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Facts
The assessee, engaged in developing infrastructure projects, declared total income of Rs. 58,80,66,950/-. The Assessing Officer disallowed Rs. 4,74,31,032/- under Section 14A read with Rule 8D, observing investments yielding dividend income. The CIT(A) confirmed this disallowance, referring to an amendment by the Finance Act, 2022, which they held applied even without exempt income.
Held
The Tribunal held that the amendment to Section 14A by the Finance Act, 2022, is prospective and not retrospective. Therefore, disallowance under Section 14A can only be made if exempt income has been earned. The CIT(A)'s finding that the Delhi High Court decision was per incuriam was also rejected.
Key Issues
Whether disallowance under Section 14A of the Income Tax Act can be made even if no exempt income is earned, and whether the amendment by Finance Act, 2022, is retrospective.
Sections Cited
14A, 8D
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
This appeal by the assessee is directed against order dated 14.10.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2018-19, raising following grounds:
1. On the facts and circumstances of the case as well as in law, the On the facts and circumstances of the case as well as in law, the On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred Learned CIT(A) has erred in confirming the action of the Learned in confirming the action of the Learned Assessing Officer disallowing sum of Rs.4,74,31,032/ Assessing Officer disallowing sum of Rs.4,74,31,032/ - u/s.14A of u/s.14A of the Income Tax Act 1961 by invoking the rule 8D of Income Tax the Income Tax Act 1961 by invoking the rule 8D of Income Tax the Income Tax Act 1961 by invoking the rule 8D of Income Tax Rules, 1962, without considering the facts and circumstances of the Rules, 1962, without considering the facts and circumstances of the Rules, 1962, without considering the facts and circumstances of the case.
2. On the facts and circumstances of the case as well as in law, the s and circumstances of the case as well as in law, the s and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Learned CIT(A) has erred in confirming the action of Learned Learned CIT(A) has erred in confirming the action of Learned Assessing officer in making disallowance u/s.14A of the Act without Assessing officer in making disallowance u/s.14A of the Act without Assessing officer in making disallowance u/s.14A of the Act without appreciating the fact that no exempt income was earned by the appreciating the fact that no exempt income was earned by the appreciating the fact that no exempt income was earned by the Appellant during the year under consideration. during the year under consideration.
Briefly stated, facts of the case are that the assessee a Briefly stated, facts of the case are that the assessee a Briefly stated, facts of the case are that the assessee a domestic company was engaged in the business of developing and domestic company was engaged in the business of developing and domestic company was engaged in the business of developing and running infrastructu running infrastructure project including port etc. D re project including port etc. During the relevant assessment year under co elevant assessment year under consideration, the assessee filed he assessee filed return of income on 28.11.20 return of income on 28.11.2018 declaring total income at 18 declaring total income at Rs.58,80,66,950/-. The return of income filed by the assessee . The return of income filed by the assessee . The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under was selected for scrutiny assessment and statutory notices under was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short ‘the tax Act, 1961 (in short ‘the Act’) were issued and Act’) were issued and complied with. During assessment proceedings, the Assessing During assessment proceedings, the Assessing During assessment proceedings, the Assessing Officer observed investment in shares yielding exempted dividend Officer observed investment in shares yielding exempted dividend Officer observed investment in shares yielding exempted dividend income, but no disallowance was made by the assessee u/s 14A income, but no disallowance was made by the assessee u/s 14A income, but no disallowance was made by the assessee u/s 14A of the Act. The Assessing Officer referred to pr of the Act. The Assessing Officer referred to provisions of section ovisions of section 14A(2) of the Act and concluded that disallowance u/s 14A of the 14A(2) of the Act and concluded that disallowance u/s 14A of the 14A(2) of the Act and concluded that disallowance u/s 14A of the Act shall be made even no expenditure has been incurred in Act shall be made even no expenditure has been incurred in Act shall be made even no expenditure has been incurred in relation to income which does not form part of total income. relation to income which does not form part of total income. relation to income which does not form part of total income. Accordingly, the Assessing Officer computed monthly average of Accordingly, the Assessing Officer computed monthly Accordingly, the Assessing Officer computed monthly the investments and thereafter made addition for the 1% of the the investments and thereafter made addition for the 1% of the the investments and thereafter made addition for the 1% of the annual average of such investments, which was worked out to annual average of such investments, which was worked out to annual average of such investments, which was worked out to Rs.4,74,31,032/- and added to the total income returned by the and added to the total income returned by the and added to the total income returned by the assessee. In the assessment order passed u/s 143(3) of the In the assessment order passed u/s 143(3) of the In the assessment order passed u/s 143(3) of the Act on 08.03.2021, the Assessing Officer made disallowance of on 08.03.2021, the Assessing Officer made disallowance on 08.03.2021, the Assessing Officer made disallowance Rs.4,74,31,032/- u/s 14A of the Act r.w.r. 8D of the Income u/s 14A of the Act r.w.r. 8D of the Income-tax u/s 14A of the Act r.w.r. 8D of the Income Rules, 1962.
3. On further appeal, the Ld. CIT(A) referred to the amendment On further appeal, the Ld. CIT(A) referred to the amendment On further appeal, the Ld. CIT(A) referred to the amendment brought by the Finance Act, 2022 to hold that disallowance u/s brought by the Finance Act, 2022 to hold that disall brought by the Finance Act, 2022 to hold that disall 14A of the Act shall be operative even when there is no exempt 14A of the Act shall be operative even when there is no exempt 14A of the Act shall be operative even when there is no exempt income earned in the particular year. The Ld. CIT(A) held the income earned in the particular year. The Ld. CIT(A) held the income earned in the particular year. The Ld. CIT(A) held the decision of the Hon’ble Delhi High Court in the case of Era decision of the Hon’ble Delhi High Court in the case of decision of the Hon’ble Delhi High Court in the case of Infrastructure Ltd. (supra) Infrastructure Ltd. (supra) as per incurium. The relevant . The relevant finding of the Ld. CIT(A) is reproduced as under: the Ld. CIT(A) is reproduced as under:
(iii) Though, it is fairly admitted that the above said amendment (iii) Though, it is fairly admitted that the above said amendment (iii) Though, it is fairly admitted that the above said amendment brought out by the Finance Act 2022 has been subject matter of brought out by the Finance Act 2022 has been subject matter of brought out by the Finance Act 2022 has been subject matter of substantial litigation and various Tribunals and Courts have given substantial litigation and various Tribunals and Courts have given substantial litigation and various Tribunals and Courts have given contrary opinions as to whether the applicability of the amendment opinions as to whether the applicability of the amendment opinions as to whether the applicability of the amendment is retrospective or prospective. It is noted that the Hon'ble Delhi High is retrospective or prospective. It is noted that the Hon'ble Delhi High is retrospective or prospective. It is noted that the Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs. Era Court in the case of Commissioner of Income Tax vs. Era Court in the case of Commissioner of Income Tax vs. Era Infrastructure (India) Ltd. Infrastructure (India) Ltd. (2022) 448 ITR 674 (Del) and PCIT Vs (2022) 448 ITR 674 (Del) and PCIT Vs Delhi International Airport Pvt. Ltd. (Delhi High Court) (2022)144 i International Airport Pvt. Ltd. (Delhi High Court) (2022)144 i International Airport Pvt. Ltd. (Delhi High Court) (2022)144 taxmann.com 80 (Del) has held the amendment to be prospective. taxmann.com 80 (Del) has held the amendment to be prospective. taxmann.com 80 (Del) has held the amendment to be prospective. However, it is trite that any legislation or instrument having the force However, it is trite that any legislation or instrument having the force However, it is trite that any legislation or instrument having the force of law, which is clarificatory or explanatory in nature a of