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Sunday, May 17, 2015

“Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in holding that the unabsorbed depreciation should be allowed before the allowance of the unabsorbed investment allowance in computing income of the appellant/assessee for the Assessment Year 1991-1992, when the assessee had not claimed the unabsorbed depreciation in its income-tax return though it had claimed depreciation for the current year? Once the unabsorbed carried forward depreciation has become a part of the depreciation of the current year, it is not open to the assessee to bifurcate the two again and exercising its choice to claim the depreciation of the current year under Section 32(1) of the Act and take a position that since unabsorbed depreciation of the previous years is not claimed, it cannot be thrusted upon the assessee. The position would have been different if the assessee had not claimed any depreciation at all. However, once the depreciation is claimed and while giving deductions the depreciation is to be set off against the profits of the current year prior to the unabsorbed carried forward investment allowance, it is the entire depreciation, namely, the depreciation of the current year as well as the unabsorbed carried forward depreciation, which is to be taken into account as by virtue of the fiction created under Section 32(2) of the Act, carried forward depreciation also partakes the character of depreciation of the current year. This scrambled egg cannot be unscrambled now. Otherwise, it would amount to negating the legal fiction that is created by the said provision, even to the limited extent. In fact, the case falls within the ambit of the said limited extent of legal fiction and gets covered by it.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL NOS. 1812-1813 OF 2005


|SESHASAYEE PAPER & BOARDS LIMITED             |.....APPELLANT(S)          |
|VERSUS                                        |                           |
|DEPUTY COMMISSIONER OF INCOME TAX             |.....RESPONDENT(S)         |

                                   W I T H
                    CIVIL APPEAL NO.       4498  OF 2015
                 (ARISING OUT OF SLP (C) NO. 15251 OF 2008)

                               J U D G M E N T


A.K. SIKRI, J.
                 Leave granted in Special Leave Petition (Civil)  No.  15251
of 2008.

Facts, as they appear in Civil Appeal Nos.  1812-1813  of  2005,  are  taken
note of as the following substantial  question  of  law,  which  arises  for
consideration, is common in these appeals:
“Whether on the facts and in the circumstances of the case, the  Income  Tax
Appellate Tribunal is right in  holding  that  the  unabsorbed  depreciation
should  be  allowed  before  the  allowance  of  the  unabsorbed  investment
allowance in computing income of the appellant/assessee for  the  Assessment
Year  1991-1992,  when  the  assessee  had  not   claimed   the   unabsorbed
depreciation in its income-tax return though  it  had  claimed  depreciation
for the current year?

The aforesaid question has arisen for consideration in the following set  of
facts:

The appellant/assessee is a public limited company engaged in  the  business
of manufacturing paper.  It had filed its return under Section  139  of  the
Income Tax Act, 1961 (for short, the 'Act') for the Assessment Year  1991-92
declaring its income as 'Nil'.  In fact, the  income  for  that  year  after
showing exemptions, deductions and additions, which are to be made in  terms
of Sections 28 onward relating to computation of the  business  income,  was
arrived at ?2,87,15,912.  The assessee had unabsorbed  investment  allowance
of previous years.  It also  had  unabsorbed  depreciation  of  the  earlier
years.  In its  income-tax  return,  however,  it  chose  to  carry  forward
investment allowance and claimed set off of the said  unabsorbed  investment
allowance to the  extent  of  ?2,87,15,912,  thereby  showing  the  returned
income as 'Nil'.  According  to  the  Assessing  Officer,  it  was  not  the
investment allowance, but  unabsorbed  depreciation  of  the  earlier  years
which had to  be  set  off  first  by  giving  priority  to  the  unabsorbed
depreciation.  Therefore, instead of allowing the assessee to carry  forward
investment  allowance,  the  Assessing  Officer  adjusted   the   unabsorbed
depreciation of the earlier years,  namely  1983-84,  1985-86,  1986-87  and
1987-88 (part), and accepted 'Nil' income return as filed by  the  assessee,
but on the aforesaid basis.

