High Court Of Rajasthan : Jaipur Bench
DCIT vs. Rajasthan State Electricity Board
Section 143(1A);Art. 226
Shiv Kumar Sharma & Mahesh Chandra Sharma, JJ.
Special Appeal (Writ) No. 837 of 1993
13th November, 2007
Counsel Appeared :
R.B. Mathur, for the Revenue : N.M. Ranka with Rajkumar Yadav, for the Assessee
JUDGMENT
Shiv Kumar Sharma, J. :
Special Appeal No. 837 of 1993 arises from the judgment dt. 19th Jan., 1993 [reported as Rajasthan StateElectricity Board vs. Dy. CIT & Anr. (1993) 110 CTR (Raj) 278—Ed.], of learned Single Judge on a writ petition. The writ petition was made absolute and the Revenue is in appeal. In DB Writ Petn. No. 1503 of 1995 the assessee challenged the constitutional validity of s. 143(1A) of the Income-tax Act, 1961 (for short ‘IT Act’). The writ petitioner assessee had returned a net loss. After adjustments had been made by the taxing authorities under the provisions of s. 143(1)(a) the assessment of loss stood reduced. The taxing authorities under the provisions of s. 143(1A) sought to levy additional tax upon the assessee in this behalf and this was challenged in the writ petition. Sec. 143(1)(a), (1A) of IT Act (as retrospectively amended in 1993) reads as under : “143. (1)(a) Where a return has been made under s. 139 or in response to a notice under sub-s. (1) of s. 142— (i) if any tax or interest is found due on the basis of such return, after adjustment of any TDS, any advance tax paid and any amount paid otherwise by way of tax or interest, then without prejudice to the provisions of sub-s. (2), an intimation shall be sent to the assessee specifying the sum so payable and such intimation shall be deemed to be a notice of demand issued under s. 156 and all the provisions of this Act shall apply accordingly; and (ii) if any refund is due on the basis of such return it shall be granted to the assessee : Provided that in computing the tax or interest payable by, or refundable to, the assessee the following adjustments shall be made in the income or loss declared in the return, namely : (i) any arithmetical errors in the return, account or documents accompanying it shall be rectified; (ii) any loss carried forward, deduction, allowance or relief, which on the basis of the information available in suchreturn, accounts or documents, is prima facie admissible but which is not claimed in the return, shall be allowed; (iii) any loss carried forward, deduction, allowance or relief claimed in the return, which on the basis of the information available in such return, accounts or documents is prima facie inadmissible, shall be disallowed : Provided further that where adjustments are made under the first proviso, an intimation shall be sent to the assessee, notwithstanding that no tax or interest is found due from him after making the said adjustments : Provided also that an intimation for any tax or interest due under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first available.
Where as a result of an order made under sub-s. (3) of this section or s. 144 or s. 147 or s. 154 or s. 155 or s. 250 or s. 254 or s. 260 or s. 262 or s. 263 or s. 264 or any other order of settlement made under sub-s. (4) of s. 254D relating to any earlier assessment year and passed subsequent to the filing of the return referred to in cl. (a), there is any variation in the carry forward loss deduction, allowance or relief claimed in the return and as a result of which : (i) if any tax or interest is found due, an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under s. 156 and all the provisions of this Act shall apply accordingly, and (ii) if any refund is due, it shall be granted to the assessee :
Provided that an intimation for any tax or interest due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such order was passed. (c) Where the assessee is a partner of a firm or a member of an AOP or BOI and as a result of the adjustments made under the first proviso to cl. (a) of sub-s. (1) in the income or loss declared in the return made by the firm, association or body as the case may be or as a result of an order made under sub-s. (3) of this section or s. 144 or s. 147 or s. 154, or s. 155 or sub-s. (1) or sub-s. (2) or sub-s. (3) or sub- s. (5) of s. 254 or s. 260 or s. 262 or s. 263 or s. 264 or any order of settlement made under sub-s. (4) of s. 245D, passed subsequent to the filing of the return referred to in cl. (a) there is any variation in his share in the income or loss of the firm, association or body, as the case may be, or in the manner of inclusion of his share in the returned income, then— (i) if any tax or interest is found due an intimation shall be sent to the assessee specifying the sum so payable and such intimation shall be deemed to be a notice of demand issued under s. 156 and all the provisions of this Act shall apply accordingly, and (ii) if any refund is due, it shall be granted to the assessee :
Provided that an intimation for any tax or interest due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such adjustments were made or any such order was passed. (1A)(a) Where in the case of any person, the total income, as a result of the adjustments made under the first proviso to cl. (a) of sub- s. (1) exceeds the total income declared in the return by any amount, the AO shall— (i) further increase the amount of tax payable under sub-s. (1) by an additional income-tax calculated at the rate of twenty per cent of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub-cl. (i) of cl. (a) of sub-s. (1); (ii) where any refund is due under sub-s. (1) reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under sub-cl. (i). (b) Where as a result of an order under s. 154 or s. 250 or s. 254 or s. 260 or s. 262 or s. 263 or s. 264, the amount on which additional income-tax is payable under cl. (a) has been increased or reduced, as the case may be, the additional income-tax shall be increased or reduced accordingly, and— (i) in a case where the additional income-tax is increased, the AO shall serve on the assessee a notice of demand under s. 156; (ii) in a case where the additional income-tax is reduced the excess amount paid.
