Commissioner of Income Tax vs Strescon Industries Ltd.

The Court: We have already formulated the question and recorded the facts and circumstances of the case in our order dated 25th April, 2014, which need not be reiterated.

Mr. Bhowmick, learned Advocate appearing for the Revenue/Appellant drew our attention to a judgment of the Madhya Pradesh High Court in the case of Eicher Motors Ltd. Vs. Commissioner of Income Tax, wherein the following view was taken.

In view of Explanation 3C, the question referred to this court stands answered in favour of the Revenue and against the assessee. In other words, in the light of Explanation 3C appended to section 43B with effect from April 1, 1989, the view taken by the Tribunal on interpretation of unamended section 43B has to be upheld as being in accord with the legislative intent brought on the statute book in the form of Explanation 3C to section 43B. Since Explanation 3C is brought on the statute book retrospectively with effect from April 1, 1989, and hence, it will have its application to this case as well because the question referred to this court arises out of assessment year 1989-90.

It cannot be disputed that any legislative change, if brought on the statute book while pendency of lis and have a material bearing over the controversy involved has got to be taken into consideration for deciding the lis or for answering the question, as the case may be. It cannot be ignored by the courts. The amendment made in section 43B by Parliament with retrospective effect fully applies to this case and, hence, this court cannot ignore its impact on this reference. Indeed, any statute if brought on the statute book retrospectively has the same effect like the statute when enacted prospectively.

In substance, the question that fell for consideration and was being debated in this reference in the form of questions referred at the instance of the assessee was whether the assessee is entitled to claim the benefit of deduction of funded interest u/s 43B which has been converted into loan or borrowing by agreement between the lender and the assessee. In other words, whether it can be said to be a case of actual payment of interest amount made by the assessee within the meaning of section 43B so as to entitle them to claim its deduction ? If the contention of assessee was that it tantamount to actual payment within the meaning of section 43B then the contention of the Revenue was to its contrary.

As observed supra, Explanation 3C has now in clear terms provided that such conversion of interest amount into loan shall not be deemed to be regarded as "actually paid" amount within the meaning of section 43B. In view of clear legislative mandate removing this doubt and making the intention of the Legislature clear in relation to such transaction, it is not now necessary for this court to interpret the unamended section 43B in detail, nor is it necessary for this court to take note of facts in detail as also the submissions urged in support of various contentions except to place reliance on Explanation 3C to section 43B and answer the questions against the assessee and in favour of the Revenue.

In view of the foregoing discussion and in the light of Explanation 3C appended to Section 43B, quoted supra, we answer the questions referred to this court against the assessee and in favour of the Revenue.

Mr. Mitra, learned Advocate appearing for the Assessee, however, relied upon a judgment in the case of Sedco Forex International Drill. Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another, He drew our attention to paragraph 18 of the judgment, which reads as follows:

As was affirmed by this court in Commissioner of Income Tax Vs. Goslino Mario and Others, a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication (see also: Reliance Jute and Reliance Jute and Industries Ltd. Vs. Commissioner of Income Tax, West Bengal, An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force. But if it changes the law, it is not presumed to be retrospective irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts.

The aforesaid paragraph cannot be read out of context. The question for consideration before the Apex Court was:

Whether the salary of the employees of the appellant payable for field breaks outside India would be subjected to tax u/s 9(1)(ii) read with the Explanation thereto in the Income Tax Act, 1961 (hereinafter referred to as "the Act" for the assessment years 1992-93 and 1993-94.

The explanation which was sought to be pressed into service by the Revenue was introduced by the Finance Bill, 1999 and the Bill expressly stated that the Explanation would be operative with effect from 1st April, 2000. Therefore, the question was whether in spite of the aforesaid clarification in the Bill itself, the Explanation could be applied with retrospective effect. This question was answered by the Supreme Court in the negative.

In the present case, Explanation 3C added to section 43B has specifically been made retrospective with effect from 1st April, 1989. It is, therefore, not possible for us to hold that Explanation 3C would nonetheless apply prospectively as contended by the assessee. In the result, the appeal succeeds. The question formulated is answered in the negative and in favour of the revenue.

The order under challenge is set aside.