Retrospective amendment in clarificatory nature to existing tax incentive provision is not unconstitutional

HIGH COURT OF GUJARAT

Katira Construction Ltd.

Versus

Union of India & 2

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

SPECIAL CIVIL APPLICATION NOS. 10828 to 10835, 10863, 10864, 11269,
11286 to 11288, 11312, 11781, 12184,
12233 to 12235, 13073 to 13076 of 2009

MARCH  4, 2013

JUDGMENT

Akil Kureshi, J.

These petitions arise out of common background. They have been heard together and are being disposed of by this common judgment. For the purpose of this judgment, facts stated in Special Civil Application No.11781 of 2009 may be adopted.

2. Petitioner has challenged the vires of explanation inserted in sub-section (4) of section 80IA of the Income Tax Act,1961 (‘the Act’ for short) by Finance Act No.2 of 2009. Sub-section (4) of section 80IA of the Act, as is well known, provides for certain deduction of income from the eligible business and primarily pertains to infrastructure development. By adding the impugned explanation, the Legislature provided that that nothing contained in the section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person and executed by an undertaking or enterprise. This explanation is added with retrospective effect from 1.4.2000. It is this amendment which has given rise to the present controversy.

3. The case of the petitioner is that it is engaged in the business of developing infrastructure. Till introduction of the impugned amendment, deductions were available to all undertakings and enterprises executing infrastructure development projects and it was not insisted that the assessee itself must develop such infrastructure facilities by investing its own funds. Such explanation, therefore, changes the very complexion of the deductions which were available for years together and, thus creates a levy with retrospective effect. The petitioner challenges such explanation on various grounds. In particular, the grievance is against the retrospective operation of such amendment.

4. On the other hand, the case of the respondents, emerging from the affidavits filed is that there is clear distinction between a ‘developer’ and a ‘contractor’. All along, the benefits intended under section 80IA(4) of the Act were for a developer and not for a contractor. The explanation only puts the issue beyond controversy. The amendment was within the legislative competence of the Parliament. It is not shown to be arbitrary or unreasonable.

5. On the basis of such facts, learned counsel for the parties have made detailed submissions before us. Learned Senior Counsel Shri Soparkar, leading the charge on behalf of the petitioners, vehemently contended that the impugned explanation creates a levy for the first time. Such amendment is given retrospective effect. Thus a levy which hitherto was not existing has been created with retrospective effect. No reasons are stated why such charge should be created with retrospective effect. No reasons are discernible from contemporaneous materials. The provision is thus harsh and unreasonable and would, therefore, fall foul of Article 14 of the Constitution. It was submitted that the legal position which is surviving for years together would be discarded. The assessees who are engaged in the business of creating such infrastructure facilities would be denied the benefits of deduction under section 80IA(4) of the Act by virtue of retrospective amendment. According to the counsel, the provision also thus infringes Article 19(1)(g) of the Constitution.

5.1 It was contended that the period of retrospective operation is also very long. This would be one of the factors to be examined while judging the reasonableness of the taxing statute. It was submitted that though the Parliament has the power to enact a law, including taxing law, with retrospective effect, when such provision creates a levy for the first time, the same must be reasonable and the retrospectivity must be justified on the basis of reasons for which such amendment was necessary.

5.2 It was also contended that an explanation cannot enlarge the substantive portion of a section. Viewed from this angle, according to the counsel, the impugned amendment would alter the nature of deduction available under sub-section (4) of section 80IA. It was further submitted that if by virtue of such explanation, certain deduction which was available till introduction of such legislative change, would stand discontinued, the amendment itself would be rendered unconstitutional since such amendment would be creating a levy of tax with retrospective effect without any justification.

5.3 In support of his contentions, the counsel relied on the following decisions:

(i)           In the case of D. Cawasji & Co. v. State of Mysore, [1984] 150 ITR 648 (SC), in which it was found that the Government had levied and collected sales tax on excise duty and cess. High Court declared such levy and collection illegal on the ground that excise duty and cess were not part of the sale price. Such judgment became final and conclusive. The Legislature thereafter passed a retrospective law increasing the rate of sales tax. The Supreme Court finding that such Amendment Act was passed with the object of retaining the amount collected which would nullify the judgment of the High Court, the amendment was held unconstitutional and invalid.

(ii)          In the case of Lohia Machines Ltd. v. Union of India, [1985] 152 ITR 308 (SC), wherein, in the minority dissenting view, in a Five Judge Bench, it was observed as under :

               “The power and competence of the Parliament to amend any statutory provision with retrospective effect cannot be doubted. Any retrospective amendment to be valid must however be reasonable and not arbitrary and must not be violative of any of the fundamental rights guaranteed under the Constitution. The mere fact that any statutory provision has been amended with retrospective effect does not by itself make the amendment unreasonable. Unreasonableness or arbitrariness of any such amendment with retrospective effect has necessarily to be judged on the merits of the amendment in the light of the facts and circumstances under which such amendment is made. In considering the question as to whether the legislative power to amend a provision with retrospective operation has been reasonably exercised or not it becomes relevant to enquire as to how the retrospective effect of the amendment operates.”

               Counsel pointed out that though the observations noted above formed part of the minority opinion, since on this issue the majority judgment was silent, it would still be open for the petitioners to rely on the above observations. In any case, counsel pointed out that such observations in the case of Lohia Machines Ltd (supra) were noted with approval in a subsequent decision in the case of Virender Singh Hooda v. State of Haryana, AIR 2005 SC 137. Counsel, therefore, submitted that such observations would form a binding precedence. We may notice that the decision in the case of Virender Singh Hooda (supra) was rendered in the background of service law jurisprudence where certain amendment in the Rules was sought to be brought in with retrospective effect. It was in this background, the Supreme Court formed an opinion that it cannot be stated that vested right cannot taken away by the Legislature by way of retrospective legislation. Taking away such rights, however, would be impermissible if the same is violative of Articles 14 and 16 or any other constitutional provisions. In such background, it was held that the amended rule cannot be applied to those employees who have already been promoted as per the unamended rules.

(iii)         Reliance was also placed on the decision of the Supreme Court in the case of Tata Motors v. State of Maharashtra, AIR 2004 SC 3618, wherein it was observed that:

               “15. It is no doubt true that the legislature has the powers to make laws retrospectively including tax laws. Levies can be imposed or withdrawn but if a particular levy is sought to be imposed only for a particular period and not prior or subsequently it is open to debate whether the statute passes the test of reasonableness at all. In the present case, the High Court sustained the enactment by adverting to Rai Ramkrishna’s case when the benefit of the rule had been withdrawn for a specific period.”

(iv)         Reliance was also placed on the decision of the Supreme Court in the case of National Agricultural Coop. Marketing Federation v. Union of India, 260 ITR 548, wherein it was observed that the legislative power either to introduce enactments for the first time or to amend the enacted law with retrospective effect is not only subject to the question of competence but is also subject to several judicially recognized limitations. It was observed that retrospectivity must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional.