The assessee, however, was not satisfied with  the  aforesaid  treatment  of
setting off of the unabsorbed depreciation instead of investment  allowance.
 It filed appeal  before  the  Commissioner  (Appeals).   This  appeal  was,
however, dismissed following the  judgment  of  the  Madras  High  Court  in
Commissioner  of  Income  Tax  v.  Coromandel   Steels[1].    The   assessee
approached the Tribunal.  The Tribunal  also  confirmed  the  order  of  the
Commissioner (Appeals).  The assessee, still not satisfied,  approached  the
Madras High Court.  Even  the  High  Court,  vide  impugned  judgment  dated
September 15, 2004, has affirmed the view taken  by  the  authorities  below
and dismissed the appeal of the assessee.  As the grievance still  persists,
the present appeal questions the treatment given to  the  income-tax  return
in the manner mentioned above, which has come  up  for  consideration  after
special leave to appeal was granted.

It is in this backdrop the question of law, which  is  to  be  answered  and
formulated above, relates to the  issue  as  to  whether  it  is  unabsorbed
investment allowance which is to be allowed as  set  off  in  computing  the
income of the assessee for the assessment year  in  question  or  unabsorbed
depreciation.

As pointed out above, in the income-tax return the assessee had claimed  set
off of unabsorbed investment allowance.  However, this request  is  declined
as according to the High Court, provisions of Section 32 of the Act  mandate
that precedence has to be given to unabsorbed depreciation  before  allowing
unabsorbed investment allowance.

The plea of the assessee before the High Court was that in  the  absence  of
any claim by the assessee  towards  depreciation  allowance,  the  assessing
authority could not erroneously assume that such a claim would be  untenable
under the provisions of the Act  and  could  not  thrust  the  deduction  of
carrying forward depreciation allowance, when the  assessee  had  chosen  to
have set off of unabsorbed investment  allowance  and  it  is  the  assessee
whose option should prevail.  It was also argued that even if the  provision
of law was not very clear and was susceptible to  two  interpretations,  one
which was more beneficial to the assessee had to be given effect to.

The High Court took note of these contentions of the assessee predicated  on
the judgment of the Punjab and Haryana High Court in Ram Nath Jindal &  Anr.
v. Commissioner of Income Tax[2], in which the said  High  Court  held  that
the Assessing Officer could not grant the  depreciation  allowance  when  it
was not  claimed  by  the  assessee  as  there  is  no  provision  by  which
depreciation could be fictionally deemed to have been claimed  and  granted.
It would be pertinent to point out that this judgment of the High Court  was
in the light of Section 32 of the Act which stood at the material  time  and
this very provision existed even in respect of Assessment Years 1991-92  and
1992-93 with which  we  are  concerned.   Therefore,  the  High  Court  took
cognizance of  the  said  judgment.   The  High  Court  also  noted  another
judgment of its own Court in Guindy Machine Tools P.  Ltd.  v.  Commissioner
of Income Tax[3], which had followed judgment of this Court in  Commissioner
of Income-Tax v. Mahendra Mills[4] wherein it was held  that  the  provision
in respect of depreciation was for the benefit of the assessee  and  if  the
assessee does not wish to avail the said benefit for some reason,  it  could
not be forced upon him.  Notwithstanding the aforesaid judgments,  the  High
Court observed that the real issue was not whether  the  assessee  could  be
compelled to claim depreciation, but, if he fails to claim,  what  would  be
the  order  of  priority  between  unabsorbed  depreciation  allowance   and
unabsorbed investment allowance.  On this purported 'real' issue,  the  High
Court  mentioned  that  since   unabsorbed   depreciation   allowance   gets
precedence over the unabsorbed investment allowance under the provisions  of
the Act, which has been held by various High Courts (and those judgments  of
the High Courts are taken  note  of),  it  is  the  unabsorbed  depreciation
allowance which would be set off first.

