Supreme Court:- Sree Sankaracharya University of Sanskrit
16th May, 2023
1) Every year the government brings out and/or make provisions for introduction, amendment , deletion etc. of laws which are necessary under the circumstances then obtaining. In addition, certain explanations / clarifications /provisos are also inserted/ modified /deleted. Many a times it becomes difficult to understand if these changes of law would operate prospectively or retrospectively.
2) It is generally understood that clarificatory Law is issued only for the purpose of removal of ambiguities in the implementation of an earlier Law and therefore, it is to be read as a part and parcel of the original Law and must not be construed as a separate Law which seeks to modify or alter the rights already conferred by the earlier When the Law itself records in no unclear terms that it has been issued as a clarification of a previous Law, it must be construed as a clarification and not as an amendment/modification. Accordingly, such a Law must be made applicable retrospectively from the date on which the Law sought to be clarified came into effect.
3) The SC in S. Sundaram Pillai vs. V.R. Pattabiraman, A.I.R. 1985 SC 582 held that an explanation added to a statutory provision is not a substantive provision, but as the plain meaning of the word itself suggests, it is merely meant to explain or clarify certain ambiguities which may have crept into interpreting the statutory provision. It would make it abundantly clear that it was meant to clear ambiguity in the application of the earlier Law and not to withdraw any substantive rights. Therefore, there would be no bar to allow the said clarification to operate retrospectively.
4) In K. C. Arora the SC held that, to contend that an amendment cannot be stated to have retrospective effect unless it is expressly provided that it shall operate retrospectively (or by necessary implication). If the Law does not indicate that the same was to operate retrospectively then, it cannot be stated to have retrospective effect.
5) If a Law is made applicable retrospectively, it would have the effect of withdrawing vested rights of the litigants and would hence be in contravention of settled principles of law that an amendment could not be made applicable retrospectively, if such application would have the effect of nullifying vested rights.
6) If a subsequent Law is declared to be in the nature of a clarification of the earlier Law, it may be made applicable retrospectively. Conversely, if the subsequent Law is held to be a modification/amendment of the earlier Law, its application would be prospective as retrospective application thereof would result in withdrawal of vested rights which is impermissible in law and the same may also entail recoveries to be made.
7) It is trite that any legislation or instrument having the force of law, which is clarificatory or explanatory in nature and purport and which seeks to clear doubts or correct an obvious omission in a statute, would generally be retrospective in operation, vide Ramesh Prasad Verma. Therefore, in Law to determine whether the Law may be made applicable retrospectively, it is necessary to consider whether the said Law was a clarification or a substantive amendment.
8) In the treatise, Principles of Statutory Interpretation, 11th Edition (2008) by Justice G.P. Singh on the sweep of a clarificatory / declaratory / explanatory provision:
“The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Craies and approved by the Supreme Court: For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any Statute. Such acts are usually held to be retrospective. […] An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended. The language ‘shall be deemed always to have meant’ or ‘shall be deemed never to have included’ is declaratory and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law when the constitution came into force, the amending Act also will be part of the existing law.”
For example, Explanation-2 was added to section 36(1)(va) with effect from 01-04-2021 as:-
“For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the “due date” under this clause.”
Similarly with effect from 01-04-2021 Explanation-5 was added to section 43B as:-
“For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies.”
What is the scope of the above amendment carried out by the Finance Act 2021? Whether these amendments applied retrospectively or only prospectively?
Well, almost all judgements of the ITATs delivered after the amendment have held these amendments to be only prospectively in nature on the ground that
i) The Finance Act 2021 itself was made applicable w.e.f. 01-04-2021 and therefore any provision of the said Act can’t be deemed to be applicable retrospectively.
ii) If the amendment was made applicable retrospectively, it had the effect of withdrawing vested rights of the assessees and would hence be in contravention of settled principles of law that an amendment could not be made applicable retrospectively, if such application would have the effect of nullifying vested rights which is impermissible in law and the same may also entail recoveries to be made.
9) This Court in Commissioner of Income Tax, Bombay vs. Podar Cement Pvt. Ltd., (1997) 226 ITR 625 (SC) noted that circumstances under which an amendment or modification was introduced and the consequences thereof would have to be borne in mind while deciding the issue as to whether the amendment was clarificatory or substantive in its nature and whether it would have retrospective effect or not.
10) In Allied Motors Pvt. Ltd. vs. Commissioner of Income Tax, Delhi, (1997) 224 ITR 677 (SC), this Court found that certain unintended consequences flowed from a provision enacted by the There was an obvious omission. In Law to cure the defect, a proviso was sought to be introduced through an amendment. The Court held that literal construction was liable to be avoided if it defeated the manifest object and purpose of the Act. This Court held that if the amendment was not read into the relevant provision retrospectively, it would be impossible to reasonably interpret the said provision. That since there was an obvious omission in the provision, an amendment was necessitated which would clarify/declare the law retrospectively.
11) An explanation/clarification may not expand or alter the scope of the original provision, vide Bihta Cooperative Development Cane Marketing Union Ltd. vs. Bank of Bihar, A.I.R. 1967 SC 389. Merely describing a provision as an “Explanation” or a “clarification” is not decisive of its true meaning and import. On this aspect, this Court in Virtual Soft Systems Ltd. vs. Commissioner of Income Tax, Delhi, (2007) 289 ITR 83 (SC) observed as under:
12) “Even if the statute does contain a statement to the effect that the amendment is declaratory or clarificatory, that is not the end of the matter. The Court will not regard itself as being bound by the said statement in the statute itself, but will proceed to analyse the nature of the amendment and then conclude whether it is in reality a clarificatory or declaratory provision or whether it is an amendment which is intended to change the law and which applies to future periods.”
13) This position of the law has also been subscribed to in Union of India vs. Martin Lottery Agencies Ltd., (2009) 12 SCC 209 wherein it was stated that when a new concept of tax is introduced so as to widen the net, the same cannot be said to be only clarificatory or declaratory and therefore be made applicable retrospectively, even though such a tax was introduced by way of an explanation to an existing provision. It was further held that even though an explanation begins with the expression “for removal of doubts,” so long as there was no vagueness or ambiguity in the law prior to introduction of the explanation, the explanation could not be applied retrospectively by stating that it was only clarificatory.
14) From the aforesaid authorities, the following principles could be culled out:
i) If a statute is curative or merely clarificatory of the previous law, retrospective operation thereof may be permitted.
ii) In Law for a subsequent Law/provision/amendment to be considered as clarificatory of the previous law, the pre-amended law ought to have been vague or ambiguous. It is only when it would be impossible to reasonably interpret a provision unless an amendment is read into it, that the amendment is considered to be a clarification or a declaration of the previous law and therefore applied retrospectively.
iii) An explanation/clarification may not expand or alter the scope of the original provision.
iv) Merely because a provision is described as a clarification/explanation, the Court is not bound by the said statement in the statute itself, but must proceed to analyse the nature of the amendment and then conclude whether it is in reality a clarificatory or declaratory provision or whether it is a substantive amendment which is intended to change the law and which would apply prospectively.
v) As noted above, the law provides that a clarification must not have the effect of saddling any party with an unanticipated burden or withdrawing from any party an anticipated benefit and merely because the subsequent Law has been described as a clarification/explanation or is said to have been issued following a clarification that was sought in that regard, the Court is not bound to accept that the said Law is only clarificatory in nature.
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Disclaimer: Views expressed are strictly personal and meant for only academic purposes and not for any professional purpose for which expert opinion may be obtained by the readers. The information given in this article has been clued from the open sources in the public domain.
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