(v)          Decision in the case of Star India P. Ltd. v. Commissioner of Central Excise, [2006] 208 ITR 321 (SC) was cited wherein it was held that though liability may be created with retrospective effect, the liability to pay interest being in the nature of quasi-punishment, such law cannot be given retrospective effect.

(vi)         Reliance was also placed on a decision of Division Bench of this Court dated 12.3.2012 in Special Civil Application No.17722 of 2011, in the case of Parixit Industries Pvt Ltd. v. Asstt. Commissioner of Income Tax, 207 Taxman 140, wherein Division Bench of this Court in the context of challenge to the validity of reopening of assessment observed that if an explanation is added to a section of a statute for the removal of doubts, the implication is that the law was the same from the very beginning and the same is further explained by way of addition of the explanation.

6. On the other hand, learned counsel Shri Champeneri for the Union of India, opposed the petitions contending that the Parliament has competence to enact laws including in the field of taxation, as also to give retrospective effect in appropriate cases. He submitted that the explanation only clarifies which the section itself all along provided. Such explanation, therefore, is purely clarificatory in nature. Prior to 1.4.2000, there was no possibility of any ambiguity. By virtue of certain change in section 80IA(4) of the Act, unintended benefits were claimed by the assessees who are not engaged in the development of infrastructure facilities. Therefore, explanatory amendment was enacted by the Parliament giving retrospective effect from 1.4.2000. Drawing our attention to contemporaneous materials in the form of notes on clauses, explanatory memorandum, etc. for introducing special deductions for infrastructure development projects, the counsel contended that the basic object of granting such tax deductions was to give impetus to infrastructure development which was found to be lagging. When the Government realized that private investment and participation was necessary to create such infrastructural facilities. In support of his contentions, counsel relied on following decisions :

(i)           In the case of Union of India v. Madan Gopal Kabra, AIR 1954 SC 158, wherein even while accepting that the Constitution has no retrospective operation, it was observed that it is not correct to say that in bringing into existence new legislatures and conferring on them certain powers of legislation, the Constitution operated retrospectively. With such observations, challenge to a taxing statute on the ground that the same was retrospective in operation was rejected.

(ii)          In the case of S.T. Swamiar v. Commissioner, H.R. & C.E., AIR 1963 SC 966, wherein the State legislation levying fee with retrospective operation was upheld. It was observed as under:

               “20. The State Legis1ature has power to levy a fee under the Seventh Schedule, List III, Entry 28 read with Entry 47. The Legislature was, therefore, competent to levy a fee for rendering services in connection with the maintenance, supervision and control over the religious institutions and it was competent to levy the fee retrospectively. If the amounts received by the State have been expressly regarded as fee collected by the Commissioner under the provisions as amended and account has to be made on that footing between the Government and the Commissioner, challenge to the vires of S. 82(2) must fail.

(iii)         In the case of J.K. Jute Mills Co. v. State of U.P., AIR 1961 SC 1534, it was observed as under:

               “15. The power of a legislature to enact a law with reference to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the legislature to enact a law, which is either prospective or retrospective.”

(iv)         In the case of Entertainment Tax Officer v. Ambae Picture Palace, [1994] 1 SCC 209, it was observed as under :

               “13. If the Parliament or the State Legislatures have competence to legislate, they can do so prospectively as well as retrospectively and taxation laws are no exception to this power. (Reference in this connection may be made to the decision of this Court in Union of India v. Madan Gopal Kabra). Again in Krishnamurthi & Co. v. State of Madras this Court held that the legislative power conferred on the appropriate legislatures to enact laws in respect of topics covered by the several entries in the three lists can be exercised both prospectively and retrospectively.”

(v)          In the case of CIT v. Gold Coin Health Food (P) Ltd. (2008) 9 SCC 622 = 304 ITR 308, wherein in the context of explanation to section 271(1)(c) (iii) of the Act, the Apex Court held that the same was clarificatory in nature and therefore would apply with retrospective effect.

7. We may record that both sides had cited few other decisions. However, since such authorities were only repeating the same propositions noted above, we have not referred to such citations.

8. Before examining the vires of the statutory provisions under consideration, it would be useful to take note of the legislative changes.

9. Section 80IA of the Act was introduced for the first time in the year 1991, granting deduction of income from industrial undertakings, etc. in certain cases. Infrastructure development was not contained in the said provision at the inception. Sub-section (4A) was introduced in section 80IA of the Act with effect from 1.4.96 making deduction applicable to any enterprise carrying on developing, maintaining and operating any infrastructure facility subject to fulfillment of the conditions contained therein. Sub-section (4A) as it originally stood at the time of its introduction with effect from 1.4.96 read as under:

“(4A) This section applies to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility which fulfills all the conditions, namely:-

(i)           the enterprise is owned by a company registered in India or by a consortium of such companies:

(ii)          the enterprise has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing, maintaining and operating a new infrastructure facility subject to the conditions that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement;

(iii)         the enterprise starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995.”

Notes on clauses for introduction of such amendment stated as under:

“Clause 19 seeks to amend section 80IA of the Income-tax Act relating to deduction in respect of profits and gains from industrial undertakings, etc. in certain cases.

The proposed amendment seeks to enlarge the scope of deduction under section 80IA. It is proposed to provide hundred per cent deduction from the profits and gains of an enterprise carrying on the business of development, maintenance and operation of infrastructure facility for the initial five assessment years and thereafter thirty per cent, of such profits and gains. The deduction will be available if the enterprise (a) is owned by a company or consortium of companies registered in India; (b) enters into an agreement with the Central or a State Government or a local authority or any other statutory body for development, maintenance and operation of a new infrastructure facility; (c) transfers such infrastructure facility after the period stipulated in the agreement to such Government or authority or body concerned, and (d) starts operating and maintaining the infrastructure facility on or after 1st April 1995. “Infrastructure facility” has been defined to mean a road, highway, bridge, airport, port or rail system or any other public facility of a similar nature as may be notified by the Board.”

Explanatory memorandum explaining such provision read as under:

“Under the provisions of section 80IA, new industrial undertakings are allowed deduction of 25% (30% for companies) for the first ten years (twelve years for the cooperative sector) of production. However, to an industrial undertaking engaged in the generation or generation and distribution of power to an industrial undertaking set up in specified backward State/districts, a five year full tax holiday is allowed. For undertakings entitled to the five year full tax holiday, normal deduction of 25%(30% for companies) is allowed for the balance period after the five year holiday.

Industrial moderanisation requires a massive expansion of, and qualitative improvement in, infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfill the requirements of the country within a reasonable time frame. In many countries the BOT (build-operate-transfer) or the BOOT (build-own-operate-transfer) concepts have been utilised for developing new infrastructure.

Applying commercial principles in the operation of infrastructure facilities can provide both managerial and financial efficiency. In view of this, it is proposed to allow a five year tax holiday for any enterprise which builds, maintains and operates any infrastructure facility such as roads, highways, or expressways or new bridges, airports, ports and rapid rail transport system on BOT or BOOT or similar other basis (where there is an ultimate transfer of the facility to a Government or public authority). The enterprise must have entered into an agreement with the Central or State Government or a local authority or any other statutory authority for this purpose. The period within which the infrastructure facility has to be transferred needs to be stipulated in the agreement between the undertaking and the Government concerned. The tax holiday will be in respect of income derived from the use of the infrastructure facilities developed by them.