Arguments before us remain the same which were advanced by the  assessee  as
well as the Revenue in  the  High  Court.   In  order  to  appreciate  these
arguments and to answer the controversy which has arisen, it is apposite  to
take note of provisions of  Section  32  of  the  Act,  as  existed  at  the
relevant time.  The portion with which we are concerned reads as under:
“32. (1)  In respect of  depreciation  of  buildings,  machinery,  plant  or
furniture owned by the assessee and used for the purposes  of  the  business
or profession, the following deductions shall, subject to the provisions  of
section 34, be allowed-
                          xx          xx         xx
(2)  Where, in the assessment of the assessee [(or, if  the  assessee  is  a
registered firm or an unregistered firm assessed as a  registered  firm,  in
the assessment of  its  partners)]  full  effect  cannot  be  given  to  any
allowance [under clause (ii) of  sub-section  (1)]  in  any  previous  year,
owing to there being no profits or gains chargeable for that previous  year,
or owing to the profits or gains chargeable being less than  the  allowance,
then, subject to the provisions of sub-section (2) of section  72  and  sub-
section (3) of section 73, the allowance or part of the allowance  to  which
effect has not been given, as the case may be, shall be added to the  amount
of the allowance for  depreciation  for  the  following  previous  year  and
deemed to be part of that allowance, or if there is no  such  allowance  for
that previous year, be deemed to be the allowance for  that  previous  year,
and so on for the succeeding previous years.”


This Section deals with depreciation in respect of certain assets which  are
mentioned in sub-section (1) of Section 32 and owned  wholly  or  partly  by
the assessee and used for  the  purpose  of  business  or  profession.   The
nature of deductions that is to be allowed is also mentioned in  sub-section
(1).  We are not directly concerned with this provision inasmuch  as  it  is
not in dispute that the assessee herein was entitled to depreciation on  its
assets and the amount of depreciation is also not in dispute.  As  mentioned
above, in fact, the depreciation of earlier orders could not be utilized  by
the assessee in those years.  Since the provisions of  the  Act  permit  the
assessee to accumulate the unabsorbed depreciation  of  the  previous  years
with right to the assessee to choose  the  same  in  subsequent  years,  the
assessee herein had unabsorbed depreciation of the previous years.  This  is
so stipulated in sub-section (2) of Section  32.,  which  has  already  been
noted earlier.

As per the aforesaid provision, the depreciation allowance or  part  thereof
to which effect has not been given in a particular assessment year owing  to
there being no profits or gains chargeable for that previous years or  owing
to profits  and  gains  chargeable  being  less  than  the  allowance,  such
unabsorbed depreciation allowance is to  be  added  to  the  amount  of  the
allowance for depreciation  for  the  following  previous  year  and  it  is
'deemed to be  part  of  that  allowance  for  that  previous  year  or  the
succeeding previous years, as the case may be'.  This is,  however,  subject
to the provisions of sub-section (2) of Section 72 and  sub-section  (3)  of
Section 73 of the Act.

What follows from the above is that in case of loss in the  business  income
or insufficient profits to absorb the depreciation  allowance  permitted  by
this Section, because of which reason depreciation allowance  or  some  part
thereof remains unabsorbed, it  may  be  carried  forward  under  this  sub-
section to the following year and set off against that  year's  profit,  and
so on for  succeeding  years.   There  is  an  amendment  in  the  aforesaid
provision with effect from April 01, 1996, which  shall  be  taken  note  of
subsequently at an appropriate stage.  However, as per the  provision  which
existed during the relevant period and extracted above, the carried  forward
depreciation allowance is deemed to be a part of, and stands on exactly  the
same footing as the current  depreciation  for  the  assessment  year.   The
unabsorbed depreciation of the past years, thus, by legal  fiction,  becomes
the depreciation of the year in question and can be set off  against  income
chargeable under any head.  There is, thus, actual depreciation which is  to
be calculated in that  particular  assessment  year.   To  this,  unabsorbed
depreciation is  to  be  added  by  the  application  of  aforesaid  deeming
provision and this entire depreciation, namely, that of the current year  as
well as unabsorbed depreciation of the previous years,  can  be  allowed  as
depreciation in that particular assessment  year  or  succeeding  assessment
years.  This is subject to the provisions of Sections  72(2)  and  73(3)  of
the Act.  Section 72 deals with carried forward  and  set  off  of  business
loss under the head 'business or profession'.   This  carried  forward  loss
can be set off only against the profits of any business  or  profession  and
is carried forward only for a period of eight years.   On  the  other  hand,
insofar as carry forward of depreciation allowance to  any  subsequent  year
is concerned, the same is  without  any  time  limit.   Sub-section  (2)  of
Section 72 stipulates that where any allowance or part thereof is under sub-
section (2) of Section 32 or sub-section (4) of Section  35  and  is  to  be
carried forward, effect shall first be  given  to  the  provisions  of  this
section.  Section 73, on the other hand,  deals  with  loss  in  speculation
business and subsequently mentions that such loss of a speculation  business
shall not be set off except against profits and gains, if  any,  of  another
speculation business.  Thus, losses of speculation business can be  set  off
only against profits and gains  of  another  speculation  business  and  not
against profits earned from other kinds  of  businesses.   Here  sub-section
(3) of Section 73,  which  finds  mention  in  Section  32(2),  states  that
provisions of sub-section (2) of Section 72 shall also apply in relation  to
speculation business.  We are not concerned  with  the  aforesaid  situation
arising out of sub-section (2) of Section 72 or sub-section (3)  of  Section
73.  However, the same are mentioned for the purpose of clarity as there  is
a reference to these provisions in Section 32(2).  Insofar  as  the  instant
case is concerned, it depends upon the meaning that is to be  given  to  the
deeming provision, as explained above.