If any shall be refunded. Explanation—For the purpose of this sub-section ‘tax payable on such excess amount’ means : (i) in any case where the amount of adjustments made under the first proviso to cl. (a) of sub-s. (1) exceeds the total income, the tax that would have been chargeable had the amount of the adjustments been the total income. (ii) in any other case the difference between the tax on the total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments.”
4. A look at substituted sub-s. (1A) demonstrates that even where the loss declared by an assessee had been reduced by reason of adjustments made under sub-s. (1)(a) the provisions of sub-s. (1A) would apply. Preliminary objection
5. The assessee raised preliminary objection in regard to the maintainability of appeal. It was canvassed that the assessee is a public undertaking of which 100 per cent shareholding is with the State of Rajasthan. Since clearance of High Powered Committee set up by Central Government was not taken by the Revenue the appeal is incompetent and not maintainable. Reliance is placed on Mahanagar Telephone Nigam Ltd. vs. Chairman, CBDT (2004) 189 CTR (SC) 97 : (2004) 267 ITR 647 (SC); State of Rajasthan vs. ITAT (2003) 179 CTR (Raj) 196 : (2003) 259 ITR 686 (Raj); Union of India vs. State of Rajasthan (2002) 127 STC 142 (Raj); CIT vs. Delhi Tourism & Transportation Development Corpn. Ltd. (2005) 274 ITR 35 (Del), Union of India Through Central Organisation of Railway Electrification vs. Union of India Through Secretary, Ministry of Finance (2006) 201 CTR (All) 527 : (2006) 285 ITR 362 (All); Etah Gramin Bank vs. CIT (2006) 201 CTR (All) 318 : (2007) 290 ITR 636 (All) and CIT vs. Neyveli Lignite Corporation Ltd. (2007) 293 ITR 362 (Mad).
6. Since this appeal is pending for adjudication for the last 14 years we now cannot ask the assessee [sic-Revenue] to seek clearance of High Powered Committee set up by Central Government. The preliminary objection thus fails and stands rejected. Submission of Revenue (Appellant)
7. The grounds of attack on behalf of Revenue as argued by learned counsel Mr. R.B. Mathur may be summarised as under : (i) The main dispute pertains to interpretation of provisions of s. 143(1A) existing at the relevant time and sub-cl. (a)(i) and (ii) which were inserted/substituted by the Finance Act, 1993 with retrospective effect from 1st April, 1989, the matter pertains to asst. yr. 1991-92. (ii) Learned Single Judge allowed the writ petition following the judgment of Delhi High Court in Modi Cement vs. Union of India (1991) 100 CTR (Del) 48 : (1992) 193 ITR 91 (Del). The said judgment was considered and overruled by the apex Court in Asstt. CIT vs. J.K. Synthetics (2001) 166 CTR (SC) 498 : (2001) 251 ITR 200 (SC) and observed as under : “The substituted sub-s. (1A) therefore made it clear that even where the loss declared by an assessee had been reduced by reason of adjustments made under sub-s. (1)(a), the provision of sub-s. (1A) would apply. This being retrospective amendment, it covers the controversy in this appeal, and therefore, the appeal would have to be decided in favour of Revenue.” The judgment of three Judge Bench of the apex Court had reservations about the correctness of the judgment of two Judge Bench in the case of CIT vs. Hindustan Electro Graphites Ltd. (2000) 160 CTR (SC) 8 : (2000) 243 ITR 48 (SC). (iii) Madhya Pradesh High Court Division Bench comprising of Hon’ble Chief Justice Shri A.K. Mathur (as his Lordship then was) has upheld the validity of s. 143(1A)(a)(B) of the Act in the judgment in Sanctus Drugs Pharmaceuticals (P) Ltd. vs. Union of India (1997) 137 CTR (MP) 207 : (1997) 225 ITR 252 (MP) and observed that in the cases of loss the deduction of loss will be added to the income of the assessee. Therefore, it is not loss which is being sought to be taxed, but it is the income sought to be taxed. The judgment of Madhya Pradesh High Court has not been reversed till date and is applicable. Submission of assessee (Respondent)
8. While supporting impugned order of learned Single Judge, learned senior counsel Shri N.M. Ranka has made the following submissions : (i) The provision has been made retrospective w.e.f. 1st April, 1989 and such penal clause cannot be inserted with retrospective effect. (ii) To hold the assessee guilty and to subject him to the additional tax on account of fixal status being given retrospective effect will be unfair and unjust [vide CIT vs. Hindustan Electrographite Ltd. (1998) 229 ITR 16 (MP)]. (iii) Reliance is also placed on Star India vs. CCE (2006) 201 CTR (SC) 63 : (2006) 280 ITR 321 (SC); National Agricultural Co-operative Marketing Federation of India Ltd. vs. Union of India (2003) 181 CTR (SC) 1 : (2003) 260 ITR 548 (SC); Rai Ram Krishna vs. State of Bihar (1963) 50 ITR 171 (SC) : AIR 1963 SC 1667; Supreme Court Employees Welfare Association vs. Union of India AIR 1990 SC 334.
