CIT Vs. Ram Kishan Dass (Supreme Court)
Facts of the case
Revenue is in appeal against Delhi High Court order holding that proviso to section 142(2C) authorizing AO to extend the time limit suo moto w.e.f. 01-04-2008 is prospective in nature and therefore AO can extend time for special audit on application of assessee and not on suo moto basis for periods prior to 01-04-2008.
Arguments by Assessee
As per memorandum explaining provisions of Finance bill and notes on clauses the amendment is prospective[Para 10 to 11A]
Amendment is not procedural because The consequence of the exercise of the jurisdiction to extend time for submission of the audit report under the proviso to sub section (2C) is the extension of the period of limitation for the completion of an assessment under Explanation (ii) to Section 153B.[Para 12]
The consequence of the failure of the assessee to comply with the direction of submitting the audit report by the date prescribed by the assessing officer is that under Section 144(1)(b), the assessing officer is empowered to frame a best judgment assessment[Para 12]
The expression in Explanation (ii) to Section 153B “ending on the date on which the assessee is required to furnish a report of such audit” signifies the end of the period of exclusion of time for the framing of an assessment under Section 153B;[Para 12]
Section 142(2C) must consequently be interpreted in the context of the provisions of Sections 153B and 144; and [Para 12]
The expression ‘and’ in the substantive part of Section 142(2A) has been held to be conjunctive by the decision of this Court in Sahara India (Firm), Lucknow v Commissioner of Income Tax, Central-I [2008] 14 SCC 151. The expression ‘and’ in the proviso to sub-section 2C must be given the same meaning.[Para 12]
Arguments by Revenue
(i) In construing the proviso to Section 142(2C), it is primarily the language of the statutory provision which must be construed;
(ii) The amendment to sub section (2C) was necessitated by reason of the ambiguity in the provision as it stood prior to 1 April 2008;
(iii) The legislature having stepped in to remove an ambiguity, the amendment brought about by the Finance Act must necessarily be regarded as clarificatory in nature; and
(iv) The amendment is purely procedural and must be retrospective in character.
Observations of the Court
The crucial words which fall for interpretation are “On an application made in this behalf by the assessee and for any good and sufficient reason…” {Para 8]
The submission of the assessee would have this Court interpret the proviso to mean that the assessing officer can extend the period which was originally fixed only on the request of the assessee. Besides leading to absurd consequences, such a construction of the proviso is patently contrary to its language, purpose and intendment.[Para 16]
The “good and sufficient reason” requirement is intended to ensure that an extension of time cannot be demanded by the assessee as a matter of right.[Para 17]
Indeed, the use of the expression ‘may’ indicates that whether or not time should be extended is discretionary. The discretion is intimated to the Assessing officer.[Para 17]
Though the assessing officer has the power, in the first instance, to fix an even longer period subject to the overall ceiling of time, she may fix a particular period within the limit. To then postulate that while the assessing officer could in the first instance have fixed a longer time limit but, having fixed a limit of time, is precluded from extending time thereafter would be an absurd course of interpretation. [Para 18]
The creation of a remedy under the proviso in favour of the assessee cannot be construed to detract from the authority which vests in the assessing officer, who has specified the time limit for the submission of an audit report in the first instance, to extend time without an application by the assessee.[Para 19]
To construe the proviso to sub-section (2C) as foreclosing the authority of the assessing officer to extend time without a request by the assessee, would lead to an absurd consequence.[Para 19]
The assessee would then be in control of whether or not to seek an extension of time, where the audit report has not been finalized. Even if the auditor, for genuine reasons (not bearing on the default of the assessee), was unable to comply with the time schedule, having regard to the nature or complexity of the accounts, the assessee would then have a sole and unrestricted power to determine whether an extension should be sought. Not seeking an extension would in effect defeat the underlying purpose and object of directing the assessee to obtain a report of an auditor under sub-section (2A). The legislature could not have intended this consequence. [Para 19]
An interpretation which would defeat the purpose underlying sub-section (2A) must be avoided. The assessing officer who has fixed the time in the first instance must necessarily, as an incident of the authority to fix time, be entitled to extend time without an application by the assessee. While extending time, the assessing officer will be subject to the overall ceiling of time fixed under the proviso to sub section 2C.
The expression “and for any good and sufficient reason” should be read to mean “or for any good and sufficient reason” [Para 20]
As a matter of statutory interpretation, it is well settled that the expression “and” can in a given context be read as “or” (see in this context Ishwar Singh Bindrav. State of UP.
The mere fact that the amendment has been made with effect from 1 April 2008 does not detract from it being clarificatory in nature or that it was designed to obviate an ambiguity.[Para 21]
In Justice GP Singh’s Principles of Statutory Interpretation (11th Edition (2008)) the issue of whether a statutory provision is retrospective has been analysed thus:
“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. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word “declared” as well as the word “enacted”.’ But the use of the words ‘it is declared’ is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is ‘to explain’ an earlier Act, it would be without object unless construed 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 ….”
(emphasis supplied)
The above extract was cited by this Court in Commissioner of Income Tax-1, Ahmedabad v Gold Coin Health Food Pvt Ltd 2008 (9) SCC 622. A Constitution Bench of this Court also cited the above extract with approval in Commissioner of Income Tax (Central – I) v Vatika Township (P) Ltd. [2014] 31 ITR 466 (SC); 2015 1 SCC 1.
[Para 21 and 21A of the Judgment]
Maxwell on The Interpretation of Statutes1:
“The general principle, however, seems to be that alterations in procedure are retrospective, unless there be some good reason against it.”
11th Edition, Sweet and Maxwell (1962) at pg 217
{Para 23]
Commissioner of Income Tax (Central – I) v. Vatika Township (P) Ltd.(supra), this Court held thus:
“30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators’ object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective…
31… Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by outweighing factors.”
(emphasis supplied)
[Para 23]
The issue as to whether the amendment which has been brought about by the legislature is intended to be clarificatory or to remove an ambiguity in the law must depend upon the context. The Court would have due regard to (i) the general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former state of the law; and (iv) what power that the legislature contemplated (See Zile Singh v State of Haryana [2004] 8 SCC 1). {para 25]
In taking the view that we have, we have also taken note of the fact that the same view was adopted by several High Courts. Among them are (i) the Punjab and Haryana High Court in Jagatjit Sugar Mills Co Ltdv Commissioner of Income Tax [1994] 74 Taxman 8 (Pun.&Har.); [1994] 210 ITR 468; (ii) the Kerala High Court in Commissioner of Income Tax, Cochin v Popular Automobiles [2011] 333 ITR 308; and (iii) the Allahabad High Court in Ghaziabad Development Authority v Commissioner of Income Tax, Ghaziabad (UP) (2011) 12 Taxman.com 334 (Allahabad); 2011 SCC On Line All 1151 [Para 25]
The decision in Sedco Forex International Drill Inc. v Commissioner of Income Tax on which learned counsel for the assesses relied involved a substitution of the Explanation to Section 9(1)(ii) of the IT Act, 1961 with effect from 1 April 2000. A two Judge Bench of this Court held that given the legislative history of Section 9(1)(ii), it can only be assumed that it was deliberately introduced with effect from 1 April 2000 and was therefore intended to be prospective. [Para 25]
Decision of the Court