The five year period will be counted from the year in which the infrastructure facility become operational. It will apply in respect of infrastructure facilities becoming operational on or after 1.4.1995.”

With effect from 1.4.2000, the Legislature split the existing section 80IA into two separate sections, section 80IA and 80IB. For our limited purpose, we may record that sub-section (4A) which formed part of erstwhile section 80IA was renumbered as sub-section (4) of newly recast section 80IA.

10. The next significant legislative change came with effect from 1.4.2002, wherein the language used in sub-section (4) of section 80IA was materially altered. Such amended sub-section (4) of section 80IA with effect from 1.4.2002 read as under:

“(4) This section applies to

(i)           any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfills all the following conditions, namely:-

(a)          it is owned by a company registered in India or by a consortium of such companies; or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;

(b)          it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing, or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility

(c)          it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995.

Provided that where an infrastructure facility is transferred on or after the 1st day of April 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction if the transfer had not taken place.

Explanation -For the purpose of this clause, “infrastructure facility means

–

(a)          a road including toll road, a bridge or a rail system …….”

The language used in sub-section (4) of section 80IA was changed from the requirement of “developing, operating and maintaining” to any enterprise “carrying on business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility”. Thus, instead of the previous requirement of cumulative satisfaction of the said conditions, the Legislature now permitted the same deduction to those enterprises carrying on business of either developing or operating or maintaining or developing, operating and maintaining any infrastructure facility. Explanation to sub-section (4) of section 80IA which defines “infrastructure facility” was also slightly changed to refer to road including toll road. Further, the requirement of the enterprise fulfilling the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other authority, as the case may be, within the period stipulated in the agreement was done away with.

11. Explaining such proposed amendment, explanatory memorandum for the Finance Bill 2001 recorded as under:

“Under the existing provisions of section 80IA, roads, highways, bridges, airports, ports and rail systems are regarded as infrastructure facilities and the enterprises engaged in developing or operating and maintaining or developing, operating and maintaining such infrastructure are entitled to a tax holiday for five years and a deduction of 30% of profits for the next five years. The benefit may be availed by an enterprise in ten consecutive years out of fifteen years beginning with the year in which such enterprise develops the infrastructure facility.

An enterprise claiming such benefit has to enter into an agreement with the Central or State Government or a local authority or any other statutory authority, to which the enterprise which develops such facility has to transfer such facility to the Government or public authority after the stipulated period. In other words, the required condition for availing of this benefit is that transfer under BOT (Build, Own, Transfer) or BOOT (Build, Own, Operate and Transfer) schemes has to be met.

Investments in infrastructure has to compete with investment in other sectors and must therefore be attractive. There is, in particular, a need to encourage investment in the area of surface transport, water supply, water treatment system, irrigation project, sanitation and sewerage system or solid waste management systems.

The Bill, therefore, proposes to relax the existing two tier benefit to provide a ten year tax holiday. Keeping in view the capital intensive nature, the higher allowances of depreciation in the initial years in such enterprise and the need for improved cash flows, it is further proposed that for an infrastructure facility in the nature of a road including a toll road, bridge, rail system, highway project, water supply project, sanitation, sewerage and solid waste management system in place of two- tier tax holiday, a ten year tax holiday may be availed consecutively out of twenty years beginning from the year in which the undertaking begins operating the infrastructure facility. In the case of other infrastructure, namely, for airport, port, inland port and inland waterways, it is also proposed to relax the existing two tier fiscal incentive. The Bill proposes an identical ten year tax holiday that may be availed in a block of fifteen years. It is also proposed to do away with the mandatory requirement that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or any other statutory authority.”

12. In 2007, an explanation was added below sub-section (13) of section 80IA by the Finance Act 2007, with retrospective effect from 1.4.2000. Such explanation reads as under:

“Explanation: For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be.”

Explanatory memorandum for introduction of such amendment reads as under:

“Section 80IA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, Industrial Parks and Special Economic Zones.

The tax benefit was introduced for the reason that industrial modernization requires a massive expansion of and qualitative improvement in infrastructure (viz. expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction works or any other works contract.

Accordingly, it is proposed to clarify that the provisions of section 80IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where an person makes the investment and himself executes the development work, i.e. carries out the civil construction work, he will be eligible for tax benefit under section 80IA. In contract to this, person who enters into a contract with another person (i.e. undertaking or enterprise referred to in section 80IA) for executing works contract, will not be eligible for the tax benefit under section 80IA.

This amendment will take retrospective effect from 1st April, 2000 and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years.”

The above explanation was substituted by a new explanation by Finance Act No. 2 of 2009 with effect from 1.4.2000. Such explanation which is under challenge before us reads as under:

“Explanation: For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of works contract awarded by any person (including the Central or Sate Government and executed by the undertaking or enterprise refereed to in sub-section (1).”

Notes on clauses for introduction of such amendment read as under:

“It is also proposed to amend the Explanation to said section to clarify that nothing contained in the said section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1) of said section.”

The explanatory memorandum for introducing such amendment reads as under:

“The profit linked deductions in Chapter VIA are prone to considerable misuse. Further, since the scope of the deductions under various provisions of Chapter VIA overlap, the tax payers, at times, claim multiple deductions for the same profits.

With a view to preventing such misuse, it is proposed to amend the provisions of section 80A of the Income Tax Act to provide the following namely:

        **                                              **                                              **

Further with a view to preventing the misuse of the tax holiday under section 80IA of the Income Tax Act, it is proposed to amend the Explanation to the said section to clarify that nothing contained in the said section shall apply in relation to a business referred to in sub-section (4) of the said section which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by an undertaking or enterprise referred to in sub-section (1) thereof.”

This amendment will take effect retrospectively from 1st April 2000 and will, accordingly apply in relation to assessment year 2000-2001 and subsequent years.”

13. These, in the nutshell, are the relevant legislative changes brought about by the Parliament from time to time. The central question is, whether in the present case, the explanation below sub-section (13) to section 80IA introduced by the Finance Act No.2 of 2009 with effect from 1.4.2000 transgresses the legislative competence of the Parliament.