Before we discuss this effect, let us take  note  of  some  of  the  nuances
regarding claim of depreciation allowance, which  have  been  laid  down  by
judicial pronouncements on interpretation of this provision.

It has been the consistent view of the Courts that  unabsorbed  depreciation
allowance should be allowed before the unabsorbed investment  allowance.  To
put it differently, unabsorbed depreciation is to be  given  precedence  and
is allowed to be set off first.  Some of the High Courts had  earlier  taken
the view that this would be so even if the  assessee  had  not  claimed  the
unabsorbed depreciation.  It is the necessary consequence of the  scheme  of
various provisions of the Act.  Section 32A of the  Act,  which  deals  with
investment allowance, was inserted by the  Finance  Act,  1976  with  effect
from 01.04.1976.  According to Circular No. 202 dated 05.07.1976  issued  by
CBDT [(1976) 105 ITR St 17],  the  combined  effect  of  the  provisions  of
Sections 32, 32A, 33, 33A  and  72  is  that  in  a  case  where  there  are
allowances in the nature of depreciation  allowance,  investment  allowance,
development rebate, development allowance and losses,  such  allowances  and
losses would be deductible in the order given  below,  in  cases  where  the
profits are insufficient to absorb all of them:
(i)   Current depreciation (Section 32(1))
      (ii)  Carried forward losses of earlier years (Section 72(1))
      (iii) Unabsorbed depreciation of earlier years (Section 32(2))
(iv)  Unabsorbed development rebate of earlier years (Section
            33(2)(ii)
(v)   Current development rebate (Section 33(2)(i))
(vi)  Unabsorbed development allowance of earlier years
            (Section 3A(2)(ii))
(vii) Current development allowance (Section 33A(2)(ii))
(viii)       Unabsorbed  investment  allowance  of  earlier  years  (Section
32A(3)(ii))

(ix)  Current investment allowance (Section 33A(3)(i))


            It emerges from sub-section (3) of Section 32A  that  unabsorbed
investment allowance takes precedence  over  current  investment  allowance.
However, this Court in Mahendra Mills (supra) took the view that  since  the
provision for depreciation is a benefit which enures  to  the  assessee,  if
the assessee does not wish to avail of that benefit for some reason, such  a
benefit cannot be forced upon him.  In that case, the Court  held  that  the
language of the provisions of Sections 32 and 34 of the Act is specific  and
admits of no  ambiguity.   Section  32  allows  depreciation  as  deduction,
subject  to  the  provisions  of  Section  34.   Section  34  provides  that
deduction  under  Section  32  shall  be  allowed  only  if  the  prescribed
particulars have been furnished.  It was specifically held that there is  no
mandatory duty on the officer to allow depreciation  if  the  assessee  does
not want to  claim  that.   The  provision  for  claim  of  depreciation  is
certainly for the benefit of the assessee.  If he does not wish to avail  of
that benefit for some reason, the benefit cannot be forced upon him.  It  is
for the assessee to see if the claim of depreciation is  to  his  advantage.
Income under the head “Profits and  gains  of  business  or  Profession”  is
chargeable to income-tax under Section 28 and income under Section 29 is  to
be computed in accordance with the provisions contained in  Sections  30  to
43A.  The argument that since Section 32 provides for  depreciation  it  has
to be allowed in computing  the  income  of  the  assessee  cannot,  in  all
circumstances, be accepted in view of the bar contained in Section  34.   If
Section 34 is not satisfied and the particulars are  not  furnished  by  the
assessee, his claim for depreciation under Section  32  cannot  be  allowed.
Section 29 is, thus, to be read with reference to other  provisions  of  the
Act.  It is not in itself a complete code.