9. Having analysed the submissions we find that learned Single Judge in the impugned judgment drew conclusions after placing reliance on the ratio indicated in Modi Cement vs. Union of India (supra). This judgment was considered by the Supreme Court in Asstt. CIT vs. J.K. Synthetics (supra) and it was observed as under : “The substituted sub-s. (1A), therefore, made it clear that even where the loss declared by an assessee had been reduced by reason of adjustments made under sub-s. (1)(a), the provisions of sub-s. (1A) would apply. This being retrospective amendment, it covers the controversy in this appeal and therefore, the appeal would have to be decided in favour of the Revenue.” The apex Court further indicated that CIT vs. Hindustan Electro Graphites (supra) was the case in which the return filed by the assessee was correct by reason of the law as it stood when the return was filed. A retrospective amendment of s. 28 of the IT Act rendered that return incorrect. An adjustment in the return was made under sub-s. (1) of s. 143 and, therefore, the provision of subs. (1A) was sought to be invoked. This was challenged and the High Court upheld the challenge, as did the Supreme Court. It took the view that the additional penalty under sub-s. (1A) has the imprint of a penalty and no penalty could be levied because the return filed by the assessee was correct when it was filed. The Supreme Court had reservations about the correctness of Hindustan Electro Graphites (supra) principally because the assessee in that case had not challenged the provisions of sub-s. (1A).
10. Constitutional validity of s. 143(1A)(a)(B) of IT Act was challenged in Sanctus Drugs Pharmaceuticals (P) Ltd. vs. Union of India (supra). The Division Bench (headed by Hon’ble Justice A.K. Mathur as his Lordship then was) held that Entry 82 List-I of the Seventh Schedule of Constitution of India, empowers Parliament to enact the law on income-tax and when Parliament is competent to enact the law prospectively, it can also lay down the law retrospectively. Under s. 143(1A), prior to amendment by the Finance Act, 1993, w.e.f. 1st April, 1989 what was being taxed was the difference between the income determined as a result of adjustments under s. 143 (1)(a). But now, the actual reduction in the loss has been directly made taxable at 20 per cent of the tax payable as if such difference were the total income, as additional tax. The incisment of tax is not on the loss. This device is to check evasion of tax by clever taxpayers. Hence it is of a compensatory nature. Thus there is no unconstitutionality in s. 143(1A)(a)(B) of the IT Act.
11. Their Lordships of the Supreme Court in Rai Ram Krishna vs. State of Bihar (supra) indicated as under (p. 1673) : The legislative power conferred on the appropriate legislature to enact law in respect of topics covered by the Seventh entries in the three Lists can be exercised both prospectively and retrospectively. When the legislature can make a valid law, it may provide not only for the prospective operation of the material provision of the said law, but it can also provide for the retrospective operation of the said provision.” A close look at the statutory provision under challenge demonstrates that it is not penal in nature. It is the device to check evasion of tax. It is no doubt true that a power under a taxing statute can be assailed if it is found to be arbitrary or lays down unreasonable restriction upon the freedom of trade but in the instant matter the restriction has been made for justifiable reason in order to check the evasion of tax. We agree with the view expressed by the Division Bench in Sanctus Drugs (supra) that by the insertion of this provision in the IT Act the assessee may not be able to evade tax by resorting to the method of showing loss first and then reducing the loss. We thus hold that the provision is compensatory in nature. For these reasons we dispose of instant matters in the following terms : (i) Appeal of Revenue is allowed and impugned judgment dt. 19th Jan., 1993 stands set aside. (ii) Writ petition of assessee is dismissed and we hold that there is no unconstitutionality in s. 143 (1A)(a)(B) of IT Act. (iii) There shall be no order as to costs.
[Citation : 299 ITR 253]
