2018 Supreme(SC) 92

SUPREME COURT OF INDIA
A.K. SIKRI, ASHOK BHUSHAN, JJ.
COMMISSIONER OF INCOME TAX 5 MUMBAI – APPELLANT(S)
VERSUS
M/S. ESSAR TELEHOLDINGS LTD. THROUGH ITS MANAGER – RESPONDENT (S)
CIVIL APPEAL NO.2165 OF 2012 WITH C.A.No.........of 2018 @ SLP(C) No. 36560 of 2012, C.A. No. 117 of 2015, C.A. No. 5101 of 2012, C.A. No. 118 of 2015, C.A. No. 6727 of 2015, C.A. No. 119 of 2015, C.A. No. 116 of 2015, C.A. No. 194 of 2015, C.A. No. 114 of 2015, C.A. No. 120 of 2015, C.A. No. 7395 of 2012, C.A. No. 7394 of 2012, C.A. No. 121 of 2015, C.A. No. 122 of 2015, C.A.Nos......... of 2018 @ SLP(C) No. 8507­ 8509 of 2012, C.A. No. 128 of 2015, C.A.No......... of 2018 @ SLP(C) No. 21294 of 2012 C.A. No. 113 of 20151, C.A. No. 7797 of 2012, C.A. No. 381 of 2013 , C.A. No. 7426 of 2012, C.A. No. 8195 of 2012, C.A. No. 126 of 2015, C.A. No. 8800 of 2012, C.A. No. 3273 of 2013, C.A.No......... of 2018 @ SLP(C) No. 10986 of 2013, C.A. No. 124 of 2015, C.A. No. 1101 of 2013, C.A. No. 129 of 2015, C.A. No. 125 of 2015, C.A. No. 127 of 2015, C.A.No......... of 2018 @ SLP(C) No. 21845 of 2013, C.A. No. 6313 of 2013, C.A. No. 6733 of 2013, C.A. No. 6191 of 2013, C.A. No. 8921 of 2013, C.A. No. 6192 of 2013, C.A. No. 3355 of 2015, C.A. No. 7167 of 2013, C.A. No. 8376 of 2013, C.A. No. 7172 of 2013, C.A. No. 7170 of 2013, C.A. No. 9183 of 2013, C.A. No. 8341 of 2013, C.A. No. 7168 of 2013, C.A. No.8256 of 2013, C.A. No. 7171 of 2013, C.A. No. 7974 of 2013, C.A. No. 8342 of 2013, C.A. No. 7173 of 2013, C.A. No. 8343 of 2013, C.A. No. 8933 of 2013, C.A. No. 8909 of 2013, C.A. No. 9832 of 2013, C.A. No. 9833 of 2013, C.A. No. 9184 of 2013, C.A. No. 3359 of 2015, C.A.No..............of 2018 @ SLP(C) No. 36388 of 2014, C.A. No. 3781 of 2015, C.A. No. 3358 of 2015 , C.A.No ......... of 2018 @ SLP(C) No. 18398 of 2015, C.A. No. 6294 of 2015, C.A.No......... of 2018 @ SLP(C) No. 19303 of 2015, C.A.No ......... of 2018 @ SLP(C) No. 20478 of 2015, C.A. No. 7892 of 2015, C.A. No. 9251 of 2015, C.A. No. 9252 of 2015, C.A. No. 14525 of 2015, C.A. No. 8178 of 2016, C.A. No. 8177 of 2016, C.A. No. 3279 of 2016, C.A.No......... of 2018 @ SLP(C) No. 23624 of 2016, C.A.No......... of 2018 @ SLP(C) No. 16185 of 2016, C.A. No. 5044 of 2016, C.A. No. 5417 of 2016, C.A. No. 6019 of 2016, C.A.No ......... of 2018 @ SLP(C)No.26278 of 2016, C.A.No......... of 2018 @ SLP(C)No. 4243 of 2017, C.A. No. 4539 of 2017, C.A.No ......... of 2018 @ SLP(C) No. 19098 of 2017, C.A.No ......... of 2018 @ SLP(C) No. 17499 of 2017, C.A.No ......... of 2018 @ SLP(C) No. 25337 of 2017, C.A.No ......... of 2018 @ SLP(C)No........ of 2018 (Diary No. 19735 of 2017), C.A.No......... of 2018 @ SLP(C)No........ of 2018 (Diary No. 24346 of 2017), C.A.No ......... of 2018 @ SLP(C)No....... of 2018,(Diary No. 36596 of 2017).
Decided On : 31-01-2018

IMPORTANT POINTS
Every statute is prima facie prospective unless made to have retrospective operations expressly or by necessary implications.
Notes of clause and Explanatory memorandum appended to Finance Bill can be looked into for deciphering legislative scheme.
Government circulars explaining the provision can be relied upon if appropriate.
Mere date of enforcement is not decisive to determine its prospectivity or retrospectivity. Nature and content of statute must be looked into.
Rule 8D is prospective.

