means:- (i) in any case where the amount of adjustments made under the first proviso to clause (a) of sub-section (1) exceed the t .....

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ause(a) of sub-section(1),- (i) the income declared by any person in the return is increased;or (ii) the loss declaredby such personin the return is reducedor is convertedinto income, the AssessingOfficer shall,- (A) in a case wherethe increasein incomeunder sub-clause(i) of this clause has increased the total income of such person, further increase the amount of tax payable under sub-section (1) by an additional income tax calculated at the rate of twenty per cent on the difference between the .....

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ual to twenty per cent of the tax that would have been chargeable on the amountof the adjustmentsas if it had beenthe total income of such person and specify the additional income tax so calculated in the intimation to be sent under sub-clause (i) of clause(a) of sub-section(1); (C) where any refund is due under sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income tax calculated under sub-clause (A) or sub-clause(B), as the case may be." 7. The .....

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ffect, the purpose of the levy of the additional income-tax is to persuade all the assesses to file their returns of income carefully to avoid mistakes. In two recent judicial pronouncements, it has been held that the provisions of section 143 (1A) of the Income-tax Act, as these are worded, are not applicable in loss cases. The Bill, therefore, seeks to amend section 143(1A) of the Income-tax Act to provide that where as a result of the adjustments made under the first proviso to section 143 (1 .....

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oss into income, the Bill seeks to provide that the Assessing Officer shall calculate a sum (referred to as additional income tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person. The proposed amendment will take effect from 1 st April, 1989 and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years." 8. On a cursory reading of the provision, it is clear t .....

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Kaul, learned Additional Solicitor General is right in referring to the definition of "income" in Section 2(24) of the Income Tax Act, 1995 and drawing our attention to the fact that the said definition is an inclusive one. Further, it is settled law at least since 1975 that the word "income" would include within it both profits as well as losses. This is clear from Commissioner of Income Tax Central, Delhi v. Harprasad & Company Pvt. Ltd., (1975) 3 SCC 868, paragraph 17 .....

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. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although Section 6 classifies income under six heads, the main charging provision is Section 3 which levies income tax, as only one tax, on the "total income" of the assessee as defined in Section 2(15). An income in order to come within the purview of that defini .....

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f Income Tax, Surat v. Saheli Leasing & Industries Ltd., (2010) 6 SCC 384 referred to the aforesaid judgment and held as follows:- "23. In the aforesaid decision in Gold Coin case [(2008) 9 SCC 622 : (2008) 304 ITR 308, the expression "income" in the statute appearing in Section 2(24) of the Act has been clarified to mean that it is an inclusive definition and includes losses, that is, negative profit. This has been held so on the strength of earlier judgments of this Court in .....

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quot; represents negative profit or in other words minus income. Considering this aspect of the matter in greater detail, Gold Coin [(2008) 9 SCC 622: (2008) 304 ITR 308] overruled the view expressed by the two learned Judges in Virtual Soft Systems [(2007) 9 SCC 665 : (2007) 289 ITR 83]. 24. Relevant ITR paras 11 and 12 of Gold Coin [(2008) 9 SCC 622 : (2008) 304 ITR 308] dealing with income and losses are reproduced hereinbelow: (SCC p. 628, paras 15-16) "15. When the word 'income' .....

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'CBDT'). It is stated that in a case where on setting of the concealed income against any loss incurred by the assessee under any other head of income or brought forward from earlier years, the total income is reduced to a figure lower than the concealed income or even to a minus figure the penalty would be imposable because in such a case 'the tax sought to be evaded' will be tax chargeable on concealed income as if it is 'total income'. 16. The law is well settled that .....

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uot; 25. The necessary consequence thereof would be that even if the assessee has disclosed nil income and on verification of the record, it is found that certain income has been concealed or has wrongly been shown, in that case, penalty can still be levied. The aforesaid position is no more res integra and according to us, it stands answered in favour of the Revenue and against the assessee." 12. Apart from the above, there is another indication contained in Section 143 1(a) as it stood in .....

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nd such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee : Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely:- (i) any arithmetical errors in the return, accounts or documents accompa .....

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further that an intimation shall be sent to the assessee whether or not any adjustment has been made under the first proviso and notwithstanding that no tax or interest is due from him: Provided also that an intimation under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable." 13. Even on a reading of Section 143 1(a) which is referred to in Section 143 (1A), a loss is envisaged as being declared in a retu .....

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izers& Chemicals Corpn. Ltd. v. Union of India, (1992) 195 ITR 485, which held that losses were not within the contemplation of Section 143(1A) prior to its amendment. 15. The J.K. Synthetics judgment of the Delhi High Court was expressly upset by this Court in (2003) 10 SCC 623. By the time this Court delivered its judgment, the retrospective amendment to Section 143 (1A) had already been made, and this Court, therefore, set aside the Delhi High Court judgment. 16. Shri Kaul also cited befo .....

