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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF JUNE 2016
PRESENT
THE HON’BLE MR.JUSTICE JAYANT PATEL AND THE HON’BLE MR.JUSTICE B.SREENIVASE GOWDA WRIT APPEAL NOS.3319-3324 OF 2004 (T-AIT)
IN WA NOS.3319-21/2004:
BETWEEN:
THE STATE OF KARNATAKA THROUGH THE SECRETARY MINISTRY OF FINANCE VIDHANA SOUDHA, BANGALORE – 1.
THE ADDITIONAL ASSISTANT COMMISSIONER OF AGRICULTURE INCOME TAX, VIRAJPET.
…APPELLANTS
(BY SRI ADITYA SONDHI, ADDL. AG & SMT. SHWETA KRISHNAPPA, GP)
2 AND:
M/S. KARDICOPPAL ESTATE THITHIMATHI COORG, REPRESENTED BY ITS PROPRIETOR SRI. M.NACHAIAH CHITTIAPPA
…RESPONDENT
(BY SRI MANMOHAN P.N. ADV.)
IN WA NO.3322/2004
BETWEEN:
THE STATE OF KARNATAKA THROUGH THE SECRETARY MINISTRY OF FINANCE FINANCE DEPARTMENT VIDHANA SOUDHA, BANGALORE – 1.
THE DY. COMMISSIONER OF AGRICULTURE INCOME TAX HASSAN – 573 201.
…APPELLANTS
(BY SRI ADITYA SONDHI, ADDL. AG & SMT. SHWETA KRISHNAPPA, GP)
AND:
SRI. K.V.GANGARAJU 50 YEARS
3 COFFEE PLANTER MADIHALLI ESTATE BHARATHUR POST H. HOSAKOTE HOBLI ALUR TALUK.
…RESPONDENT
(BY SRI MANMOHAN P.N. ADV.)
IN WA NO.3323/2004
BETWEEN:
THE STATE OF KARNATAKA THROUGH THE SECRETARY MINISTRY OF FINANCE FINANCE DEPARTMENT VIDHANA SOUDHA, BANGALORE – 1.
THE ASST. COMMISSIONER OF AGRICULTURE INCOME TAX 1ST CIRCLE, CHICKMAGALUR
…APPELLANTS
(BY SRI ADITYA SONDHI, ADDL. AG & SMT. SHWETA KRISHNAPPA, GP)
AND:
M/S. NANDINI ESTATE HAVALLI VILLAGE ALDUR POST
4 CHICKMAGALUR TALUK REP BY ITS MANAGING DIRECTOR SRI. KANTHILAL 43 YEARS S/O SRI. BHANIRAM
…RESPONDENT
(BY SRI MANMOHAN P.N. ADV.)
IN WA NO.3324/2004
BETWEEN:
THE DY. COMMISSIONER OF AGRICULTURE INCOME TAX HASSAN.
THE STATE OF KARNATAKA THROUGH THE SECRETARY MINISTRY OF FINANCE FINANCE DEPARTMENT VIDHANA SOUDHA, BANGALORE – 1.
…APPELLANTS
(BY SRI ADITYA SONDHI, ADDL. AG & SMT. SHWETA KRISHNAPPA, GP)
AND:
M.S. VIJAYASHANKAR MALALI ESTATE MALALI POST, SAKALESHPUR
5 HASSAN.
…RESPONDENT
(BY SRI MANMOHAN P.N. ADV.)
THESE WRIT APPEALS ARE FILED U/S 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER PASSED IN THE WRIT PETITION NOs.13394 & 13635-36/2000 C/W WP NO.32321/2001 C/W WP NO.33891/2001 C/W WP NO.41849/2001 DATED 16.09.2004.
THESE APPEALS COMING ON FOR PRELIMINARY HEARING THIS DAY, JAYANT PATEL J., DELIVERED THE FOLLOWING:
JUDGMENT
As in all these appeals common questions are to be considered, they are being considered simultaneously.
