Income Tax Rules, 1962 – r.8D – Said rule providing for machinery to give effect to charging section, i.e. s.14A, Sub-sections
(2) and (3) of Income Tax Act, 1961 – Nature of operation – Prospective or Retrospective – Plea of appellant-revenue that charging section i.e. s.14A being retrospective, the machinery provision,i.e. r.8D has also to be retrospective – Held: Provisions of s.14A, inserted by Finance Act, 2001, were fully workable without there being any mechanism provided for computing the expenditure incurred in relation to income which does not form part of the total income – Sub-sections (2) and (3), providing to determine the amount of such expenditure, were inserted by amendment in s.14A by Finance Act, 2006 – Memorandum explaining the provision in Finance Bill, 2006, clearly mentioned that amendments brought by Finance Bill, 2006 would take effect from 01.04.2007 – Circular dtd. 28.12.2006 issued by Central Board of Direct Taxes (CBDT) itself also provided that sub-sections (2) and (3) of s.14A were to be implemented w.e.f. 2007-08 – Further, r.8D was inserted in 1962 Rules by notification dtd. 24.03.2008 indicating that the new method provided thereunder for computing the expenditure was to be utilized for the Assessment Year 2008-09 and onwards – There is no indication in r.8D that it was intended to apply retrospectively – Thus, applying the principles of statutory interpretation for interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of sub-ss. (2) and (3) of s.14A as well as purpose and intent of r.8D coupled with the explanatory memorandum in the Finance Bill, 2006 and the departmental understanding as reflected by Circular dated 28.12.2006, it is clear that r.8D was intended to operate prospectively – Interpretation of Statutes – Income Tax Act, 1961 – Finance Act, 2001 – Finance Act, 2006 – Income Tax (14th Amendment Rules, 2016) – Circulars/Notifications – Circular No. 14/2006 dtd. 28.12.2006.
Interpretation of Statutes – Nature of operation – Prospective or retrospective – Held: Every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation – However, mere date of enforcement of statutory provisions does not lead to the conclusion that the statute is prospective in nature.
Maxims – “nova constitutio futuris formam imponere debet non praeteritis” – Principle of presumption of prospectivity of a statute – Discussed.
Interpretation of Statutes – Machinery provision of a taxing statute – Prospective or retrospective – Held: Applicability of the machinery provision whether it is prospective or retrospective depends on the content and nature of the statutory scheme.
Dismissing the appeals filed by Revenue, the Court HELD: 1. The legislature has plenary power of legislation within the fields assigned to them, it may legislate prospectively as well as retrospectively. It is a settled principle of statutory construction that every statute is prima facie prospective unless it is expressly or by necessary implications made to have retrospective operations. Legal Maxim “nova constitutio futuris formam imponere debet non praeteritis”, i.e. ‘a new law ought to regulate what is to follow, not the past’, contain a principle of presumption of prospectivity of a statute. [Para 23][516-D-E]
“Principles of Statutory Interpretation” 14 th Edition, in Chapter 6 by Justice G. P. Singh – relied on.
2.1 The sub-sections (2) and (3) were inserted in Section 14A, Income Tax Act, 1961 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 clearly mentioned that amendments brought by Finance Bill, 2006 will take effect from 01.04.2007. After insertion of sub-section (2) and (3) in Section 14A by Finance Bill, 2006, Circular dated 28.12.2006 was issued by the Central Board of Direct Taxes. [Paras 28, 30][522-F-G; 523-F]
2.2 Income Tax Rules, 1962 were amended by notification dated 24.03.2008 by which Rule 8D was inserted. The methodology for determining amount of the expenditure in addition to income not includable in total income was for the first time prescribed by Rule 8D as was envisaged in Section 14A sub-section (2) and sub-section (3). [Paras 21, 31][515-A; 523G-H]
The Commissioner of Income Tax (Central – 1 New Delhi) v. Vatika Township Pvt. Ltd. 2015 (1) SCC 1 : [2014] 12 SCR 1037 – followed.
2.3 Explanatory memorandum issued with the Finance Bill, 2006 and the CBDT circular dated 28.12.2006, clearly indicates that department understood that sub-section (2) and sub-section
(3) was to be implemented with effect from assessment year 20072008. 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 2008-09, 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 2008-09 and onwards. [Para 32][524-B-C]
3.1 When Section14A was inserted by Finance Act, 2001, it was with retrospective effect with effect from 01.04.1962 whereas 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. It is, however, well settled that the mere date of enforcement of statutory provisions does not conclude that the statute is prospective in nature. The nature and content of statute have to be looked into to find out the legislative scheme and the nature, effect and consequence of the statute. [Para 33][524-D-G]
3.2 Section 14A was inserted by Finance Act, 2001 and the provisions were fully workable without there being any mechanism provided for computing the expenditure. Although Section 14A was made effective from 01.04.1962 but Proviso was immediately inserted by Finance Act, 2002, providing that Section 14A shall not empower assessing officer either to reassess under Section
147 of the 1961 Act or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessees under Section 154 of the 1961 Act, for any assessment year beginning on or before 01.04.2001. Thus, all concluded transactions prior to 01.04.2001 were made final and not allowed to be re-opened. [Para 35][525-A-C]
4. Machinery provision of a 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. [Para 43][529-BC] Commissioner of Income Tax – III v. Calcutta Knitwears, Ludhiana (2014) 6 SCC 444 – distinguished.
5.1 Rule 8D was again amended by Income Tax (Fourteenth Amendment) Rules, 2016 w.e.f. 02.06.2016, by which Rule 8D sub-rule (2) was substituted by a new provision. The method for determining the amount of expenditure brought in force w.e.f. 24.03.2008 has been given a go-bye 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. [Paras 45, 46][530-E-H; 531-AB]
5.2 The methodology as provided under Rule 8D was neither a well-known nor well-settled mode of computation. The new mode of computation was brought in place by Rule 8D. No assessing Officer, even in his imagination could have applied the methodology, which was brought in place by Rule 8D. There is no indication in Rule 8D to the effect that it was intended to apply retrospectively. Applying the principles of statutory interpretation for interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of sub-section (2) and sub-section (3) of Section 14A as well as purpose and intent of Rule 8D coupled with the explanatory notes in the Finance Bill, 2006 and the departmental understanding as reflected by Circular dated 28.12.2006, it is clear that Rule 8D was intended to operate prospectively. It is held that Rule 8D is prospective and could not have been applied to any assessment year prior to Assessment Year 2008-09. [Paras 39, 48 and 50][526-F-G; 531-G-H; 532-E] Godrej Boyce and Manufacturing Company Limited v. Deputy Commissioner ofIncome Tax, Mumbai & Anr. (2010) 328 ITR 81(Bom.)- approved.
Commissioner of Income Tax I, Ahmedabad v. Gold Coin Health Food Private Limited (2008) 9 SCC 622: [2008] 12 SCR 179; Commissioner of Wealth Tax, Meerut v. Sharvan Kumar Swarup & Sons (1994) 6 SCC
623 : [1994] 3 Suppl. SCR 750 – distinguished. Govind Das and others v. the Income Tax officer and another (1976) 1 SCC 906 : [1976] 3 SCR 44; Jayam and company v. Assistant Commissioner & Ors. (2016)
15 SCC 125 : [2016] 6 SCR 787 – relied on.
Godrej and Boyce Manufacturing Company Limited v. Deputy Commissioner of Income Tax, Mumbai and Another (2017) 7 SCC 421; State of Jharkhand & Ors. v. Shiv Karampal Sahu (2009) 11 SCC 453 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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