law, which is clarificatory or explanatory in nature and purport nd purport and which seeks to clear doubts or correct an obvious omission in a and which seeks to clear doubts or correct an obvious omission in a and which seeks to clear doubts or correct an obvious omission in a statute, would generally be retrospective in operation, as reiterated statute, would generally be retrospective in operation, as reiterated statute, would generally be retrospective in operation, as reiterated by Hon'ble Supreme Court from time to time including in its recent by Hon'ble Supreme Court from time to time including in its recent by Hon'ble Supreme Court from time to time including in its recent judgment dated 16.05.2023 in the case of judgment dated 16.05.2023 in the case of SREE SANKARACHARYA SREE SANKARACHARYA UNIVERSITY of Sanskrit & Ors. Vs. Dr. Manu & An in CIVIL APPEAL UNIVERSITY of Sanskrit & Ors. Vs. Dr. Manu & An in CIVIL APPEAL UNIVERSITY of Sanskrit & Ors. Vs. Dr. Manu & An in CIVIL APPEAL NO. 3752 OF 2023. The various case laws interpreting section 14A NO. 3752 OF 2023. The various case laws interpreting section 14A NO. 3752 OF 2023. The various case laws interpreting section 14A amendment to be prospective based only on the stated date of amendment to be prospective based only on the stated date of amendment to be prospective based only on the stated date of application to be w.e.f. 01 application to be w.e.f. 01-04-2022 have been hyper technical and hyper technical and clearly ignored that the substantive wordings of the amendment and clearly ignored that the substantive wordings of the amendment and clearly ignored that the substantive wordings of the amendment and the the the Explanatory Explanatory Explanatory Memorandum Memorandum Memorandum to to to the the the Finance Finance Finance Act Act Act which which which unequivocally shows intention of the legislature in favour of making unequivocally shows intention of the legislature in favour of making unequivocally shows intention of the legislature in favour of making the amendment clarificatory in nature and retros the amendment clarificatory in nature and retrospective in operation. pective in operation. The judicial forums holding the amendment to be prospective, The judicial forums holding the amendment to be prospective, The judicial forums holding the amendment to be prospective, have apparently not discussed on record decisions of Hon SC have apparently not discussed on record decisions of Hon SC have apparently not discussed on record decisions of Hon SC on interpretation of Statute, hence the concerned orders, with on interpretation of Statute, hence the concerned orders, with on interpretation of Statute, hence the concerned orders, with all humility, are found to be subsilentio and henc all humility, are found to be subsilentio and hence rendered e rendered per incurium, thus not laying any law. per incurium, thus not laying any law. Furthermore, there is no Furthermore, there is no judicial finality on the issue yet. Post judicial finality on the issue yet. Post-amendment SLP of the revenue amendment SLP of the revenue on this issue has been admitted by the Hon'ble Apex Court in case of on this issue has been admitted by the Hon'ble Apex Court in case of on this issue has been admitted by the Hon'ble Apex Court in case of Delhi International Airport (P.) Ltd. [202 Delhi International Airport (P.) Ltd. [2022] 142 taxmann.com 328 (SC) 2] 142 taxmann.com 328 (SC) and is pending adjudication. Therefore, in the absence of any and is pending adjudication. Therefore, in the absence of any and is pending adjudication. Therefore, in the absence of any judgment of the Hon'ble Supreme Court or the Jurisdictional High judgment of the Hon'ble Supreme Court or the Jurisdictional High judgment of the Hon'ble Supreme Court or the Jurisdictional High Court on this issue post the amendment vide Finance Act 2022 Court on this issue post the amendment vide Finance Act 2022 Court on this issue post the amendment vide Finance Act 2022 brought to attention by the appellant an brought to attention by the appellant and in view of the d in view of the unambiguous language of the amendment brought out by Finance unambiguous language of the amendment brought out by Finance unambiguous language of the amendment brought out by Finance Act, 2022, section 14A is hereby held to be applicable even in the Act, 2022, section 14A is hereby held to be applicable even in the Act, 2022, section 14A is hereby held to be applicable even in the absence of any exempt income earned during the year. absence of any exempt income earned during the year.
4. We have heard the rival submissions of the parties and We have heard the rival submissions of the parties and We have heard the rival submissions of the parties and meticulously perused the relevant material on record. The meticulously perused the relevant material on record. The meticulously perused the relevant material on record. The principal issue for determination in the present matter is whether principal issue for determination in the present matter is whether principal issue for determination in the present matter is whether a disallowance under Section 14A Act can be made a disallowance under Section 14A Act can be made even even when the assessee has not earned any exempt income during the relevant assessee has not earned any exempt income during the relevant assessee has not earned any exempt income during the relevant financial year under consideration. Upon examination cial year under consideration. Upon examination cial year under consideration. Upon examination of various decisions on the issue decisions on the issue , we note that the Hon’ble Bombay High , we note that the Hon’ble Bombay High Court, in the case of Court, in the case of PCIT v. Ballarpur Industries Ltd. PCIT v. Ballarpur Industries Ltd., [2017] 85 taxmann.com taxmann.com taxmann.com 13 13 13 (Bombay), (Bombay), (Bombay), categorically categorically categorically held held held that that that no no no disallowance under Section 14A can be made in the absence of er Section 14A can be made in the absence of er Section 14A can be made in the absence of exempt income earned by the assessee. Similarly, the Hon’ble exempt income earned by the assessee. Similarly, the Hon’ble exempt income earned by the assessee. Similarly, the Hon’ble Delhi High Court, in Delhi High Court, in Cheminvest Ltd. 378 ITR 33, also ruled that 378 ITR 33, also ruled that Section 14A is inapplicable when no exempt income is earned Section 14A is inapplicable when no exempt income is earned Section 14A is inapplicable when no exempt income is earned during the relevant asses during the relevant assessment year. Further, the Hon’ble sment year. Further, the Hon’ble Madras High Court, in Madras High Court, in Chettinad Logistics (P.) Ltd. Chettinad Logistics (P.) Ltd. [2018] 95 taxmann.com 250, echoed this position, a finding which was later taxmann.com 250, echoed this position, a finding which was later taxmann.com 250, echoed this position, a finding which was later affirmed by the dismissal of the Special Leave Petition (SLP) by affirmed by the dismissal of the Special Leave Petition (SLP) by affirmed by the dismissal of the Special Leave Petition (SLP) by Hon’ble Supreme Court. Subseque Court. Subsequently, the Finance Act, 2022, ntly, the Finance Act, 2022, introduced an amendment to Section 14A, effective from 1st April introduced an amendment to Section 14A, effective from 1st April introduced an amendment to Section 14A, effective from 1st April 2022, stipulating that disallowance under this provision shall 2022, stipulating that disallowance under this provision shall 2022, stipulating that disallowance under this provision shall apply even if no exempt income is earned during the year. The apply even if no exempt income is earned during the year. The apply even if no exempt income is earned during the year. The crux of the matter revolves around th crux of the matter revolves around the retrospective or e retrospective or prospective application of this amendment. prospective application of this amendment. This question was This question was deliberated upon by the Hon’ble Delhi High Court in Era deliberated upon by the Hon’ble Delhi High Court in deliberated upon by the Hon’ble Delhi High Court in Infrastructure Ltd.,(2022) 448 ITR 674, (2022) 448 ITR 674, wherein it is held that the amendment is prospective in nature. amendment is prospective in nature. But, we find that the Ld. we find that the Ld. CIT(A) in impugned order in impugned order has held that said decision of Hon’ble said decision of Hon’ble High Court is sub-silentio silentio and per incurium. Thus, the issue Thus, the issue for our consideration before us is firstly, whether the ld CIT(A) is our consideration before us is firstly, whether the ld CIT(A) our consideration before us is firstly, whether the ld CIT(A) justified in his finding of holding the o justified in his finding of holding the order of Hon’bl rder of Hon’ble Delhi High Court as per incuriam per incuriam and secondly, the amendment to section and secondly, the amendment to section 14A is prospective or retrospective ? 14A is prospective or retrospective ?
