Monday, March 25, 2013

A retro amendment to a tax incentive provision which is merely clarificatory isn’t unconstitutional

Gujarat HC upholds the validity of retro amendment made by way of insertion of an Explanation below sec. 80-IA(13), which clarifies that no deduction is available under 80-IA for execution of work contracts.

In the instant case, the petitioner challenged the vires of Explanation inserted in Sec. 80IA(4) by Finance Act 2009. The case of the petitioner was that it was engaged in the development of infrastructure facility. Till the introduction of impugned amendment, deductions were available to all undertakings and enterprises executing infrastructure development projects and it was not required 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 challenged such explanation, in particular, on the ground of retrospective operation of such amendment.

HC upholds the retrospective operation of amendment, and held as under:
  1. The Explanation merely clarifies that deduction under section 80IA(4) would not be available in case of execution of works contract. Even without the aid of this explanation, it is possible to contend that an enterprise executing a works contract isn’t eligible to sec. 80-IA(4) deduction;

  2. In view of the Gujarat HC verdict’s in the case of CIT v. Radhe Developers [2012] 17 156 (Guj.), there would certainly be a demarcation between developing the facility and execution of works contract awarded by an agency engaged in developing such facility. From the inception, deduction is envisaged for development of infrastructure facilities with private participation;

  3. The impugned explanation is purely explanatory in nature and doesn’t amend the existing statutory provisions, thus, the question of levying any tax with retrospective effect would not arise;

  4. The explanation doesn’t restrict or aim to restrict the provisions of deduction. If it does so, certainly a question of reasonableness in the context of retrospective operation would arise. The Explanation only supplies clarity where, at best confusion is possible in the unamended provision. The revenue could, therefore, legitimately contend that no such deduction is available for mere execution of works contract. Thus, the present petition is dismissed – Katira Construction Ltd. v. Union of India[2013] 31 250 (Gujarat)

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