COMNR. OF INCOME-TAX, BOMBAY vs. M/S. KANJI SHIVJI & CO

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C.A. No.-009777-009777 - 1995Supreme Court25 January 2000Bench: S.P.BHARUCHA A.P.MISRA N.SANTOSH HEGDE1 pages
For Petitioner: SHAIL KUMAR DWIVEDI
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the conclusion reached in the earlier cases of Brij Mohan Das Laxman Das and Suwalal Anandilal Jain, which stated that Explanation (2) to Section 40(b) of the Income Tax Act, 1961, is declaratory in operation, still represents the correct exposition of the law. The court found the observations in Rashik Lal & Co. to be obiter dicta, as the application of Section 40(b) and the said explanation was not truly in issue in that case. The reasoning is that if the content of the explanation was already the law, then giving it effect from a specific date (April 1, 1985) would not make sense, implying it was indeed intended to clarify or declare existing law. Therefore, following the earlier precedents, the civil appeal was dismissed. No specific issue was left undecided.

What were the facts?

This appeal before the Supreme Court of India concerns the interpretation of Explanation (2) to Section 40(b) of the Income Tax Act, 1961, which was introduced effective April 1, 1985. The core dispute is whether this explanation is prospective or declaratory in nature. The case was referred to a three-judge bench due to a divergence of opinion between earlier benches. A two-judge bench in Brij Mohan Das Laxman Das vs. Commissioner of Income Tax (223 I.T.R./825) held the explanation to be declaratory, a view later accepted by a three-judge bench in Suwalal Anandilal Jain vs. Commissioner of Income Tax (224 I.T.R. 753). However, a subsequent two-judge bench in Rashik Lal & Co. vs. Commissioner of Income Tax (229 I.T.R.458) doubted this conclusion.

What were the issues?

1. Whether Explanation (2) to Section 40(b) of the Income Tax Act, 1961, introduced with effect from April 1, 1985, is prospective in operation or only declaratory in nature? Assessee's Contentions: The judgment does not record any specific contentions made by the assessee. Revenue's Contentions: The revenue, through the Commissioner of Income Tax, Bombay, is challenging the interpretation of Explanation (2) to Section 40(b). The earlier decisions in Brij Mohan Das Laxman Das and Suwalal Anandilal Jain, which held the explanation to be declaratory, are being implicitly challenged by the referral to a larger bench. The judgment notes that a two-judge bench in Rashik Lal & Co. found it difficult to accept the proposition that the explanation was merely clarificatory, as giving it effect from a specific date would be illogical if it merely stated existing law. However, the court notes that the application of Section 40(b) and the explanation was not truly in issue in Rashik Lal's case.

Which sections of the Income-tax Act were involved?

Section 40(b)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 1 PETITIONER: COMMISSIONER OF INCOME TAX, BOMBAY Vs. RESPONDENT: M/S KANJI SHIVJI & CO. DATE OF JUDGMENT: 25/01/2000 BENCH: S.P.Bharucha, A.P.Misra, N.Santosh Hegde

JUDGMENT: Income Tax (223 I.T.R./825) two learned judges concluded In the case of Rashik Lal & Co. vs. Commissioner of Income Tax (229 I.T.R.458) this view was doubted. A Bench of two learned Judges observed that it was difficult to accept the proposition that the said Explanation was only clarificatory for the reason that if what was contained in the said Explanation was already the law in force, then giving effect to the said Explanation from 1st April, 1985 did not make any sense. But the Bench immediately noted, "Hkowever, in the case before us, no question of payment of any interest in involved". In other words, the application of Section 40(b) and the said Explanation was not really in issue in Rashik Lal’s case relative to the said Explanation must, therefore, betreated as obiter dicta.

The conclusion of the court in the earlier cases of Brij Mohan Das Laxman Das and Suwalal Anandilal jain still represents the correct exposition of the law. Fkollowing these decisions, the civil appeal must be dismissed./ We are abliged to Mr. B.Sen, learned counsel, for his assistance at our request.

Appeal dismissed.

No order as to costs.

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