4.1 The doctrine of The doctrine of stare decisis mandates that decisions of mandates that decisions of higher courts are binding on lower courts and ensures higher courts are binding on lower courts and ensures higher courts are binding on lower courts and ensures consistency and predictabili consistency and predictability in the judicial process. However, ty in the judicial process. However, the exceptions to this doctrine the exceptions to this doctrine—per incuriam and and sub silentio— are equally critical. A judgment is considered are equally critical. A judgment is considered per incuriam per incuriam when it is delivered in ignorance of a relevant statutory provision or is delivered in ignorance of a relevant statutory provision or is delivered in ignorance of a relevant statutory provision or binding authority. Convers binding authority. Conversely, a decision is deemed ely, a decision is deemed sub silentio when a particular legal issue is neither expressly addressed nor when a particular legal issue is neither expressly addressed nor when a particular legal issue is neither expressly addressed nor consciously adjudicated by the court. A balanced application of consciously adjudicated by the court. A balanced application of consciously adjudicated by the court. A balanced application of stare decisis and its exceptions fosters a judicial framework that and its exceptions fosters a judicial framework that and its exceptions fosters a judicial framework that is both consistent and legally robust is both consistent and legally robust.
4.2 Thus, normally a normally a lower court should not hold the decision of lower court should not hold the decision of higher court as per higher court as per incuriam unless a direct decision of higher unless a direct decision of higher court or larger bench on the issue has not court or larger bench on the issue has not been considered. been considered. The Hon’ble Supreme Court, in Court, in Ravinder Singh v. Sukhbir Singh Ravinder Singh v. Sukhbir Singh (2013) 9 SCC 245, clarified that a Supreme Court judgment (2013) 9 SCC 245, clarified that a Supreme Court judgment (2013) 9 SCC 245, clarified that a Supreme Court judgment cannot be deemed cannot be deemed per incuriam merely due to perceived merely due to perceived inadequacies inadequacies inadequacies in in in argument, argument, argument, consideration, consideration, consideration, or or or reasoning. reasoning. reasoning. Furthermore, in South Central Railway Employees Cooperative South Central Railway Employees Cooperative South Central Railway Employees Cooperative Credit Society Employees Union v. B. Yashodabai Credit Society Employees Union v. B. Yashodabai (2015) 2 SCC (2015) 2 SCC 727, it was unequivocally held that High Courts cannot disregard 727, it was unequivocally held that High Courts cannot disregard 727, it was unequivocally held that High Courts cannot disregard the binding decisions of the binding decisions of Hon’ble Supreme Court by terming them Court by terming them per incuriam. Additionally, the Hon’ble Karnataka High Court, in itionally, the Hon’ble Karnataka High Court, in itionally, the Hon’ble Karnataka High Court, in Panchaxari Shidramappa Yeligar v. Shiggaon Taluka Shikshana Panchaxari Shidramappa Yeligar v. Shiggaon Taluka Shikshana Panchaxari Shidramappa Yeligar v. Shiggaon Taluka Shikshana Samithi (ILR 1998 KAR 3748), decisively opined that a lower court (ILR 1998 KAR 3748), decisively opined that a lower court (ILR 1998 KAR 3748), decisively opined that a lower court cannot declare a higher court's decision as cannot declare a higher court's decision as per incuriam per incuriam. The relevant finding is reproduced as under: reproduced as under:
12. Re: Question No (iii) 12.1. While some of the exceptions to the rule 12. Re: Question No (iii) 12.1. While some of the exceptions to the rule 12. Re: Question No (iii) 12.1. While some of the exceptions to the rule of stare decisis can be applied to all decisions which can be called as of stare decisis can be applied to all decisions which can be called as of stare decisis can be applied to all decisions which can be called as precedents, some, like the exception based on per incuriam Rule can be precedents, some, like the exception based on per incuriam Rule can be precedents, some, like the exception based on per incuriam Rule can be applied only in regard to decisions of Co-ordinate Branches of the applied only in regard to decisions of C ordinate Branches of the same Court, and not to decisions of larger Benches of the same Court same Court, and not to decisions of larger Benches of the same Court same Court, and not to decisions of larger Benches of the same Court or the Apex Court. While a decision rendered per incuriam by a While a decision rendered per incuriam by a While a decision rendered per incuriam by a coordinate Bench may not be binding as a precedent, a Court in coordinate Bench may not be binding as a precedent, a Court in coordinate Bench may not be binding as a precedent, a Court in a lower tier (Smaller Bench) can not refuse to follow the ratio a lower tier (Smaller Bench) can n ot refuse to follow the ratio decided of a decision rendered by the Court in a higher tier decided of a decision rendered by the Court in a higher tier decided of a decision rendered by the Court in a higher tier (larger Bench of the same Court or the Apex Court) by stating (larger Bench of the same Court or the Apex Court) by stating (larger Bench of the same Court or the Apex Court) by stating that such decision is rendered per incuriam. Let me refer to same that such decision is rendered per incuriam. Let me refer to same of the decisions on this aspect. of the decisions on this aspect. 12.2. In B.M. LAKHANI v. MALKHAPUR MUNICIPALITY, the Supreme . In B.M. LAKHANI v. MALKHAPUR MUNICIPALITY, the Supreme . In B.M. LAKHANI v. MALKHAPUR MUNICIPALITY, the Supreme Court held that the High Court could not ignore a decision of the Court held that the High Court could not ignore a decision of the Court held that the High Court could not ignore a decision of the Supreme Court because it thought that the relevant provisions were not Supreme Court because it thought that the relevant provisions were not Supreme Court because it thought that the relevant provisions were not brought to the notice of Supreme Court. brought to the notice of Supreme Court. 12.3. The following observations of the Supreme Court in 12.3. The following ob servations of the Supreme Court in ASST COLLECTOR OF CENTRAL EXCISE, CHANDAN NAGAR, WEST COLLECTOR OF CENTRAL EXCISE, CHANDAN NAGAR, WEST COLLECTOR OF CENTRAL EXCISE, CHANDAN NAGAR, WEST BENGAL v. DUNLOP INDIA LTD AND ORS, are clinching: BENGAL v. DUNLOP INDIA LTD AND ORS "We desire to add and as was said in Cassesl and Co., Ltd., v. "We desire to add and as was said in Cassesl and Co., Ltd., v. "We desire to add and as was said in Cassesl and Co., Ltd., v. Broome, (1972) AC 1027) we hope it will never be necessary for ' us to ome, (1972) AC 1027) we hope it will never be necessary for ' us to ome, (1972) AC 1027) we hope it will never be necessary for ' us to say so again that in the hierarchical system of courts, which exists in say so again that in the hierarchical system of courts, which exists in say so again that in the hierarchical system of courts, which exists in our country, it is necessary for each lower tier' including the High our country, it is necessary for each lower tier' including the High our country, it is necessary for each lower tier' including the High Court, 'to accept loyally the decisions of the higher tiers.' 'It is inevitable Court, 'to accept loyally the decisions of the higher tiers.' 'It is inevitable in a hierarchical system of Courts that there are decisions of the in a hierarchical system of Courts that there are decisions of the in a hierarchical system of Courts that there are decisions of the Supreme Appellate Tribunal which do not attract the unanimous Supreme Appellate Tribunal which do not attract the unanimous Supreme Appellate Tribunal which do not attract the unanimous approval of all members of the judiciary.....But the judicial system only approval of all members of the judiciary.....But the judicial system only approval of all members of the judiciary.....But the judicial system only works if someone is allowed to have the last word and that last word, works if someone is allowed to have the last word and that last word, once spoken, is loyally accepted, (see observations of Lord Hailsham once spoken, is loyally accepted, (see observations of Lord Hailsham once spoken, is loyally accepted, (see observations of Lord Hailsham and Lord Diplock). The better wisdom of the Court below must yield to and Lord Diplock). The better wisdom of the Court below must yield to and Lord Diplock). The better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the the higher wisdom of the Court above. That is the strength of the the higher wisdom of the Court above. That is the strength of the hierarchical judicial system. In Cassel v. Broome, commenting on the ierarchical judicial system. In Cassel v. Broome, commenting on the ierarchical judicial system. In Cassel v. Broome, commenting on the Court of appeals' comment that Rookes v. Barnard, 1964 AC 1129, Court of appeals' comment that Rookes v. Barnard, 1964 AC 1129, Court of appeals' comment that Rookes v. Barnard, 1964 AC 1129, was rendered per incuriam, Lord Diplock observed: "The Court of was rendered per incuriam, Lord Diplock observed: "The Court of was rendered per incuriam, Lord Diplock observed: "The