Income Tax Appellate Tribunal - Kolkata
Washabarie Tea Co. (P.) vs Assistant Commissioner Of Income-Tax on 8 September, 1993
Equivalent citations: [1993]47ITD536(KOL)
ORDER
R.V. Easwar, Judicial Member
1. This appeal by the assessee is directed against the order of the CIT(A) dated 29-12-1989 for the assessment year 1986-87.
2. There are only two effective grounds in the appeal. The first is against the order of the CIT(A) confirming the disallowance of the following liabilities under Section 43B:
(i) 'Cess' on tea : Rs. 3,05,197
(ii) 'Education Cess' : Rs. 80,834
Rs. 3,86,031
This ground is to be held in favour of the assessee following with respect the order of the Tribunal in its own case dated 14-9-1991 in ITA No. 3590/ Cal./88 for the assessment year 1985-86 and the judgment of the Andhra Pradesh High Court in the case of Phoolchand Lalith Kumar & Co. v. ITO [1992] 196 ITR 302. It has been held that 'cess' is different in nature and character from "tax or duty" and therefore it cannot be disallowed under Section 43B as it stood prior to the amendment to the Section made by Finance Act, 1988 w.e.f. 1-4-1989.
3. Mr. S.C. Chatterjee, the Learned Departmental Representative, however raised a point that just as it has been held in the case of CIT v. Sri Jagannath Steel Corporation [1991] 191 ITR 676 by the Calcutta High Court that the first proviso to Section 43B inserted by the Finance Act, 1987 w.e.f. 1-4-1988 was applicable with retrospective effect from 1-4-1984 (1984-85 assessment), it should be held that the substitution of Clause (a) of Section 43B by Finance Act, 1988 w.e.f. 1-4-1989 took retrospective effect from 1-4-1984 and therefore must be held applicable for the assessment year in appeal. We are not able to uphold the point. It is a cardinal principle of construction that every statute is prospective in application unless it is expressly or by necessary implication made to have retrospective operation. A statute which deals with substantive rights is presumed to be only prospective. Statutes dealing with matters of procedure or the machinery provisions of the Act are presumed to be retrospective, unless such retrospectivity is textually inadmissible. The principle against the retrospective application of statutes is applicable with more force in the case of fiscal statutes. Fiscal legislation imposing liability is generally subject to the normal presumption that it is not retrospective (Please refer Union of India v. Madan Gopal Kabra AlR 1954 SC 158). In Govinddas v. ITO [1976] 103 ITR 123, the Supreme Court, while dealing with the provisions of Section 171(6) of the Income-tax Act and while holding that the said sub-section was not applicable to an assessment made on a Hindu undivided family for any assessment year prior to 1-4-1962, when the Act came into force, held as under :
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 volume 36 of the Laws of England (third edition) and reiterated in several decisions of the 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 prospective" 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. If we apply this principle of interpretation, it is clear that Sub-section (6) of Section 171 applies only to a situation where the assessment of a Hindu undivided family is completed under Section 143 or Section 144 of the new Act. It can have no application where the assessment of a Hindu undivided family is completed under the corresponding provisions of the old Act. Such a case would be governed by Section 25A of the old Act which does not impose any personal liability on the members in case of partial partition and to construe Sub-section (6) of Section 171 as applicable in such case with consequential effect of casting on the members personal liability which did not exist under Section 25A, would be to give retrospective operation to Sub-section (6) of Section 171 which is not warranted either by the express language of that provision or by necessary implication. Sub-section (6) of Section 171 can be given full effect by interpreting it as applicable only in a case where the assessment of a Hindu undivided family is made under Section 143 or Section 144 of the new Act. We cannot, therefore, consistently with the rule of interpretation which denies retrospective operation to a statute which has the effect of creating or imposing a new obligation or liability, construe Sub-section (6) of Section 171 as embracing a case where assessments of a Hindu undivided family is made under the provision of the old Act. Here is the present case, the assessments of the Hindu undivided family for the assessment years 1950-51 to 1956-57 were completed in accordance with the provisions of the old Act which included Section 25A and the Income-tax Officer was, therefore, not entitled to avail of the provision enacted in Sub-section (6) read with Sub-section (7) of Section 171 of the new Act for the purposes of recovering the tax or any part thereof personally from any members of the joint family including the petitioners.