14. It is now well settled that there is always a presumption of constitutionality whenever a legislation enacted by the Parliament or the State Legislature is questioned on the ground of unconstitutionality and the burden is on the petitioner bringing such a challenge. In the case of J & K v. T.N. Khosa, AIR 1974 SC 1, a Constitution Bench of the Supreme Court, observed that there is always a presumption in favour of the constitutionality of an enactment and the burden is on him who attacks it to show that there has been a clear transgression of the constitutional principles. It was observed as under :

“24. This submission is erroneous in its formulation of a legal proposition governing onus of proof and it is unjustified in the charge that the record discloses no evidence to show the necessity of the new rule. There is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles, 1959 SCR 279, 297 (b) = (AIR 1958 SC 538). Ram Krishan Dalmia v. Justice S. R. Tendolkar. A rule cannot be struck down as discriminatory on any a priori reasoning. “That where a party seeks to impeach the validity of a rule made by a competent authority on the ground that the rules offend Art. 14 the burden is on him to plead and prove the infirmity is too well established to need elaboration.” The burden thus is on the respondents to set out facts necessary to sustain the plea of discrimination and to adduce “cogent and convincing evidence” to prove those facts for “there is a presumption that every jactor which is relevant or material has been taken into account in formulating the classifications” State of Uttar Pradesh v. Kartar Singh, 1964 (6) SCR 679, 687 = (AIR 1964 SC 1135). In G.D. Kelkar v. Chief Controller of Imports and Exports, [1967] 2 SCR 29 at p. 34 = (AIR 1967 SC 839), Subba Rao C. J. speaking for the Court has cited three other decisions of the Court in support of the proposition that “unless the classification is unjust on the face of it, the onus lies upon the party attacking the classification to show by placing the necessary material before the Court that the said classification is unreasonable and violative of Art. 16 of the Constitution.

25. Thus, it is no part of the appellants’ burden to justify the classification or to establish its constitutionality. Formal education may not always produce excellence but a classification founded on variant educational qualifications is, for purposes of promotion to the post of Executive Engineer, to say the least, not unjust on the face of it and the onus therefore cannot shift from where it originally lay”

It is equally well settled that an enactment of the Parliament or the State Legislature can be questioned only on the ground of lack of competence or on the ground that the statute violates the fundamental rights or any other constitutional provisions. In the context of the ground on which the law enacted by the Parliament or the State Legislature can be challenged, in the case of Aditya Birla Nuvo Limited v. Municipal Corporation of the City of Surat, reported in 2013(1) GLR 304, a Division Bench of this Court made the following observations :

“16. …. Parameters for examining the validity of the legislation either of the Centre or the State Legislation are somewhat different from the parameters on which the statutory provisions enacted under delegated legislation can be judged. The grounds on which a statutory provision enacted by the State or Central Legislature can be struck down are lack of legislative competence or being in conflict with any of the provisions contained in fundamental rights or other articles of the Constitution. In case of State of Madhya Pradesh v. Rakesh Kohli and another reported in (2012) 6 Supreme Court Cases 312, the Apex Court observed that :

“This Court has repeatedly stated that legislative enactment can be struck down by a Court only on two grounds, namely (i) that the appropriate legislature does not have the competence to make the law, and (ii) that it does not take away or abridge any of the fundamental rights enumerated in part-III of the Constitution or any other constitutional provisions.”

17. It is often suggested that a law enacted by the parliament or the State Legislature can be struck down only on one ground namely that of legislative competence. In such expression, both the above-noted parameters are included. If the State or the Central Legislation does not have competence to enact a law as per the list contained in Schedule VII, such a case would fall squarely within the expression of lacking in legislative competence. Equally if such statutory provision is opposed to any of the fundamental rights contained in Part III of the Constitution or is in conflict with other provisions contained in the Constitution, it would be impermissible to the parliament or to the State to enact such a provision and could thus also be stated to be without legislative competence. Besides these categories sometimes, the statutory provision being irrational, arbitrary, come up for discussion. However, such ground also has to be examined within above two parameters. The Apex Court in case of State of A.P. and others v. Mc. Dowell & Co. and others reported in (1996) 3 Supreme Court Cases 709, observed that :

“In India, the position is similar to the United States of America. The power of the Parliament or for that matter, the State Legislatures is restricted in two ways. A law made by the Parliament or the Legislature can be struck down by courts on two grounds and two grounds alone, viz., (1) lack of legislative competence and (2) violation of any of the fundamental rights guaranteed in Part-III of the Constitution or of any other constitutional provision. There is no third ground.”

The Apex Court thereafter explaining the previous decision in case of State of Tamil Nadu and others v. Ananthi Ammal and others reported in (1995) 1 Supreme Court Cases 519 observed that :

“The use of the word “arbitrary” in Para-7 was used in the sense of being discriminatory, as the reading of the very paragraph in its entirety discloses. The provisions of the Tamil Nadu Act were contrasted with the provision of the Land Acquisition Act and ultimately it was found that Section 11 insofar as it provided for payment of compensation in instalments was invalid. The ground of invalidation is clearly one of discrimination. It must be remembered that an Act which is discriminatory is liable to be labelled as arbitrary. It is in this sense that the expression “arbitrary” was used in Para-7.”

15. In the present case, it is not even the case of the petitioners that the Parliament lacked legislative competence to enact the law. It was, however, their case that the enactment being unreasonable and arbitrary, violates Articles 14 and 19(1)(g) of the Constitution.

16. Before examining the nature of the amendment and its effect in law, we may refer to some of the decisions of the Supreme Court recognizing the considerable latitude in the Parliament in framing a taxing statute.

In the case of Hiralal Ratan Lal v. S.T.O., S.III, Kanpur, AIR 1973 SC 1034, the Apex Court observed as under:

“19. It must be noticed that generally speaking the primary purpose of the levy of all taxes is to raise funds for public good. Which person should be taxed, what transaction should be taxed or what goods should be taxed, depends upon social, economic and administrative considerations. In a democratic set up it is for the legislature to decide what economic or social policy it should pursue or what administrative consideration it should bear in mind.”

In the case of P.M. Ashwathanarayana Setty v. State of Karnataka, AIR 1989 SC 100, the Apex Court observed as under:

“30. The problem is indeed, a complex one not free from its own peculiar difficulties. Though other legislative measures dealing with economic regulation are not outside Art. 14, it is well recognised that the State enjoys the widest latitude where measures of economic regulation are concerned. These measures for fiscal and economic regulation involve an evaluation of diverse and quite often conflicting economic criteria and adjustment and balancing of various conflicting social and economic values and interests. It is for the State to decide what economic and social policy it should pursue and what discriminations advance those special and economic policies. In view of the inherent complexity of these fiscal adjustments, Courts give a larger discretion to the Legislature in the matter of its preferences of economic and social policies and effectuate the chosen system in all possible and reasonable ways. If two or more methods of adjustments of an economic measure are available, the Legislative preference in favour of one of them cannot be questioned on the ground of lack of legislative wisdom or that the method adopted is not the best or that there were better ways of adjusting the competing interests and claims. The legislature possesses the greatest freedom in such areas. The analogy of principles of the burden of tax may not also be inapposite in dealing with the validity of the distribution of the burden of a ‘fee’ as well.”

In the case of J.K. Jute Mills Co. (supra), a Constitution Bench of the Supreme had observed as under:

“15. The power of a legislature to enact a law with reference to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the legislature to enact a law, which is either prospective or retrospective. In Union of India v. Madan Gopal, 1954 SCR 541: (AIR 1954 SC 158), it was held by this court that the power to impose tax on income under entry 82 of List I in Schedule VII to the Constitution, comprehended the power to impose income-tax with retrospective operation even for a period prior to the Constitution. The position will be the same as regards laws imposing tax on sale of goods, In M. P. V. Sundararamier and Co. v. State of Andhra Pradesh, 1958 SCR 1422: (AIR 1958 SC 468), this court had occasion to consider the validity of a law enacted by Parliament giving retrospectively operation to laws passed by the State legislatures imposing a tax on certain sales in the course of inter-State trade. One of the contentions raised against the validity of this legislation was that, having regard to the terms of Art. 286 (2), the retrospective legislation was not within the competence of Parliament.”

