STAY OF RECOVERY GRANTED BY GUJARAT HIGH COURT ON 80IA(IV) , INFRASTRUCTURE UNDE

[pawansingla]

2009-TIOL-719–HC–AHM-IT

IN THE HIGH COURT OF GUJARAT

CIVIL APPLICATION - FOR INTERIM RELIEF No. 12397 of 2009
SPECIAL CIVIL APPLICATION No. 10835 of 2009
CIVIL APPLICATION No. 12400 of 2009
SPECIAL CIVIL APPLICATION No. 10831 of 2009
CIVIL APPLICATION No. 12401 of 2009
SPECIAL CIVIL APPLICATION No. 10830 of 2009
CIVIL APPLICATION No. 12403 of 2009
SPECIAL CIVIL APPLICATION No. 10828 of 2009
CIVIL APPLICATION No. 12404 of 2009
SPECIAL CIVIL APPLICATION No. 10864 of 2009

KETAN CONSTRUCTION LTD

Vs

UNION OF INDIA, THROUGH SECRETARY & 2

K A Puj And Rajesh H Shukla, JJ

Dated : December 1, 2009

Appellant Rep. by : Mr S N Soparkar Sr Counsel with Mrs Swati Soparkar
Respondent Rep. by : Mr P S Champaneri, Mr M R Bhatt, Sr Counsel with Mrs Mauna M Bhatt

Income tax - Sec 80IA(4) - Revenue issues show cause notice to disallow deduction - Assessee challenges the vires of insertion of Explanation to Sec 80IA(4) vide Finance No 2 Act, 2009 retrospectively from the year 2000 - seeks stay - held, Revenue can proceed with assessment or re-assessment but not to enforce any demand till dispoal of this appeal - stay not granted - case disposed off

JUDGEMENT

Per : K A Puj :

Rule. Mr. P.S. Champaneri, learned Asstt. Solicitor General and Mr. M.R.Bhatt, learned Senior Counsel waive service of rule.

The applicants - ori. petitioners in their respective petition have filed these Civil Applications praying for stay against the implementation, operation and execution of the Explanation inserted by Finance No.2 Act, 2009 to Section 80-IA(4) of the Income-Tax Act, 1961. The applicants have also prayed for stay against the respondents from giving effect to the provisions of Explanation to Section 80-IA(4) of the Income-Tax Act.

One copy being served to the respondents an affidavit-in-reply is filed in each of these applications on behalf of the respondent No.3.

Heard Mr. S. N. Soparkar, learned Senior Counsel appearing for the applicants - ori. petitioners and Mr.P.S.Champaneri, learned Asstt. Solicitor General for the respondent No.1 and Mr. M. R. Bhatt, learned Senior Counsel for respondent Nos.2 and 3 in all these applications.

The applicants initially filed petition before this Court challenging the vires of the provisions contained in Section 80-IA(4) read with Explanation thereto. This Court has issued the rule and with regard to the interim relief it was observed that at present no cause of action for interim relief is made out and hence, it was not granted. However, liberty was reserved for the petitioner to apply for interim relief in case cause of action arises.

Subsequent to the said order, so far as Civil Application No.12397 of 2009 is concerned, the applicant has received notice from the Assessing Officer with regard to the assessment year 2007-08. One of the issues raised in the said application is that as per the amendment of the Finance No.2 Act, 2009 with effect from 1.4.2009 as per Explanation to Section 80IA(4), the assessee Company does not fulfill the condition as laid down under Section 80IA(4) of the Act. Hence, as per the stand of the department, the applicant is not entitled for claim of deduction under Section 80IA(4) of the Act. The applicant was, therefore, directed to show cause as to why the entire claim of deduction under Section 80IA(4) made by the applicant should not be disallowed and the same may be treated as taxable income. The applicant was directed to furnish justification of claim of Section 80IA(4) for the projects which were carried out through joint venture.

On receipt of the above notice and on initiation of similar such action in other matters the present Civil Applications are filed by the petitioners.

