Calcutta High Court
Birla Corporation Limited vs Commissioner Of Income Tax-Ii on 7 February, 2014
Author: Girish Chandra Gupta
Bench: Girish Chandra Gupta
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction [Income Tax]
ORIGINAL SIDE
ITA No. 282 of 2009
With
WP No. 412 of 2010
BIRLA CORPORATION LIMITED
Versus
COMMISSIONER OF INCOME TAX-II, KOLKATA
BEFORE:
The Hon'ble JUSTICE GIRISH CHANDRA GUPTA
The Hon'ble JUSTICE TAPASH MOOKHERJEE
Date : 7th February, 2014.
For Appellant : Mr. R. N. Bajoria, Senior Advocate with
Mr. J. P. Khaitan, Senior Advocate,
Mr. A. Sengupta, Mr. Sourabh Bagaria and
Mr. C. S. Das, Advocates
For Respondent : Mr. D. K. Shome, Senior Advocate with
Mr. Ranjan Sinha, Advocate For Respondent : Mr. P. K. Bhowmick, Advocate [WP No.412/2010] The Court : The appeal was admitted on 27th November, 2009 and the following questions of law were formulated:
2
"i) Whether the Tribunal was justified in law in holding that the provisions of sub-sections (2) and (3) inserted in Section 14A of the Income Tax Act, 1961 with effect from April 1, 2007 and rule 8D inserted in the Income Tax Rules, 1962 on March 24, 2008 were procedural and retrospective and were applicable for the assessment years 2001-02, 2004-05 and 2005-06 ?
ii) Whether and in any event the Tribunal was justified in law in holding that it had no jurisdiction to adjudicate upon the legality and/or validity of rule 8D of the Income Tax Rules, 1962 ?
iii) Whether the Tribunal was justified in law in not following its order for the assessment year 2002-03 and in upholding the disallowance under Section 14A made in the assessments for the assessment years 2001-02 and 2005-06 and that made by the Commissioner of Income Tax (Appeals) for the assessment year 2004-05 ?
As far as the assessment year of 2003-04 and 2005-06 we find the following substantial question of law was formulated for decision of this Court:-
1) Whether the Learned Tribunal was justified in remanding for rendering fresh decision after having decided the matter by the Tribunal previously with regard to the claim of the assessee relating to proportionate deduction of compensation paid in connection with the mining activity for obtaining raw material limestone to the assessing officer ?"3
At the very outset, Mr. Bajoria, learned Senior Advocate appearing for the appellant, submitted that he has instruction not to press the sole question relating to the assessment years 2003-04 and 2005-06. Therefore, that question goes out of the arena of consideration and the learned Tribunal's order in respect thereof is confirmed.
With regard to the assessment years 2001-02, 2004-05 and 2005-06, the aforesaid three questions were pressed. Briefly stated the facts and circumstances of the case are that the Assessing Officer under Section 14A of the Income Tax Act disallowed expenditure to the extent of a sum of Rs.5,22,768/-. Aggrieved by this order, the assessee preferred an appeal. The CIT (A) reduced the aforesaid sum to Rs.50,000/-. Aggrieved by the order of the CIT(A), the Revenue preferred an appeal before the learned Tribunal. The assessee preferred a cross-appeal. The learned Tribunal held that a Special Bench of the Income Tax Appellate Tribunal, in the case of ITO vs. Daga Capital Management Pvt. Ltd., held that Rule 8D was procedural in nature and therefore, was retrospective in effect. The learned Tribunal on that basis concluded that since they were bound by the views expressed by the Special Bench and considering that the learned Tribunal was not in a position in law to enhance the amount of expenditure disallowed, they chose to reverse the order passed by the CIT(A). The facts and circumstances with respect to the assessment years 2004-05 and 2005-06 were also identical. In that view of the matter, in all the aforesaid assessment years the orders passed by the CIT (A) were reversed by the learned Tribunal. In this 4 backdrop, the aforesaid appeal was preferred by the assessee and the aforesaid three questions were formulated.