Court of appeal found themselves able to disregard the decision of th appeal found themselves able to disregard the decision of this House appeal found themselves able to disregard the decision of th in ROOKES v. BARNARD by applying to it the label per incuriam. That in ROOKES v. BARNARD by applying to it the label per incuriam. That in ROOKES v. BARNARD by applying to it the label per incuriam. That table is relevant only to the right of an appellate Court to decline to table is relevant only to the right of an appellate Court to decline to table is relevant only to the right of an appellate Court to decline to follow one of its own previous decisions, not to its right to disregard a follow one of its own previous decisions, not to its right to disregard a follow one of its own previous decisions, not to its right to disregard a decision of a higher appellate Court or to the right of a judge of the decision of a higher appellate Co urt or to the right of a judge of the High Court to disregard a decision of the Court of Appeal.' (emphasis High Court to disregard a decision of the Court of Appeal.' (emphasis High Court to disregard a decision of the Court of Appeal.' (emphasis supplied) 12.4. In EATON BAKER v. THE QUEEN, 1975 AC 775. the supplied) 12.4. In EATON BAKER v. THE QUEEN, 1975 AC 775. the supplied) 12.4. In EATON BAKER v. THE QUEEN, 1975 AC 775. the Privy Council observed as follows: Privy Council observed as follows: Strictly speaking the per incuriam rule as such, while it justifies a Strictly speaking the per incuriam rule as such, wh ile it justifies a Court which is bound by precedent in refusing to follow one of its own Court which is bound by precedent in refusing to follow one of its own Court which is bound by precedent in refusing to follow one of its own previous decisions (YOUNG v. BRISTOL AEROPLANE CO LTD (1944 KB previous decisions (YOUNG v. BRISTOL AEROPLANE CO LTD (1944 KB previous decisions (YOUNG v. BRISTOL AEROPLANE CO LTD (1944 KB 718), does not apply to decisions of Courts of appellate jurisdiction 718), does not apply to decisions of Courts of appellate jurisdiction 718), does not apply to decisions of Courts of appellate jurisdiction Superior to that of the Court in which the rule is sought to be invoked Superior to that of the Court in which the rule is sought to be invoked (BROOME v. CASSEL & CO 1972 AC 1027). To permit this use of the (BROOME v. CASSEL & CO 1972 AC 1027). To permit this use of the (BROOME v. CASSEL & CO 1972 AC 1027). To permit this use of the per incuriam rule would open the door to disregard of precedents by per incuriam rule would open the door to disregard of precedents by per incuriam rule would open the door to disregard of precedents by the Court of inferior jurisdiction by the simple device of holding that the Court of inferior jurisdiction by the simple device of holding that the Court of inferior jurisdiction by the simple device of holding that decisions of superior Courts with which it disagreed must have been superior Courts with which it disagreed must have been superior Courts with which it disagreed must have been given per incuriam." 12.5. In H. MUNISWAMY GOWDA v. MANAGEMENT OF KSRTC AND H. MUNISWAMY GOWDA v. MANAGEMENT OF KSRTC AND H. MUNISWAMY GOWDA v. MANAGEMENT OF KSRTC AND ANR, , the Learned Chief Justice, speaking for the Division Bench of , , the Learned Chief Justice, speaking for the Division Bench of , , the Learned Chief Justice, speaking for the Division Bench of this Court while stressing the need for Single Judges in follow the Court while stressing the need for Single Judges in follow the Court while stressing the need for Single Judges in follow the decisions of the Full Bench, reiterated the position that the hierarchical decisions of the Full Bench, reiterated the position that the hierarchical decisions of the Full Bench, reiterated the position that the hierarchical system of Courts prevalent in our country mandates upon each lower system of Courts prevalent in our country mandates upon each lower system of Courts prevalent in our country mandates upon each lower tier including the High Court to accept loyally the decisions of the tier including the High Court to accept loyally the decisions of the higher tiers. 12.6. Question No. (iii) is therefore answered in the negative. 12.6. Question No. (iii) is therefore answered in the negative. 12.6. Question No. (iii) is therefore answered in the negative. 4.3 In Era Infrastructure (India) Ltd. Era Infrastructure (India) Ltd. (supra), the Hon'ble Delhi (supra), the Hon'ble Delhi High Court explicitly considered the amendment to Section 14A High Court explicitly considered the amendment to Section 14A High Court explicitly considered the amendment to Section 14A and held that it applies prospectively. The High Court relied upon and held that it applies prospectively. The High Court relied upon and held that it applies prospectively. The High Court relied upon the the the Memorandum Memorandum Memorandum of of of the the the Finance Finance Finance Bill, Bill, Bill, 2022, 2022, 2022, which which which unambiguously stated that the amendment would take effect unambiguously stated that the amendment would take unambiguously stated that the amendment would take from 1st April 2022 and apply to assessment year 2022–23 and from 1st April 2022 and apply to assessment year 2022 from 1st April 2022 and apply to assessment year 2022 onwards. onwards. Furthermore, Furthermore, reliance reliance is placed placed on on settled settled jurisprudence, including the Hon'ble Supreme Court's rulings in jurisprudence, including the Hon'ble Supreme Court's rulings in jurisprudence, including the Hon'ble Supreme Court's rulings in Sedco Forex International Drill. Inc. v. CIT Sedco Forex International Drill. Inc. v. CIT (2005) 12 SCC 717 and (2005) 12 SCC 717 and M.M Aqua Technologies Ltd. v. CIT qua Technologies Ltd. v. CIT 2021 SCC OnLine SC 575, 2021 SCC OnLine SC 575, which emphasize that retrospective application of a statutory which emphasize that retrospective application of a statutory which emphasize that retrospective application of a statutory provision, is permissible only if the legislative intent is explicit or is permissible only if the legislative intent is explicit or is permissible only if the legislative intent is explicit or the provision is clarificatory in nature. the provision is clarificatory in nature. The relevant finding of The relevant finding of Hon’ble High Court is reproduced as under: ’ble High Court is reproduced as under:
Learned counsel for the petitioner also submits that in view of the 4. Learned counsel for the petitioner also submits that in view of the 4. Learned counsel for the petitioner also submits that in view of the amendment made by the Finance Act, 2022 to Section 14A amendment made by the Section 14A of the Act by inserting a non obstante clause and an explanation after the proviso, by inserting a non obstante clause and an explanation after the proviso, by inserting a non obstante clause and an explanation after the proviso, a change in law has been brought about and consequently, the a change in law has been brought about and consequently, the a change in law has been brought about and consequently, the judgments relied upon by the authorities below including PCIT vs. IL & FS judgments relied upon by the authorities below including PCIT vs. IL & FS judgments relied upon by the authorities below including PCIT vs. IL & FS Energy Development Company Ltd (supra) are no longer good law. The Energy Development C ompany Ltd (supra) are no longer good law. The amendment to Section 14A Section 14A of the Act is reproduced hereinbelow: of the Act is reproduced hereinbelow:- "Amendment of section 14A section 14A. In section 14A of the Income of the Income-tax Act, - (a) in sub-section (1), for the words "For the purposes of", the words section (1), for the words "For the purposes of", the words section (1), for the words "For the purposes of", the words "Notwithstanding anything to the contrary contained in this Act, for the "Notwithstanding anything to the contrary contained in this Act, for the "Notwithstanding anything to the contrary contained in this Act, for the purposes of" shall be substituted; purposes of" shall be s (b) after the proviso, the following Explanation shall be inserted, namely: (b) after the proviso, the following Explanation shall be inserted, namely:- (b) after the proviso, the following Explanation shall be inserted, namely: "[Explanation.--For the removal of doubts, it is hereby clarified that For the removal of doubts, it is hereby clarified that For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the notwithstanding anything to the contrary contained in this Act, the notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have provisions of this section s hall apply and shall be deemed to have always applied in a case where the income, not forming part of the total always applied in a case where the income, not forming part of the total always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received income under this Act, has not accrued or arisen or has not been received income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the during the previous year relevant to an assessment year and the during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to iture has been incurred during the said previous year in relation to iture has been incurred during the said previous year in relation to such income not forming part of the total income.]" such income not forming part of the total income.]"
