TMI Blog2018 (2) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... d:- 31-1-2018 - Mr. A.K. Sikri And Mr. Ashok Bhushan JJ. C.A.No.1429 of 2018 @ SLP(C) No. 36560 of 2012, C.A. No. 117 of 2015, C.A. No. 5101 of 2012, C.A. No. 118 of 2015, C.A. No. 6727 of 2015, C.A. No. 119 of 2015, C.A. No. 116 of 2015, C.A. No. 194 of 2015, C.A. No. 114 of 2015, C.A. No. 120 of 2015, C.A. No. 7395 of 2012, C.A. No. 7394 of 2012, C.A. No. 121 of 2015, C.A. No. 122 of 2015, C.A. Nos.14301432 of 2018 @ SLP(C) No. 85078509 of 2012, C.A. No. 128 of 2015, C.A.No.1433 of 2018 @ SLP(C) No. 21294 of 2012 C.A. No. 113 of 20151, C.A. No. 7797 of 2012, C.A. No. 381 of 2013 , C.A. No. 7426 of 2012, C.A. No. 8195 of 2012, C.A. No. 126 of 2015, C.A. No. 8800 of 2012, C.A. No. 3273 of 2013, C.A.No.1434 of 2018 @ SLP(C) No. 10986 of 2013, C.A. No. 124 of 2015, C.A. No. 1101 of 2013, C.A. No. 129 of 2015, C.A. No. 125 of 2015, 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. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, Adv., Mr. K. Gopal, Adv., Mr. Sumit Lal Chandani, Adv., Ms. Soumya Singh, Adv., Mr. Praveen Swarup, AOR, Mr. Ajay Aggarwal, Adv., Ms. Mallika Joshi, Adv., Mr. Rajan Narain, AOR, Mr. S. Vasudevan, Adv., Mr. Saurabh Sood, Adv., Mr. Shashank Sharma, Adv., Mr. Aditya Bhattacharya, Adv., Mr. Punit Dutt Tyagi, AOR, Mr. B. S. Banthia, AOR, Ms. Aruna Gupta, AOR, Mr. Naveen Kumar, AOR, Mr. Percy B. Pardiwalla, Sr. Adv., Mr. Rajiv Tyagi, AOR, Mr. Jagdish Kumar Chawla, AOR, Mr. Rustom B. Hathikhanawala, AOR, Mr. Bimal Roy Jad, AOR, Mr. N.G. Dev, Adv., Mr. Swami Nath, Adv., Ms. Vithika Garg, Adv., Ms. Vidushi Garg, Adv., Mr. Vijay Kumar, AOR, Mr. Bhargava V. Desai, AOR, Mr. S. Gowthaman, AOR, Mr. R. Sudhinder, Adv., Mr. Ashok Mathur, AOR, Ms. Amrita Sarkar, Adv., Mr. Birendra Kumar Mishra, AOR, Mrs. Shally Bhasin, AOR, Mr. Ajay Sharma, AOR And Mr. 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, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITAT, the revenue filed an appeal before the High Court. The High Court following its earlier judgment of Godrej and Boyce Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax, Mumbai Anr. (supra) dismissed the appeal. The Commissioner of Income Tax aggrieved by the judgment of the High Court has come up in this appeal. 6. In the appeal, the only question, which has been pressed for our consideration is the first question, which was raised before the High Court, which is to the following effect: Whether on the facts and circumstance of the case and in law, the Hon ble ITAT is right in holding that applicability of Rule 8D is only prospective in operation and for the year under assessment it was not applicable? 7. Thus, in this batch of appeals, the only question to be considered and answered is as to whether 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (14th Amendment Rules, 2016) w.e.f. 02.06.2016 by which a new methodology of computing the expenditure in relation to income which does not form part of the total income has been brought in place. In event, the argument is accepted that Rule 8D is retrospective, which rule shall hold the field, whether Rule 8D as inserted w.e.f. 24.03.2008 or one which has been substituted w.e.f. 02.06.2016? The amendment made w.e.f. 02.06.2016 reinforces that the methodology of computing the expenditure in relation to income which does not form part of the total income is prospective and has been change w.e.f. 02.06.2016, no other interpretation is permissible. He further submits that subordinate legislation is ordinarily prospective and Rule 8D being subordinate legislation can have no retrospective effect. Learned counsel for the assessees have also placed reliance 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 Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent they are relatable to the earning of taxable income. It is proposed to insert a new section 14A so as to clarify the intention of the Legislature since the inception of the Income-tax Act, 1961, that no deduction shall be made in respect of any expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act. The proposed amendment will take effect retrospectively from 1st April, 1962 and will accordingly, apply in relation to the assessment year 19621963 and subsequent assessment years. 16. Section 14A being retrospective in operation w.e.f. 01.04.1962, was being used by the Assessing Officers for reopening the assessments, the Central Board of Direct Taxes came with a clarification vide Circular No. 11 of 2001 dated 23.07.2001. Para 4 of the Circular stated as follows: The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It is also proposed to provide that provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income. This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 200708 and subsequent years. 20. After the changes made in Section 14A by the Finance Act, 2006, a Circular No.14/2006 dated 28.12.2006 was issued, in which Para 11 of the Circular gave following explanation: 11.1 Section 14A of the Income-tax Act, 1961, provides that for the purposes of computing the total income 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of interest included in clause ( i ) incurred during the previous year; B= the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; C= the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; ( iii ) an amount equal to onehalf per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of 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 Interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pening them. There is no fixed formula for the expression of legislative intent to give retrospectivity to a taxation enactment...... 