All the appeals are directed against the order dated 16.09.2003 passed by the learned Single Judge of this Court in the respective main petitions, whereby the learned Single Judge has allowed the petitions by holding that the retrospective effect to the amendment
6 under Section 15 of the Karnataka Agricultural Income Tax Act, is contrary to the judgment of this Court in W.A.Nos.3795-3809/1998 dated 03.07.2002 and judgment of the Apex Court in AIR 1984 SC 1780 and further consequential directions were issued.
We have heard Mr.Aditya Sondhi, Addl. Advocate General appearing for Smt.Shweta Krishnappa, learned Government Pleader, for the appellants and Mr.Manmohan P.N., learned Counsel appearing for the respondents.
At the outset, we may record some relevant facts
that all the petitioners challenged the retrospectivity amendment to Section 15 of the Karnataka Agricultural Income-Tax Act, (hereinafter referred to as ‘the Act’ for the sake of brevity) and they further prayed for the declaration that the said
7 amendment is prospective in character and consequently, the assessment orders passed by the Assessing Officer be quashed. All the matters were heard by the learned Single Judge and the learned Single Judge while examining the question as to whether the amendment could be made with retrospective effect under Section 15 of the Act or not, mainly relied upon a decision of this Court in W.A.No.3795/1998 and allied matters decided on 03.07.2002 and the earlier decision of the Apex Court in case of D.Cawasji & Co., Mysore Vs. The State of Mysore and another, reported at AIR 1984 SC 1780 and the learned Single Judge further found that the retrospective amendment takes away the right of the petitioners which cannot be done in the guise of curing the non-existing lacunae by the respondents.
8 Ultimately, as observed by us hereinabove, the learned Single Judge allowed the petitions.
We may record that as in the impugned decision, the learned Single Judge had also relied upon a Division Bench judgment of this Court in W.A.No.3795/1998 dated 03.07.2002 for the retrospective effect of the amendment under Section 26(4) of the Act, and the said decision of this Court was carried before the Apex Court. The present appeals were admitted at the relevant point of time.
However, when the present appeals have come up for final hearing, learned Addl. Advocate General appearing for the appellants mainly contended that the decision of the Division Bench of this Court in W.A.No.3795/1998 and allied matters, which was the main basis of the impugned judgment of the learned
9 Single Judge, has been set aside and reversed by the Apex Court in its decision in the case of Assistant Commissioner of Agricultural Income Tax and Others Vs. Netley ‘B’ Estate and Others reported at (2015) 11 SCC page 462. It was submitted that the present appeals may be allowed by this Court by setting aside the impugned judgment of the learned Single Judge.
Whereas Mr.Manmohan P.N, learned Counsel appearing for the respondents submitted that it is true that the learned Single Judge relied upon the earlier decision of the Division Bench of this Court in W.A.No.3795/1998 and allied matters, but in his submission the learned Single Judge also relied upon another decision of the Apex Court in the case of D.Cawasji & Co., Mysore Vs. The State of Mysore and another reported at AIR 1984 SC 1780, which has
10 not been upset by the Apex Court, in the subsequent decision in case of Netley ‘B’ Estate (supra) relied upon by the learned Addl. Advocate General for the appellants. It was also submitted that in the decision before the Apex Court including the decision of the Division Bench of this Court in W.A.No.3795/1998 and allied matters, the question was for the retrospectivity of the amendment made by the State legislature under Section 26(4) of the Act, whereas in the present case the amendment made under Section 15 (1) of the Act, was the subject matter and therefore, he submitted that when the vested rights of the respondents-original petitioners was taken away by the amendment under Section 15 of the Act, it cannot be said that the issues stand covered and the view taken by the learned Single Judge deserves to be quashed.
11 8. We may at the outset mention that since the decision of the Apex Court in case of Netley ‘B’ Estate (supra) is already reported, we may not in detail deal with the facts of the case. In the same manner, the decision of the Division Bench of this Court in W.A.No.3795/98 and allied matters is also reported in the Law Journal at (2002) 257 ITR page 532 equivalent in (2002) AIR Kant R 2149. Hence, we may not in detail deal with the facts of those cases except to the extent touching to the present matters.
