| While an amendment to overrule a judgement is not valid, it is permissible to retrospectively alter the character of the levy so as to save it from illegality |
The Supreme Court had to consider the validity of an Explanation added retrospectively to Section 26(4) of the Karnataka Agricultural Income Tax Act. The said Explanation was inserted to supercede the judgement in L. P. Cardoza and others v. Agricultural Income Tax Officer and others [(1997) 227 ITR 421. On the validity of the retrospective amendment, the High Court held, following the judgment in D. Cawasji and Co., Mysore v. State of Mysore and another [1984 (Supp) SCC 490], that the amending Act of 1997 suffered from the vice that was found in Cawasji's case, namely that it interfered directly with the judgment of a High Court and would therefore, have to be struck down as unconstitutional on this score alone. This the Division Bench found, because in the statement of objects and reasons for the 1997 amendment, it was held that the object of the amendment was to undo the judgment of the High Court of Karnataka in Cardoza's case. On appeal by the revenue to the Supreme Court HELD reversing the High Court:
(i) In exercising legislative power, the legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can 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.
(ii) 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.
Related Judgements
- CWT vs. Estate of Late HMM Vikramsinghji of Gondal (Supreme Court) Important principles of law on taxation of discretionary & specific trust explainedA discretionary trust is one which gives a beneficiary no right to any part of the income of the trust property, but vests in the trustees a discretionary power to pay him, or apply for his benefit, such…
- CIT vs. Gold Coin Health (Supreme Court – Larger Bench) the amendment to Explanation 4 to s. 271(1)(c), though made with effect from 1st April 2003, should be treated as clarificatory and retrospective.
- CIT vs. Alom Extrusions (Supreme Court) The deletion of the second proviso to s. 43B, and the amendment to the first proviso, by the Finance Act, 2003 was to overcome implementation problems. Consequently, the amendments, though made applicable by Parliament only with effect from 1.4.2004, were curative in nature and would apply retrospectively w.e.f. 1.4.1988….
Important CBDT Circular On Taxation Of Foreign Dividend From Indian AssetsMarch 26th, 2015The CBDT has issued Circular No. 4 of 2015 dated 26th March 2015 to deal with the controversial question as to whether dividends paid by a foreign company would be taxable in India under Explanation 5 to section 9 (1) (i) of the Act if the shares derive their value substantially from assets situated in India.
The CBDT has accepted that such an extended application of the provisions of the Explanation may result in taxation of dividend income declared by a foreign company outside India and that this may cause unintended double taxation and would be contrary to the generally accepted principles of source rule as well as the object and purpose of the amendment made by the Finance Act 2012.
The CBDT has accordingly clarified that the purpose of the amendment of section 9(1) (i) was to tax gains having economic nexus with India. It is stated that the as the declaration of dividend by a foreign company outside India does not have the effect of transfer of any underlying assets located in India, the said dividends would not be deemed to be income accruing or arising in India by virtue of the provisions of Explanation 5 to section 9 (1) (i) of the Act. Even if the shares derive their value substantially from assets situated in India
CIRCULAR No. 4 /2015
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
North Block New Delhi
Dated 26th March. 2015
Subject: Clarification regarding Explanation 5 to clause (i) of sub-section (1) of section 9 of Income-tax Act, 1961 (`Act') –regarding
Section 9 of the Income-tax Act provides for incomes which are deemed to accrue or arise in India. Clause (i) of sub-section (1) of the said section reads as under:-
"9. ( I) The following incomes shall be deemed to accrue or arise in India:—
(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India."
2. The Finance Act, 2012 inserted Explanation 5 to clause (i) of sub-section (I) of section 9. The said explanation reads as under:-
-Explanation 5.. For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India"
3. A number of representations have been received by the Board stating that the purpose of introduction of Explanation 5 was to clarify the legislative intent regarding the taxation of income accruing or arising through transfer of a capital asset situate in India. Apprehensions have been expressed about the applicability of the Explanation to the transactions not resulting in any transfer, directly or indirectly of assets situated in India. It has been pointed out that such an extended application of the provisions of the Explanation may result in taxation of dividend income declared by a foreign company outside India. This may cause unintended double taxation and would be contrary to the generally accepted principles of source rule as well as the object and purpose of the amendment made by the Finance Act 2012.