25. A three Judge Bench of this court in 1976 (1) SCC 906, Govind Das and others Versus the Income Tax officer and another, noticing the settled rules of interpretation laid down following in paragraph 11: 11. Now it is a well settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose 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 crea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., 2015 (1) SCC 1, while considering as to whether Proviso inserted in Section 113 of Income Tax Act w.e.f. 01.06.2002 is prospective or clarificatory /retrospective noticed the general principles concerning retrospectivity. Following was laid down by the Constitution Bench in Paras 28, 29 and 33: 28. Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something 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 genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislation, the legislature has power to make the provision retrospectively. In R.C. Tobacco (P) Ltd. v. Union of India, this Court stated broad legal principles while testing a retrospective statute, in the following manner: (SCC pp. 73738 740, paras 2122 28) (i) A law cannot be held to be unreasonable merely because it operates retrospectively; (ii) The un-reasonability must lie in some other additional factors; (iii) The retrospective operation of a fiscal statute would have to be found to be unduly oppressive and confiscatory before it can be held to be unreasonable as to violate constitutional norms; (iv) Where taxing statute is 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 28. The sub-section (2) and sub-section (3) were inserted in Section 14A by Finance Act, 2006. The memorandum explaining the provision in Finance Bill, 2006, in reference to the methods for allocating expenditure in relation to exempt income as extracted above clearly mentions that amendments brought by Finance Bill, 2006 will 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 20072008. The Rule 8D prescribing the method was brought into statute book with effect from 24.03.2008 to implement sub-section (2) and sub-section (3) with effect from assessment year 20072008, is clear indicator of the fact that a new method for computing the expenditure was brought in by the rules which was to be utilized for computing expenditure for the Assessment Year 20072008 and onwards. 33. When Section 14A was inserted by Finance Act, 2001, it was with retrospective effect with effect from 01.04.1962 where as Finance Act, 2006, by which sub-section (2) and sub-section (3) to Section 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, howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on against the Revenue, which was taken in appeal before this Court. This Court, after noticing the various principles of statutory interpretation held that procedural law generally speaking is applicable to pending cases. Interpreting Rule 1BB following was held in para 23 and 25: 23. We may now turn to the scope and content of Rule 1BB. The said rule merely provides a choice amongst well known and well settled modes of valuation. Even in the absence of Rule 1BB it would not have have been objectionable, nor would there be any legal impediment, to adopt the mode of valuation embodied 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any made the position clear that the penalty was in addition to any tax which may be paid by the assessee. Therefore, even if no tax was payable, the penalty was leviable. It is in that context submitted that even prior to the amendment it could not be read to mean that if no tax was payable by the assessee because of filing a return disclosing loss, the assessee is not liable to pay penalty even if the assessee concealed and/or furnished inaccurate particulars. Because some High Courts took the contradictory view, Parliament clarified the position by changing the expression 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of the aforesaid proposition put forth as an illustration that since charge made by the legislator in procedural provisions is excepted to be for the general benefit of litigants and others, it is presumed that it applies to pending as well as future proceedings. 43. There cannot be any dispute to the preposition that machinery provision of of taxing statute has to give effect to its manifest purposes. But the applicability of the machinery provision whether it is prospective or retrospective depends on the content and nature of the Statutory Scheme. In the above 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing amounts, namely: (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income: Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.] 46. The method for determining the amount 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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