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TMI Blog2003 (3) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... of the profits made by the societies by the marketing of agricultural produce. Under the Indian Income-tax Act, 1922 (hereinafter referred to as the 1922 Act) exemption was granted in respect of profits and gains of business of cooperative societies including societies engaged in the marketing of the agricultural produce of its members. The Income-tax Act, 1961, continued this exemption under section 81(1)(c) which read: "81. Income of co-operative societies.--Income-tax shall not be payable by a co-operative society- (i) in respect of the profits and gains of business carried on by it, if it is--... (c) a society engaged in the marketing of the agricultural produce of its members". By the Finance (No. 2) Act, 1967, section 81 was omitted and its provisions re-enacted as section 80P of the 1961 Act. The relevant extract of section 80P is: "80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively construed in Assam Co-operative's case [1993] 201 ITR 338 (SC). On an interpretation of the provisions of section 80P and having regard to the object with which the provisions had been introduced, it was held that the Legislature did not intend to limit the scope of exemption only to primary societies and that the phrase "product of its members" must be construed as including any society engaged in marketing agricultural produce "belonging to" its members. It said: "The language adopted in section 80P(2)(a)(iii) with which we are concerned will admit of the interpretation that the society engaged in marketing of agricultural produce of its members as agricultural produce 'belonging to' its members which is not necessarily raised by such member. Thus, when the provisions of section 80P of the Act admit of a wider exemption there is no reason to cut down the scope of the provision as indicated in Assam Co-operative Apex Marketing Society's case [1993] 201 ITR 338 (SC)." This decision was given in December, 1998. Immediately thereafter, section 80P(2)(a)(iii) was sought to be amended by the Income-tax Act (Second Amendment) Bill, 1998 (Bill No. 169 of 1998) Clause 8 of the Bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r an order to restrain the respondents from seeking to assess or reassess the appellant society in respect of any previous year prior to the date of the enactment of the amendment Act. The Delhi High Court dismissed the writ petition holding that the amendment was valid and that the Legislature was competent to retrospectively take away a benefit granted earlier by an amendment of the law. However, the court recorded the statement of the Solicitor General appearing on behalf of the respondent authorities that the amendment would apply only to assessments which were yet to be finalised. That the Legislature can enact laws retroactively is not in dispute. Nor is it disputed that the amendment is intended to be retrospective and that the amendment would at least prospectively exclude all co-operative societies except the primary society from the benefit of section 80P(2)(a)(iii) of the Income-tax Act. According to the appellants, the amendment cannot be considered to have retrospective operation in the absence of a validating provision nor could Parliament reverse the judgment of this court by such statutory overruling. If the amendment is construed as having retrospective operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes the Legislature gives its own meaning and interpretation of the law under which tax was collected and by legislative fiat makes the new meaning binding upon courts. The Legislature may follow any one method or all of them--Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality [1971] 79 ITR 136 (SC); [1969] 2 SCC 283." A validating clause coupled with a substantive statutory change is therefore only one of the methods to leave actions unsustainable under the unamended statute, undisturbed. Consequently, the absence of a validating clause would not by itself affect the retrospective operation of the statutory provision, if such retrospectivity is otherwise apparent. By the impugned amendment, the Legislature has substituted the word "of" which occurred in section 80P(2)(a)(iii) and which had been construed by this court in 1998 as "belonging to", with the phrase "grown by". The clear effect of the substitution, in keeping with general principles relating to amendments, would be that section 80P(2)(a)(iii) must be read as if the substituted phrase were included from the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when a Legislature sets out to validate a tax declared by a court to be illegally collected under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively: "It is not sufficient to declare merely that the decision of the court shall not bind, for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances". Once the circumstances are altered by legislation, it may neutralise the effect of the earlier decision of the court which becomes ineffective after the change of the law. Similarly in Krishnamurthi and Co. v. State of Madras [1973] 31 STC 190 [1973] 2 SCR 64; AIR 1972 SC 2455, the Madras General Sales Tax Act, 1959 (as it stood) provided under entry 47 for tax on "lubricating oils, all kinds of mineral oils (not otherwise provided for in this Act) quenching oil and greases with effect from April 1, 1964". The question was whether this ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of this court in Kerala Marketing [1998]231 ITR 814. In Madan Mohan Pathak [1978] 2 SCC 50; AIR 1978 SC 803 a settlement had been arrived between the Life Insurance Corporation and its employees, inter alia with regard to bonus payable to its classes III and IV employees. Subsequent to the settlement, the Payment of Bonus Act, 1976, came into force which considerably curtailed rights of employees to bonus in industrial establishments. Although the Payment of Bonus Act was not applicable to the Life Insurance Corporation, the Central Government issued a directive to the Life Insurance Corporation that it should not make payment of bonus to its employees without getting the same cleared by the Central Government. The Life Insurance Corporation issued a circular stopping the payment of bonus. The employees' association challenged this by way of a petition under article 226 and prayed for a writ directing the Life Insurance Corporation to act in terms of the settlement. The writ petition was allowed. While the appeal was pending before the Division Bench, Parliament enacted the Life Insurance Corporation (Modification of Settlement) Act, 1976. By the Act, the settlement deprived t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant's argument has been to the constitutionality of the amendment. The substitution in 1998 of the phrase "grown by" in section 80P(2)(a)(iii) of the Act to operate from 1968, it is argued, amounts to a new levy and an unforeseen financial burden imposed on apex societies like the appellant with effect from the past 30 years. If this were so doubtless the court may have considered the amendment to be excessively and unreason ably retrospective violating the appellants' fundamental rights under articles 19(1)(g) and 14 of the Constitution--Ujagar Prints V. Union of India [1989] 179 ITR 317; [1989] 3 SCC 488, 517. Bui in fact the grievance is unfounded. The test of the length of time covered by the retrospective operation cannot by itself, necessarily be a decisive test--Rai Ramkrishna v. State of Bihar [1963] 50 ITR 171 (SC); [1964] 1 SCR 897, 915; AIR 1963 SC 1667. Account must be taken of the surrounding facts and circumstances relating to the taxation and the legislative background of the provision-Jawaharmal v. State of Rajasthan, AIR 1966 SC 764; [1966] 1 SCR 890. To recapitulate the legislative background of the particular statutory provision in question before us--the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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