Income Tax Appellate Tribunal - Mumbai
Nuclear Power Corporation Of India ... vs Commissioner Of Income Tax (Ltu), ... on 31 December, 2018
Aayakr ApIlaIya AiQakrNa " B " nyaayapIz maM u b a[- mao .
IN THE INCOME TAX APPELLATE TRIBUNAL " B" BENCH, MUMBAI
श्री महावीर स हिं , न्याययक दस्य एविं श्री मनोज कुमार अग्रवाल लेखा दस्य के मक्ष ।
BEFORE SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR AGGARWAL, AM
Aayakr ApIla saM . / ITA No. 2902/Mum/2018
(inaQa- a rNa baYa- / Assessment Year 2013-14)
Nuclear Power Corporation of The Commissioner of
India Limited Income Tax (LTU)
8 t h Floor, South W ing, Vikram 29 t h Floor, Center No.1,
Vs.
Sarabhai Bhavan, Central W orld Trade Center, Cuffe
Avenue, Anushakti Nagar, Parade, Mumbai -400 005
Mumbai-400 094
(ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent)
स्थायी ले खा िं . / PAN No. AAACN3154F
अपीलाथी की ओर े / Appellant by : Shri Nitesh Joshi, AR
प्रत्यथी की ओर े / Respondent by : Shri Santanu Kumar Saikin,
DR
ुनवाई की तारीख / Date of hearing: 11.10.2018
घोषणा की तारीख / Date of pronouncement : 31.12.2018
AadoSa / O R D E R
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the Revision order of Commissioner of Income Tax (LTU), in appeal No. Nil vide order dated 19.03.2018. The Assessment was framed by the Asst. Commissioner of Income Tax (LTU)-2, Mumbai (in short 'ACIT(LTU)-2/ AO') for the A.Y. 2013-14 vide order dated 21.03.2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act').
2ITA No . 2 9 02 / Mu m /2 0 18
2. The only issue in this appeal of assessee is against the revision order passed by CIT(LTU) under section 263 of the Act in respect of allowability of Corporate Social Responsibility (CSR) expenditure. For this assessee has raised the following grounds: -
"1. The learned CIT failed to appreciate that order passed by the AO cannot be considered as erroneous, as the AO had considered a view which is sustainable in law and can at the most be. one of the two possible views, in relation to allowability of CSR expenditure.
2. The learned CIT erred in observing that explanation to section 37(1) of the Act disallowing deduction of CSR expenditure nowhere specifically state that the same would be effective prospectively, neither is there any judgment specifically this issue holding it as "not retrospective.
The learned CIT in the order passed under section 263 has referred to the notes to the provision of the Finance Act 2014 as well as decision of Raipur Tribunal in the case of ACIT vs. Jindal Power Ltd. (179 ITR 736), which clearly states that explanation 2 to section 37(1) is effective prospectively from AY 2015-16."
3. Briefly stated facts are that the assessee is a public sector underrating engaged in the business of generation of electricity from nuclear power and sale of electricity to various entities. The assessment was completed by the ACIT (LTU) Mumbai under section 143(3) of the Act vide order dated 21.03.2016 allowing the assessee an amount of ₹ 15.70 3 ITA No . 2 9 02 / Mu m /2 0 18 crores under the head of administrative and other expenses on corporate social responsibility (CSR).2016. Subsequently, the CIT(LTU) issued a revision notice under section 263 of the Act dated 01.02.2018 for the reason that the AO has wrongly allowed debited of an amount of ₹ 15.70 crores under the head of administrative and other expenses on corporate social responsibility (CSR). According to CIT(LTU), in view of clarification inserted as per explanation 2 to sub section 1 of section 37 as inserted by Finance (No. 2) Act, 2014, with effect from 01.04.2015 the CSR referred to section 135 of Companies Act 2013 not to be deemed as expenditure incurred by assessee for the purpose of business or profession. According to CIT(LTU), there is short levy of tax of ₹ 6.92 crores including interest under section 234 of the Act with effect from 01.04.2014, the expenditure claimed by assessee in respect of Corporate Social Responsibility is not allowable. She directed the AO not to allow this expenditure and for this he discussed the issue vide Para 6 to 9 as under: -
"6 The Company has also submitted that the explanation 2 to section 37(1) was inserted by the Finance Act 2014 w.e.f AY 2015-16 and therefore, cannot be applied for the year under consideration.
Insertion of explanation 2 to Section 37(1) As per section 135 of Companies Act, 2013, w.e.f 01.04.2014, every company, private limited or public limited which either has a net worth of Rs 500 crore or turnover of Rs 1,000 crore or net profit of Rs5crore is required to spend at least 2% of its average net profit of the immediately preceding three financial years on specified CSR activities.4
ITA No . 2 9 02 / Mu m /2 0 18 The Income Tax Act introduced Explanation 2 to section 37(1) which was inserted by Finance (No.
2) Act. 2014 w.e.f. financial year beginning from 1" April. 2014 which reads as under:
For the removal of doubts, it is hereby declared that for the purpose of sub section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall no: be deemed to be an expenditure incurred by the assessee for the purpose of the business or profession.
The amendment in the scheme of Section 37(1), which has been introduced with effect from 1st April, 2014 cannot be construed as to disadvantage to the assessee in the period prior to this amendment Further section 37(1) refers only to such expenditure as are stated under section 135 of the Companies Act and as such, it cannot have any application for the period not covered by this statutory provision which itself came into existence w e.f. 1st April 2014 the above section is not applicable to the Company for the year under consideration.
7. The company has also referred to the CBDT circular No.1/2015 dated 21st January.
2015, which refers to the explanatory notes to the provisions of the Finance Act 2014 wherein it is 5 ITA No . 2 9 02 / Mu m /2 0 18 clearly mentioned about the applicability of amendment to section 37(1) is clearly discussed which reads as under.
