DCIT, CHENNAI V. Shriram Engineering Construction Company Ltd., CHENNAI

ITA 1491/CHNY/2013

• Counselvise Citation: 149121714 RSA 2013
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-12-2013
• Assessment Year: 2000-2001
• Appeal Filed On: 04-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R SIVARAMAN
• Keywords: Gift; Retrospective amendment
• Section: 37(1); 27; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI S. S. GODARA, JUDICIAL MEMBER] I.T.A.NO.1491/MDS/2013 ASSESSMENT YEAR : 2000-01 THE DY. CIT COMPANY CIRCLE VI(2) CHENNAI VS M/S SHRIRAM ENGINEERING CONSTRUCTION COMPANY LTD. NO.9, VANAGARAM ROAD AYANAMBAKKAM CHENNAI 600 095 [PAN AAACS 4644 R ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : SHRI R. SIVARAMAN, ADVOCATE DATE OF HEARING : 30-12-2013 DATE OF PRONOUNCEMENT : 10-01-2014 O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2000- 01, IS DIRECTED AGAINST THE ORDER OF THE COMMISSION ER OF INCOME-TAX (APPEALS)-IV CHENNAI, DATED 15.03.2013, PASSED IN A PPEAL NO.472/ 2005-06, IN PROCEEDINGS UNDER SECTION143(3)OF THE I NCOME-TAX ACT, 1961 (IN SHORT THE ACT). I.T.A.NO. 1491/13 :- 2 -: 2. IT IS TO BE SEEN FROM THE GROUNDS RAISED IN THE APP EAL THAT THE REVENUES GRIEVANCE IS TWO FOLDED I.E CLAIM OF PROVISION OF WARRANTY CHARGES OF ` 66,11,000/- WITH LIQUIDITY DAMAGES OF ` 14,47,581/- AND THAT OF DEDUCTION U/S 80IA(4) OF ` 1,02,17,716/- WHICH WERE DISALLOWED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER DA TED 31.3.2003 HAVE BEEN WRONGLY DELETED BY THE CIT(A). 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY. IT CONSTRUCTS WATER TREATMENT PLANTS. ON 30.3.2000, THE ASSESSEE HAD FILED ITS RETURN DISCLOSING TOTAL INCO ME OF ` 4,48,84,545/-. THE SAME WAS SUMMARILY PROCESSED. THEREAFTER, TH E ASSESSING OFFICER FRAMED REGULAR ASSESSMENT VIDE ORDER DATE D 31.3.2003, INTER ALIA, MAKING AFORESAID ADDITIONS. IN THE LOWER APP ELLATE PROCEEDINGS, THE CIT(A) HAS DELETED THE SAME, THEREFORE, THE RE VENUE IS IN APPEAL AND PLEADS THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2.1. THE ID. CIT(A) ERRED IN DIRECTING THE ASS ESSING OFFICER TO ALLOW THE ASSESSEE'S CLAIM OF PROVISION OF WARRANTY CHARGES OF RS. 66,11,000/- AND LIQUIDITY DAMAGES OF RS.14,47,581/- 2.2 THE ID. CIT(A) OUGHT TO HAVE NOTED THAT THE ABOVE PROVISION WAS NOT MADE IN THE REGULAR BOOKS OF ACCO UNTS, NOT SUPPORTED BY ANY AGREEMENT, NOT MENTIONED IN THE TA X AUDIT REPORT AND CLAIMED ONLY IN THE MEMO OF COMPUTATION OF INCOME. I.T.A.NO. 1491/13 :- 3 -: 2.3 THE ID. CIT(A) RELIED UPON THE DECISION OF THE APEX COURT IN THE CASE OF M/S ROTORK CONTROLS INDIA P. LTD (314 ITR 62). 2.4 IT IS SUBMITTED THAT THE RELIED UPON DECISI ON OF THE APEX COURT IS DISTINGUISHABLE FROM THE FACTS OF THE CASE AS THE ASSESSEE NEVER CLAIMED IT IN ITS REGULAR BOOKS OF A CCOUNTS OR ANY HISTORICAL TRENDS OR ANY DATA IS SYSTEMATICALLY MAINTAINED BY THE ASSESSEE. 3.1 THE ID. CIT(A) DIRECTED THE ASSESSING OFFIC ER TO ALLOW THE ASSESSEE'S CLAIM OF DEDUCTION U/S 801A( 4) OF RS. 1,02,17,716/- ON THE INCOME DERIVED FROM THE WATER TREATMENT PROJECTS SINCE THE AMENDMENT TO EXPLANATI ON TO 80-IA(4)PROVIDED FOR DEDUCTION UNDER INFRASTRUCTURE FACILITY. 