5. However a perusal of the Memorandum of the Finance Bill, 2022 5. However a perusal of the Memorandum of the Finance Bill, 2022 5. However a perusal of the Memorandum of the Finance Bill, 2022 reveals that it explicitly stipulates that the amendment made to reveals that it explicitly stipulates that the amendment made to Section reveals that it explicitly stipulates that the amendment made to 14A will take effect from 1st April, 2022 and will apply in relation to the will take effect from 1st April, 2022 and will apply in relation to the will take effect from 1st April, 2022 and will apply in relation to the assessment year 2022-23 and subsequent assessment years. The assessment year 2022 23 and subsequent assessment years. The relevant extract of Clauses 4, 5, 6 & 7 of the Memorandum of F relevant extract of Clauses 4, 5, 6 & 7 of the Memorandum of Finance relevant extract of Clauses 4, 5, 6 & 7 of the Memorandum of F Bill, 2022 are reproduced hereinbelow: Bill, 2022 are reproduced hereinbelow: "4. In order to make the intention of the legislation clear and to make it "4. In order to make the intention of the legislation clear and to make it "4. In order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to insert an Explanation free from any misinterpretation, it is proposed to insert an Explanation free from any misinterpretation, it is proposed to insert an Explanation to section 14A of the Act to clarify that notwithstanding anything to the of the Act to clarify that notwithstanding anything to the of the Act to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply contrary contained in this Act, the provisions of this section shall apply contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt and shall be deemed to have always applied in a case where exempt and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has previous year relevant to an assessment year and the expenditure has previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt been incurred during the said previous year in relation to such exempt been incurred during the said previous year in relation to such exempt income.
5. This amendment will take effect from 1st April, 2022.
5. This amendment will take effect from 1st April, 2022.
It is also proposed to amend sub-section (1) of the said section, so as to 6. It is also proposed to amend section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of obstante clause in respect of other provisions of obstante clause in respect of other provisions of the Income-tax Act and provide that no deduction shall be allowed in and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary relation to exempt income , notwithstanding anything to the contrary contained in this Act. contained in this Act.
This amendment will take effect from 1st April, 2022 and will 7. This amendment will take effect from 1st April, 2022 and will 7. This amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022 accordingly apply in relation to the assessment year 2022-23 and accordingly apply in relation to the assessment year 2022 subsequent assessment years." subsequent assessment years." (emphasis supplied) (emphasis supplied) 6. Furthermore, the Supreme Court in Sedco Forex International Drill. more, the Supreme Court in Sedco Forex International Drill. Inc. more, the Supreme Court in Sedco Forex International Drill. v. CIT, (2005) 12 SCC 717 has held that a retrospective provision in a tax , (2005) 12 SCC 717 has held that a retrospective provision in a tax , (2005) 12 SCC 717 has held that a retrospective provision in a tax act which is "for the removal of doubts" cannot be presumed to be act which is "for the removal of doubts" cannot be presumed to be act which is "for the removal of doubts" cannot be presumed to be retrospective, even where such language is used, if it alters or changes retrospective, even where such language is used, if it alters or changes retrospective, even where such language is used, if it alters or changes the law as it earlier stood. The relevant extract of the said judgment the law as it earlier stood. The relevant extract of the said judgment is reproduced herein below: reproduced herein below: "9. The High Court did not refer to the 1999 Explanation in upholding the "9. The High Court did not refer to the 1999 Explanation in upholding the inclusion of salary for the field break periods in the assessable income of inclusion of salary for the field break periods in the assessable income of inclusion of salary for the field break periods in the assessable income of the employees of the appellant. However, the respondents have urged the the employees of the appellant. However, the respondents have urged the the employees of the appellant. However, the respondents have urged the point before us. 10. In our view the 1999 Explanation could not apply to assessment 10. In our view the 1999 Explanation could not ap ply to assessment years for the simple reason that it had not come into effect then. Prior to years for the simple reason that it had not come into effect then. Prior to years for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in introducing the 1999 Explanation, the decision in CIT v. S.G. introducing the 1999 Explanation, the decision in Pgnatale [(1980) 124 ITR 391 (Guj)] was followed i [(1980) 124 ITR 391 (Guj)] was followed in 1989 by a Division n 1989 by a Division Bench of the Gauhati High Court in CIT v. Goslino Mario Bench of the Gauhati High Court in [(2000) 241 ITR 314 (Gau)] . It found that the 1983 Explanation had been given effect 314 (Gau)] . It found that the 1983 Explanation had been given effect 314 (Gau)] . It found that the 1983 Explanation had been given effect from 1-4-1979 whereas the year in question 1979 whereas the year in question in that case in that case was 1976-77 and said: (ITR p. 318) "[I]t is settled law that assessment has to be made with (ITR p. 318) "[I]t is settled law that assessment has to be made with (ITR p. 318) "[I]t is settled law that assessment has to be made with reference to the law which is in existence at the relevant time. The mere reference to the law which is in existence at the relevant time. The mere reference to the law which is in existence at the relevant time. The mere fact that the assessments in question has (sic) somehow remained fact that the assessments in question has (sic) somehow remained pending on 1-4-1979, cannot be cogent reason to make the Explanation 1979, cannot be cogent reason to make the Explanation 1979, cannot be cogent reason to make the Explanation applicable to the cases of the present assessees. This fortuitous applicable to the cases of the present assessees. This fortuitous applicable to the cases of the present assessees. This fortuitous circumstance cannot take away the vested rights of the assessees at circumstance cannot take away the vested rights of the assessees at circumstance cannot take away the vested rights of the assessees at hand."