This principle, thus,  is  grounded  in  the  reasoning  that  there  is  no
provision by which depreciation could be fictionally  deemed  to  have  been
claimed and granted and it is to be specifically claimed  by  the  assessee.
Further,  when  claiming  of  depreciation  is  a  privilege  given  to  the
assessee, it cannot be turned into a disadvantage  even  when  the  assessee
does not claim the depreciation.  Therefore, option  in  this  behalf  rests
with the assessee.

In the impugned judgment as well,  the  High  Court  accepts  the  aforesaid
legal position as this is so decided by this Court in Mahendra Mills's  case
(supra) and is a binding precedent. However, the aforesaid judgment  is  not
followed on the ground that real issue is something else.   Such  an  issue,
though already  noted  above,  is  stated  in  para  10.1  of  the  impugned
judgment, which reads as under:
“10.1  But, in the case on hand, it is not the issue  whether  the  assessee
could be compelled to claim depreciation allowance,  but,  if  he  fails  to
claim, what would be the order of priority between  unabsorbed  depreciation
allowance and unabsorbed investment allowance.”

Strangely, the issue is somewhat different, namely,  when  the  depreciation
allowance is not claimed, can it be said that the  assessee  has  failed  to
claim and in that case what would be the position?  According to  us,  there
is no question of failing to claim. Situation in  such  an  event  would  be
that depreciation is  not  claimed  at  all  and,  therefore,  the  position
mentioned in Mahendra Mills's case (supra) would follow.  To this extent  we
find that it was a wrong question posed by the High Court, which  led  to  a
wrong answer.

However, the matter does not rest there.  In the present case, the  assessee
in fact claimed the depreciation allowance insofar as it  pertained  to  the
current year.  At the same time, it did not want to claim  the  set  off  of
the unabsorbed depreciation  allowance  of  the  previous  years.   In  such
situation, the question is as to whether it  is  open  to  the  assessee  to
invoke the provisions of Section 32 of the Act by claiming  depreciation  of
the current year, but at the same time choose not to make  a  claim  of  set
off of unabsorbed depreciation allowance of the previous  years.   As  noted
above, by legal fiction unabsorbed depreciation becomes depreciation of  the
year in question and gets added to the depreciation  of  the  current  year.
If that be so, is it  the  right  of  the  assessee  to  partly  invoke  the
provisions of Section 32 when it comes to depreciation of the  current  year
and still claim that it has  right  not  to  claim  unabsorbed  depreciation
allowance?  On a plain reading of Section 32, it does not appear to  be  the
position.  Once the entire  depreciation,  namely,  unabsorbed  depreciation
allowance of the previous year gets merged  into  the  depreciation  of  the
current year, it would become  an  integral  part  thereof.   Legal  fiction
makes it one whole thereby making it possible to the assessee to  claim  set
off of unabsorbed carried  forward  depreciation  as  well.   A  fortiorari,
bifurcation thereof with option to claim depreciation of current  year  only
and contending at the same time that portion of unabsorbed  carried  forward
depreciation is not to be thrusted upon him as it is not claimed, would  not
be permissible.