Headnote:(a) Interpretation of statute – Fiscal statute – Legislature, in its plenary jurisdiction, can legislate prospectively or retrospectively – However, every statute is prima facie prospective unless made to have retrospective operations expressly or by necessary implications – “Nova constitutio futuris formam imponere debet non praeteritis”. (Para 23)

       (1976) 1 SCC 906; (2015) 1 SCC 1; (2016) 15 SCC 125 – Relied upon

       (b) Interpretation of statute – External aids – Notes of clause and Explanatory memorandum appended to Finance Bill – Can be looked into for deciphering legislative scheme. (Para 29)

       (2015) 1 SCC 1 – Relied upon

       © Interpretation of statute – External aids – Government circulars explaining the provision – Can be relied upon if appropriate. (Para 31)

       (2015) 1 SCC 1 – Relied upon

       (d) Interpretation of statute – Commencement – Mere date of enforcement not decisive to determine its prospectivity or retrospectivity – Nature and content of statute must be looked into. (Para 33)

       (e) Income Tax Act, 1961 – Section 14A(2) and (3) r/w rule 8D, Income Tax Rules, 1962 – Section 14A inserted by Finance Bill 2001 and made effective from 01.04.1962 forbidding assessing officers from reopening concluded transaction prior to 01.04.2001 – Similarly, sub-sections (2) and (3) inserted by Bill 2006 making them effective from the assessment year 2006­07 alone – Held, provision is to operate prospectively. (Para 36)

       (1994) 6 SCC 623; (2008) 9 SCC 622; (2014) 6 SCC 444 – Distinguished

       (f) Income Tax rules, 1962 – Rule 8D – Amended in 2006 explaining method of computation amount of expenditure – 2016 amendment substituted it with a new method – Giving retrospectivity to the Rule would result in conflict between the two amendments – Held, the Rule is prospective. (Para 46)

       (g) Interpretation of statute – Subordinate legislation – Ordinarily not retrospective unless there are clear indication to the same – Instantly, nothing in Rule 8D to suggest retrospectivity – Held prospective. (Para 47)

       (2009) 11 SCC 453 – Relied upon

       (2010) 328 ITR 81(Bom.); (2008) 9 SCC 622; (2014) 6 SCC 444; (2017) 7 SCC 421 – Referred

       Facts of the case:

       Two questions arise in these appeals:

       Whether sub­section (2) and sub­section (3) of Section 14A, of Income Tax Act, 1961 inserted with effect from 01.04.2007 will apply to all pending assessments?

       Whether Rule 8D of the Income Tax Rules is retrospectively applicable?

       The assessee filed his return of income on 01.12.2003 declaring a loss of Rs.69,92,67,527/­. A notice under Section 143(2) was issued to the assessee. The Assessing Officer vide its order dated 27.03.2006 held that during the year under consideration, the assessee company was in receipt of both taxable and non­taxable dividend income. Accordingly, the dividend on investment exempt under Section 10(23G) was considered by the A.O. for the purpose of disallowance U/S.14A. Hence, proportionate interest relating to investment on which exemption u/s.10(23G) is available as per the working amounting to Rs.26 crores was disallowed U/S.14A r.w.s. 10(23G) of the I.T. Act.

       The assessee filed an appeal, which was partly allowed. The assessee filed an appeal before the ITAT. The ITAT allowed the assessee’s appeal. The ITAT held that Rule 8D is only prospective and in the year under consideration Rule 8D was not applicable. ITAT set aside the order of CIT(A) and restored the issue back to the file of the Assessing Officer for de novo adjudication without invoking the provisions of Rule 8D.

       Against the order of ITAT, the revenue filed an appeal before the High Court.

       The High Court dismissed the appeal.

       Finding of the Court:

       Applying the principles of statutory interpretation for interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of sub­section (2) and sub­section (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, Rule 8D was intended to operate prospectively. It could not have been applied to any assessment year prior to Assessment Year 2008­09.

       Result: Appeals dismissed.