Thus, a fiscal statute imposing new or additional liability cannot be given retrospective effect. Applying the aforesaid judgment of the Calcutta High Court, it was held by the Kamataka High Court in CIT v. N.L. Satyanarayan Setty [1981] 129 ITR 226 that the provisions of Section 68 of the IT Act, 1961, creates a new liability and that it does not contain any words indicating a retrospective operation. It was, therefore held that Section 68 cannot be invoked with a view to including the income from undisclosed sources which arose in the year 1958, prior to the date on which the 1961 IT Act came into force.
4. In Maxwell on the Interpretation of Statutes, Twelfth edition at page 215, it has been stated that it is a fundamental rule of English 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. We have to therefore see whether there are any express words or anything else in the substituted Clause (a) of Section 43B to suggest retrospective operation by implication. The original Clause was as under :
(a) Any sum payable by the assessee by way of tax or duty under any law for the time being in force, or, the aforesaid Clause was substituted by the following Clause:
'(a) Any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or.
The new Clause, as stated earlier, was introduced by the Finance Act, 1988 with effect from 1-4-1989. The Memorandum explaining the Finance Bill states the reasons for the introduction of the above Clause in paragraph 35 as under :-
35. Under the existing provisions of Section 43B of the Income-tax Act, deduction for any amount payable by the assessee by way of tax or duty under any law or any sum payable as an employer by way of contribution to any provident fund or superannuation fund is allowed as a deduction in computing the income of that person in the year in which such sum is actually paid by him. The objective behind these provisions is to provide for a tax disincentive by denying deduction in respect of statutory liability or fund money etc. which is not paid in time. The benefit of deduction is thus available only to those persons who do not use Government money for their own purposes.
There has been a legal controversy whether the words 'tax' and 'duty' cover within their fold certain statutory levies like cess, fees, etc. It has been held by some appellate authorities that such amounts could not be covered under the expressions 'tax' or 'duty'. Such interpretations are against the legislative intent.
Therefore, as a matter of clarification, the Bill provides that cess or fees by whatever name called, which have been imposed by any statutory authority, including a local authority, will also be allowed as a deduction only if these are actually paid.
In recent years, it has been noticed that there is a tendency on one pretext or the other to postpone the payment of interest due to various financial institutions on loans, etc., provided by them and thus the money due to financial institutions is used for business purposes even though it has been claimed as a deduction in the income-tax assessment. The phenomenon has the effect of straining the cash flow and liquidity of the public financial institutions, thereby reducing their ability to extend new credits. Further, a grave consequence of this tendency is that in cases where the sickness of the unit is self-managed, the financial institution is ultimately faced with a situation where it has to write off the accumulated balance of interest. This affects adversely the economy as a whole.
With a view to improving the liquidity position of the public financial institutions and to prevent the misuse of limited resources of finance available to trade and industry through the medium of financial institutions, the Bill seeks to amend Section 43B of the Act to provide that any sum payable as interest on any loan or borrowing from any public financial institution in accordance with the terms and conditions of the agreement governing such loan or borrowing, shall not be allowed as a deduction if the same is not actually paid by the assessee before the due date applicable in his case for furnishing the return of income.
For the purposes of this provision, the term 'public financial institution' will have the same meaning as in Section 4A of the Companies Act, 1956.
The above amendment will take effect from the 1st April, 1989 and will, accordingly, apply to assessment year 1989-90 and subsequent years. (Only relevant portions extracted) - 170 ITR 176 (St.) 192-193.