Notwithstanding the above, the endeavour of  the  learned  counsel  for  the
assessee is to show that the assessee has such a right.  In  this  direction
it is argued that though by legal fiction unabsorbed depreciation  allowance
is carried forward to the assessment year in question and becomes a part  of
depreciation allowance of that year, it retains its identity inasmuch as  it
is brought forward only because of deeming provision which is to be  applied
to  that  limited  extent  and  no  further.   In  order  to  support   this
hypothesis, learned counsel referred to  the  judgment  in  Commissioner  of
Income-Tax, Kanpur v.  Mother  India  Refrigeration  Industries  P.  Ltd.[5]
where nature of carried forward depreciation  allowance  on  application  of
deeming provision is explained by the Court.  She specifically  referred  to
the following discussion in this behalf:
“Having regard to the aforesaid rival contentions, it  will  be  clear  that
the real issue that arises for our consideration in this  case  is  whether,
on a proper  construction  of  the  relevant  provisions  of  the  concerned
enactment, unabsorbed carried forward losses  should  have  preference  over
current depreciation in the matter of set off or is the position vice  versa
while computing the total income of an assessee in the concerned  assessment
year?  And the answer to this question depends on what  is  the  true  scope
and purpose of the legal fiction created under proviso (b) to  s.  10(2)(vi)
of the 1922 Act or under s. 32(2) of the 1961 Act.

            At the outset, it may be stated that a  close  scrutiny  of  the
relevant provisions of the 1922 Act as also the 1961 Act clearly shows  that
the computation of income under the head “Profits and gains of business”  of
any particular assessment year is required to be done after  making  certain
allowances specified in sub-s.(2) of  s.  10  of  the  1922  Act  and  after
allowing certain deductions in accordance with the provisions  contained  in
ss. 30 to 43A of the 1961 Act; in other words, it is  the  net  profits  and
gains after the specified deductions are made that  are  subjected  to  tax;
one of such deductions pertains to depreciation allowance at the  prescribed
rate of percentage of the written down value  of  the  business  asset;  and
this is provided in s. 10(2)(vi) of the 1922 Act and  in  s.  32(1)  of  the
1961 Act.  Up to this stage of computation,  no  question  of  either  carry
forward of unabsorbed depreciation of the earlier years or carry forward  of
unabsorbed business losses of earlier years arises.   In  other  words,  the
normal accountancy principle has to  be  applied  in  arriving  at  the  net
income  from  business  for  that  year  by  debiting  the  current   year's
depreciation.  The question is whether any deviation from this  normal  rule
of accountancy is contemplated by proviso (b)  to  s.  10(2)(vi)  read  with
proviso (b) to s. 24(2) of the 1922 Act or by s. 32(2) read  with  s.  72(2)
of the 1961 Act, and it is here that the aspect of  proper  construction  of
these provisions arises.  Dealing  with  the  provisions  of  the  1922  Act
first, it will be clear that proviso (b) to s. 10(2)(vi)  is  in  two  parts
and provides for two things; its first part provides for a carry forward  of
unabsorbed depreciation and its second part provides for clubbing  the  said
carried forward  depreciation  with  the  current  year's  depreciation  and
deeming the aggregate to  be  the  current  year's  depreciation.   However,
carrying forward of the unabsorbed depreciation and  the  deeming  provision
in proviso (b) are not absolute but are subject to the  proviso  (b)  to  s.
24(2).  Had proviso (b) to s. 24(2) not been  enacted  by  the  Legislature,
the result would have been that the aggregate depreciation would  have  been
deducted first out of the profits and  gains  in  preference  to  unabsorbed
business losses which might have been carried forward under s. 24(2) but  as
such losses can be carried forward only for limited  number  of  years,  the
assessee would in certain circumstances have in his books  losses  which  he
might not be able to set off even within the  time-limit  during  which  the
set  off  is  permitted.   In  order  to  prevent  such  a  situation,   the
Legislature enacted the proviso (b) to s. 24(2).   And  proviso  (b)  to  s.
24(2) expressly stated “where depreciation allowance is, under  cl.  (b)  of
the proviso to cl. (vi) of sub-s. (2) of s. 10, also to be carried  forward,
effect shall first be given to the  provisions  of  this  sub-section”.   In
other words, it clearly  provides  that  in  the  matter  of  set  off,  the
unabsorbed depreciation  that  is  required  to  be  carried  forward  under
proviso (b) to s. 10(2)(vi) and no preference over the current  depreciation
is intended.