3.2 IT IS SUBMITTED THAT THE AMENDMENT TO EXPLA NATION IN SUB-SECTION (4) OF SEC. 80-IA BY THE FINANCE ACT, 2 000 IS W.E.F. 01.04.2001 ONLY AND APPLICABLE FROM THE ASST. YEAR 2001-02 ONWARDS. 4. IN THE COURSE OF HEARING, THE REVENUE STRONGLY REIT ERATES THE GROUNDS RAISED AND ARGUES THAT BOTH THE AFORESAID DISALLOWANCES/ADDITIONS OUGHT TO HAVE BEEN UPHELD IN THE LOWER APPELLATE PROCEEDINGS. QUA THE FIRST ISSUE, IT REL IES ON THE CASE LAW OF ROTORK CONTROLS INDIA P. LTD VS CIT [2009] 314 ITR 62(SC), CIT VS FORBES CAMPBELL FINANCE LTD. [2013] 352 ITR 602(MAD ) TO SUBMIT THAT THE ADDITION OF WARRANTY AND LIQUIDATED DAMAGES DE SERVES TO BE RESTORED SINCE THE CLAIM OF WARRANTY AND LIQUIDITY DAMAGES IN QUESTION HAS NOWHERE BEEN SUPPORTED BY HISTORIC TRENDS, SCIE NTIFIC DATA AND APPROPRIATE PROVISIONING IN ACCOUNTS. I.T.A.NO. 1491/13 :- 4 -: COMING TO THE OTHER GROUND, THE CONTENTION OF THE REVENUE IS THAT ONCE THE LEGISLATURE HAS ITSELF SUBSTITUTED CLAUSE (C) OF EXPLANATION IN SECTION 80IA(4) OF THE ACT VIDE FINA NCE ACT, 2000 WITH EFFECT FROM 1.4.2001, THE CIT(A) HAS WRONGLY HELD T HE SAME TO BE RETROSPECTIVELY APPLICABLE FOR THE IMPUGNED ASSESSM ENT YEAR 2000-01 AS WELL. IN THIS REGARD, IT QUOTES CASE LAW OF [20 04]271 ITR 322(SC) GEM GRANITES VS CIT, [1989]178 ITR 548(SC) UNION OF INDIA & ANOTHER VS RAGHUBIR SINGH, [2004]266 ITR 1(SC) PRAKASH NATH KHANNA AND ANOTHER VS CIT [2000] 242 ITR (ST.) 100 FINANCE BIL L 2000: NOTES ON CLAUSES TO PRAY FOR ACCEPTANCE OF THE APPEAL. 5. IN REPLY, THE ASSESSEE DRAWS SUPPORT FROM THE ORDE R UNDER CHALLENGE PASSED BY THE CIT(A) DELETING BOTH ADDITI ONS. IT ARGUES THAT THE CLAIM OF WARRANTY CHARGES AS WELL AS LIQUIDITY DAMAGES SATISFIES ALL NECESSARY CONDITIONS. QUA THE SECOND GROUND REGARD ING THE DEDUCTION U/S 80IA, THE ASSESSEE SUBMITS THAT SINCE THE LEGIS LATURE HAS ONLY MADE SUBSTITUTION IN THE EXPLANATION, IT CAN BE APP LIED WITH RETROSPECTIVE EFFECT. TO BUTTRESS THE ARGUMENT, IT PLACES RELIANCE ON THE CASE LAW OF [1997] 266 ITR 625(SC) CIT VS PODAR CEMENT PVT. LTD AND PRAYS FOR UPHOLDING THE CIT(A)S ORDER. I.T.A.NO. 1491/13 :- 5 -: 6. FIRST WE COME TO THE ISSUE OF WARRANTY PROVISION AN D LIQUIDITY DAMAGES. IN THE COURSE OF SCRUTINY THE ASSESSING OFFICER NOTICED THE ASSESSEE TO HAVE REDUCED A SUM OF ` 66,11,000/- AS WARRANTY CHARGES AND ` 14,47,581/- AS LIQUIDITY DAMAGES FROM ITS TOTAL IN COME. ON BEING PUT UP TO NOTICE, THE ASSESSEES EXPLANATION [IN VERBATIM] READ AS FOLLOWS: AS YOU ARE AWARE, WE ARE EXECUTING VARIOUS PROJEC TS IN VARIOUS PARTS OF THE COUNTRY. THE WARRANTY PERIOD VARIES FROM PROJECT TO PROJECT RANGING FROM 2 TO 5 YEARS. WE HAVE TO DEPUTE OUR ENGINEERS AND TECHNICAL EXPERTS DURIN G THE WARRANTY PERIOD TO MAKE GOOD ANY RECTIFICATION ARIS ING DURING THE PERIOD. EVEN AFTER THE WARRANTY PERIOD ALSO, W E HAVE TO DEPUTE OUR TECHNICAL EXPERTS AND MECHANICS ETC. TO ATTEND ANY RECTIFICATION WORKS, AS NEEDED BY THE CLIENT, C ONSIDERING OUR REPUTATION AND FUTURE BUSINESS WITH THE CLIENT. WE WILL BE DOING SOME GARDENING/LANDSCAPING AROUND TH PLANT , AT OUR OWN COST, WHICH IS NOT COVERED IN THE CONTRACT. IN AN AVERAGE THIS COST WORKS OUT TO 2-3% OF THE