Section 15 of the Act, had prevailed earlier and Section 15 after amendment of 1999 reproduced by the learned Single Judge in his judgment at para-8 may be relevant for the present appeals and therefore they are reproduced as under:
“Sec.15 before amendment read as under;
12 “Sec.15. Carrying forward of loss.
Where any person sustains a loss in agricultural income in any year, the loss shall be carried forward to the following year and set off against the agricultural income for that year and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on, but no loss shall be carried forward for more than six years.”
“Provided that, in case of loss sustained before the commencement of this Act, this section shall apply only to such loss as was sustained in the previous year immediately before such commencements.
Provided further that no loss, which has not been determined in pursuance of a return filed under Sec.18 shall be carried forward and set off under this section.
13 Provided (also) that where depreciation allowance is also to be carried forward under proviso (2) to clause (e) of section 5, effect shall first be given to the provisions of this Section.”
The said section is amended in terms of the amendment Act 1999 with retrospective effect. The said section reads as under;
“Sec.15. Carrying forward of loss. Where any person sustains a loss in agricultural income in any year, the loss shall be carried forward to the following year and set off against the agricultural income for that year and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on, but no loss shall be carried forward for more than six years subject to the condition that the return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed is filed well within the
14 period specified in sub-section (1) of Sec.18 or within the such extended time granted by the Assistant Commissioner of Agricultural Income Tax or the Deputy Commissioner of Agricultural Income Tax as the case may be is filed and nothing contained in sub-section (3) of Sec. 18 shall apply in this regard.”
Provided that, in case of loss sustained before the commencement of this Act, this section shall apply only to such loss as was sustained in the previous year immediately before such commencements.
Provided further that no loss, which has not been determined in pursuance of a return filed under Sec.18 shall be carried forward and set off under this section.
Provided (also) that where depreciation allowance is also to be carried forward under
15 proviso (2) to clause (e) of section 5, effect shall first be given to the provisions of this Section.”
Subject amendment is shown in block words which pertains for regulating the right of set off of two ways, by way of the verification in the prescribed manner of the loss shown in the return and the overriding effect is given to Section 18 (3) of the Act which provided for filing of return.
The contention raised by the Addl. Advocate General appearing for the appellants that the matter is covered by the decision of the Apex Court in case of Netley ‘B’ Estate (supra) may have to be examined in light of the distinguishing circumstances canvassed by the learned Counsel for the respondents.
It is an undisputed position that the learned Single Judge in the impugned order has followed two
16 decisions. One is of the Division Bench of this Court in W.A.No.3795/1998 and another is the decision of the Apex Court in the case of Cawasji (supra) reported at AIR 1984 SC 1780. In the operative portion of the order of the learned Single Judge at para-12, it has been observed and directed as under:
“In these circumstances, these petitions are allowed. It is held that Retrospective effect to the amendment to Sec.15 is contrary to the judgment of the Court in WA No.3795/1998 dtd 3-7-2002 and the judgment of the Apex Court in AIR 1984 SC 1780. Impugned orders are consequently set aside. Liberty is reserved to the respondents to proceed against the petitioner without referring to the amended Act in a manner known to law and if available to them in law.”
When the view taken by the Division Bench of this Court in the case of Netley ‘B’ Estate (supra) is
17 reversed by the Apex Court, the final view taken by the Apex Court will hold the field and not the view taken by the Division Bench of this Court. Further in the very decision of the Apex Court in case of Netley ‘B’ Estate (supra), the decision of the Apex Court in case of Cawasji (supra) has been considered and it has been distinguished by the Apex Court as observed in para-12 which reads as under:
“12. The Revenue is in appeal before us. It was argued by the learned counsel that the factual situation in Cawasji case was completely different from the factual situation in the present case and that therefore, Cawasji case being distinguishable, cannot be followed. The learned counsel also referred to various other judgments which we will advert to a little later. To buttress this submission, he said that all that was done on the facts in the present case was that the legislature retrospectively changed the basis
18 of the law of assessment of firms regarding the income received after they were dissolved, which is something that the legislature is competent to do.”
