TMI Blog2003 (3) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80P(2)(a)(iii) of Income Tax Act, 1961 and grant of deduction of the profits made by societies by the marketing of agricultural produce. 3. Under the Income Tax Act, 1922 (hereinafter referred to as the 1922 Act) exemption was granted in respect of profits and gains of business of co-operative 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 cooperative society- (i) in respect of the profits and gains of business carried on by it, if it is - (a)x x x (b)x x x (c) a society engaged in the marketing of the agricultural produce of its members . 4. By the Finance Act (No. II) 1967, Section 81 was omitted and its provisions re-enacted as Section 80P of the 1961 Act. The relevant extract of Section 80P is: -P (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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rala Cooperative Marketing Federation Ltd. and Ors. v. Commissioner of Income Tax, overruled Assam Cooperatives and held that the word 'of' in Section 80P(2)(a)(iii) had been too restrictively construed in Assam Cooperatives. 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 'produce 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 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 Coop. Apex Marketing Society Case . 8. This decision was given in December 1998. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Article 226. They prayed for a declaration that the 1999 Amendment Act in so far as it seeks to retrospectively amend Section 80P(2)(a)(iii) of the Income Tax Act, 1961 was unconstitutional, and for an order to restrain the respondents from seeking to assess or re-assess the appellant society in respect of any previous year prior to the date of the enactment of the Amendment Act. 12. 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. 13. That the Legislature can enact laws retrospectively 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 cooperative societies except the primarily society from the benefit of Section 80P(2)(a)(iii) of the Income Tax Act. According to the appellants, the amendment cannot be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is done by providing for jurisdiction where jurisdiction had no t been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision 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 v. Broach Borough Municipality [1971]79ITR136(SC) . 17. By 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, he absence of a validating clause would not by itself affect the retrospective operation of the statutory provision, if such retrospectivity is otherwise apparent. 18. 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 gown by . The clear eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity, Supra held that the legislature could exercise its undoubted powers of redefining the word 'rate' in Section 73 to validate the assessments earlier made under Rule 350A. The Court held that when a Legislature sets out a 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 . 22. 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. 23. Similarly in Krishnamurthi Co. v. State of Madras and Anr.,[1973]2SCR54 the Madras General Sales Tax 1959 Act (as it stood) provided un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt's decision in Madan Mohan Pathak v. Union of India (1978)ILLJ406SC to contend that what the legislature had done in the present case was to statutorily overrule the decision of this Court in Kerala Marketing. In Madan Mohan Pathak a settlement had been arrived between the Life Insurance Corporation and its employees, inter-alia with regard to bonus payable to its class 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 LIC that it should not make payment of bonus to its employees without getting the same cleared by the Central Government. The LIC 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 LIC 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 Sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionality 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 unreasonably retrospective violating the appellants fundamental rights under Articles 19(1)(g) and 14 of the Constitution. Ujagar Prints and Ors. v. Union of India and Ors. [1989]179ITR317a(SC) . 517 But in fact the grievance is unfounded. 28. The test of the length of time covered by the retrospective operation cannot by itself, necessarily be a decisive test. Rai Ramkrishna and Ors. v. The State of Bihar [1963]50ITR171(SC) Account must be taken of the surrounding facts and circumstances relating to the taxation and the legislative background of the provision. Jawahamal v. State of Rajasthan [1966]1SCR890 To recapitulate the legislative background of the particular statutory provision in question before us - the first authoritative interpretation of Section 80P(2)(a)(iii) was made in 1994 in Assam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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