Recently, ITAT Gauhati in ‘ACIT vs. William Financial Services Ltd‘ held amendment in Section 14A was applicable Retrospectively, while ITAT Mumbai in ‘ACIT vs. Bajaj Capital Ventures Pvt. Ltd’ held it was applicable Prospectively i.e. from AY 2022-23 onwards.
Amendment in Sec. 14A
In section 14A of the Income-tax Act, –
(a) in sub-section (1), for the words “For the purposes of”, the words “Notwithstanding anything to the contrary contained in this Act, for the purposes of” shall be substituted;
(b) after the proviso, the following Explanation shall be inserted, namely:-
“[Explanation.—For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have 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 during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.]”
Memorandum of Finance Bill, 2022
The Memorandum explicitly stipulates that the amendment in Section 14A will take effect from 1st April, 22 and will apply in relation to the A.Y 2022-23 and subsequent assessment years. The relevant extract of Clauses 5 & 7 are reproduced hereinbelow:
“ 5. This amendment will take effect from 1st April, 2022.
7. This amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years.”
Conclusion
The Hon. Supreme Court in Sedco Forex International Drill. Inc. v. CIT, (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 retrospective, even where such language is used, if it alters or changes the law as it earlier stood. This proposition of law has been reiterated by the Supreme Court in M.M Aqua Technologies Ltd. V. CIT 2021 SCC Online SC 575
That relying on the aforesaid judgments of Hon. Apex Court, Hon. Delhi HC in its recent order in PCIT vs. M/s. ERA Infrastructure (INDIA) LTD ITA NO.204/2022 order dated 20/07/2022. held that Amendment Brought in by the Finance Act 2022 in Sec.14A is applicable Prospectively w.e.f AY 2022-23. The order is a very reasoned one and may be of great help when issue of retrospective applicability is raised by the revenue.
Author Bio
itat mumbai bench in bajaj capital has not discussed the issue of retro or prospective applicability of section 14A and thus the article is misconceived as far as the case of mumbai ITAT is concerned. kindly read entire contents of mumbai itat order
Kindly refer to para 7 of the order where there is a specific observation “that the period before us pertains to the period prior to insertion of explanation to section 14A. In this view of the matter, and in the light of consistent stand by co-ordinate benches, following Hon’ble Delhi High Court’s judgment in the case of Cheminvest Ltd vs CIT [(2015) 61 taxmann.com 118 (Del)], we uphold the plea of the assessee that no disallowance under section 14A was and in the circumstances of the case.”
INSTANT
“Section 14A will take effect from 1st April, 22 and will apply in relation to the A.Y 2022-23 and subsequent assessment years.”
One thinks that having been so categorically provided, making the legislative intent more than clear, the question of giving any retrospective effect is a non-starter. As such, the need for any contrary interpretation , and reliance on any rule of interpretation, or on case law, so on, does not arise at all.
In other words, it is a tragedy that the point of controversy – a non-issue, had to be taken repetitively beyond the itat level.
If at all, the expression clumsily used in the deeming EXPLANATION that reads, – “…and shall be deemed TO HAVE ALWAYS APPLIED in a case where the income,…” is patently inconsistent; and has the absurd effect of overwriting the specified EFFECTIVE DATE.
In essence, therefore, that is the one and only ground, on which alone, on which the controversy deserved hence to be given a decent burial ?!
ADMN. / Writer
Would have been of help had the citation(source of Report) of the two conflicting itat oders been furnished, for ready read/ study !
The citations are as follows:
1. 140 taxmann.com 164
2. 140 taxmann.com 1