CONTRACT VALUE, COMPRISING OF TRAVELLING EXPENDITURE, LABOUR CHARGE S, CIVIL MATERIAL CHARGES ETC. HOWEVER, THE SAME FAILED TO CONVINCE THE ASSESSING OFFICER. HE WAS OF THE OPINION THAT SINCE THE ASSESSEE HAD BEEN FOLLOW ING MERCANTILE SYSTEM OF ACCOUNTING, IT WAS SUPPOSED TO MAKE NECES SARY PROVISION IN THE ACCOUNT BOOKS. THEREAFTER, HE PERUSED CONTRAC TS EXECUTED BY THE ASSESSEE AND HELD WARRANTY AND LIQUIDITY DAMAGES CLAUSES WERE NOWHERE FORTHCOMING. THEREFORE, THE ASSESSING OFFI CER HELD THAT THE I.T.A.NO. 1491/13 :- 6 -: EXPENSES IN QUESTION UNDER BOTH THE HEADS COULD NOT BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF BUSINESS. HE OPINED THAT NEITHER THE ASSESSEES BOOKS OF ACCOUN T HAD BEEN SUBJECTED TO TAX AUDIT U/S 44AB OF THE ACT NOR THE EXPENSES HAD BEEN EXPLAINED IN THE NOTES TO ACCOUNTS AND THE EXPENDI TURE WAS ALSO NOT STATED IN THE ACCOUNTS. ACCORDINGLY, NECESSARY DI SALLOWANCE/ADDITION WAS MADE IN THE ASSESSEES INCOME. 7. IN THE LOWER APPELLATE PROCEEDINGS, THE CIT(A) HAS ACCEPTED THE ASSESSEES CONTENTIONS CHALLENGING THE IMPUGNE D ADDITION. IN COURSE THEREOF, THE ASSESSEE PLACED ON RECORD SOME OF THE AGREEMENTS EXECUTED WITH GOVERNMENT/MUNICIPALITIES CONTAINING WARRANTY AND LIQUIDITY DAMAGES AND CONTENDED TO HAVE DULY MADE P ROVISION FOR WARRANTY AND DAMAGES TO SET RIGHT THE DEFICIENCIES FOUND IN EXECUTION OF PROJECT UNDERTAKEN. THE ASSESSEES FURTHER PLEA WAS THAT THE CONTRACT AMOUNT IN QUESTION WOULD BE REDUCED BY THE PAYER IN CASE OF SOME DEFICIENCY FOUND IN THE NATURE OF LIQUIDATED D AMAGES. IN SUPPORT, IT CHOSE TO PLACE RELIANCE ON THE CASE LAW OF ROTORK CONTROLS INDIA PVT. LTD VS CIT [2009] 314 ITR 62 (SC). I.T.A.NO. 1491/13 :- 7 -: 8. THE CIT(A) OBSERVES IN HIS ORDER THAT THE ASSESSEE S AGREEMENTS IN QUESTION CONTAINED CLAUSES OF WARRANT Y AND LIQUIDITY DAMAGES. HE OVERRULES THE RELEVANT FINDINGS OF THE ASSESSING OFFICER ACCORDINGLY. THEN THE CIT(A) REPRODUCES RELEVANT CLAUSES IN CONTRACTS EXECUTED BY THE ASSESSEE PERTAINING TO THE KAKINA DA WATER SUPPLY PROJECT AND HOLDS THAT IN VIEW OF THE AFORESAID CA SE LAW, WARRANTY AND LIQUIDITY DAMAGES CLAIMS ARE LIABLE TO BE ALLOW ED U/S 37(1) OF THE ACT. COMING TO THE ASSESSEES ACCOUNTS, HE RECORD S A SPECIFIC FINDING THAT THE MAIN PROVISIONS HAD IN FACT BEEN DEBITED IN PROFIT & LOSS ACCOUNT. IN THIS MANNER, THE ISSUE HAS BEEN DECIDE D IN ASSESSEES FAVOUR IN THE LOWER APPELLATE PROCEEDINGS. 9. WE HAVE HEARD BOTH PARTIES AND PERUSED THE CASE FIL E. THE CASE LAW QUOTED BY THE REVENUE HAS ALSO BEEN GONE T HROUGH. FIRST OF ALL, IT IS NECESSARY FOR US TO DISCUSS AS TO WHAT A MOUNTS TO CLAIM OF WARRANTY, ITS NATURE AND LIQUIDITY DAMAGES. AS OBS ERVED BY THE HON'BLE APEX COURT IN THE CASE OF ROTORK CONTROLS I NDIA PVT. LTD (SUPRA), THESE EXPENSES ARE UNDERTAKEN BY A SERVICE PROVIDER/ ASSESSEE REGARDING SERVICES RENDERED WHEN SOME PROD UCT OR SERVICES ARE SOLD FOR A PRICE AND LIABILITY IS UNDERTAKEN TO COVER ANY DEFICIENCY THEREIN. HOWEVER, THE HON'BLE APEX COURT HAS BEEN VERY CAUTIOUS IN I.T.A.NO. 1491/13 :- 8 -: OBSERVING THAT SUCH A CLAIM CANNOT BE ALLOWED UNLES S IT FULFILLS THREE CONDITIONS I.E I.E THERE IS AN OBLIGATION ARISING F ROM