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Presumption of Retrospectivity cannot be implied by new clarifications in existing tax law

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Court :
Supreme Court of India

Brief :
The Hon’ble Supreme Court, set aside the judgment of the Delhi High Court by observing Explanation 3C to be clarificatory as it explains Section 43B(d) the way it originally stood and does not purport to add a new condition retrospectively. Held, the High Court has erred in observing that interest has been converted into a loan.

Citation :
CIVIL APPEAL NOS.4742-4743 OF 2021 dated August 11,2021

In M.M. Aqua Technologies Ltd. v. Commissioner of Income Tax, Delhi-III [CIVIL APPEAL NOS.4742-4743 OF 2021 dated August 11,2021], the issue raised in the appeal is with respect to Section 43B Explanation 3C of the Income Tax Act, 1961 ('the IT Act') when a claim of deduction filed by M.M. Aqua Technologies Limited ('the Appellant') under Section 43B, which was rejected by an order datedOctober 29, 1998 by the Assessing Officer on the ground that the issuance of debentures was not as per the original terms and conditions on which the loans were granted, and that interest was payable making it contrary to Section 43B(d), and rendering such amount ineligible for deduction. The Commissioner of Income Tax (Appeals) allowed the appeal which was upheld in appeal by the Income Tax Appellate Tribunal.

When appeal was filed in the Hon’ble High Court of Delhi on the issue of 'whether the funding of the interest amount by way of a term loan amounts to actual payment as contemplated by Section 43B of the IT Act, 1961', it held that Explanation 3C has retrospective effect in the current case as the assessment year is of 1996-97, the Appellant cannot claim deduction under Section 43B since it negates the contention that insertion of this explanation, which, interest which has been converted into loan is deemed to be 'actually paid'.

The Hon’ble Supreme Court, set aside the judgment of the Delhi High Court by observing Explanation 3C to be clarificatory as it explains Section 43B(d) the way it originally stood and does not purport to add a new condition retrospectively. Held, the High Court has erred in observing that interest has been converted into a loan.

Further Noted, relying on the decision in Sedco Forex International Drill. Inc. v. CIT, (2005) 12 SCC717 that a retrospective provision in a tax act cannot be presumed to even if such language is used, if it alters or changes the law as it earlier stood.

Further placing reliance on the case of Cape Brandy Syndicate v. Inland Revenue Commissioner [1921 (1) KB 64], held that any ambiguity in the language of Explanation 3C shall be resolved in favour of the Appellant.

 

Bimal Jain
on 14 August 2021
Published in Income Tax
Views : 34
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