At this stage, we may also record that while examining the judicial scrutiny, earlier decision of the Division Bench of this Court in W.A.No.3795/1998, the Apex Court after referring to various decisions, at paragraphs 18 to 23 has observed thus:
“18. Finally, a number of principles were laid down in para 56 as follows: -
(Indian Aluminium Co. case, SCC pp.662-63, para 56)
"56. From a resume of the above decisions the following principles would emerge:
(1) The adjudication of the rights of the parties is the essential judicial function. Legislature has to lay down the norms of conduct or rules which will govern
19 the parties and the transactions and require the court to give effect to them;
(2) The Constitution delineated delicate balance in the exercise of the sovereign power by the legislature, executive and judiciary; (3) In a democracy governed by rule of law, the legislature exercises the power under Articles 245 and 246 and other companion articles read with the entries in the respective lists in the Seventh Schedule to make the law which includes power to amend the law.
(4) Courts in their concern and endeavour to preserve judicial power equally must be guarded to maintain the delicate balance devised by the Constitution between the three sovereign functionaries. In order that rule of law permeates to fulfil constitutional objectives of establishing an egalitarian social order, the respective sovereign functionaries need free play in their joints so that the march of social progress and order remains unimpeded. The smooth balance built with delicacy must always be maintained;
(5) In its anxiety to safeguard judicial power, it is unnecessary to be overzealous and conjure up incursion into the judicial preserve invalidating the valid law competently made; (6) The court, therefore, needs to carefully scan the law to find out; (a) whether the vice pointed out by the court and invalidity suffered by previous law is cured complying with the legal and constitutional requirements; (b) whether the legislature has competence to validate the law; (c) whether such validation is consistent with the rights guaranteed in Part III of the Constitution.
(7) The court does not have the power to validate an invalid law or to legalise impost of tax illegally made and collected or to remove the norm of invalidation or provide a remedy. These are not judicial functions but the exclusive province of the legislature. Therefore, they are not encroachment on judicial power.
(8) In exercising legislative power, the legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can
21 render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the court, if those conditions had existed at the time of declaring the law as invalid. It is also empowered to give effect to retrospective legislation with a deeming date or with effect from a particular date. The legislature can change the character of the tax or duty from impermissible to permissible tax but the tax or levy should answer such character and the legislature is competent to recover the invalid tax validating such a tax on removing the invalid base for recovery from the subject or render the recovery from the State ineffectual. It is competent for the legislature to enact the law with retrospective effect and authorise its agencies to levy and collect the tax on that basis, make the imposition of levy collected and recovery of the tax made valid, notwithstanding the declaration by the court or the direction given for recovery thereof.
22 (9) The consistent thread that runs through all the decisions of this Court is that the legislature cannot directly overrule the decision or make a direction as not binding on it but has power to make the decision ineffective by removing the base on which the decision was rendered, consistent with the law of the Constitution and the legislature must have competence to do the same."
We are concerned in this case directly with principles 8 and 9. On facts, the judicial decision in Cardoza case (1997) 227 ITR 421 (Kant) has been rendered ineffective by enacting a valid law on a topic within the legislative field which fundamentally alters or changes the character of legislation retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the court if those conditions had existed at the time of declaring the law as invalid. The legislature has not directly over-ruled the decision of any court but has only rendered, as has been stated above, such decision ineffective by removing the basis on which the decision was arrived at.
The learned counsel for the respondent cited three decisions before us. Panchi Devi v. State of Rajasthan [(2009) 2 SCC 589], SCC para 9 was cited before us for the proposition that a delegated legislation being ordinarily prospective in nature should not be interpreted to give a retrospective effect to take away a right or liability which was created for the first time. In the present case, we are concerned with an Act of the Legislature and not delegated legislation. No right or liability is created for the first time - the only thing done in the present case is that a firm is by fiction of law continued as such for certain purposes of assessment even after its dissolution. Equally, no question of interpretation qua retrospectivity arises. The legislature in the present case has expressly made the impugned provision retrospective. On all these counts, this judgment is distinguishable and would not apply at all here.