A PAST EVENT, PROBABILITY OF OUTFLOW OF RESOURCES TO MEET OUT THE OBLIGATION AND A RELIABLE ESTIMATION OF THE AMOUNT REQUIRED TO PERFO RM THE OBLIGATION. IT IS EVIDENT TO US THAT IN THE PRESENT CASE, THES E THREE CONDITIONS ARE NOWHERE FULFILLED. THAT BEING THE CASE, WE ARE UNA BLE TO AGREE WITH THE ASSESSEES PLEA THAT STILL THE CLAIM IS LIABLE TO BE ALLOWED AS THAT WOULD LEAD TO ACCEPTANCE OF A WARRANTY CLAIM ON MER E ASKING. IN DOING SO, WE DRAW SUPPORT FROM THE DECISION OF HON' BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS FORBES CAMPBELL FI NANCE LTD(SUPRA) WHEREIN AFTER CONSIDERING THE CASE LAW OF ROTORK CO NTROL INDIA P. LTD (SUPRA), THEIR LORDSHIPS HAVE HELD THAT A WARRANTY CLAIM CANNOT BE ALLOWED TILL AFORESAID CONDITIONS ARE SATISFIED. W E MAKE IT CLEAR THAT THE PRESENT ISSUE IS DECIDED IN FAVOUR OF THE REVEN UE FOR ASSESSEES LACK OF PRODUCING ALL NECESSARY DETAILS SO AS TO SA TISFY THE AFORESAID THREE INGREDIENTS PUT TOGETHER. IN THE COURSE OF H EARING, IT HAS ALSO TRANSPIRED THAT THOUGH THE ASSESSEE IS IN THIS LIN E OF BUSINESS FOR MANY DECADES, THE PRESENT IS FIRST YEAR OF THE IMPUGNED CLAIM OF WARRANTY AND LIQUIDITY DAMAGES WHICH IS NOT SUPPORTED BY ALL NECESSARY PARTICULARS. HENCE, THIS GROUND OF THE REVENUE SUC CEEDS. THE I.T.A.NO. 1491/13 :- 9 -: IMPUGNED ADDITION OF WARRANTY AND LIQUIDITY DAMAGES OF ` 66,11,000/- AND ` 14,47,581/-; RESPECTIVELY STANDS RESTORED. 10. NOW, WE COME TO SECOND GROUND OF THE REVENUE PERTAI NING TO DEDUCTION U/S 80IA. ADMITTEDLY, THE ASSESSEE CONSTRUCTS WATER TREATMENT PLANTS. UPTO 1.4.2001, THE SECTION 80IA( 4) EXPLANATION CLAUSE (C) OF THE ACT DEFINED THE NATURE AND SCOPE OF INFRASTRUCTURE FACILITY TO MEAN (C) A WATER SUPPLY PROJECT, IRRIGATION PROJECT, SA NITATION AND SEWERAGE SYSTEM. HOWEVER, VIDE FINANCE ACT, 2000, WITH EFFECT FROM 1 .4.2001, THE SAME STOOD SUBSTITUTED AS FOLLOWS: (C) A WATER SUPPLY PROJECT, WATER TREATMENT SYSTEM , IRRIGATION PROJECT, SANITATION AND SEWERAGE SYSTEM OR SOLID WASTE MANAGEMENT SYSTEM. AS STATED IN PRECEDING PARAS, THE ASSESSING OFFICER , IN THE COURSE OF ASSESSMENT, DENIED THE ASSESSEES CLAIM OF DEDUCTI ON SOLELY ON THE GROUND THAT THE AFORESAID CLAUSE (C) IN THE EXPLANA TION WOULD APPLY ONLY FROM 1.4.2001 AND NOT IN THE IMPUGNED ASSESSME NT YEAR WHICH TURNS OUT TO BE 2000-01. I.T.A.NO. 1491/13 :- 10 -: 11. IN THE LOWER APPELLATE PROCEEDINGS, THE CIT(A) FIRS T TAKES INTO CONSIDERATION THE AMBIT AND SCOPE OF THE WORDS A WATER SUPPLY PROJECT. THEN HE HOLDS THAT SINCE AN EXPLANATION IS ONLY A CLARIFICATION, THE SAME WOULD ALSO COVER THE PRECEDING ASSESSMENT YEARS AS WELL AS THE INTENTION OF THE LEGISLATURE IS TO WIDEN THE SC OPE OF AN INFRASTRUCTURE FACILITY. IN THIS MANNER, THE ADD ITION STANDS DELETED. THEREFORE, THE REVENUE HAS RAISED THE INSTANT GROU ND. 12. WE HAVE HEARD BOTH PARTIES, GONE THROUGH THE RELEVA NT FINDINGS AS WELL AS THE CASE LAW CITED BY THE PARTI ES. THE QUESTION WHICH ARISES FOR ADJUDICATION IS AS TO WHETHER THE AFORESAID SUBSTITUTION IN SECTION 80IA(4) EXPLANATION CLAUSE (C) MADE BY T HE LEGISLATURE IN THE FINANCE ACT, 2000 WITH EFFECT FROM 1.4.2001 WOULD C OVER THE IMPUGNED ASSESSMENT YEAR AS