“clarificatory amendment”
The decision most relied on for clarificatory amendment is Allied Motors (P) Ltd. v. CIT (224 ITR 677), cited in 398 judgments on BharatTax.
Leading authorities on clarificatory amendment
Amendments to the Income-tax Act that are curative, clarificatory, or beneficial in nature apply retrospectively from the date the original statutory provision was introduced, even if not explicitly stated.
An amendment to the Income Tax Act, such as the Finance Act, 2012 amendment to Section 9(1)(vi) defining royalty, does not automatically override or alter the definition of 'royalty' as provided in a Double Taxation Avoidance Agreement (DTAA) unless the DTAA itself is bilaterally amended. The definition of royalty in a DTAA remains unaffected by unilateral changes to domestic law.
Amendments to tax law that impose new obligations or change existing legal positions apply prospectively, even if stated to be "for the removal of doubts." The judgment also clarifies that deductions under Section 43B are allowed only on actual payment, overriding the mercantile system of accounting.
Legislation is ordinarily presumed not to have retrospective operation, especially for taxing statutes unless explicitly stated or when intended to remove hardship for the assessee. The decision clarifies the principles for determining whether an amendment to a taxing statute applies prospectively or retrospectively, distinguishing between clarificatory and substantive amendments.
A cardinal principle of tax law is that the law in force for the relevant assessment year applies unless expressly or necessarily provided otherwise. A retrospective tax provision stated to be 'for the removal of doubts' is not presumed retrospective if it alters or changes the law as it earlier stood.
A statutory explanation that is clarificatory in nature applies retrospectively from the date the main provision came into force. However, if an explanation changes the law, it is not presumed to be retrospective, even if phrases like 'it is declared' or 'for the removal of doubts' are used.
Amendments to tax laws that are explanatory, declaratory, curative, or clarificatory in nature are judicially construed as retrospective, especially if they are intended to remedy unintended consequences.
A clarificatory or declaratory amendment to a statutory provision has retrospective effect from the date the original provision came into force, as its purpose is to clarify existing law rather than introduce new law.