4. The matter has been examined in the Board. The Explanatory Memorandum to the Finance Bill 2012 explains the purpose of the amendment to section 9 (1Xi) in the (fallowing words:-
"Section 9 of the Income-tax Act provides cases of income, which are deemed to accrue or arise in India. This is a legal fiction created to tax income, which may or may not arise in India and would not have been taxable but for the deeming provision created by this section. Sub-section (1Xi) provides a set of circumstances in which income accruing or arising, directly or indirectly, is taxable in India. One of the limbs of clause (i) is income accruing or arising directly or indirectly through the transfer of a capital asset situate in India. The legislative intent of this clause is to widen the application as it covers incomes, which arc accruing or arising directly or indirectly.
The section codifies source rule of taxation wherein the state where the actual economic nexus of income is situated has a right to tax the income irrespective of the place of residence of the entity deriving the income. Where corporate structure is created to route funds, the actual gain or income arises only in consequence of the investment made in the activity to which such gains arc attributable and not the mode through which such gains are realized. Internationally this principle is recognized by several countries, which provide that the source country has taxation right cm the gains derived of offshore transactions where the value is attributable to the underlying assets
Certain judicial pronouncements have created doubts about the scope and purpose of sections 9 and 195. Further, there are certain issues in respect of income deemed to accrue or arise where there are conflicting decisions of various judicial authorities. Therefore, there is a need to provide clarificatory retrospective amendment to restate the legislative intent in respect of scope and applicability of section 9 and 195 and also to make other clarificatory amendments for providing certainty in law."
5. The Explanatory Memorandum clearly provides that the amendment of section 9(1) (i) was to reiterate the legislative intent in respect of taxability of gains having economic nexus with India irrespective of the mode of realisation of such gains. Thus, the amendment sought to clarify the source rule of taxation in respect of income arising from indirect transfer of assets situated in India as explicitly mentioned in the Explanatory Memorandum. Viewed in this context, Explanation 5 would be applicable in relation to deeming any income arising outside India from any transaction in respect of any share or interest in a foreign company or entity, which has the effect of transferring, directly or indirectly, the underlying assets located in India, as income accruing or arising in India.
6. Declaration of dividend by such a foreign company outside India does not have the effect of transfer of any underlying assets located in India. It is therefore clarified that the dividends declared and paid by a foreign company outside India in respect of shares which derive their value substantially from assets situated in India would not be deemed to be income accruing or arising in India by virtue of the provisions of Explanation 5 to section 9 (1) (i) of the Act.
7. This may be brought to the notice of all concerned for strict compliance.
8. Hindi version to follow.
(Anup Singh)
Under Secretary to the Government of India
Under Secretary to the Government of India
PFA
| S. 80-IB(9): The Explanation to Section 80-IB(9) inserted by Finance (No. 2) Act 2009 w.r.e.f. 1.4.2000 is ultra vires to Article 14 of the Constitution of India. |
The Gujarat High Court had to consider the following issues:
(i) Whether the insertion of the Explanation to Section 80-IB(9) of the Income Tax Act, 1961 by Finance (No.2) Act, 2009 with retrospective effect from 1.4.2000 explaining the meaning of the term "undertaking" is unconstitutional and ultra vires to Article 14 of the Constitution of India?
(ii) Whether the insertion of sub clause (iv) in Section 80-IB(9) of the Income Tax Act, 1961, by Finance (No.2) Act, 2009 conferring the benefit of the deduction under this Section to undertakings engaged in commercial production of natural gas in blocks licensed under VIIIth round of bidding provided such commercial production commenced on or after 1.4.2009 results in denial of the benefit of deduction under 80-IB(9) to undertakings engaged in commercial production of natural gas under contracts entered into prior to NELP VIII on an interpretation thereof that the term "mineral oil" would not include natural gas since the benefit was available only to undertakings engaged in commercial production of "mineral oil" rendered the newly added sub clause (iv) unconstitutional and ultra vires Article 14 of the Constitution of India?