In the case of S.T. Swamiar (supra), the Apex Court observed that the fact that retrospective legislation may be enacted is not open to question. The observations made in the case of J.K. Jute Mills Co. (supra) to the effect that the power of the Legislature to enact law with reference to the topic entrusted to it is unqualified subject only to any limitation imposed by the Constitution and that in exercise of such power, it will be competent for the Legislature to enact a law which is either prospective or retrospective, were noted with approval.

In the case of Entertainment Tax Officer (supra), the Supreme Court observed as under :

“13. If the Parliament or the State Legislatures have competence to legislate, they can do so prospectively as well as retrospectively and taxation laws are no exception to this power. (Reference in this connection may be made to the decision of this Court in Union of India v. Madan Gopal Kabra). Again in Krishnamurthi & Co. v. State of Madras this Court held that the legislative power conferred on the appropriate legislatures to enact laws in respect of topics covered by the several entries in the three lists can be exercised both prospectively and retrospectively.”

In the case of Union of India v. Jalyan Udyog, (1994) 1 SCC 318, the Apex Court observed as under:

“22. The above analysis of sub-section (1) shows inter alia that an exemption granted may be an absolute one or subject to such conditions, as may be specified in the notification and further that the conditions specified may relate to a stage before the clearance of goods or to a stage subsequent to the clearance of goods. Section 25(1) is a part of the enactment and must be construed harmoniously with the other provisions of the Act. The power of exemption is variously described as conditional legislation [See Jalan Trading Co. Pvt. Ltd. v. Mill Mazdoor Sabha, AIR 1967 SC 691 and Hamdard Dawakhana v. Union of India, AIR 1960 SC 554] and also as a species of delegated legislation. Whether it is one or the other, it is a power given to the Central Government to be exercised in public interest. Such a provision has become a standard feature in several enactments and in particular, taxing enactments. It is equally well settled by now that the power of taxation can be used not merely for raising revenue but also to regulate the economy, to encourage or discourage as the situation may call for the import and export of certain goods as also for serving the social objectives of the State. [Vide Elel Hotels and Investment Ltd. v. Union of India [1989] 3 SCC 698 : (AIR 1990 SC 1664), Srinivasa Theatre v. Govt. of Tamil Nadu, [1992] 2 SCC 643 : (1992 AIR SCW 899) and Subhash Photographics v. Union of India, (1993) 4 J.T. (SC) 116 : (1993 AIR SCW 2871)]. Since the Parliament cannot constantly monitor the needs of and the emerging trends in the economy and is in no position to engage itself in day-to-day regulation and adjustment of import-export trade accordingly, power is conferred upon the Central Government to provide for exemption from duty of goods, either wholly or partly, and with or without conditions, as may be called for in public interest. We see no warrant for reading any limitation into this power. If the public interest demands that the exemption should be absolute, the Central Government can do so. Similarly, if the public interest demands that exemption should be granted only subject to certain conditions it can provide such conditions. Then again if the public interest demands that conditions specified should relate to a stage subsequent to the date of clearance it can do so. The guiding factor is the public interest.”

In the case of State of A.P. v. McDowell & Co., [1996] 3 SCC 709, it was observed:

“No enactment can be struck down by just saying that it is arbitrary or unreasonable. Some or other constitutional infirmity has to be found before invalidating an Act. An enactment cannot be struck down on the ground that court thinks it unjustified. Parliament and the legislatures composed as they are of the representatives of the people, are supposed to know and be aware of the needs of the people and what is good and bad for them. The court cannot sit in judgment over their wisdom.”

17. It is, thus, undoubtedly true that the Parliament has power not only to legislate with respect to the subject matter on hand, but also with retrospective effect, if so found necessary. So much so was not even seriously disputed. It is also now sufficiently clear that in the field of taxation, the Parliament enjoys considerable latitude in framing and implementing the policies. It is often stated that the wisdom of the Parliament in enacting a statute cannot be questioned in a court of law. With this background in mind, we may consider the contentions of the petitioners.

18. The case of the petitioners is that the impugned explanation below sub-section (13) to section 80IA provides for a levy of tax which was hitherto unknown. It is, therefore, urged that the Court should examine the reasonableness of such provision particularly when the same is brought into operation with retrospective effect. Section 80IA(4) provides for deduction under certain circumstances. If such deductions are withdrawn with retrospective effect, surely there would be a case of providing for a levy which was till then not known. In that context, if the impugned explanation provides for withdrawal of the deductions, that too, retrospectively, question of judging the reasonableness thereof in the background of the same being made retrospectively applicable from a long period of time would certainly arise. The question, however is, does this explanation provide for a fresh levy? In other words, did the Legislature in introducing the impugned explanation materially change the exemption which existed till such explanation was introduced? To our mind, this is the crucial test which would ultimately decide the outcome of these petitions. To put it differently, if the effect of the explanation is to withdraw the existing deductions, the question of the same being unreasonable or arbitrary would arise.

19. To be able to judge the question, we need to first understand the nature of the explanation. Ordinarily, an explanation is introduced by the Legislature for clarifying some doubts or removing confusion which may be possible from the existing provisions. Normally, therefore, an explanation would not expand the scope of the main provision and the purpose of the explanation would be to fill a gap left in the statute, to suppress a mischief, to clear a doubt or as is often said to make explicit what was implicit.

20. In the case of S. Sundaram Pillai v. V.R. Pattabhiraman, AIR 1985 SC 582, the Apex Court observed that an explanation added to a statutory provision is not a substantive provision, but as the plain meaning of the word itself shows, it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision. It was observed as under:

“52. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is –

(a)          to explain the meaning and intendment of the Act itself,

(b)          where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,

(c)          to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,

(d)          an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and

(e)          it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.”

There are, however, other judicial pronouncements of the Supreme Court suggesting that though the rule that an explanation is meant only for filling a gap in the statute or removing any ambiguity or clearing a mischief, such rule of normal application is not unknown to exceptions.