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inal statutes. In paragraph 34, the retrospective imposition of a penalty under Section 9(2A) was upheld in the following terms: "34. In the instant case, the facts are one shade better. There is no dispute in this case about the validity of the tax payable under the Act during the period between January 1, 1957 and the date of commencement of the Amending Act. It has to be presumed that all the tax has been collected by the dealers from their customers. There is also no dispute that the la .....

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d default in performing their duty, if Parliament calls upon them to pay penalties in accordance with the law as amended with retrospective effect it cannot be said that there has been any unreasonable restriction imposed on the rights guaranteed under Article 19(1)(f) and (g) of the Constitution, even though the period of retrospectivity is nearly 19 years. It is also pertinent to refer here to sub-section (3) of Section 9 of the Amending Act which provides that the provisions contained in sub- .....

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5 SC 765 : (1955) 2 SCR 483 : (1955) 6 STC 627] was delivered up to the date of the commencement of the Amending Act in computing the period of limitation for questioning any order levying penalty. In those proceedings the authorities concerned are sure to consider all aspects of the case before passing orders levying penalties. The contention that the impugned provision is violative of Article 19(1)(f) and (g) of the Constitution has, therefore, to be rejected." 17. In the present case as .....

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ght within its net. An interesting example of such a case is contained in Commissioner of Income Tax, Bhopal v. Hindustan Electro Graphites, Indore, (2000) 3 SCC 595. On facts, the assessee had filed its return of income in which it showed that it had received a certain sum by way of cash compensatory support. Under the law as was then in force, the said amount was not taxable and, therefore, not included in the return. Subsequently, such cash assistance was made taxable retrospectively. Section .....

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ance Act of 1990 which amendment could not have been known before the Finance Act came into force. Levy of additional tax bears all the characteristics of penalty. Additional tax was levied as the assessee did not in his return show the income by way of cash compensatory support. The Assessing Officer on that account levied additional income tax. No additional tax would have been leviable on the cash compensatory support if the Finance Act, 1990 had not so provided even though retrospectively. T .....

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will be punishing the assessee for no fault of his. That cannot ever be the legislative intent. It shocks the very conscience if in the circumstances Section 143(1-A) could be invoked to levy the additional tax. The following observations by the Constitution Bench of this Court in Pannalal Binjraj v. Union of India [(1957) 31 ITR 565 : AIR 1957 SC 397] are apt: 'A humane and considerate administration of the relevant provisions of the Income Tax Act would go a long way in allaying the appreh .....

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then added that they had reservations about the correctness of the judgment in Hindustan Electro Graphites Limited principally because the assessee in that case had not challenged the provisions of Section 143 (1A). 20. In the present case, the question that arises before us is also as to whether bonafide assessees are caught within the net of Section 143 (1A). We hasten to add that unlike in J.K. Synthetics case, Section 143 (1A) has in fact been challenged on Constitutional grounds before the .....

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e-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital assets by an amount of not less than fifteen per cent of the value declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfe .....

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e consideration for the transfer is correctly declared by the assessee. In such a situation, this Court held:- "We must therefore eschew literalness in the interpretation of Section 52 Sub-section (2) and try to arrive at an interpretation which avoids this absurdity and mischief and makes the provision rational and sensible, unless of course, our hands are tied and we cannot find any escape from the tyranny of the literal interpretation. It is now a well settled rule of construction that w .....

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hich, though not expressed, is implicit as constituting the basic assumption underlying the statutory provision. We think that, having regard to this well recognised rule of interpretation, a fair and reasonable construction of Section 52 sub-section (2) would be to read into it a condition that it would apply only where the consideration for the transfer is under-stated or in other words, the assessee has actually received a larger consideration for the transfer than what is declared in the ins .....

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s than 15% of the value so declared, but it is furthermore necessary that the full value of the consideration in respect of the transfer is under-stated or in other words, shown at a lesser figure than that actually received by the assessee. Sub-section (2) has no application in case of an honest and bonafide transaction where the consideration in respect of the transfer has been correctly declared or disclosed by the assessee, even if the condition of 15% difference between the fair market valu .....

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ally received more than what is declared by him. There are two distinct conditions which have to be satisfied before sub-section (2) can be invoked by the Revenue and the burden of showing that these two conditions are satisfied rests on the Revenue. It is for the Revenue to show that each of these two conditions is satisfied and the Revenue cannot claim to have discharged this burden which lies upon it, by merely establishing that the fair market value of the capital asset as on the date of the .....

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est and bonafide transaction and there may be no under-statement of the consideration. The fulfilment of the second condition has therefore to be established independently of the first condition and merely because the first condition is satisfied, no inference can necessarily follow that the second condition is also fulfilled. Each condition has got to be viewed and established independently before sub-section (2) can be invoked and the burden of doing so is clearly on the Revenue. It is a well .....

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