Mr. Bajoria, learned Senior Advocate appearing in support of the appeal, submitted that Rule 8D can not, by any stretch of imagination, be said to be retrospective in nature. He drew our attention to the views expressed by the Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. Vs. Deputy Commissioner of Income Tax and Anr., reported in 328 ITR 81, wherein the Division Bench took the following views :
"(v) The provisions of rule 8D of the Income Tax Rules which have been notified with effect from March 24, 2008, shall apply with effect from the assessment year 2008-09 ;
(vi) Even prior to the assessment year 2008-09, when rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub-section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record."
He also drew our attention to a Division Bench judgment of the Delhi High Court in the case of Maxopp Investment Limited vs. Commissioner of Income Tax, reported in 347 ITR 272 wherein the views expressed by the Bombay High Court was followed and the following views were expressed : 5
"We are of the view that rule 8D would operate prospectively. We agree with the submissions made by Dr. Rakesh Gupta that if the said rule were to have retrospective effect, nothing prevented the Central Board of Direct Taxes from saying so, particularly, in view of the fact that it had the power to make a rule retrospective by virtue of section 295(4) of the said Act. Instead of making rule 8D retrospective, clause 1(2) of the Income Tax (Fifth Amendment) Rules, 2008, made it clear that the rules would come into force from the date of their publication in the Official Gazette. It is, therefore, clear that rule 8D, which was introduced by virtue of Notification No.45 of 2008, dated March 24, 2008, was prospective in operation and cannot be regarded as being retrospective. We may also point out that we have had the benefit of the decision of the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. vs. Deputy CIT [2010] 328 ITR 81 (Bom), wherein it has, inter alia, been held that the provisions of rule 8D of the said Rules has prospective effect and shall apply with effect from the assessment year 2008-09 onwards."
Mr. Bajoria also drew our attention to a judgment delivered by the self- same Appellate Tribunal in respect of the self-same assessee for the assessment year 2006-07 wherein the self-same Tribunal followed the views expressed by the Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. In other words, the Tribunal took the view that Rule 8D was not retrospective in nature. The Tribunal in that case also held that disallowance of 1% of the dividend income would be a reasonable amount to be taken into account.
Mr. Bajoria drew our attention to the fact that the aforesaid judgment of the Tribunal was challenged by the department in an appeal under Section 260A 6 which was admitted by this Bench to which one of us was a party. He submitted that the significant thing is that the question as to whether Rule 8D is retrospective in nature was not raised by the department. Therefore, the department must be deemed to have accepted the position that Rule 8D is only prospective in nature. He added that the department has to have some consistency in its views and it cannot blow hot and cold at its sweet-will.
Mr. Shome, learned Senior Advocate appearing for the department, in his usual fairness, did not dispute the fact that the department has accepted the position in law that Rule 8D is prospective in nature. He, however, submitted that the matter should now be remanded to the Assessing Officer for re- computing the disallowable expenditure.
Mr. Bajoria has also disputed this submission.
After hearing the learned advocates appearing for the parties, the question no.1 is answered in the negative and in favour of the assessee. The question nos. 2 and 3 need not be answered in view of the answer given to the question no.1.
The prayer for remand of the matter to the Assessing Officer is not allowed because the Assessing Officer has already applied his mind and thereafter, the CIT(A) has also heard out an appeal against that order. We are as such inclined to remand the matter to the learned Tribunal for decision in the light of the views expressed by us on the aforesaid questions of law.
After the judgment was dictated, Mr. Bajoria, learned Senior Advocate, submitted that since this Court has already taken view that Rule 8D is 7 prospective in nature, he has instruction not to press the writ petition being WP No.412 of 2010. The writ petition is, accordingly, dismissed as withdrawn.
(GIRISH CHANDRA GUPTA, J.) (TAPASH MOOKHERJEE, J.) sm AR[CR]