04.03.2013

21. In the case of Hiralal Ratan Lal (supra), the The Apex Court observed as under :

“24. On the basis of the language of the Explanation this Court held that it did not widen the scope of clause (c). But from what has been said in the case, it is clear that if on a true reading of an Explanation it appears that it has widened the scope of the main section, effect must be given to legislative intent notwithstanding the fact that the legislature named that provision as an Explanation. In all these matters the Courts have to find out the true intention of the legislature.”(emphasis supplied by us)

The above observations were noted with approval in the case of S. Sundaram Pillai (supra):

22. In the case of M/s. Aphali Pharmaceuticals Ltd. v. State of Maharashtra, AIR 1989 SC 2227, the Supreme Court observed as under:

“32. An Explanation, as was found in Bihta Marketing Union v. Bank of Bihar, AIR 1967 SC 389: (1967) 1 SCR 848, may only explain and may not expand or add to the scope of the original section. In State of Bombay v. United Motors, AIR 1953 SC 252 : (1953) SCR 1069, it was found that an Explanation could introduce, a fiction or settle a matter of controversy. Explanation may not be made to operate as “exception” or “proviso”. The construction of an Explanation, as was held in Collector of Customs v. G. Dass and Co., AIR 1966, SC 1577, must depend upon its terms and no theory of its purpose can be entertained unless it is to be inferred from the language used. It was said in Burmah Shell Oil Ltd. v. Commercial Tax Officer, AIR 1961 SC 315: (1961) 1 SCR 902, that the explanation was meant to explain the Article and must be interpreted accordinging to its own tenor and it was an error to explain the Explanation with the aid of the Article to which it was annexed. We have to remember what was held in Dattatraya Govind Mahajan v. State of Maharashtra, AIR 1977 SC 915 (928): (1977) 2 SCR 790, that mere description of a certain provision, such as “Explanation” is not decisive of its true meaning. It is true that the orthodox function of an explanation is to explain the meaning and effect of the main provision to which it is an explanation and to clear up any doubt or ambiguity in it, but ultimately it is the intention of the legislature which is paramount and mere use of a label cannot control or deflect such intention. State of Bombay v. United Motors (supra) laid down that the interpretation must obviously depend upon the words used therein, but this must be borne in mind that when the provision is capable of two interpretations, that should be adopted which fits the description. An explanation is different in nature from a proviso for a proviso excepts, excludes or restricts while an explanation explains or clarifies. Such explanation or clarification may be in respect of matters whose meaning is implicit and not explicit in the main section itself. In Hiralal Ratanlal v. State of U.P. [1973] 1 SCC 216 (225) : (AIR 1973 SC 1034 (1040)), it was ruled that if on a true reading of an Explanation it appears that it has widened the scope of the main section, effect be given to legislative intent notwithstanding the fact that the Legislature named that provision as an Explanation. In all these matters courts have to find out the true intention of the Legislature. In D. G. Mahajan v. State of Maharashtra, (supra) this Court said that legislature has different ways of expressing itself and in the last analysis the words used alone are repository of legislative intent and that if necessary an Explanation must be construed according to its plain language and ‘not on any a priori consideration’.” (emphasis supplied by us)

23. In the case of Y.P. Chawla v. M.P. Tiwari, AIR 1992 SC 1360, the Apex Court observed as under:

“10. The Explanation is in the nature of a proviso to Section 279(2) of the Act with the result that the exercise of power by the Commissioner under the said section has to be subject to the instructions issued by the Board from time to time. The Explanation empowers the Board to issue orders, instructions or directions for the proper composition of the offences under Section 279(2) of the Act and further specifically provides that directions for obtaining previous approval of the Board can also be issued. Reading Section 279(2) along with the Explanation, there is no manner of doubt that the Commissioner has to exercise the discretion under Section 279(2) of the Act in conformity with the instructions issued by the Board from time to time.”

24. In the case of M/s. Keshavji Ravji & Co. v. Commissioner, AIR 1991 SC 1806, it was observed as under:

14. Re: Contention (e)

Sri Ramachandran urged that the introduction, in the year 1984, of Explanation I to S. 40(b) was not to effect or bring about any change in the law, but was intended to be a mere legislative exposition of what the law has always been. An ‘Explanation’, generally speaking, is intended to explain the meaning of certain phrases and expressions contained in a statutory provision. There is no general theory as to the effect and intendment of an Explanation except that the purposes and intendment of the ‘Explanation’ are determined by its own words. An Explanation, depending on its language, might supply or take away something from the contents of a provision. It is also true that an Explanation may – this is what Sri Ramachandran suggests in this case – be introduced by way of abundant caution in order to clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative errors and to place what the legislature considers to be the true meaning beyond controversy or doubt. Hypothetically, such can be the possible purpose of an ‘Explanation’ cannot be doubted. But the question is whether in the present case, Explanation I inserted into S. 40(b) in the year 1984 has had that effect.” (emphasis supplied by us).

25. In the case of CIT v. Gold Coin Health Food P. Ltd., (supra), the Apex Court observed as under:

“6. It would be of some relevance to take note of what this court said in Virtual’s case (2007) 9 SCC 665. Pointing out some of the important tests at paragraph 51 it was observed that even if the statute does contain a statement to the effect that the amendment is clarificatory or declaratory, that is not the end of the matter. The court has to analyse the nature of the amendment to come to a conclusion whether it is in reality a clarificatory or declaratory provision. Therefore, the date from which the amendment is made operative does not conclusively decide the question. The court has to examine the scheme of the statute prior to the amendment and subsequent to the amendment to determine whether the amendment is clarificatory or substantive.”

26. It can thus be seen that ordinarily legislation uses an explanation for filling up a gap in statute or removing some ambiguity or making explicit which was otherwise implicit. However, it is an accepted proposition that if the language of the explanation is plain and suggests departure from the above conventional usage of an explanation, full effect to the contents of the explanation would be given as would emerge from the plain language of the provision.

27. In the present case, therefore, from both the angles, namely, whether the explanation aims to expand the prevailing provision and whether being in the nature of a tax statute, such change can be permitted with retrospective effect, it would be crucial for us to discern the true effect of such explanation. In this context, we may recall that the impugned explanation below sub-section (13) to section 80IA starts with an expression “for the removal of doubts, it is hereby declared that” and provides that nothing contained in this section shall apply to in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person including the Central or State Government and executed by the undertaking or enterprise referred to in sub-section (1). Thus the explanation in question was introduced for the removal of doubts and it declared that nothing containing in sub-section (4) would apply to a business in the nature of works contract. We may recall that sub-section (4) of section 80IA even after amendment of 2002, envisaged deduction in case of any enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. Thus, the Legislature by way of the impugned amendment distinguished between the cases of developing/operating and maintaining/developing, operating and maintaining any infrastructure facility from the works contract awarded by any person, be it the Central or the State Government, executed by the undertaking or enterprise seeking such an exemption. That there is an intrinsic difference between developing an infrastructure facility and executing a works contract, in our opinion, can hardly be disputed.