WELL OR NOT. IN THIS REGARD, WE DEEM IT APPROPRIATE TO REITERATE THAT THE ASSESSEES BUSINESS IS CONS TRUCTION OF WATER TREATMENT PLANTS. THE WATER TREATED IN THE ASSES SEES PLANTS IS SUPPLIED TO THE CONCERNED HOUSEHOLDS. UPTO 1.4.200 1, THE UNSUBSTITUTED CLAUSE(C) MEANT A WATER SUPPLY PROJ ECT AS AN INFRASTRUCTURE FACILITY. WITH EFFECT FROM 1.4.2001 , THE LEGISLATURE HAS MADE THE CLAUSE(C) MORE WIDE BY INCLUDING IN ITS AM BIT A WATER TREATMENT PLANT AS WELL. WE FAIL TO UNDERSTAND AS TO IN WHAT MANNER, A I.T.A.NO. 1491/13 :- 11 -: WATER SUPPLY PROJECT WOULD WORK WITHOUT A WATER TRE ATMENT PLANT AS THAT WOULD LEAD TO SUPPLY OF UNTREATED WATER. IN O UR VIEW, UNTREATED POTABLE WATER CAN NEVER BE SUPPLIED TO THE HOUSEHOL DS BY THE GOVERNMENT OR LOCAL AUTHORITIES. SIMILARLY, THE SU BSTITUTED CLAUSE MEANT A WATER SUPPLY PROJECT TO BE AN INFRASTRUC TURE FACILITY. IN OUR CONSIDERED OPINION, ONCE A WATER SUPPLY PROJECT OF A GOVERNMENT OR MUNICIPAL AUTHORITY CANNOT WORK WITHOUT TREATED WAT ER TO MAKE IT FIT FOR SUPPLY, THE DEFINITION WOULD HAVE TO BE INTERPR ETED LIBERALLY AND SHALL BE DEEMED TO HAVE INCLUDED A WATER TREATMENT PLANT AS WELL. WE FIND THAT AS PER THE CIT(A), THE SUBSTITUTING CLAUS E CAN BE APPLIED RETROSPECTIVELY AS WELL. IN THE CASE LAW OF PODAR CEMENT PVT. LTD.(SUPRA), WE FIND THAT THE HON'BLE APEX COURT IT SELF WAS DEALING IN SUCH A QUESTION AND HELD AS UNDER: IN OUR VIEW, THE CIRCUMSTANCES UNDER WHICH THE AMEN DMENT WAS BROUGHT INTO EXISTENCE AND THE CONSEQUENCES OF THE AMENDMENTS WILL HAVE A GREATER BEARING IN DECIDING THE ISSUE PLACED BEFORE US. IN OTHER WORDS, IF AFTER DISCUSSI ON WE COME TO A CONCLUSION THAT THE AMENDMENT WAS CLARIFICATORY/DEC LARATORY IN NATURE AND, THEREFORE, IT WILL HAVE RETROSPECTIVE E FFECT, THEN IT WILL SET AT REST THE CONTROVERSY FINALLY. WE HAVE SEEN THAT THE HIGH COURTS ARE SHARPLY DIVIDED ON THIS ISSUE, ONE SET OF HIGH COURTS TAKING THE VIEW THAT THE PROMOTERS/CONTRACTORS AFTER PARTING WITH POSSESSION ON RECEIPT OF FULL CONSIDERATION THEREBY ENABLING THE 'PURCHASERS ' TO ENJOY THE FRUITS OF THE PROPERTY, EVEN THOUGH NO REGISTERED D OCUMENT AS REQUIRED UNDER SECTION 54 OF THE TRANSFER OF PROPER TY ACT WAS EXECUTED, CAN BE 'OWNERS' FOR THE PURPOSE OF SECTIO N 22 OF THE ACT. THE OTHER SET OF HIGH COURTS HAD TAKEN A CONTRARY VIEW I.T.A.NO. 1491/13 :- 12 -: HOLDING THAT UNLESS THERE IS A REGISTERED SALE DOCU MENT TRANSFERRING THE OWNERSHIP AS REQUIRED UNDER THE TR ANSFER OF PROPERTY ACT, THE SO-CALLED PURCHASERS CANNOT BECOM E OWNERS FOR THE PURPOSE OF SECTION 22 OF THE ACT. AS A MATTER O F FACT, THE JUDGMENT OF THE DELHI HIGH COURT IN INCOME-TAX REFE RENCE NO. 84 OF 1977 IN SUSHIL ANSAL V. CIT [1986] 160 ITR 308, THE APPEAL AGAINST WHICH IS C. A. NO. 4549 OF 1995, THE LEARNE D JUDGE HAS MADE THE FOLLOWING OBSERVATION (PAGE 317) : 'BEFORE WE CONCLUDE, WE MAY MENTION THAT, DURING TH E COURSE OF THE HEARING, WE SUGGESTED TO THE STANDING COUNSE L FOR THE DEPARTMENT THAT THE CENTRAL BOARD SHOULD CONSIDER V ARIOUS PRACTICAL ASPECTS OF THIS PROBLEM AND FORMULATE GUI DELINES WHICH WOULD BE EQUITABLE TO THE VARIOUS CLASSES OF PERSONS CONCERNED. PERHAPS, AS SUGGESTED BY THIS