The reasoning of the Gauhati High Court was expressly affirmed by e reasoning of the Gauhati High Court was expressly affirmed by e reasoning of the Gauhati High Court was expressly affirmed by this Court in CIT v. Goslino Mario CIT v. Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR [(2000) 10 SCC 165 : (2000) 241 ITR 312] . These decisions are thus authorities for the proposition that t 312] . These decisions are thus authorities for the proposition that the 312] . These decisions are thus authorities for the proposition that t 1983 Explanation expressly introduced with effect from a particular date 1983 Explanation expressly introduced with effect from a particular date 1983 Explanation expressly introduced with effect from a particular date would not effect the earlier assessment years. would not effect the earlier assessment years.
In this state of the law, on 27-2-1999 the Finance Bill, 1999 12. In this state of the law, on 27 1999 the Finance Bill, 1999 substituted the Explanation to Section 9(1)(ii) (or what has been referred substituted the Explanation to (or what has been referred to by us as the 1999 Explanation). Section 5 of the Bill expressly stated to by us as the 1999 Explanation). of the Bill expressly stated that with effect from 1-4-2000, the substituted Explanation would read: that with effect from 1 2000, the substituted Explanation would read: "Explanation.--For the removal of doubts, it is hereby declared that the For the removal of doubts, it is hereby declared that the For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for-- income of the nature referred to in this clause payable for-- income of the nature referred to in this clause payable for (a) service rendered in India; and (a) service rendered in India; and (b) the rest period or leave period which is preceded and (b) the rest period or leave period which is preceded and succeeded by (b) the rest period or leave period which is preceded and services rendered in India and forms part of the service contract of ed in India and forms part of the service contract of ed in India and forms part of the service contract of employment, shall be regarded as income earned in India." employment, shall be regarded as income earned in India." employment, shall be regarded as income earned in India." The Finance Act, 1999 which followed the Bill incorporated the The Finance Act, 1999 which followed the Bill incorporated the substituted Explanation to Section 9(1)(ii) without any change. substituted Explanation to without any change.
The Explanation as introduced in 1983 was construed by the Kerala 13. The Explanation as introduced in 1983 was construed by the Kerala 13. The Explanation as introduced in 1983 was construed by the Kerala High Court in CIT v. S.R. Patton CIT v. S.R. Patton [(1992) 193 ITR 49 (Ker)] while following R 49 (Ker)] while following the Gujarat High Court's decision in S.G. Pgnatale [(1980) 124 ITR 391 the Gujarat High Court's decision in S.G. Pgnatale [(1980) 124 ITR 391 the Gujarat High Court's decision in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] to hold that the Explanation was not declaratory but widened the (Guj)] to hold that the Explanation was not declaratory but widened the (Guj)] to hold that the Explanation was not declaratory but widened the scope of Section 9(1)(ii) Section 9(1)(ii). It was further held that even if it were assumed further held that even if it were assumed to be clarificatory or that it removed whatever ambiguity there was to be clarificatory or that it removed whatever ambiguity there was to be clarificatory or that it removed whatever ambiguity there was in Section 9(1)(ii) of the Act, it did not operate in respect of periods which of the Act, it did not operate in respect of periods which of the Act, it did not operate in respect of periods which were prior to 1-4-1979. It was held that since the Explanation came into 1979. It was held that since the Explanation came into 1979. It was held that since the Explanation came into force from 1-4-1979, it could not be relied on for any purpose for an 1979, it could not be relied on for any purpose for an 1979, it could not be relied on for any purpose for an anterior period. 14. In the appeal preferred from the decision by the Revenue before this 14. In the appeal preferred from the decision by the Revenue before this 14. In the appeal preferred from the decision by the Revenue before this Court, the Revenue did not question this reading of the Explanation by Court, the Revenue did not question thi s reading of the Explanation by the Kerala High Court, but restricted itself to a question of fact viz. the Kerala High Court, but restricted itself to a question of fact viz. the Kerala High Court, but restricted itself to a question of fact viz. whether the Tribunal had correctly found that the salary of the assessee whether the Tribunal had correctly found that the salary of the assessee whether the Tribunal had correctly found that the salary of the assessee was paid by a foreign company. This Court dismissed the appeal holding was paid by a foreign company. This Court dismissed the appeal holding was paid by a foreign company. This Court dismissed the appeal holding that it was a question of fact. ( was a question of fact. (CIT v. S.R. Patton [(1998) 8 SCC 608] .) [(1998) 8 SCC 608] .) 15. Given this legislative history of Section 9(1)(ii), we can only assume 15. Given this legislative history of , we can only assume that it was deliberately introduced with effect from 1 that it was deliberately introduced with effect from 1-4- 2000 and that it was deliberately introduced with effect from 1 therefore intended to apply prospectively [See CIT v. Patel Bros therefore intended to apply prospectively [See CIT v. Patel Bros. & Co. Ltd., (1995) 4 SCC 485, 494 (para 18) : Ltd., (1995) 4 SCC 485, 494 (para 18) : (1995) 215 ITR 165] . It was also understood as such by CBDT which 5) 215 ITR 165] . It was also understood as such by CBDT which 5) 215 ITR 165] . It was also understood as such by CBDT which issued Circular No. 779 dated 14-9-1999 containing Explanatory Notes issued Circular No. 779 dated 14 1999 containing Explanatory Notes on the provisions of the Finance Act, 1999 insofar as it related to on the provisions of the insofar as it related to direct taxes. It said in paras 5.2 and 5.3. taxes. It said in paras 5.2 and 5.3. "5.2 The Act has expanded the existing Explanation which states that has expanded the existing Explanation which states that has expanded the existing Explanation which states that salary paid for services rendered in India shall be regarded as income salary paid for services rendered in India shall be regarded as income salary paid for services rendered in India shall be regarded as income earned in India, so as to specifically provide that any salary payable for earned in India, so a s to specifically provide that any salary payable for the rest period or leave period which is both preceded and succeeded by the rest period or leave period which is both preceded and succeeded by the rest period or leave period which is both preceded and succeeded by service in India and forms part of the service contract of employment will service in India and forms part of the service contract of employment will service in India and forms part of the service contract of employment will also be regarded as income earned in India. also be regarded as income earned in India. 5.3 This amendment will take effect from 1 endment will take effect from 1-4-2000, and will accordingly, 2000, and will accordingly, apply in relation to Assessment Year 2000-2001 and subsequent years." apply in relation to Assessment Year 2000 2001 and subsequent years."
The departmental understanding of the effect of the 1999 Amendment 16. The departmental understanding of the effect of the 1999 Amendment 16. The departmental understanding of the effect of the 1999 Amendment even if it were assumed not to bind the respondents under Section 119 of even if it were assumed not to bind the respondents u nder Section 119 of the Act, nevertheless affords a reasonable construction of it, and there is the Act, nevertheless affords a reasonable construction of it, and there is the Act, nevertheless affords a reasonable construction of it, and there is no reason why we should not adopt it. no reason why we should not adopt it.