28. In the case of CIT v. Radhe Developers, [2012] 341 ITR 403 (Guj.), a Division Bench of this Court had an occasion to examine these aspects in the context of a deduction provided under section 80IB(10) of the Act for development of housing projects. The Revenue had contended that since the assessees did not own the lands in question and only developed the same for and on behalf of some one else would not be eligible for the deduction in question. This Court examined the question what can be the meaning of the term ‘develop’ and who consequently can be stated to be a ‘developer’. Noting that section 80IB(10) of the Act provides for deduction to an undertaking engaged in the business of developing and constructing housing projects and does not provide that the land must be owned by the assessees seeking such deduction, it was held that the assessees cannot be treated as works contractors. Noting that the assessees took full risk of executing the housing project and thereby making profit or loss, as the case may be, and that the assessees invested their own funds in the cost of construction and engagement of several agencies, it was held that the deduction was available to assessees. It was observed as under:

“…. The Tribunal itself in the impugned order has traced different meanings of term developer explained in different dictionaries, which read as under:

“a.          The Webster’s Encyclopedia unabridged of the English Language gives Following meaning of the term ‘developer’ as:

               “1. One who or that which develops;2. A person who invests in and develops the Urban or Suburban potentialities of real estate.

b.            Oxford Advanced Learners Dictionary of Current English Fourth Indian Edition gives http://10.225.19.9/applications/index_db.php meaning of the term ‘developer’ as persons or company that develops land.

c.            Random House Dictionary of the English Language, the following can be found.

Develop:

a.            To bring out the capabilities or possibilities of; bring to a more advanced or effective state.

b.            To cause to grow or expand.

Developer:

a.            The act or process of developing; progress.

b.            Synonym: Expansion, elaboration, growth, evolution, unfolding, maturing, maturation.

d.            Webster Dictionary, the following definitions emerge:

a.            To realize the potential of;

b.            To aid in the growth of Strength, develop the biceps,

c.            To bring into being: make active (develop a business)

d.            To convert ( a tract of land) for specific purpose, as by building extensively.

e.            Law lexicon Dictionary: The following definitions could be seen:

Development

a.            To act, process or result of development or growing or causing to grow; the state of being developed.

b.            Happening.”

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34. We have reproduced relevant terms of development agreements in both the sets of cases. It can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects. Under the agreements, the assessee had full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architectural work. Assessee would enroll members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence.

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36. We have noted at some length, the relevant terms and conditions of the development agreements between the assessees and the land owners in case of Radhe Developers. We also noted the terms of the agreement of sale entered into between the parties. Such conditions would immediately reveal that the owner of the land had received part of sale consideration. In lieu thereof he had granted development permission to the assessee. He had also parted with the possession of the land. The development of the land was to be done entirely by the assessee by constructing residential units thereon as per the plans approved by the local authority. It was specified that the assessee would bring in technical knowledge and skill required for execution of such project. The assessee had to pay the fees to the Architects and Engineers. Additionally, assessee was also authorized to appoint any other Architect or Engineer, legal adviser and other professionals. He would appoint Sub-contractor or labour contractor for execution of the work. The assessee was authorized to admit the persons willing to join the scheme. The assessee was authorised to receive the contributions and other deposits and also raise demands from the members for dues and execute such demands through legal procedure. In case, for some reason, the member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the the full FSI as per the existing rules and regulations. However, in future, rules be amended and additional FSI be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control over the land in question. The assessee could put the land to use as agreed between the parties. The assessee had full authority and also responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. Most significantly, the risk element was entirely that of the assessee. The land owner agreed to accept only a fixed price for the land in question. The assessee agreed to pay off the land owner first before appropriating any part of the sale consideration of the housing units for his benefit. In short, assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. Land owner would receive a fix predetermined amount towards the price of land and was thus insulated against any risk.

37. By no stretch of imagination can it be said that the assessee acted only as a works contractor….”

29. In our, opinion, what the explanation aims to achieve is to clarify that deduction under section 80IA(4) of the Act would not be available in case of execution of works contract. The fact that such interpretation of the existing provisions of sub-section (4) of section 80IA of the Act, even without the aid of the explanation was possible, in our opinion, is not disputable. As noted, sub-section (4) of section 80IA even after the amendment in the year 2002 envisaged deduction in case of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. Even without the aid of the explanation, it was possible to contend that such expression did not include an enterprise executing a works contract. Particularly, bearing in mind the observations made by this Court in the case of Radhe Developers (supra), there would certainly be a demarcation between developing the facility and execution of works contract awarded by an agency engaged in developing such facility.

30. We may examine the issue from the angle of legislative changes. We have already noticed in the earlier portion of this judgment that from the inception in the year 1996, benefits under such deduction, then covered under sub-section (4A) of section 80IA of the Act were available to an enterprise engaged in developing, maintaining and operating any infrastructure facility. From time to time, legislative changes have been made to suit the requirements of the changing conditions. The explanatory memorandum contemporaneous to the introduction of sub-section (4A) from 1.4.96 has already been reproduced earlier. It would be useful once again to note the relevant portion thereof:

“Industrial moderanisation requires a massive expansion of, and qualitative improvement in, infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfill the requirements of the country within a reasonable time frame. In many countries the BOT (build-operate-transfer) or the BOOT (build-own-operate-transfer) concepts have been utilised for developing new infrastructure.

Applying commercial principles in the operation of infrastructure facilities can provide both managerial and financial efficiency. In view of this, it is proposed to allow a five year tax holiday for any enterprise which builds, maintains and operates any infrastructure facility such as roads, highways, or expressways or new bridges, airports, ports and rapid rail transport system on BOT or BOOT or similar other basis (where there is an ultimate transfer of the facility to a Government or public authority). The enterprise must have entered into an agreement with the Central or State Government or a local authority or any other statutory authority for this purpose. The period within which the infrastructure facility has to be transferred needs to be stipulated in the agreement between the undertaking and the Government concerned. The tax holiday will be in respect of income derived from the use of the infrastructure facilities developed by them.

The five year period will be counted from the year in which the infrastructure facility become operational. It will apply in respect of infrastructure facilities becoming operational on or after 1.4.1995.”

Thus at the very first stage, deduction was made available to draw additional resources for fulfilling the requirements of the country of rapid improvement in infrastructure such as, expressways, highways, airports, ports, etc. in which areas development was found to be deficient. Adopting the module of BOT or BOOT utilized by several other countries in developing infrastructure facilities, deduction was introduced. The principal idea behind granting deduction was to achieve rapid growth in infrastructure development with private participation. Specific period was also stipulated which must form part of the agreement between the undertaking and the Government within which the infrastructure facilities so developed would be transferred. It was explained that the tax holiday was in respect of the income derived in use of of the infrastructure facilities developed by them.

31. From the inception, thus the concept of development of infrastructure through private participation was clearly discernible. Principal purpose was to infuse private investment in such projects to speed up infrastructure development which required massive expansion. Even after bifurcation of section 80IA into section 80IA and section 80IB, with effect from 1.4.2000, this fundamental concept was not discarded. Sub-section (4) which formed part of the recast section 80IA did not carry any material changes from the earlier provisions of sub-section (4A) of section 80IA which existed prior to 1.4.2000.

32. It is true that with effect from 1.4.2002 some significant changes were made in the said provisions. We have already noticed three of these changes which are material for our purpose. Such changes were (i) that sub-section (4) of section 80IA now required the enterprise to carry on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. This was in contrast to the previous requirement of all three conditions being cumulatively satisfied; (ii) that the explanation of the term ‘infrastructure facility’ was changed to besides others, a road including toll road instead of hitherto existing expression ‘road’ and (iii) that the requirement of transferring the infrastructural facilities developed by the enterprise to the Central or the State Government or the local authority within the time stipulated in the agreement was done away with.