COURT IN CIT V. HANS RAJ GUPTA [1982] 137 ITR 195, THE TIME HAS EVEN COME FOR LEGISLATIVE AMENDMENT, IF NECESSARY, POSSI BLY WITH RETROSPECTIVE EFFECT. SERIOUS CONSIDERATION AT THE HIGHEST ADMINISTRATIVE LEVEL WAS WARRANTED IN VIEW OF THE R ECURRENT NATURE OF THE PROBLEM, ITS MAGNITUDE AND THE CONFLI CT OF JUDICIAL DECISIONS. HOWEVER, AFTER TAKING SUFFICIENTLY LONG ADJOURNMENTS, COUNSEL INFORMED US THAT NO DECISION COULD BE TAKEN BY THE BOARD AND REQUESTED THAT WE SHOULD DECIDE THE REFER ENCE. WE HAVE, THEREFORE, PROCEEDED TO DO SO. ' MAY BE THIS IS ONE OF THE REASONS FOR PARLIAME NT TO BRING IN THE AMENDMENT REFERRED TO ABOVE TO SECTION 27 OF THE AC T. AT ANY RATE THE ADMITTED POSITION WHEN THE AMENDMENT WAS BROUGH T IN, WAS THAT THERE WAS DIVERGENCE OF OPINION BETWEEN THE HI GH COURTS ON THE ISSUE AT HAND IN THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL 1987, CONCERNING SECTION 27 REA DS AS FOLLOWS (SEE [1987] 165 ITR (ST.) 161) SIMPLIFICATION AND RATIONALISATION OF PROVISIONS ENLARGING THE MEANING OF 'OWNER OF HOUSE PROPERTY ' 27. UNDER THE EXISTING PROVISIONS OF SECTION 22 OF THE INCOME- TAX ACT, ANY INCOME FROM HOUSE PROPERTY IS CHARGEAB LE TO TAX ONLY IN THE HANDS OF THE LEGAL OWNER. AS PER SECTION 27 OF THE INCOME- TAX ACT, CERTAIN PERSONS WHO ARE NOT OTHERWISE LEGA L OWNERS ARE DEEMED TO BE THE OWNER FOR THE PURPOSES OF THESE PR OVISIONS. UNDER THE TRANSFER OF PROPERTY ACT, THE TRANSFER OF OWNERSHIP CAN BE EFFECTED ONLY BY MEANS OF A REGIST ERED INSTRUMENT. HOWEVER, IN RECENT TIMES VARIOUS OTHER DEVICES ARE I.T.A.NO. 1491/13 :- 13 -: SOUGHT TO BE EMPLOYED FOR TRANSFERRING ONE'S OWNERS HIP IN PROPERTY. AS A RESULT, THERE ARE SITUATIONS IN WHIC H THE ACTUAL OWNER, SAY, OF AN APARTMENT IN A MULTI-STOREYED BUI LDING, OR A HOLDER OF A POWER OF ATTORNEY IS NOT THE LEGAL OWNE R OF A PROPERTY. IN SOME CASES, PENDING RESOLUTION OF DISPUTES, THE LEGAL AS WELL AS THE BENEFICIAL OWNERS ARE ASSESSED TO TAX IN RESPE CT OF THE SAME INCOME. AS A MEASURE OF RATIONALISATION, THE BILL SEEKS TO ENLARGE FURTHER THE MEANING OF THE EXPRESSION 'OWNER OF HOU SE PROPERTY', GIVEN IN CLAUSE (III) OF SECTION 27 BY PROVIDING THAT A PERSON WHO COMES TO HAVE CONTROL OVER THE PROPERTY BY VIRTUE O F SUCH TRANSACTIONS AS ARE REFERRED TO IN CLAUSE (F) OF SE CTION 269UA WILL ALSO BE DEEMED TO BE THE OWNER OF THE PROPERTY. THE AMENDMENT ALSO SEEKS TO ENLARGE THE APPLICABILITY OF THIS CLA USE TO A MEMBER OF A COMPANY OR OTHER ASSOCIATION OF PERSONS. CORRESPONDING AMENDMENTS HAVE ALSO BEEN PROPOSED IN REGARD TO THE DEFINITION OF 'TRANSFER' IN SECTION 2(47) OF THE IN COME- TAX ACT, SECTION 2(M) OF THE WEALTH-TAX ACT DEFINING 'NET WEALTH' AND SECTION 2(XII) OF THE GIFT-TAX ACT DEFINING 'GIFT'. THESE AMENDMENTS WILL TAKE EFFECT FROM APRIL 1, 1 988, AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSM ENT YEAR 1988-89 AND SUBSEQUENT YEARS. ' IF THIS MUCH IS CLEAR, THE NEXT THING TO BE CONSI DERED IS WHAT IS THE EFFECT OF THE AMENDMENT. IN CRAWFORD'S STATUTORY CONSTRUCTION, AT PAGE 107, PARAGRAPH 74, READS AS FOLLOWS : '74. DECLARATORY STATUTES. - GENERALLY SPEAKING, DECLARATORY STATUTES CAN BE DIVIDED INTO TWO CLASSES: (1) THOSE