As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165 : 17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165 : 17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR 312] a cardinal principle of the tax law is that the law to (2000) 241 ITR 312] a cardinal principle of the ta x law is that the law to be applied is that which is in force in the relevant assessment year be applied is that which is in force in the relevant assessment year be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See unless otherwise provided expressly or by necessary implication. (See unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139 : 1980 [(1980) 1 SCC 139 : 1980 SCC (Tax) 67] .) An Explanation to a statutory provision may fulfil the An Explanation to a statutory provision may fulfil the An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an purpose of clearing up an ambiguity in the main provision or an purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section Explanation can add to and widen the scope of the main section Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of U.P. Sonia Bhatia v. State of U.P., (1981) 2 SCC 585, 598 : AIR 1981 SC , (1981) 2 SCC 585, 598 : AIR 1981 SC 1274, 1282 para 24] . If it is in its nature clarificatory then the 1274, 1282 para 24] . If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the Explanation must be read into the main provision with effect from the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram time that the main p Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); , (2001) 8 SCC 24 (para 44); Brij Mohan Das Laxman Das v. CIT Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482, (1997) 1 SCC 352, 354; , (1997) 5 SCC 482, 506] . But if it changes the law it is not presumed to be retrospective, 506] . But if it changes the law it is not presumed to be retrospective, 506] . But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are "it is declared" irrespective of the fact that the phrases used are "it is declared" irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts"." or "for the removal of doubts (emphasis supplied) (emphasis supplied) 7. The aforesaid proposition of law has been reiterated by the Supreme 7. The aforesaid proposition of law has been reiterated by the Supreme 7. The aforesaid proposition of law has been reiterated by the Supreme Court in M.M Aqua Technologies Ltd. V. Commissioner of Income Tax, M.M Aqua Technologies Ltd. V. Commissioner of Income Tax, M.M Aqua Technologies Ltd. V. Commissioner of Income Tax, Delhi-III, 2021 SCC OnLine SC 575. The , 2021 SCC OnLine SC 575. The relevant portion of relevant portion of the said judgment is reproduced hereinbelow: is reproduced hereinbelow:- "22. Second, a retrospective provision in a tax act which is "for the "22. Second, a retrospective provision in a tax act which is "for the "22. Second, a retrospective provision in a tax act which is "for the removal of doubts" cannot be presumed to be retrospective, even wh removal of doubts" cannot be presumed to be retrospective, even where removal of doubts" cannot be presumed to be retrospective, even wh such language is used, if it alters or changes the law as it earlier stood. such language is used, if it alters or changes the law as it earlier stood. such language is used, if it alters or changes the law as it earlier stood. This was stated in Sedco Forex International Drill. Inc. v. CIT This was stated in Sedco Forex International Inc. v. CIT, (2005) 12 SCC 717 as follows: SCC 717 as follows: 17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165] a 17. As was affirmed by this Co urt in Goslino Mario [(2000) 10 SCC 165] a cardinal principle of the tax law is that the law to be applied is that cardinal principle of the tax law is that the law to be applied is that cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise which is in force in the relevant assessment year unless otherwise which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also provided expressly or by necessary implication. (See also Reliance Jute provided expressly or by necessary implication. (See also and Industries Ltd. v. CIT [(1980) 1 SCC 139].) An Explanation to a and Industries Ltd. v. CIT An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in statutory provision may fulfil the purpose of clearing up an ambiguity in statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the sc the main provision or an Explanation can add to and widen the scope of the main provision or an Explanation can add to and widen the sc the main section [See Sonia Bhatia v. State of U.P., (1981) 2 SCC 585]. the main section [See , (1981) 2 SCC 585]. If it is in its nature clarificatory then the Explanation must be read into the it is in its nature clarificatory then the Explanation must be read into the it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24; , (2001) 8 SCC 24; Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352; CIT v. Podar Cement (P) Ltd. Das Laxman Das v. CIT CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482]. But if it changes the law it is not presumed to be (1997) 5 SCC 482]. But if it changes the law it is not presumed to be (1997) 5 SCC 482]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are "it is retrospective, irrespective of the fact that the phrases used are "it is retrospective, irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts". declared" or "for the removal of doubts".
There was and is no ambiguity in the main provision of re was and is no ambiguity in the main provision of re was and is no ambiguity in the main provision of Section 9(1)(ii). It includes salaries in the total income of an assessee if the . It includes salaries in the total income of an assessee if the . It includes salaries in the total income of an assessee if the assessee has earned it in India. The word "earned" had been judicially assessee has earned it in India. The word "earned" had been judicially assessee has earned it in India. The word "earned" had been judicially defined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court of defined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court of defined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court of Gujarat, in our view, correctly, to mean as income "arising or accruing in Gujarat, in our view, correctly, to mean as income "arising or accruing in Gujarat, in our view, correctly, to mean as income "arising or accruing in India". The amendment to the section by way of an Explanation in 1983 India". The amendment to the section by way of an Explanation in 1983 India". The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include effected a change in the scope of that judicial definition so as to include with effect from 1979, "income payable for service rendered in India". with effect from 1979, "income payable for service rendered in India". with effect from 1979, "income payable for service rendered in India".
When the Explanation seeks to give an artificial meaning to "earned 19. When the Explanation seeks to give an artificial meaning to "earned 19. When the Explanation seeks to give an artificial meaning to "earned in India" and brings about a change effectively in the existing law and in in India" and brings about a change effectively in the existing law and in in India" and brings about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there addition is stated to come into force with effect from a future date, there addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the is no principle of interpretation which would justify reading the is no principle of interpretation which would justify reading the Explanation as operating retrospectively." Explanation as operating retrospectively." (emphasis supplied) (emphasis supplied) 8. Consequently, this Court is of the view that the amendment of 8. Consequently, this Court is of the view that the amendment of Section 14A, which is "for removal of doubts" cannot be presumed to be , which is "for removal of doubts" cannot be presumed to be , which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes retrospective even where such language is used, if it alters or changes retrospective even where such language is used, if it alters or changes the law as it earlier stood. the law as it earlier stood.
Though the judgment of this Court has been challenged and is pending dgment of this Court has been challenged and is pending dgment of this Court has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of adjudication before the Supreme Court, yet there is no stay of the said adjudication before the Supreme Court, yet there is no stay of judgment till date. Consequently, in view of the judgments passed by Consequently, in view of the judgments passed by the Supreme Court in eme Court in Kunhayammed and Others vs. State of Kerala and Kunhayammed and Others vs. State of Kerala and Another, (2000) 6 SCC 359 and Shree Chamundi Mopeds Ltd. Vs. Church 2000) 6 SCC 359 and Shree Chamundi Mopeds Ltd. Vs. Church 2000) 6 SCC 359 and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras of South India Trust Asso ciation CSI Cinod Secretariat, Madras (1992) 3 SCC 1, the present appeal is dismissed being covered by the judgment SCC 1, the present appeal is dismissed being covered by the judgment SCC 1, the present appeal is dismissed being covered by the judgment passed by the learned predecessor Division Bench in PCIT vs. IL & FS passed by the learned predecessor Division Bench in PCIT vs. IL & FS passed by the learned predecessor Division Bench in PCIT vs. IL & FS Energy Development Company Ltd (supra) and Cheminvest Limited vs. Energy Development Company Ltd ( supra) and Cheminvest Limited vs. Commissioner of Income Tax-VI, (2015) 378 ITR 33. Commissioner of Income Tax 10. Accordingly, the appeal and application are dismissed. However, it is 10. Accordingly, the appeal and application are dismissed. However, it is 10. Accordingly, the appeal and application are dismissed. However, it is clarified that the order passed in the present appeal shall abide by the clarified that the order passed in the present appeal shall abide by the clarified that the order passed in the present appeal shall abide by the final decision of the Supreme Court in the SLP filed in the case of PCIT vs. sion of the Supreme Court in the SLP filed in the case of PCIT vs. sion of the Supreme Court in the SLP filed in the case of PCIT vs. IL & FS Energy Development Company Ltd (supra). IL & FS Energy Development Company Ltd (supra). 4.4 Thus, holding of the decision of Hon’ble High Court as Thus, holding of the decision of Hon’ble High Court as Thus, holding of the decision of Hon’ble High Court as per incuriam by the ld CIT(A) by the ld CIT(A) was without reading the decision was without reading the decision properly and without without proper application of mind proper application of mind, particularly referring to judgment dated 16.05.2023 in the case of SREE judgment dated 16.05.2023 in the case of SREE judgment dated 16.05.2023 in the case of SREE SANKARACHARYA UNIVERSITY of Sanskrit & Ors. Vs. Dr. Manu SANKARACHARYA UNIVERSITY of Sanskrit & Ors. Vs. Dr. Manu SANKARACHARYA UNIVERSITY of Sanskrit & Ors. Vs. Dr. Manu & Another in CIVIL APPEAL NO. 3752 OF 2023 in CIVIL APPEAL NO. 3752 OF 2023, , which being subsequent to the decision of Hon’b subsequent to the decision of Hon’ble High Court (supra) le High Court (supra). In light of the above, it is impermissible for the learned CIT(A) to of the above, it is impermissible for the learned CIT(A) to of the above, it is impermissible for the learned CIT(A) to disregard the binding decision nding decision of Hon’ble Delhi High Court in Hon’ble Delhi High Court in Era Infrastructure Ltd.(supra) (supra), on the ground of per incuriam per incuriam or sub- silentio. The judicial disciplin . The judicial discipline necessitates adherence to adherence to established established established precedents precedents precedents unless unless unless specifically specifically specifically overturned overturned overturned or or or superseded by a competent authority. superseded by a competent authority. The said observations The said observations of ld CIT(A) are accordingly deserves to be rejected. are accordingly deserves to be rejected.