It was then contended based on Tata Motors Ltd. v. State of Maharashtra [(2004) 5 SCC 783] from para 12 thereof, that withdrawal with retrospective effect
24 of relief properly granted by statute to an assessee which the assessee has lawfully enjoyed as a vested statutory right cannot be taken away unless there be strong and exceptional circumstances justifying the said withdrawal. On facts again, this judgment does not apply. There is no withdrawal of any right which has become a vested statutory right which deprives an assessee of anything in the present case. As has been noted above, what was taxable in the hands of a recipient assessee is now taxable in the hands of a dissolved firm post-dissolution only for certain purposes. This judgment also therefore, cannot have any application in the present factual scenario.
Lastly, the judgment in Hardev Motor Transport v. State of M. P. [(2006) 8 SCC 613] was cited before us. Para 31 thereof was read out in support of the proposition that by inserting an explanation in a statute, the main provision of the Act cannot be defeated or enlarged. Applying this test to the present case, it is clear that in 1997 both the main provision, that is Section 26(4), as well as explanation were added retrospectively. The main provision has been
25 expanded to include dissolved firms and the explanation creates a legal fiction in furtherance of the main provision by deeming a dissolved firm to be in existence as an assessee for certain purposes. This being the case, this judgment would also have no application to the present factual scenario.
For these reasons, we set aside the impugned judgment dated 03.07.2002 (2002) 257 ITR 532 (Kant.) and allow the appeals. There shall be no orders as to costs.”
The aforesaid, in our view, leads no manner of doubt that the view taken by the Division Bench of this Court can no more be pressed in service, in view of the decision of the Apex Court. Further, while examining the question of retrospectivity of the amendment the earlier decision of the Apex Court in case of Cawasji (supra) would also be of no help to the original petitioner-respondent herein for supporting the view
26 taken by the learned Single Judge. Under these circumstances, as such, in view of the above referred decision of the Apex Court in case of Netley ‘B’ Estate the order passed by the learned Single Judge for striking down retrospectivity of the amendment based on the above referred judgments of the Division Bench of this Court as well as the Apex Court in case of Cawasji (supra) cannot be sustained.
The attempt made by the learned Counsel for the respondent to contend that in the decision before the Apex Court, the retrospective amendment made under Section 26(4) of the Act was under challenge and not the amendment made under Section 15 of the Act, cannot be countenanced for two reasons: One is that the learned Single Judge in the impugned order has been fully guided by the earlier decision of the Division
27 Bench of this Court and decision of the Apex Court in case of Cawasji (supra) and the second reason is that there is no material difference in the effect of earlier Section 26 (4) of the Act to the rights of the assessee in context to the principal Section 26 of the Act, as it existed prior to the amendment made in comparison to Section 15 as it existed earlier and amendment made under section 15 vis-à-vis the rights of the assessee so far as carrying forward of the loss.
The attempt to contend that the retrospective amendment takes away the right given to the petitioners under Section 15 as existed prior to the amendment Act can also not be countenanced because the amendment is for regulating the right of carrying forward of the losses of the agricultural income and is not for altering
28 the rights of carrying forward of losses of agricultural income with the assessee.
Be it recorded that there is no alteration in the right to carry forward losses with the outer limit of six years but the right of carrying forward of the losses of the agricultural income is only regulated by the proposed amendment.
Under the circumstances, we do not agree with the view taken by the learned Single Judge that the retrospective amendment takes away the right given to the petitioners.
In view of the aforesaid observation and discussion, the impugned judgment of the learned Single Judge deserves to be set aside. Hence the same is set aside. The petitions shall stand dismissed. The
29 appeals are allowed to the aforesaid extent. Considering the facts and circumstances, no order as to costs.
Sd/- JUDGE
Sd/- JUDGE
JT/-