"Applicability: - This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years"
The above CBDT circular is clarificatory and binding in nature. Section 119(1) of the Income- tax Act, 1961 reads as under
"The Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board."
The Company has referred to the decision of Raipur Tribunal in the case of ACIT v. Jindal Power Ltd (179 TTJ 736), wherein it is held that such explanation is only applicable from AY 2015-16, and such explanation can only be held as prospective in nature and not retrospective
9. I have carefully considered the issue and find that it is nowhere specifically stated that it will not be effective retrospectively neither is there any judgement specifically on this issue 6 ITA No . 2 9 02 / Mu m /2 0 18 holding it "not retrospective. Therefore, AO is directed to disallow the said expenditure."
Aggrieved against the directions of CIT, for revision of the assessment order, now assessee is in second appeal before Tribunal.
4. We have heard rival contentions and gone through facts and circumstances of the case. We have gone through the amended provision including note on clauses and explanatory notes and noted that as per the Companies Act, 2013 certain companies (which have net worth of Rs.500 crore or more, or turnover of Rs.1000 crore or more, or a net profit of Rs.5 crore or more during any financial year) are required to spend certain percentage of their profit on activities relating to Corporate Social Responsibility (CSR). Under the existing provisions of the Act, expenditure incurred wholly and exclusively for the purposes of the business is only allowed as a deduction for computing taxable business income. CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. The provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the provisions of section 37 of the Act.
7ITA No . 2 9 02 / Mu m /2 0 18 Therefore, in order to provide certainty on this issue, said section 37 has been amended to clarify that for the purposes of sub-section (1) of section 37 any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under said section
37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed as deduction under those sections subject to fulfillment of conditions, if any, specified therein. But this amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. The relevant assessment year before us is 2013-14 and hence this amendment will not apply to this case of assessee's case.
5. This issue is covered by the decision of Hon'ble Supreme Court in the case of CIT vs. Vatika Township (P.) Ltd [2014] 367 ITR 466 (SC), wherein Hon'ble Supreme Court has laid down the principle on retrospectivity or prospectivity as under:-
"Clause 13 of the Bill seeks to amend section 37 of the Income-tax Act relating to general expenditure.
The existing provisions contained in sub-section (1) of the aforesaid section provide that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the 8 ITA No . 2 9 02 / Mu m /2 0 18 head "Profits and gains of business or profession".
It is proposed to insert a new Explanation in sub- section (1) of section 37 so as to clarify that for the purposes of sub-section (1) of the said section, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years."
........................
"32. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [1994] 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a 9 ITA No . 2 9 02 / Mu m /2 0 18 former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.
33. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India v. Indian Tobacco Association [2005] 7 SCC 396, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra [2006] 6 SCC 286. It was held that where a law is enacted for the benefit of 10 ITA No . 2 9 02 / Mu m /2 0 18 community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here.
34. In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors.
35. Let us sharpen the discussion a little more. We may note that under certain circumstances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labeled as "declaratory statutes". The circumstances under which a provision can be termed as "declaratory statutes"
is explained by Justice G.P. Singh [Principles of 11 ITA No . 2 9 02 / Mu m /2 0 18 Statutory Interpretation, 13th Edition 2012 published by LexisNexis Butterworths Wadhwa, Nagpur] in the following manner:
Declaratory statutes The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court : "For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled 12 ITA No . 2 9 02 / Mu m /2 0 18 that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law."
The above summing up is factually based on the judgments of this Court as well as English decisions.
A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas [1968] 3 SCR 623 , while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows:
"The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the 13 ITA No . 2 9 02 / Mu m /2 0 18 amendment derived from s. 115, Code of Civil Procedure, and the legislature has by the amending Act attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act."'
36. It would also be pertinent to mention that assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either expressly or by necessary implication retrospective. CED v. M.A. Merchant 1989 Supp (1) SCC 499. We would also like to reproduce hereunder the following observations made by this Court in the case of Govinddas v. ITO [1978] 103 ITR 123, while holding Section 171 (6) of the Income- Tax Act to be prospective and inapplicable for any assessment year prior to 1st April, 1962, the date on which the Income Tax Act came into force:
"11. Now it is a well settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd 14 ITA No . 2 9 02 / Mu m /2 0 18 Edn.) and reiterated in several decisions of this Court as well as English courts is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospectively and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only."
37. In the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589, this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year, i.e., the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year.
Answer to the Reference
38. When we examine the insertion of proviso in Section 113 of the Act, keeping in view the aforesaid principles, our irresistible conclusion is that the intention of the legislature was to make it prospective in nature. This proviso cannot be 15 ITA No . 2 9 02 / Mu m /2 0 18 treated as declaratory/statutory or curative in nature............."
6. Respectfully following the principle laid down by the Hon'ble Supreme Court in the case of Vatika Township (P.) Ltd. (supra), we hold that the ammendment brought out in section 37(1) by inserting explanation 2 by Finance (No. 2) Act, 2014 w.e.f. 01.04.2015 is prospective and assessee's assessment year being 2013-14 will not apply and hence, revision proceedings of CIT is without any basis and quashed. The appeal of assessee is allowed.
7. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 31-12-2018. Aado S a kI Gaao Y aNaa Ku l ao mao idnaM k 31-12-2018 kao kI ga[- .
Sd/- Sd/-
(मनोज कुमार अग्रवाल / MANOJ KUMAR AGGARWAL) (महावीर स ह
िं /MAHAVIR SINGH)
(लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER)
Mumbai, Dated: 31-12-2018
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai BY ORDER,
6. Guard file.
//True Copy//
Assistant Registrar
ITAT, MUMBAI