COMMR. INCOME TAX vs. CIVIL SUPPLIES CORP.

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ITR/1/1997HC Himachal PradeshHPHC01001236199722 April 2008Author: HONOURABLE MR. JUSTICE DEEPAK GUPTA,HONOURABLE MR. JUSTICE RAJIV SHARMA3 pages
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What did the High Court hold?

The High Court held that the question of law is no longer res integra and has been answered by the Supreme Court in Allied Motors (P) Limited versus Commissioner of Income Tax (1997) 224 ITR 677. The Supreme Court held that a proviso inserted to remedy unintended consequences, make a provision workable, or supply an obvious omission, and which is required to give a reasonable interpretation to the section, should be treated as retrospective. The Court noted that various High Courts (Gujarat, Calcutta, Patna) have taken a similar view, holding the amendment inserting the first proviso to Section 43B as curative, explanatory, or retrospective. The Delhi High Court's view that the proviso would be available only prospectively was considered incorrect. Therefore, the High Court concluded that the proviso to Section 43B is remedial and retrospective in character. The question was answered in favour of the assessee and against the revenue. The reference stood disposed of with no order as to costs.

What were the facts?

This case involves a reference to the Himachal Pradesh High Court concerning the interpretation of Section 43B of the Income Tax Act, 1961. The Commissioner of Income Tax (appellant) challenged an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had held that the provisions of Section 43B were retrospective. The specific issue revolved around the first proviso to Section 43B, which was inserted with effect from April 1, 1988. The assessee, M/s Himachal Pradesh State Civil Supplies Corporation Limited, was involved in the dispute. The procedural history indicates that a question of law was referred to the High Court for its opinion.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the provisions of section 43B were retrospective in character, specifically concerning the first proviso to section 43B inserted w.e.f. 1.4.1988? Assessee's contentions: The judgment does not explicitly record the assessee's arguments. However, the outcome suggests the assessee supported the ITAT's view that the proviso was retrospective. Revenue's contentions: The judgment does not explicitly record the revenue's arguments. However, the reference of the question of law implies the revenue disagreed with the ITAT's finding and likely argued that the proviso was prospective, as indicated by the reference to the Delhi High Court's view.

Which sections of the Income-tax Act were involved?

Section 43B,Section 256

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA.

ITR No.1/1997 Decided on.22.4.2008

The Commissioner of Income Tax, Patiala …Appellant.

Versus

M/s Himachal Pradesh State Civil Supplies Corporation Limited.

…Respondent

Coram

The Hon’ble Mr. Justice Deepak Gupta, J. The Hon’ble Mr. Justice Rajiv Sharma, J.

Whether approved for reporting ?1. No.

For the appellant : Ms Vandana Kuthiala, Advocate.

For the respondent : Mr. Dushyant Dadwal, Advocate.

Deepak Gupta, J. (oral):

The following question of law has been referred for the opinion of this Court under section 256 of the Income Tax Act, 1961: “Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that the provisions of section 43B were retrospective in character when the provisions of first proviso to section 43B inserted w.e.f. 1.4.1988?”

The question is no longer res integra and stands answered by the Hon’ble Supreme Court in Allied Motors (P) Limited versus

1 Whether the reporters of Local Papers may be allowed to see the judgment? Yes.

2 Commissioner of Income Tax, (1997) 224 ITR 677. The Hon’ble Supreme Court in above mentioned case has held as under: “Therefore, in the well known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R. B. Jodha Mal Kuthiala v. Commissioner of Income-tax, Punjab, Jammu & Kashmir and Himachal Pradesh, ((1971) 82 ITR 570) : (AIR 1972 SC 126), this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole.

This view has been accepted by a number of High Courts. In the case of, Commr. of Income-tax v. Chandulal Venichand, (1994) 209 ITR 7, the Gujarat High Court has held that the first proviso to Section 43-B is retrospective and sales tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with assessment year 1984-85. The Calcutta High Court in the case of Commr. of Income-tax v. Sri Jagannath Steel Corporation, (1991) 191 ITR 676, has taken a similar view holding that the statutory liability for sales tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under Section 43-B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting

3 the first proviso to be explanatory in the case of, Jamshedpur Motor Assessories Stores v. Union of India, (1991) 189 ITR 70. It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to Section 43-B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, 4th Edn. Page 291, "It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended." In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.”

In view of the fact that the Apex Court has clearly held that the proviso to section 43B is remedial in nature, and therefore, is retrospective in character, the question is answered in favour of the assessee and against the revenue. A copy of this judgment under the signature of the Registrar General of this Court be forwarded to the Tribunal.

The reference thus stands disposed of with no order as to costs.

(Deepak Gupta), Judge

( Rajiv Sharma), Judge

April 22, 2008 *Awasthi*

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