IMPORTANT POINT
Retrospective clarificatory amendment of the Section 143(1A) upheld.

Headnote:(a) Income Tax Act, 1961 – Section 2(24) – Income – Includes both profits as well losses. (Para 10)
       (1975) 3 SCC 868; (2010) 6 SCC 384 – Relied upon
       (b) Income Tax Act, 1961 – Section 143(1)(a) and 143 (1A) – Section 143(1A) referring to original section 143(1)(a) – Loss as being declared in the return – Retrospective amendment 1993 held clarificatory of section 143 (1)(a) as existing in 1989. (Para 13)
       (1994) 210 ITR 121 (Ker); (1997) 225 ITR 252 (MP); (2008) 299 ITR 253 (Raj); (1999) 237 ITR 445 (Kar); (1998) 234 ITR 165 (Ker); (1998) 229 ITR 682 (Mad); (1992) 193 ITR 91; (1993) 2000 ITR 594; (1992) 195 ITR 485; (2003)10 SCC 623 – Referred
       (c) Interpretation of statute – Fiscal statute – Imposition of penalty by tax authority – Civil liability, though penal in character – Therefore, retrospective imposition of a penalty would not be hit by Article 20(1) of the Constitution. (Para 16)
       (1983) 3 SCC 529 – Relied upon
       (d) Income Tax Act, 1961 – Section 143(1A) – Additional tax – Losses forming part of income – No change in 1989 and 1993 – tax was imposable in 1989 also on total income including losses – Therefore, there is no retrospective imposition of additional tax. (Para 17)
       (e) Income Tax Act, 1961 – Section 143(1A) – Has deterrent effect of preventing tax evasion – Should be made to apply only to tax evaders – Section 143(1A) can only be invoked where lesser amount stated in the return is in attempt to evade tax lawfully payable by the assessee – Burden of proving such attempt to evade tax is on the revenue. (Para 20, 22)
       (2000) 3 SCC 595; (1982) 1 SCR 629 – Relied upon
       Facts of the case:
       The constitutional validity of the retrospective amendment to Section 143(1A) of the Income Tax Act, 1961 is in question in these appeals.
       The Gauhati High Court has held the amendment to be arbitrary and unreasonable whereas the High Courts of Kerala, Madhya Pradesh, Rajasthan, Karnataka and Madras have upheld the same.
       The respondent-herein in its annual return for assessment years 1989-1990 and 1991-1992 showed a loss of Rs.1,94,13,440/- and Rs.1,80,22,480/- respectively. By an assessment order dated 14.12.1992, the Assessing Officer levied an additional tax under Section 143(1A) of Rs.5,62,490/- and Rs.8,09,290/- respectively for the two assessment years in question calculated in the manner provided in the Section.
       The respondent filed two separate writ petitions to declare the provisions of Section 143(1A) as ultra vires and consequentially prayed for the quashing of the order dated 14.12.1992. The Single Judge upheld Section 143(1A) as amended in 1993 prospectively but held that insofar as it operated with effect from 1989 on losses made by companies, the section is arbitrary and unreasonable and would, therefore, have to be struck down. The Division Bench agreed with the Single Judge and dismissed the two writ appeals before it.
       Finding of the Court:
       Retrospective clarificatory amendment of the Section 143(1A) upheld.
       Result: Appeal allowed.

Judgment

R.F. Nariman, J.

1. The question which arises for consideration in the present appeals is the constitutional validity of the retrospective amendment to Section 143(1A) of the Income Tax Act, 1961. Both the Single Judge and the Division Bench of the Gauhati High Court have held that the retrospective effect given to the amendment would be arbitrary and unreasonable inasmuch as the provision, being a penal provision, would operate harshly on assessees who have made a loss instead of a profit, the difference between the loss showed in the return filed by the assessee and the loss assessed to income tax having to bear an additional income tax at the rate of 20%.

2. It may be mentioned at the outset that the same provision in its retrospective operation has been upheld by the Kerala, Madhya Pradesh, Rajasthan, Karnataka and Madras High Courts. (Kerala State Coir Corpn Ltd. v. Union of India, (1994) 210 ITR 121 (Ker); Sanctus Drugs Pharmaceuticals Pvt. Ltd. v. Union of India, (1997) 225 ITR 252 (MP); DCIT v. Rajasthan State Electricity Board, (2008) 299 ITR 253 (Raj); Bidar Sahakari Sakkare Karkhane Niyamat v Union of India, (1999) 237 ITR 445 (Kar); Aluminium Industries Ltd. v. DCIT (Asst), (1998) 234 ITR 165 (Ker); Sukra Diamond Tools Pvt. Ltd. v. DCIT, (1998) 229 ITR 682 (Mad)).

3. The facts necessary to decide these appeals are as follows. The respondent-herein in its annual return for assessment years 1989-1990 and 1991-1992 showed a loss of Rs.1,94,13,440/- and Rs.1,80,22,480/- respectively. By an assessment order dated 14.12.1992, the Assessing Officer levied an additional tax under Section 143(1A) of Rs.5,62,490/- and Rs.8,09,290/- respectively for the two assessment years in question calculated in the manner provided in the Section.

4. Being aggrieved by the order dated 14.12.1992, the respondent filed two separate writ petitions to declare the provisions of Section 143(1A) as ultra vires and consequentially prayed for the quashing of the order dated 14.12.1992. The learned Single Judge who heard the two petitions upheld Section 143(1A) as amended in 1993 prospectively but held that insofar as it operated with effect from 1989 on losses made by companies, the section is arbitrary and unreasonable and would, therefore, have to be struck down. The Division Bench agreed with the Single Judge and dismissed the two writ appeals before it.

5. Shri Neeraj Kaul, learned Additional Solicitor General of India appearing on behalf of the appellants stated that the amendment made to Section 143(1A) with retrospective effect was merely clarificatory and that even without such amendment, the same position would obtain qua losses as would obtain qua profits inasmuch as the expression “income” would comprehend both profits as well as losses. He cited a number of judgments before us which we will refer to presently. On being questioned by the Bench about the true construction of Section 143 (1A), he very fairly submitted that since the object of Section 143(1A) is to prevent tax evasion, the said Section would have to be read in the light of the aforesaid object. Despite being served, no one appears for the respondents.

Section 143 (1A) as it stood in 1989 is as follows:-

“(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a) of sub-section (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall, -

(i) further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1);

(ii) where any refund is due under sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under sub-clause (i).

(b) Where as a result of an order under (subsection (3) of this sect

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2015 Supreme(SC) 249

SUPREME COURT OF INDIAA.K. Sikri, R.F. Nariman, JJ.COMMISSIONER OF INCOME TAX, GAUHATI & ORS. – APPELLANTSVERSUSM/S. SATI OIL UDYOG LTD. & ANR. – RESPONDENTSCIVIL APPEAL NOS.9133-9134 OF 2003 WITH CIVIL APPEAL NO.9135 OF 2003Decided on : 24-03-2015

IMPORTANT POINTRetrospective clarificatory amendment of the Section 143(1A) upheld.

Cases Referred (10)

SUPREME COURT OF INDIA
A.K. Sikri, R.F. Nariman, JJ.
COMMISSIONER OF INCOME TAX, GAUHATI & ORS. – APPELLANTS
VERSUS
M/S. SATI OIL UDYOG LTD. & ANR. – RESPONDENTS
CIVIL APPEAL NOS.9133-9134 OF 2003 WITH CIVIL APPEAL NO.9135 OF 2003
Decided on : 24-03-2015

IMPORTANT POINT
Retrospective clarificatory amendment of the Section 143(1A) upheld.