Madhya Pradesh High Court
Sanctus Drugs Pharmaceuticals (P) Ltd. ... vs Union Of India & Ors. on 25 March, 1996
Equivalent citations: (1997)137CTR(MP)207
ORDER
BY THE COURT :
The petitioner has by this petition prayed that the provisions of s. 143(1A)(a)(B) of the IT Act, 1961 be declared as ultra vires the Constitution of India. It is also prayed that the demand raised under s. 143(1A) of the Act for a sum of Rs. 1,44,383 (Annex-P2 and P3) be quashed and the notice issued on 16th/23rd Nov., 1994 (Annex-10) under s. 226(3) of the IT Act attaching the bank account of the petitioner No. 1 in the State Bank of Indore be also quashed. Likewise, it is prayed that the notice dt. 1st Sept., 1994 Annex-P11 issued by the respondent No. 3 be quashed.
2. Petitioner No. 1 is a private limited company carrying on the business of manufacturing of drugs. Petitioner No. 2 is the managing director and the shareholder in the petitioner No. 1 company and is interested in the various affairs of the company. The petitioner No. 1 filed a return showing a business loss of Rs. 14,09,666 and a carry forward of loss of the preceding two years i.e., asst. yrs. 1989-90 and 1990-91. Total loss inclusive of investment allowance and depreciation for three years from 1989-90 to 1991-92 is amounting to Rs. 67,17,825.
3. Respondent No. 2, Dy. CIT, passed an order under s. 143(1)(a) of the IT Act, 1961 for the asst. yr. 1991-92, vide order dt. 6th March, 1993 determining the loss of Rs. 8,97,885. He had made an adjustment under s. 143(1)(a) on account of alleged provisions of interest to M. P. Audyogik Vikas Nigam under s. 43B of the Act at Rs. 13,95,000. By this adjustment under s. 143(1)(a) of the Act the additional tax was imposed at Rs. 1,44,383 under s. 143(1A) of the Act. On receipt of the aforesaid intimation, an appeal was filed before the CIT(A)-I, Indore on 25th July, 1992 challenging the disallowance/adjustment of Rs. 13,95,000 and charging of interest at Rs. 1,44,383 and it is still pending for disposal.
4. The petitioner moved an application under s. 154 of the Act for rectification of mistake, challenging the charging of interest by application dt. 25th July, 1992. The respondent No. 2 rejected the said application in so far as the levy of additional tax was concerned. However, so far as the demand of additional tax was concerned, it was not enforced. The respondent No. 2 attached the bank account of the petitioner No. 1 at the State Bank of Indore by order of March 1993. The petitioner No. 1 made a representation dt. 6th March, 1993 challenging attachment and requested to withdraw the notice under s. 226(3) of the Act. Pursuant to the representation, the respondent No. 2 cancelled the attachment by order dt. 9th March, 1993.
5. Petitioner No. 1 also filed an appeal against order dt. 30th Sept., 1992 which was passed under s. 154 of the Act before the CIT(A), Indore, respondent No. 4. Respondent No. 2 by order dt. 16th/23rd Nov., 1994 again attached the amount standing to the credit of petitioner No. 1 in the bank account in State Bank of Indore, as a result of which a sum of Rs. 1,85,090 was attached. He also issued recovery notice for the said amount. The petitioner No. 1 made representation dt. 22nd Sept., 1994 to the respondent No. 3 for not pressing the demand till the disposal of the appeal pending before the first appellate authority [CIT(A)]. Thereafter, the petitioner has filed this petition challenging validity of s. 143(1A)(a)(B) of the Act on the ground that it has been given retrospective effect i.e. w.e.f. 1st April, 1989. It is alleged that this tax is penal in nature and cannot be made retrospective. It is submitted that it is nothing but tax on a loss which is not covered by Entry 82, List-I, Seventh Schedule of the Constitution.
6. The petitioner is contested by the respondents and they have alleged that under the Entry 82 List-I of Seventh Schedule of the Constitution, Parliament is competent to enact on income-tax other than agricultural income and it is not the loss which has been taxed. Although a similar provision existed earlier but there is little difference in the present one, which is more specific so as to check evasion of tax.
7. In order to appreciate the contentions of the parties, it is relevant to refer to certain provisions of the Act. Sec. 143(1A)(a)(B) read as under :
"(1A)(a) - where as a result of the adjustments made under the first proviso to cl. (a) of sub-s. (1), -
(i) the income declared by any person in the return is increased; or
(ii) the loss declared by such person in the return is reduced or is converted into income, the AO shall, -
(A)......
(B) In a case where the loss so declared is reduced under sub-cl. (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to an additional income-tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under sub-cl. (i) of cl. (a) of sub-s. (1);"
According to the unamended provision, what was being taxed was the difference of income between the original return and after adding to the return the amount of loss which is added to the income and when that tax is worked out, then the difference of the tax used to be charged. But now, the actual deduction of the loss has been directly made taxable at 20 per cent of tax on that income as additional tax. Now the provision has been made more deterrent so as to check the tendencies of the assessees to first implead the amount of the tax, then reduce that tax and as such the loss of revenue is sought to be plugged by insertion of this new provision.
8. Entry 82 List-I of Seventh Schedule of the Constitution of India empowers the Parliament to enact the law on income-tax and when the Parliament is competent to enact the law prospectively, it can also lay down the law retrospectively. The present incidence of tax is not on the loss. As a matter of fact, reduction of loss will be added to the income of the assessee. Therefore, it is not loss which is being sought to be taxed, but it is the income sought to be taxed. The contention of the learned counsel that the Parliament has no power under Entry 82 to enact on the loss has no substance. In the present case, it is the income and not the loss which is sought to be taxed. Hence we find that this contention of the learned counsel for the petitioner without any merit.
9. It is next contended that the provision has been made retrospective w.e.f. 1st April, 1989 and such penal clause cannot be inserted from retrospective effect. From the bare perusal of the provision, it is clear that it is not penal. Penal provision means imposition of penalty or any criminal prosecution. That is not the case here. It is only the device to check evasion of tax by the clever taxpayers. Hence, it is more of compensatory nature. Parliament is competent to enact the law prospectively and this power also denotes the competence of Parliament to make the law retrospective also. In this connection, reference can be made to a decision in the case of Rai Ramkrishna & Ors. vs. State of Bihar AIR 1963 SC 1667, wherein their lordships have held as under :
"Legislative power conferred on the appropriate legislatures to enact law in respect of topics covered by the several entries in the three Lists can be exercised both prospectively and retrospectively. Where the legislature can make a valid law it may provide not only for the prospective operation of the material provisions of the said law, but it can also provide for the retrospective operation of the said provisions."
It is true that the power under taxing statute can be challenged if it is found to be arbitrary, or lays down unreasonable restriction upon the freedom of trade. In the present case, restriction has been made for justifiable reason so as to check evasion of tax. By the insertion of this provision in the Act, the assessee may not be able to evade tax by resorting to the method of showing loss first and then reducing the loss. We, therefore, find that the provision is compensatory in nature and it is enacted for the purpose of checking evasion of the tax.
10. We are of the opinion that there is no illegality in s. 143(1A)(a)(B) of the Act of 1961. The petition has no merit. It is accordingly dismissed. Security amount, if any, may be refunded to the petitioner.