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TMI Blog2024 (9) TMI 1571X X X X Extracts X X X X X X X X Extracts X X X X ..... nd issues involved in all these appeals are identical, the said appeals were heard together and are being disposed of by this common judgment and order. 3. For the purpose of the adjudication, the facts of ITA No.2/2024 are being taken into consideration. The appellant, Williamson Financial Services Limited, is a Company (hereinafter to be referred as "the appellant Company"), incorporated under the Companies Act, 1956, engaged in the business of Lease Financing, Financial Advisory and Capital Market Operations, had filed its return of income for the Assessment Year 2013-14 on 26.09.2013 showing a loss of Rs.6,02,59,950/-. The case of the appellant Company was selected for scrutiny through CASS and a notice under Section 143(2) of the Act of 1961 was issued and thereafter, another notice under Section 142(1) of the Act of 1961 was issued asking the Assessee to file certain details and documents for the relevant period. The appellant Company, through its representative, had furnished the details before the Assessing Officer and the Assessing Officer, after considering the same, passed the Assessment Order on 04.02.2016. The operative portion of the Assessment Order dated 04.02.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease in revaluation of assets) * As per Rule 8D(3), the 'total assets' means, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but include the decease on revaluation of assets. (iii) Rs.43,39,402/- (being one half percent of the average of the value of investment of Rs.86,78,80,470/-, income from which does not or shall not form part of total income, as appearing in the balance sheet of the assessee, on the first day and the last of the previous year. Therefore, the interest relatable to the fund in shares, etc works out to Rs.10,62,10,110/- {i.e. the aggregate amount of (i)+(ii)+(iii) as determined above}. Since, assessee has already disallowed Rs.22,548,285/- as expenditure relating to exempt income in its computation already, the balance amount of Rs.8,36,61,825/- is hereby disallowed u/s 14A of the Income Tax Act, 1961. [Addition : Rs.8,36,61,825/-] 5. In view of above discussion, the total income of the assessee is computed as follows: COMPUTATION OF TOTAL INCOME Income From Business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above judgments, I hold that the Ld AO had correctly invoked the provisions of Section 14A of the IT Act, 1961 read with Rule 8D of the IT Rules, 1962 and, therefore, I, hereby confirm the invocation of the provisions of Section 14A of the IT Act, 1961 read with Rule 80D of the IT Rules, 1962. Having held that the provision of Section 14A of the IT Act, 1961 read with Rule 8D of the IT Rules, 1962 are applicable to the appellant, the only question which survives is as to whether the disallowance computed by the AO can exceed the aggregate of expenses claimed by the appellant or otherwise. I find that in the case of Joint Investment Private Limited vs. Commissioner of Income Tax [ITA No.117/2015 dated 25/02/2015], the Hon'ble Delhi High Court has averred as under:- "9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing `2,97,440/- as a disallowance under Section 14A had to be rejected. Taiksha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Apex Court. I therefore direct the Ld AO to restrict the disallowance under Section 14A of the Income claimed exempt. Thus, the above grounds of appeal are answered as under: a. That the AO was right in invocation of provisions of Section 14A read with Rule 8D and that he had rightly done so after recording a due satisfaction. b. That the disallowance made suo-motto by the appellant was incorrect and was never substantiated by the appellant. c. That the disallowance under Section 14A read with Rule 8D cannot exceed the income claimed exempt. In view of the above discussion, the above grounds of appeal are partly allowed. Decision on Ground No.3 During the course of appellate proceedings, no fresh/additional ground of appeal was raised and this ground of appeal is accordingly dismissed as not pressed. 9. In the result, the appeal is partly allowed. In the result, the appeal is decided as above. 10. This order has been passed under Section 250 read with Section 251 of the Income Tax Act, 1961. 4. Similarly, in ITA No.4/2024, the Assessment Order dated 01.12.2011; in ITA No.6/2024, Assessment Order dated 13.03.2015 and in ITA No.7/2024, Assessment Order dated 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erted by Finance Act, 2022 being clarificatory in nature has retrospective effect. It is contended that the said finding recorded by the Tribunal is contrary to law because the Ministry of Finance, Union of India, has issued Memorandum Explaining the Provisions in the Finance Bill, 2022 and clarified that the amendment to Section 14A of Income Tax Act whereby explanation is inserted will take effect from 01.04.2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years. It is also contended that the various High Courts have held that the Explanation inserted under Section 14A is prospective in nature. 9. In support of his submission, the learned counsel for the appellant has placed reliance on the decisions of the Delhi High Court rendered in (i) Principal Commissioner of Income Tax Vs. Era Infrastructure (India) Ltd, reported in [2022] 448 ITR 674 (Delhi), ITA No.204/2022, judgment dated 20.07.2022 [hereinafter to be referred as "Pr.CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022"]; [ii) Pr. Commissioner of Income Tax (Central)-2 Vs. M/s Era Infrastructure India Ltd., [ITA No.359/2024 & CM APPL. 39600/2024, order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal has declared that the judgment of Delhi High Court is not binding upon it. It is submitted that the said conduct of the members of the Tribunal is liable to be condemned. Learned counsel for the appellant has, therefore, prayed that the present appeals may kindly be allowed and the impugned order passed by the Tribunal may kindly be set aside and substantial questions of law may be answered accordingly. 