2009 Supreme(SC) 1772

2009(8) Supreme 77
SUPREME COURT OF INDIA
S.H. Kapadia and H.L. Dattu, JJ.
Commissioner of Income Tax — Appellants
versus
M/s. Alom Extrusions Limited — Respondents
Civil Appeal No. 7771 of 2009
(Arising out of S.L.P. (C) No.23851 of 2007)
Decided on : 25-11-2009

IMPORTANT POINT
When a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in section and which proviso is required to be read into section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole.

Headnote:Income Tax Act, 1961 – Omission [deletion] of Second proviso to Section 43 – B by Finance Act, 2003 – Whether operated with effect from 1st April, 2004, or whether it operated retrospectively with effect from 1st April, 1988? – Department’s case , that omission of second proviso giving relief to the assessee (s) [employer(s)] operated only with effect from 1st April,2004 – However assessee (s) – employer(s),alleged that the said Finance Act, 2003, operated with effect from 1st April, 1988 Retrospectively – No merit was found in appeals filed by Department – Section 43 – B which stood inserted by Finance Act, 1983, with effect from 1st April, 1984, expressly commences with a non –obstante clause, underlying object being to disallow deductions claimed merely by making a Book entry based on Merchantile System of Accounting – At the same time, Section 43 – B made it mandatory for the Department to grant deduction in computing the income under Section 28 in the year in which tax, duty, cess, etc., was actually paid – However, Parliament took cognizance of the fact that accounting year of a company did not always tally with due dates under the Provident Fund Act, Municipal Corporation Act [octroi] and other Tax laws – Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the Return under Income Tax Act [due date], the assessee(s) then would be entitled to deduction – However, this relaxation/incentive was restricted only to tax, duty, cess and fee – It did not apply to contributions to labour welfare funds – The reason being that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under Social Welfare legislations by delaying payment of contributions to the welfare funds- However, second proviso resulted in implementation problems, which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds- Once this uniformity was brought about in the first proviso, then, Finance Act, 2003, which was made applicable by the Parliament only with effect from 1st April, 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1st April,1988 – Appeals filed by Department dismissed – Appeals filed by assessee allowed. (Paras 14 to 18)

        Income Tax Act, 1961 – Omission [deletion] of Second proviso to Section 43-B by Finance Act, 2003- Whether operated with effect from 1st April, 2004, or whether it operated retrospectively with effect from 1st April, 1988?- In the case of Allied Motors (P) Limited vs. Commissioner of Income Tax, Scheme of Section 43-B of the Act came to be examined- In that case, question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant Sales Tax law should be disallowed under Section 43-B of the Act while computing the business income of the previous year- This Court, in Allied Motors (P) Limited held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in section and which proviso is required to be read into section to give the section a reasonable interpretation,it could be read retrospective in operation, particularly to give effect to the section as a whole- First proviso was curative in nature, hence, retrospective in operation with effect from 1st April, 1988- It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other- Hence held that the Finance Act, 2003, was retrospective in operation (Para 14)

       Facts of the Case :

        Issue in consideration in present case was whether omission [deletion] of the second proviso to Section 43-B of the Income Tax Act, 1961, by the Finance Act, 2003, operated with effect from 1st April, 2004, or whether it operated retrospectively with effect from 1st April, 1988?

       Findings of the Court :

        Section 43-B which stood inserted by Finance Act, 1983, with effect from 1st April, 1984, expressly commences with a non-obstante clause, underlying object being to disallow deductions claimed merely by making a Book entry based on Merchantile System of Accounting. At the same time, Section 43-B made it mandatory for the Department to grant deduction in computing the income under Section 28 in the year in which tax, duty, cess, etc., was actually paid.However, Parliament took cognizance of the fact that accounting year of a company did not always tally with due dates under the Provident Fund Act, Municipal Corporation Act [octroi] and other Tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the Return under Income Tax Act [due date], the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason being that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under Social Welfare legislations by delaying payment of contributions to the welfare funds. However, second proviso resulted in implementation problems, which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity was brought about in the first proviso, then, Finance Act, 2003, which was made applicable by the Parliament only with effect from 1st April, 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1st April,1988.Appeals filed by Department were dismissed.Appeals filed by assessee were allowed.