The Memorandum which contains the reasons for introducing the amendment and therefore should be construed as contemporanea expositio, shows that Parliament was fully aware of the legal controversy whether the words "tax" and "duty" covered statutory levies such as Cess, fees etc. The Legislature was also aware of the fact that the decision of some of the Appellate authorities were against the legislative intent. Having been aware of these position, the Parliament could have expressly made the provisions of the Clause retrospective in operation so as to come into effect from 1-4-1984, the date on which Section 43B itself was brought into the IT Act. But, the Sub-section was deliberately made applicable from the assessment year 1989-90 onwards. This shows a clear intention on the part of the Parliament not to make the Clause retrospective in operation. On the contrary, a clear intention is expressed in the Memorandum explaining the provisions of the Finance Bill that the amendment would take effect only prospectively. That apart, as held by the Supreme Court in Union of India v. Sukumar Pyne AIR 1966 SC 1206 a clarificatory or declaratory Act, which is intended to remove doubts regarding the meaning or effect of any statutory provision ordinarily contains the word 'declared' or the words 'for the removal of doubts'. It is also usual, if retrospectivity is intended, to add the words 'shall be deemed always to have meant'. These words which are usually coined by the Legislature to denote that the amendment or the statute will take retrospective effect are absent in the provision with which we are dealing. Therefore, there are neither express words nor is there any justification for implying retrospectivity of operation of the Clause.
5. It now remains for us to consider the main plank of the argument of Mr. Chatterjee that since the Calcutta High Court has held the first proviso to Section 43B to be retrospective in nature, on parity of reasoning we should hold that the new Clause (a) to Section 43B also takes effect retrospectively from 1-4-1984. There is a fallacy in the argument. The first proviso to Section 43B with which the Calcutta High Court was concerned in Sri Jagannath Steel Corporation's case (supra), was to the effect that if the tax or duty is actually paid by the assessee before the date on which the return of income is due, the payment has to be allowed as a deduction provided the assessee furnishes the evidence of the payment along with the return. The contention of the Revenue before the High Court was that the first proviso inserted by the Finance Act, 1987, with effect from 1-4-1988 cannot have retrospective operation. The High Court negatived the contention. First of all, the object of the first proviso was to remove an impossibility of performance and therefore it was held to have retrospective operation. The assessee, under the relevant law, could not have discharged its tax liability in the previous year itself, if the previous year ends on the last day in which a particular quarter ends. In that case, the tax in respect of that particular quarter would become due under the relevant law for payment only in the next accounting year. It would not be possible for the assessee to pay the tax within the accounting year itself and claim the deduction. In order to remove such impossibility of performance and to remove the inconsistency, the High Court held that the first proviso, even though introduced later, would have retrospective application from the assessment year 1984-85, when the original provision was introduced. It was held by the High Court that the intention of the Legislature was to make the provision workable and give the benefit of the deduction also to an assessee who discharges the liability by making actual payment. The first proviso was thus held by the High Court to be an "operational addendum" to the enactment with the sole object of explaining the real intendment of the statutory provision. It was only in this view of the matter, having regard to the object of the first proviso, that the High Court held that it takes retrospective effect. The new Clause (a) with which we are concerned is not intended to remove any impossible situation or to act as an operational addendum to the main provision. In effect the new Clause creates additional liabilities, namely that cess or fees would also come up for disallowance if they are not actually paid on or before the due date for filing the return. We have already seen that there is ample authority for the proposition that a fiscal statute imposing a new or additional liability should be strictly construed and should not be given retrospective operation. Therefore, the new Clause (a) cannot be made to operate with retrospective effect from 1-4-1984. The judgment of the Calcutta High Court, in our humble understanding, cannot be read as advancing the contention of Mr. Chatterjee for the Department.
6. For the aforesaid reasons, we reject the arguments of Mr. Chatterjee for the Department that the new substituted Clause (a) must be taken to act retrospectively from 1-4-1984. We, therefore direct the departmental authorities to delete the disallowance of the cess on tea and the education cess.
7. The only other ground is against the levy of interest under Section 217. The grievance of the assessee is that the CIT (A) was wrong in saying that the assessee did not advance any argument against the levy. The learned counsel for the assessee drew our attention to the statement of facts and the grounds of appeal filed before the CIT (A) to show that the assessee had denied his liability to pay interest. This ground, however fades into insignificance after the order of the Assessing Officer dated 12-2-1992 under which refund is due to the assessee. In this revised order, a copy of which has been furnished to us, no interest under Section 217 has been charged. The ground therefore becomes infructuous and is dismissed.
8. In the result, the appeal is partly allowed.