4.5 As far as issue in dispute in the matter is concerned As far as issue in dispute in the matter is concerned As far as issue in dispute in the matter is concerned, we note that the Co-ordinate Benc ordinate Benches of the Tribunal have followed of the Tribunal have followed the decisions of the Hon’ble Delhi High Court in the case of Era decisions of the Hon’ble Delhi High Court in the case of Era decisions of the Hon’ble Delhi High Court in the case of Era Infrastructure Ltd. (supra) Infrastructure Ltd. (supra) and held the applicability of the held the applicability of the amendment to section 14A of the Act as prospective. The relevant amendment to section 14A of the Act as prospective. The rele amendment to section 14A of the Act as prospective. The rele finding of the Tribunal in the case of M/s Welspun Steel Ltd. in finding of the Tribunal in the case of M/s Welspun Steel Ltd. in finding of the Tribunal in the case of M/s Welspun Steel Ltd. in for assessment year 2015-16 is for assessment year 2015 ITA No. 2137/Mum/2021 for assessment year 2015 reproduced as under: reproduced as under:
“6. We have considered the rival submissions and perused the We have considered the rival submissions and perused the We have considered the rival submissions and perused the material on record. It is admitted position that th material on record. It is admitted position that the Hon'ble Bombay e Hon'ble Bombay High Court and the Hon'ble Supreme Court have clearly held that High Court and the Hon'ble Supreme Court have clearly held that High Court and the Hon'ble Supreme Court have clearly held that disallowance under Section 14A of the Act cannot exceed the disallowance under Section 14A of the Act cannot exceed the disallowance under Section 14A of the Act cannot exceed the amount of exempt income earned by the Assessee during the amount of exempt income earned by the Assessee during the amount of exempt income earned by the Assessee during the relevant previous year. The stand of the Revenue is that relevant previous year. The stand of the Revenue is that relevant previous year. The stand of the Revenue is that amendments to Section 14A introduced by the Finance Act 2022 amendments to Section 14A introduced by the Finance Act 2022 amendments to Section 14A introduced by the Finance Act 2022 apply retrospectively and therefore, the aforesaid judgments no apply retrospectively and therefore, the aforesaid judgments no apply retrospectively and therefore, the aforesaid judgments no longer hold good. Whereas the contention of the Assessee is that longer hold good. Whereas the contention of the Assessee is that longer hold good. Whereas the contention of the Assessee is that the said amendments to Section 14A of the Act are prospective in the said amendments to Section 14A of the Act are prospective in the said amendments to Section 14A of the Act are prospective in nature and therefore, the order of CIT(A), passed by following the ature and therefore, the order of CIT(A), passed by following the ature and therefore, the order of CIT(A), passed by following the binding judgments of the Hon'ble Jurisdictional High Court, cannot binding judgments of the Hon'ble Jurisdictional High Court, cannot binding judgments of the Hon'ble Jurisdictional High Court, cannot be set aside by the applying the amended provisions of Section be set aside by the applying the amended provisions of Section be set aside by the applying the amended provisions of Section 14A of the Act.
7. We note that the Mumbai Bench of the Trib We note that the Mumbai Bench of the Tribunal has, in the case unal has, in the case of Assistant Commissioner of Income Tax of Assistant Commissioner of Income Tax- Circle 3(1)(1) Vs Circle 3(1)(1) Vs Bajaj Capital Ventures (P.) Ltd.: [2022] 140 taxmann.com 1 (Mumbai Capital Ventures (P.) Ltd.: [2022] 140 taxmann.com 1 (Mumbai Capital Ventures (P.) Ltd.: [2022] 140 taxmann.com 1 (Mumbai - Trib.)[29-06-2022] and also in the case of Assistant Commissioner 2022] and also in the case of Assistant Commissioner 2022] and also in the case of Assistant Commissioner Of Income Tax Vs. K Raheja Corporate Ser Of Income Tax Vs. K Raheja Corporate Services Private Limited [ITA vices Private Limited [ITA No. 2521 to 25271, held that the amendments to Section 14A No. 2521 to 25271, held that the amendments to Section 14A No. 2521 to 25271, held that the amendments to Section 14A introduced by the Finance Act 2022 shall apply from Assessment introduced by the Finance Act 2022 shall apply from Assessment introduced by the Finance Act 2022 shall apply from Assessment Year 2022-23 and onwards. 23 and onwards. Further, Hon'ble Delhi High Court in Further, Hon'ble Delhi High Court in the case of Principal Commissioner of Income the case of Principal Commissioner of Income-Tax (Central) Tax (Central) -2 Vs. M/s Era Infrastructure India Ltd: [ITA No. 204 of 2022, decided on M/s Era Infrastructure India Ltd: [ITA No. 204 of 2022, decided on M/s Era Infrastructure India Ltd: [ITA No. 204 of 2022, decided on 20.07.2022] has rejected the contention of the Revenue that 20.07.2022] has rejected the contention of the Revenue that 20.07.2022] has rejected the contention of the Revenue that amendments to Section 14A introduced by the Finance Act 2022 amendments to Section 14A introduced by the Finance Act 2022 amendments to Section 14A introduced by the Finance Act 2022 shall have retrospective effect. Accordingly, shall have retrospective effect. Accordingly, Ground No.1 raised by Ground No.1 raised by the Revenue is dismissed. the Revenue is dismissed.” 4.6 Respectfully, following the finding of the Tribunal (supra) following the finding of the Tribunal (supra), following the finding of the Tribunal (supra) we set aside the finding of the Ld. CIT(A) on the issue in dispute we set aside the finding of the Ld. CIT(A) on the issue in dispute we set aside the finding of the Ld. CIT(A) on the issue in dispute and delete the addition made by the Assessing Officer. The and delete the addition made by the Assessing Officer. The and delete the addition made by the Assessing Officer. The ground No. 1 and 2 of the appeal of the assessee are accordingly 2 of the appeal of the assessee are accordingly 2 of the appeal of the assessee are accordingly allowed.
In the result, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on nounced in the open Court on 23/01/2025. /01/2025.