Mr. Soparkar has taken us through the provisions contained in Section 80IA (4) of the Income-Tax Act and changes made therein from time to time. He has specifically invited our attention to the Explanation inserted by Finance No.2 Act, 2009 to Section 80IA (4) of the Act. The said Explanation is made applicable retrospectively with effect from 1.4.2000. He has further submitted that under Section 80IA (4) (earlier Section 80IA (4)A ) has been on the Statute Book since 1996 and, with effect from assessment year 1996-97 has conferred on assessee, being an undertaking engaged in the business of developing, maintaining and operating any infrastructure facilities, a deduction equal to 100% of the profits of such an undertaking for initial 5 years and thereafter a deduction equal to 30% of the profits of such an undertaking. However, there was no distinction between the undertakings developing, maintaining and operating any infrastructure facilities on their own accord or on behalf of someone and this has been the consistent understanding of the Income-Tax Authorities themselves right from 1996-97 onwards. The Finance (No.2) Act, 2009 has sought to insert an Explanation to provisions of Section 80IA (4) of the Act which has resulted into denial of deduction under Section 80IA (4) of the Act, to the applicant retrospectively. He has, therefore, submitted that by virtue of the Explanation, the scope of the main substantive Section has been restricted which is not permissible under the law.

In support of this submission he relied on the decision of Apex Court in the case of S. Sundaram Pillai Vs. V. R. Pattabiraman, reported in AIR 1985 SC 582, wherein while considering the impact of the Explanation on the proviso the Court held that it is now well settled that an Explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning of the word itself shows it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision. The Court thereafter referred to various standard books on Interpretation of statute and laid down the legal propositions that the object of an Explanation to statutory provision is :-

(a) to explain the meaning and intendment of the Act itself.

(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve.

(c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful.

(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and right with which any person under a statue has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.

Mr. Soparkar further submitted that the Explanation to Section 80IA (4) is brought on the statute book with retrospective effect from 1.4.2000 which is not permissible. In support of this submission he relied on the decision of the Apex Court in the case of Tata Motors Ltd., Vs. State of Maharashtra and others, reported in AIR 2004 SC 3618, wherein it is held that the Legislature has the powers to make laws retrospectively including tax laws, Levies can be imposed or withdrawn but if a particular levy is sought to be imposed only for a particular period and not prior or subsequently it is open to debate whether the statute passes the test of reasonableness at all. The Court further observed that although the State has enormous powers in the matter of legislation both prospectively and retrospectively and can evolve its own policy, it cannot be said that in the present cases any material has been placed before the Court as to why the amendments were confined only to a period of eight years and not either before or subsequently and, therefore, the impugned provision, namely, Section-26 deserves to be quashed by striking down the words 'not being waste goods or scrap goods or by-products' occurring in the said Section-26 of the Maharashtra Act 9 of 1989 and the authorities concerned shall rework assessments as if that law had not been passed and give appropriate benefits according to law to the parties concerned.

Mr. Soparkar further relied on the decision of the Apex Court in the case of National Agricultural Cooperative Marketing Federation of India Ltd., and Anr Vs. Union of India and others, reported in (2003) 5 SCC 23, wherein it is held that the legislative power either to introduce enactments for the first time or to amend the enacted law with retrospective effect, is not only subject to the question of competence but is also subject to several judicially recognized limitation. The first is the requirement that the words used must expressly provide or clearly imply retrospective operation. The second is that the retrospectivity must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional. The third is apposite where the legislation is introduced to overcome a judicial decision. The power cannot be used to subvert the decision without removing the statutory basis of the decision.

In Municipal Committee, Patiala Vs. Model Town Residents Association & Ors., reported in AIR 2007 SC 2844, it is held that it is not open to the High Court under Article-226 of the Constitution, particularly in the matter of taxation directing it not to amend the law retrospectively. Such a direction is unsustainable, particularly in a taxing statute. It is always open to the State Legislature, particularly in tax matters, to enact validation laws which apply retrospectively.