DECLARATORY OF THE COMMON LAW, AND (2) THOSE DECLARING THE MEANING OF AN EXISTING STATUTE. OBVIOUSLY, THOSE DECLARATORY OF THE COMMON LAW SHOU LD BE CONSTRUED ACCORDING TO THE COMMON LAW. THOSE OF THE SECOND CLASS ARE TO BE CONSTRUED AS INTENDED TO LAY DOWN A RULE FOR FUTURE CASES AND TO ACT RETROSPECTIVELY. THEY CLOSELY RESEMBLE INTERPRE TATION CLAUSES, AND THEIR PARAMOUNT PURPOSE IS TO REMOVE DOUBT AS TO TH E MEANING OF EXISTING LAW, OR TO CORRECT A CONSTRUCTION CONSIDERED ERRONE OUS BY THE LEGISLATURE.' (EMPHASIS SUPPLIED). I.T.A.NO. 1491/13 :- 14 -: IN FRANCIS BENNION'S STATUTORY INTERPRETATION (SECOND EDITION) 1992, PAGE 105, THE LEARNED AUTHOR SAYS 'DECLARATORY ACTS -A DECLARATORY ACT OR ENACTMENT DECLARES WHAT THE LAW IS ON A PAR TICULAR POINT, OFTEN 'FOR THE AVOIDANCE OF DOUBT'. ' IN JUSTICE G. P. SINGH'S (SIXTH EDITION 1996) 'PRINCIPLES OF STATUTORY INTERPRETATION', UNDER THE HEADING 'DECLARATORY STATUTES', THE LEARNED AUTHOR HAS SUMMED UP AS FOLLOWS: 'DECLARATORY STATUTES : THE PRESUMPTION AGAINST RETROSPECTIVE OPERATION IS NOT APPLICABLE TO DECLARATORY STATUTES. AS STATED IN CRAIES AND APPROVED BY THE SUPREME COURT: FOR MODERN PURPOSE S A DECLARATORY ACT MAY BE DEFINED AS AN ACT TO REMOVE DOUBTS EXISTING AS TO THE COMMON LAW, OR THE MEANING OR EF FECT OF ANY STATUTE. SUCH ACTS ARE USUALLY HELD TO BE RETROSPEC TIVE. THE USUAL REASON FOR PASSING A DECLARATORY ACT IS TO SET ASID E 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 'ENACT ED''. 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 WIL L ONLY BE AMENDING THE LAW AND WILL NOT NECESSARILY BE RETROSPECTIVE. IN DETERMINING , THEREFORE, THE NATURE OF THE ACT, REGARD MUST BE HA D TO THE SUBSTANCE RATHER THAN TO THE FORM. IF A NEW ACT IS 'TO EXPLAIN' AN EARLIER ACT, IT WOULD BE WITHOUT OBJECT UNLESS C ONSTRUED 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 SHAL L BE DEEMED ALWAYS TO HAVE MEANT IS DECLARATORY, AND IS IN PLA IN TERMS RETROSPECTIVE. IN THE ABSENCE OF CLEAR WORDS INDICATING THAT THE AMENDING ACT IS DECLARATORY, IT WOULD NOT BE SO CO NSTRUED WHEN THE PRE-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 IM PLICIT. A CLARIFICATORY AMENDMENT OF THIS NATURE WILL HAVE RE TROSPECTIVE EFFECT AND, THEREFORE, IF THE PRINCIPAL ACT WAS EXISTING L AW WHEN THE CONSTITUTION CAME INTO FORCE, THE AMENDING ACT ALS O WILL BE PART OF THE EXISTING LAW. THE ABOVE SUMMING UP IS FACTUALLY BASED ON T HE JUDGMENTS FO THIS COURT AS WELL AS ENGLISH DECISIONS. I.T.A.NO. 1491/13 :- 15 -: A CONSTITUTION BENCH OF THIS COURT IN KESHA VLAL JETHALAL SHAH V. MOHANLAL BHAGWANDAS, AIR 1968 SC 1336; [1968] 3 SCR 623, WHILE CONSIDERING THE NATURE OF AMENDMENT TO SECTIO N 29(2) OF THE BOMBAY RENTS, HOTEL AND LODGING HOUSE RATES CONTROL ACT AS AMENDED BY GUJARAT ACT 18 OF 1965, OBSERVED AS FOLL OWS (PAGE 1339): THE AMENDING CLAUSE DOES NOT SEEK TO EXPLAIN ANY PRE- EXISTING LEGISLATION WHICH WAS AMBIGUOUS OR DEFECTI VE. THE POWER OF THE HIGH COURT TO ENTERTAIN A PETITION FOR EXERC ISING REVISIONAL JURISDICTION WAS BEFORE THE AMENDMENT DERIVED FROM SECTION 115 OF THE CODE OF CIVIL PROCEDURE, AND THE LEGISLATURE HA S BY THE AMENDING ACT NOT ATTEMPTED