TMI Blog2019 (2) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Vatika Township (P.) Ltd. [2014 (9) TMI 576 - SUPREME COURT] we hold that the ammendment brought out in section 37(1) by inserting explanation 2 by Finance (No. 2) Act, 2014 w.e.f. 01.04.2015 is prospective and assessee’s assessment year being 2013-14 will not apply and hence, revision proceedings of CIT is without any basis and quashed. - Appeal of assessee is allowed. - ITA No. 2902/Mum/2018 - - - Dated:- 31-12-2018 - Sri Mahavir Singh, JM And Sri Manoj Kumar Aggarwal, AM For the Appellant : Shri Nitesh Joshi, AR For the Respondent : Shri Santanu Kumar Saikin, DR ORDER PER MAHAVIR SINGH, JM: This appeal by the assessee is arising out of the Revision order of Commissioner of Income Tax (LTU), in appeal No. Nil vide order dated 19.03.2018. The Assessment was framed by the Asst. Commissioner of Income Tax (LTU)-2, Mumbai (in short ACIT(LTU)-2/ AO ) for the A.Y. 2013-14 vide order dated 21.03.2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter the Act ). 2. The only issue in this appeal of assessee is against the revision order passed by CIT(LTU) under section 263 of the Act in respect of allowability of Corporate Social Respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: - 6 The Company has also submitted that the explanation 2 to section 37(1) was inserted by the Finance Act 2014 w.e.f AY 2015-16 and therefore, cannot be applied for the year under consideration. Insertion of explanation 2 to Section 37(1) As per section 135 of Companies Act, 2013, w.e.f 01.04.2014, every company, private limited or public limited which either has a net worth of ₹ 500 crore or turnover of ₹ 1,000 crore or net profit of ₹ 5crore is required to spend at least 2% of its average net profit of the immediately preceding three financial years on specified CSR activities. The Income Tax Act introduced Explanation 2 to section 37(1) which was inserted by Finance (No. 2) Act. 2014 w.e.f. financial year beginning from 1 April. 2014 which reads as under: For the removal of doubts, it is hereby declared that for the purpose of sub section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall no: be deemed to be an expenditure incurred by the assessee for the purpose of the business or profession. The amendment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies (which have net worth of ₹ 500 crore or more, or turnover of ₹ 1000 crore or more, or a net profit of ₹ 5 crore or more during any financial year) are required to spend certain percentage of their profit on activities relating to Corporate Social Responsibility (CSR). Under the existing provisions of the Act, expenditure incurred wholly and exclusively for the purposes of the business is only allowed as a deduction for computing taxable business income. CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. The provisions of section 37(1) of the Act provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. 32. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [1994] 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain aformer legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as clarificatory or declaratory in nature. Such statutory provisions are labeled as declaratory statutes . The circumstances under which a provision can be termed as declaratory statutes is explained by Justice G.P. Singh [Principles ofStatutory Interpretation, 13th Edition 2012 published by LexisNexis Butterworths Wadhwa, Nagpur] in the following manner: Declaratory statutes The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court : For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplication retrospective. CED v. M.A. Merchant 1989 Supp (1) SCC 499. We would also like to reproduce hereunder the following observations made by this Court in the case of Govinddas v. ITO [1978] 103 ITR 123, while holding Section 171 (6) of the Income- Tax Act to be prospective and inapplicable for any assessment year prior to 1st April, 1962, the date on which the Income Tax Act came into force: 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 (3rdEdn.) 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 prospectively and retrospective operation should not be given to a statute so as to affect, alter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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