In Bhavesh D. Parish and others Vs. Union of India, reported in AIR 2000 SC 2047, when considering an application for staying the operation of a piece of legislation, and that too pertaining to economic reform or change then the Courts must bear in mind that unless the provision is manifestly unjust or glaringly unconstitutional, the Courts must show judicial restrain in staying the applicability of the same. Merely because a statute comes up for examination and some arguable point is raised, which persuades the Courts to consider the controversy, the legislative will should not normally be put under suspension pending such consideration, it is now well settled that there is always a presumption in favour of the constitutional validity of any legislation, unless the same is set aside after final hearing and, therefore, the tendency to grant stay of legislation relating to economic reform, at the interim stage, cannot be understood.

Mr. Soparkar, therefore, submitted that implementation and operation of the Explanation should be stayed by this Court and the petitioner's interest should be protected by restraining the department from taking any further action pursuant to the said Explanation.

Mr. M. R. Bhatt, learned Senior Counsel appearing for the revenue, on the other hand, has submitted that so far as taxing statute is concerned, the Court should not grant any stay. He has further submitted that any provision in taxing statute till it is declared as ultra vires it should be deemed to be intra vires and presumption is always in favour of the legislation being constitutionally valid. He has further submitted that the amendment to Section 80IA (4) made by virtue of the Finance (No.2) Act, 2009, is only clarificatory in nature and it clarifies the position, existence and prior to the date of insertion. He has further submitted that merely because the assessing Officer, after taking recourse to the said Explanation, finalizes the proceedings under the Act, it itself is no ground on the part of the applicants to contend that irreparable loss is caused to them. He has further submitted that there is settled position in law simply because there is some inconvenience to the assessee and certain hardships are likely to be faced by virtue of the particular amount the same may not be ground to grant stay against the implementation of the statute. In support of this submission, Mr. Bhatt relied on the following decisions of the Apex Court :-

(I) In Municipal Committee, Patiala Vs. Model Town Residents Association & Ors., reported in AIR 2007 SC 2844, it is held that it is not open to the High Court under Article-226 of the Constitution, particularly in the matter of taxation directing it not to amend the law retrospectively. Such a direction is unsustainable, particularly in a taxing statute. It is always open to the State Legislature, particularly in tax matters, to enact validation laws which apply retrospectively.

(II) In Bhavesh D. Parish and others Vs. Union of India, reported in AIR 2000 SC 2047, when considering an application for staying the operation of a piece of legislation, and that too pertaining to economic reform or change then the Courts must bear in mind that unless the provision is manifestly unjust or glaringly unconstitutional, the Courts must show judicial restrain in staying the applicability of the same. Merely because a statute comes up for examination and some arguable point is raised, which persuades the Courts to consider the controversy, the legislative will should not normally be put under suspension pending such consideration, it is now well settled that there is always a presumption in favour of the constitutional validity of any legislation, unless the same is set aside after final hearing and, therefore, the tendency to grant stay of legislation relating to economic reform, at the interim stage, cannot be understood.

Based on these submissions, case law on the subject, he submitted that no interim relief should be granted and all the applications should be rejected.

Having heard learned counsels appearing for the parties and having gone through the memo of Civil applications, reply-affidavit as well as submissions made by the parties, we are of the prima facie view that the challenge to the Explanation to Section 80IA (4) of the Act is the subject matter of the respective petitions and those petitions have already been admitted by this Court and the issue regarding the constitutional validity of the provisions will be considered at the time of final disposal of the petitions. Hence, in the present Civil Applications, the prayer for stay against the implementation of the said provision or the suspension thereof cannot be granted. However, if, on the the basis of amended provision, the Income Tax Department proceeds to raise any demand, at least to that extent the interest of the petitioners is required to be protected. While keeping the issue regarding constitutional validity of these provisions open, we restrain the department from enforcing any demand that may be raised pursuant to any order that may be passed by them after invoking the Explanation to Section 80-IA (4) of the Act. We, however, make it clear that we are not granting any stay against the further proceedings initiated for assessment and/or reassessment but, if any demand is raised as a result of such action, and if such demand has any nexus with the applicability of Explanation to Section 80IA (4) of the Act, such should be put in abeyance till final disposal of all these petitions.

Subject to the aforesaid observations all these Civil Applications are disposed off.

Office is directed to notify all these petitions for final hearing on 29.12.2009.

[Harshavardhana Datar]

Thanks a lot..