TO EXPLAIN THE MEANING O F THAT PROVISION. AN EXPLANATORY ACT IS GENERALLY PASSED TO SUPPLY AN OBVIOUS OMISSION OR TO CLEAR UP DOUBTS AS TO THE ME ANING OF THE PREVIOUS ACT. (EMPHASIS SUPPLIED). FROM THE CIRCUMSTANCES NARRATED ABOVE AND FROM THE MEMORANDUM EXPLAINING THE FINANCE BILL, 1987 (SEE [ 1987) 165 ITR (ST.) 161), IT IS CRYSTAL CLEAR THAT THE AMENDM ENT WAS INTENDED TO SUPPLY AN OBVIOUS OMISSION OR TO CLEAR UP DOUBTS AS TO THE MEANING OF THE WORD 'OWNER' IN SECTION 22 OF THE ACT. WE DO NOT THINK THAT IN THE LIGHT OF THE CLEAR EXPOSITION OF THE POSITION OF A DECLARATORY/CLARIFICATORY ACT, IT IS NECESSARY TO M ULTIPLY THE AUTHORITIES ON THIS POINT. WE HAVE, THEREFORE, NO HESITATION TO HOLD THAT THE AMENDMENT INTRODUCED BY THE FINANCE B ILL, 1987, WAS DECLARATORY/CLARIFICATORY IN NATURE SO FAR AS IT RELATES TO SECTION 27(III), (IIIA) AND (IIIB). CONSEQUENTLY, THESE PRO VISIONS ARE RETROSPECTIVE IN OPERATION. IF SO, THE VIEW TAKEN B Y THE HIGH COURTS OF PATNA, RAJASTHAN, AND CALCUTTA, AS NOTICED ABOVE , GETS ADDED SUPPORT AND CONSEQUENTLY THE CONTRARY VIEW TAKEN BY THE DELHI, BOMBAY AND ANDHRA PRADESH HIGH COURTS IS NOT GOOD LAW. IN VIEW THEREOF, IT IS CLEAR THAT THEIR LORDSHIPS H AVE HELD AN EXPLANATION AS MERELY CLARIFICATION AND OBSERVED THAT IN CASE T HE SAME IS NOT APPLIED RETROSPECTIVELY, ITS OBJECT WOULD BE LOST. 13. NOW, WE COME TO THE CASE LAW AND EXPLANATION QUOTED BY THE REVENUE(SUPRA) IN ITS SUPPORT. UNDISPUTEDLY, T HE AFORESAID CASE I.T.A.NO. 1491/13 :- 16 -: LAW PERTAINS TO THE SUBSTANTIVE PROVISIONS AND NOT AN EXPLANATION. SO, THE JUDICIAL DECISIONS CITED BY THE APPELLANT/REVEN UE DO NOT APPLY IN THIS CASE. WE MAKE IT CLEAR THAT IN THE CASE OF POD AR CEMENT PVT. LTD., THEIR LORDSHIPS HAVE THEMSELVES DRAWN DISTINCTION B ETWEEN INTERPRETATION OF A SUBSTANTIVE STATUTORY PROVISION AND THE EXPLANATORY ONE. BY DRAWING SUPPORT FROM THE SAME, WE HOLD THA T THE CONTENTION OF THE REVENUE TO TREAT THE PRINCIPLES IN INTERPRET ING SUBSTANTIVE PROVISION AT PAR WITH THOSE REQUIRED FOR INTERPRETI NG AN EXPLANATION CANNOT BE ACCEPTED. WE REITERATE THAT IN THE CASE OF PODAR CEMENT PVT. LTD., MEMORANDUM OF EXPLANATION HAD COME CLARI FYING THAT THOUGH THE AMENDMENT WAS MADE IN THE FINANCE ACT, 1987, BU T IT WOULD APPLY FROM 1.4.1988 ONLY. STILL, THEIR LORDSHIPS APPLIED IT RETROSPECTIVELY. ACCORDINGLY, WE HOLD THAT SINCE THE LEGISLATURE HAS MADE SUBSTITUTION IN SECTION 80IA(4) EXPLANATION CLAUSE(C)ONLY, IN FI NANCE ACT, 2000 WITH EFFECT FROM 1.4.2001, IT DESERVES TO BE TREATED ONL Y AS A CLARIFICATION AND THEREFORE, HAS TO BE APPLIED EVEN IN THE IMPUGN ED ASSESSMENT YEAR. PROCEEDING ON THIS REASONING, WE EXPRESS OUR AGREEMENT WITH THE FINDINGS ARRIVED AT BY THE CIT(A) IN DELETING T HE IMPUGNED DISALLOWANCE/ADDITION U/S 80IA OF THE ACT. THE RE LEVANT GROUND IN THE REVENUES APPEAL IS DECIDED IN FAVOUR OF THE ASSES SEE. I.T.A.NO. 1491/13 :- 17 -: 14. THE REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 10 TH OF JANUARY, 2014, AT CHENNAI SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (S. S. GODARA) JUDICIAL MEMBER DATED: 10 TH JANUARY, 2014 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR