Commissioner of Income Tax vs I.G. Belline

C.K. Thakkar, J.—The following two questions are referred for our consideration :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the remittance of Rs. 1,47,750 was not liable to be included in the income of the assessee under s. 9 or under s. 15 of the IT Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in not treating the housing and motor car expenses of the assessee as perquisites ?"

Mr. Shah, the learned Advocate for the assessee, submitted that so far as the first question is concerned, it is answered in favour of the assessee by this Court in Alessandro Constantini Vs. Commissioner of Income Tax, it is not disputed that the point is covered by a Division Bench in the above case.

Mr. Joshi, for the Revenue, however, submitted that the attention of the Court was not invited to Explanation added to s. 9(1)(ii) of the IT Act, 1961 (the Act), which was added by the Finance Act, 1983, w.e.f. 1st April, 1979. The said Explanation reads as under :

"Explanation : For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India."

Mr. Joshi submitted that the Explanation specifically stated that ''for the removal of doubts'', it was declared that income of the nature referred to in that clause payable for service rendered in India should be regarded as income earned in India. Inasmuch as the Explanation was ''clarificatory'' in nature and for the purpose of ''removal of doubts'' it was added, it would have retrospective effect and though in the instant case, the Court is concerned with the asst. yr. 1977-98, the Explanation will have to be read even in respect of that assessment year. If it is so, the reference must be decided in affirmative, i.e., in favour of Revenue and against the assessee.

Almost in similar circumstances, the question came up for consideration before the High Court of Kerala in COMMISSIONER OF Income Tax Vs. 1. S. R. PATTON. (I. T. R. NO. 173 OF 1985) 2. H. BALLENGERG AND OTHERS. (I. T. RS. NOS. 52 TO 55 OF 1985)., . There also, it was contended on behalf of the Revenue that as the Explanation was clarificatory, it should be given effect prior to date on which it was inserted w.e.f. 1st April, 1979. The said argument was, however, negatived by the High Court of Kerala, observing that the Explanation cannot be said to be mere declaratory and it cannot apply to a period anterior to 1st April, 1979.

This Court in Commissioner of Income Tax, Gujarat-III Vs. Nathalal Dahyabhai, held before insertion of Explanation by the Finance Act, 1983, that the words ''earned in India'' in s. 9(1)(ii) must mean ''arising of accruing in India''. If the income does not accrue in India, clause (ii) would not apply even though such income might have been derived from services rendered in India.

Then the Explanation came to be added by the Finance Act, which was given effect from 1st April, 1979. Dealing with the decision of this Court in S. G. Pgnatale''s case (supra) and the Explanation, the High Court of Kerala observed :

"It is evident that the Gujarat High Court did not accept the view of the text-book writers regarding the scope of s. 9(1)(ii) of the Act as it stood, before the addition of the Explanation. It was, perhaps, due to the above controversy regarding the scope of s. 9(1)(ii) of the Act that the legislature intervened and added in Explanation to s. 9(1)(ii) of the Act, w.e.f. 1st April, 1979. In the circumstances, the purpose behind the addition of the Explanation was only to clarify and settle the controversy. The Explanation was to have effect only from April, 1979. We are, therefore, of the view that the Expln. to s. 9(1)(ii) of the Act cannot be considered to be declaratory nor can it apply to any period anterior to 1st April, 1979"

We are in agreement with the view taken by the High Court of Kerala.

In view of the above legal position and the decision of Kerala High Court, question No. 1 must be decided in the negative, i.e., against the Revenue and in favour of assessee.

So far as the second question is concerned, it is covered by the decision in S. G. Pgnatale''s case (supra), reiterated in IT Ref. No. 102 of 1988, referred to in Alessandro Constantini''s case (supra). The second question, therefore, must be decided in the negative, i.e., against the Revenue and in favour of assessee.

For the foregoing reasons, both question Nos. 1 and 2 are answered in the negative, i.e., against the Revenue and in favour of assessee. The reference is, accordingly, disposed of. In the facts and circumstances of the case, no order as to costs.