12. Learned counsel for the Revenue has frankly admitted that in view of the Memorandum Explaining the Provisions of the Finance Bill, 2022, issued by the Ministry of Finance, it is now settled that the Explanation inserted to Section 14A of the Act of 1961, is prospective in nature and cannot be made effective retrospectively. 13. Heard the learned counsel appearing for the parties and also perused the material placed on record. The Explanation to Section 14A of the Income Tax Act, 1961 is inserted vide Finance Bill, 2022. The Ministry of Finance, Union of India, issued Memorandum Explaining the Provisions in the Finance Bill, 2022. The relevant extract of the said Memorandum reads as under: "Clarification in respect of disallowance under Section 14A in absence of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Income-tax act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in this Act. 7. This amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years." 14. Taking note of above, the Division Bench of Delhi High Court in "Pr. CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022" (supra), considering the question whether the Explanation inserted to Section 14A of Act of 1961 is retrospective or prospective in nature, has held as under: "However a perusal of the Memorandum of the Finance Bill, 2022 ([2022]440 ITR (St.) 226) reveals that it explicitly stipulates that the amendment made to Section 14A will take effect from 1st April, 2022 and will apply in relation to the assessment year 2022-23 and subsequent assessment years. The relevant extract of Clauses 4, 5, 6 & 7 of the Memorandum of Finance Bill, 2022 are reproduced hereinbelow: "4. In order to make the intention of the legislation clear and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w remained pending on 1-4-1979, cannot be cogent reason to make the Explanation applicable to the cases of the present assessees. This fortuitous circumstance cannot take away the vested rights of the assessees at hand.' The reasoning of the Gauhati High Court was expressly affirmed by this Court in CIT v. Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR 312] . These decisions are thus authorities for the proposition that the 1983 Explanation expressly introduced with effect from a particular date would not effect the earlier assessment years. In this state of the law, on 27-2-1999 the Finance Bill, 1999 substituted the Explanation to Section 9(1)(ii) (or what has been referred to by us as the 1999 Explanation). Section 5 of the Bill expressly stated that with effect from 1-4-2000, the substituted Explanation would read: 'Explanation.--For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for-- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 119 of the Act, never the less affords a reasonable construction of it, and there is no reason why we should not adopt it. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR 312] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139 : 1980 SCC (Tax) 67] .) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of U.P., (1981) 2 SCC 585, 598 : AIR 1981 SC 1274, 1282 para 24] . If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482, 506]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India" and brings about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively." (emphasis supplied) Consequently, this Court is of the view that the amendment of Section 14A, which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood." 15. In Pr.CIT Vs. M/s Era Infrastructure India Ltd., order dated 16.07.2024 (supra), the Delhi High Court, relying on the decision rendered in "Pr.CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022" (supra), has dismissed the appeal preferred on behalf of the Revenue. 16. The High Court of Kolkata in M/S Jas Toll Road Company Ltd. (supra) has dismissed the appeal filed by the Revenue while relying on the decision of the Delhi High Court rendered in "Pr.CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022" (supra) and held that the explanation inserted to Section 14A by Finance Act, 2022 will be applicable prospectively. The operative portio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided against the revenue." 18. Later on, the Delhi High Court, in Uniparts India Ltd. (supra), has made a specific statement that so far as the applicability of Explanation inserted to Section 14A by Finance Bill, 2022 is concerned, it is settled that the same will apply prospectively. 19. The High Court of Madhya Pradesh has also followed the same view in Principal Commissioner of Income Tax (Central) Vs. Keti Construction Ltd., reported in [2024] 162 taxmann.com. 20. In view of the Memorandum Explaining the Provisions in the Finance Bill, 2022 and various decisions rendered by the different High Courts, we also hold that the Explanation inserted to Section 14A vide Finance Act, 2022 is applicable prospectively. In view of above discussions, the substantial questions of law framed in these appeals are answered as follows: (i) the order passed by the Tribunal dated 06.07.2022, holding that insertion of Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory and thereby retrospective in nature, is erroneous in law. (ii) the findings of the Tribunal to the effect that the insertion of Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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