33. To our mind, these changes, however, would not alter the situation vis-a-vis the impugned amendment. These legislative changes did enlarge the scope of the deduction and in a sense, made it available to certain assessees who would not have been, but for the changes eligible for such deduction. Nevertheless, the basic requirement of the enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining infrastructure facility was not done away with. In other words, in our understanding, even the amended section 80IA(4) with effect from 1.4.2002 could be construed as not including execution of works contract as one of the eligible activities for claiming deduction. We may, once again fall back on the explanatory memorandum explaining such legislative amendments. It was explained that investment in infrastructure has to compete with the investment in other sectors and must therefore be attractive. There is, therefore, in particular a need to encourage investment in the area of surface transport, water supply, water treatment system, irrigation project, sanitation and sewerage system or solid waste management systems. The bill therefore, proposed to relax the existing system to provide for a ten year tax holiday. Significantly, it was stated that keeping in view the capital intensive nature, the higher allowances of depreciation in the initial years in such enterprise and the need for improved cash flows, it is further proposed that for an infrastructure facility in the nature of a road including a toll road, bridge, rail system, highway project, water supply project, sanitation, sewerage and solid waste management system in place of two-tier tax holiday, a ten year tax holiday may be availed consecutively out of twenty years beginning from the year in which the undertaking begins operating the infrastructure facility. In the case of other infrastructure, namely, for airport, port, inland port and inland waterways, it is also proposed to relax the existing two tier fiscal incentive. The Bill proposed an identical ten year tax holiday that may be availed in a block of fifteen years. It is also proposed to do away with the mandatory requirement that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or any other statutory authority.

34. Clearly, thus, post 1.4.2002 also, the involvement of the enterprise in developing infrastructure facility when the claim was covered under such expression was essential. In the same context, we must understand the expression “developing or operating and maintaining or developing, operating and maintaining”. Keeping in mind the new areas where such private participation would be required and therefore had to be encouraged and keeping in mind that such areas, such as, surface transport, water supply, water treatment system, irrigation project, etc. would necessarily be highly investment intensive, the Legislature provided for a tax break of 10 consecutive years out of a total of 20 years period and also proposed to do away with the requirement of such infrastructure facility being transferred to the Central or the State Government or the local authority.

35. In 2007, the explanation below sub-section (13) of section 80IA came to be added which clarified that nothing contained in the said section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be. In clear terms, this explanation targeted the second level works contractor who might have been employed by the enterprise developing the infrastructure facility. However, this was not found to be sufficient explanation clearing doubts with respect to the exclusion of the enterprise engaged in execution of a works contract. It was, therefore, that the impugned explanation came to be introduced substituting the existing explanation below sub-section (13) to section 80IA. The explanatory memorandum recorded that profit linked deductions were prone to considerable misuse. With a view to preventing such misuse of the tax holiday under section 80IA, it was proposed to amend the explanation to the said section to clarify that nothing contained in the section shall apply in relation to a business which is in the nature of a works contract executed by an undertaking.

36. We, therefore, notice that from the inception, deduction was envisaged for development of infrastructure facilities with private participation. Of course, post 2002, certain relaxations were granted and in addition to extending tax holiday period, requirement for claiming such deduction was split into developing or operating and maintaining or developing, operating and maintaining infrastructure facility. The Revenue could therefore, legitimately contend that no such deduction was envisaged for mere execution of works contract. If this was the position, in our understanding, what the explanation, did was to clarify a statutory provision which was at best possible of a confusion. If that be so, the explanation must be seen as one being in the nature of plain and simple explanation and not either adding or subtracting anything to the existing statutory provision. When we hold that the impugned explanation was purely explanatory in nature and did not mend the existing statutory provisions, the question of levying any tax with retrospective effect would not arise. If we agree with the submission of the counsel for the petitioners that such explanation restricted or aimed to restrict the provisions of deduction, certainly a question of reasonableness in the context of retrospective operation would arise. In the present case, however, we have come to the conclusion that the explanation only supplied clarity where, at best confusion was possible in the unamended provision. In that view of the matter, this cannot be seen as a retrospective levy even if we were to accept that withdrawal of a deduction would amount to a fresh levy.

37. Much stress was laid by the petitioners on the decision of this Court in the case of Parixit Industries Pvt. Ltd. (supra) to contend that the impugned explanation did not in any manner alter the statutory provisions contained in section 80IA(4) of the Act and therefore, deductions which were previously available cannot be withdrawn. We have already expressed our opinion on the effect of the explanation under challenge. In our understanding, we have not taken any stand different from the decision of this Court in the case of Parixit Industries Pvt. Ltd. (supra). We must appreciate that such decision was rendered in the background of the assessee’s challenge to a notice for reopening of the assessment which was previously framed after scrutiny. The assessment pertained to the assessment year 2006-07 and the notice for reopening was issued within four years from the end of the relevant assessment year. Revenue relied on the impugned explanation which substituted the previous explanation introduced with effect from 1.4.2007. This change was also given retrospective effect of 1.4.2000. In this context, this Court held and observed as under:

“25. It is now a settled law that if an explanation is added to a section of a statute for the removal of doubts, the implication is that the law was the same from the very beginning and the same is further explained by way of addition of the Explanation. Thus, it is not a case of introduction of new provision of law by retrospective operation. We have found that the petitioner had disclosed all the materials regarding its activities and there was no suppression of materials. In spite of such disclosure, the Assessing Officer gave benefit of the provision by considering the then Explanation which was substantially the same and thus, it could not be said that any income escaped assessment in accordance with the then law. We have already pointed out that the Assessing Officer has now given a second thought over the same materials and according to him, as the assessee is a contractor or supplier of irrigation products, it cannot be called a developer of any new infrastructural facility.

26. From the materials placed before him by the petitioner, the Assessing Officer earlier did not arrive at such conclusion and thus, the amended Explanation subsequently added cannot be of any help to him in arriving at the second opinion based on the alleged new law.”

The Court was thus of the opinion that introduction of the explanation in question did not amount to introduction of a new provision of law with retrospective operation. The assessee was, therefore, given the benefit of deduction considering the then explanation which was introduced with effect from 1.4.2007, which according to the Court was substantially the same and any attempt on the part of the Revenue, therefore, to reopen the assessment would be in the nature of second opinion. Thus, we do not think that we have stated anything which runs contrary to the ratio in the case of Parixit Industries Pvt. Ltd (supra). In fact, the context of the said decision was entirely different from the challenge being considered by us in the present group of petitions.

38. In that view of the matter, challenge to the vires of the explanation must fail. In the result, all the petitions are dismissed. Rule is discharged. Interim relief is vacated.

39. At this stage, learned counsel Shri Soparkar for the petitioners made two requests. He stated that the interim relief previously granted be continued for some time. He further requested that certificate in terms of Article 133 read with Article 134-A be granted. Insofar as the request for extension of stay is concerned, the same is granted and the interim relief operating in all these petitions shall be continued till 30th April 2013. However, the request for certificate to appeal is declined.