(iii) Whether the Petitioner has any accrued or vested right?
HELD by the High Court:
In this backdrop, one has to now consider whether the insertion of Explanation by Finance (No.2) Act, 2009 with retrospective application from 1.4.2000 would be valid and sustainable in law. The above analysis would indicate that though the expression "Undertaking" has not been defined under the Act, it has acquired a well defined meaning through consistent judicial decisions commencing from Textile Machinery case. The expression 'Undertaking' is used in various provisions of the Act, while conferring the benefits under different schemes. It is clear that commercial production of mineral oil happens from every Development Area/Field consisting of a well or cluster of wells with a Development Plan being approved for every Development Area/Field thereby making every Development Area/Field as an independent economic unit. Every Development Area/Field is thus an "Undertaking". The Petitioner placed on record the decision of the ITAT rendered in their own case for the Assessment Year 2001-02. The Respondent contended that this matter is under challenge in appeals before the High Court which are pending. This decision, however, has not been stayed. Looking at the whole conspectus, it is clear that the term "Undertaking" has acquired a consistent statutory meaning. It is true that legislature is entitled to depart from this meaning and can define it the way it chooses to do so. While doing so, it has to resort to the process known to and approved by law. The explanation introduced by Finance Act (No.2) of 2009 is a departure from the settled interpretative meaning given by Courts to the expression 'Undertaking". Any departure, therefore, has to be through the process of validation which has to be notwithstanding any law or decision. The Explanation is not a non-obstante clause, notwithstanding any law or decision, it proceeds under the presumption that an existing ambiguity is sought to be clarified when, in reality, there is none. In fact, the usage of the expression "single" before the term 'undertaking' in the explanation evidences the legal understanding that the undertaking is not synonymous to assessee and an assessee can have more than one undertaking doing the same or distinct business as long as they are independent stand alone units. When, clearly there can be separate commercial discoveries for every Development Area/Field which may consists of one well or cluster of wells which makes each Development Area an "Undertaking" and this is as per the Production Sharing Contract (PSC) entered into between the Petitioner and the Central Government, there does not exist any ambiguity under the Act.
Related Judgements
- CIT vs. Vishal Developers (Gujarat High Court) The department argued that the judgement in Commissioner of Income-tax v. Radhe Developers, (2012) 341 ITR 483 (Guj.) which draws a distinction between a "development contract" and a "works contract" and which holds that the benefit of s. 80-IB(10) is allowable to an assessee even if he is not…
- Gujarat Alkalies & Chemicals Ltd vs. CIT (Gujarat High Court) The principal object of s. 80-I is to encourage setting up of new industrial undertakings by offering tax incentives. A reasonable and purposive construction should be adopted. There is no logic in the argument of the department that the true test would be as to whether a new industrial…
- Katira Construction Ltd vs. UOI (Gujarat High Court) On merits, the argument that the Explanation below s. 80-IA (13) provides for a levy of tax which was hitherto unknown is not acceptable. It cannot be said that the Legislature in introducing the explanation materially changed the exemption which existed till such explanation was introduced. The explanation was…
Posted in All Judgements, High Court |
PFA
Companies (Issue of Global Depository Receipts) Rules, 2014by CA Sandeep Kanoi |
Notification
New Delhi, dated 31.03.2014
G.S.R. 252(E).- In exercise of the powers conferred by section 41 read with 469 of the Companies Act, 2013, the Central Government hereby makes the following rules, namely:-
1. Short title and commencement. - (1) These Rules may be called Companies (Issue of Global Depository Receipts) Rules, 2014.
__._,_.___
No comments:
Post a Comment