            It is true that proviso (b) to  s.  10(2)(vi)  creates  a  legal
fiction and under that  fiction,  unabsorbed  depreciation  either  with  or
without current year's depreciation is  deemed  to  be  the  current  year's
depreciation but it is well settled, as has been observed by this  court  in
Bengal Immunity Company Limited v. State of Bihar [1955] 2 SCR 603,  606;  6
STC 446, that the legal fictions are created only for some definite  purpose
and these must be limited to that purpose and should not be extended  beyond
that legitimate field.  Clearly, the avowed purpose  of  the  legal  fiction
created by the deeming provision contained in proviso (b)  to  s.  10(2)(vi)
is to make the unabsorbed carried forward  depreciation  partake   the  same
character as the current depreciation in the following year, so that  it  is
available, unlike unabsorbed carried forward business loss,  for  being  set
off against other heads of income of that year.”

It is clear from the above that though the  question  there  was  different,
namely, precedence  of  carried  forward  business  loss  over  the  carried
forward unabsorbed depreciation or vice versa,  what  is  important  is  the
interpretation that is given to Section 32(2) of the  Act  and  particularly
the deeming provision  thereof  which  creates  legal  fiction.   The  Court
clarified that the avowed purpose of the legal fiction  created  by  deeming
provision contained in Section 32(2) of the Act is to  make  the  unabsorbed
carried forward depreciation partake  the  same  character  as  the  current
depreciation in  the  following  year,  so  that  it  is  available,  unlike
unabsorbed carried forward business loss for being  set  off  against  other
heads of income of that year.  On that basis, the Court answered that  since
unabsorbed carried forward depreciation  had  become  part  of  the  current
depreciation, the entire depreciation had to be  given  preference  (current
as well as unabsorbed carried forward depreciation) over unabsorbed  carried
forward losses.

We do not understand as to how the aforesaid judgment  helps  the  assessee.
On the contrary, it goes against the assessee while answering  the  question
which has arisen  in  the  instant  appeals.  Once  the  unabsorbed  carried
forward depreciation has become a part of the depreciation  of  the  current
year, it is not open  to  the  assessee  to  bifurcate  the  two  again  and
exercising its choice to claim the depreciation of the  current  year  under
Section 32(1)  of  the  Act  and  take  a  position  that  since  unabsorbed
depreciation of the previous years is not claimed,  it  cannot  be  thrusted
upon the assessee.  The position would have been different if  the  assessee
had not claimed any depreciation at all.  However, once the depreciation  is
claimed and while giving deductions  the  depreciation  is  to  be  set  off
against the profits of the current year  prior  to  the  unabsorbed  carried
forward investment allowance, it is the  entire  depreciation,  namely,  the
depreciation of the current year as well as the unabsorbed  carried  forward
depreciation, which is to be taken into account as by virtue of the  fiction
created under Section 32(2) of the Act, carried  forward  depreciation  also
partakes the character of depreciation of the current year.  This  scrambled
egg cannot be unscrambled now.  Otherwise, it would amount to  negating  the
legal fiction that is created by the said provision,  even  to  the  limited
extent.  In fact, the case falls  within  the  ambit  of  the  said  limited
extent of legal fiction and gets covered by it.

Once we read the provision  in  the  aforesaid  manner,  the  aid  of  other
interpretative tools which is sought to be taken by the learned counsel  for
the assessee, namely, the provision is to  be  given  liberal  construction;
the scheme  of  the  Act  envisages  giving  preference  in  the  matter  of
deduction from income to those  expiring  by  afflux  of  time,  etc.  would
become irrelevant and pales into insignificance.

The upshot of the aforesaid discussion is to decide the question  formulated
against the assessee and in favour of the Revenue, though  for  our  reasons
contained in this judgment.  The appeals are,  accordingly,  dismissed  with
costs.

                             .............................................J.
                                                                (A.K. SIKRI)



                             .............................................J.
                                                     (ROHINTON FALI NARIMAN)

NEW DELHI;
MARCH 15, 2015.
-----------------------
[1]   (1981) 130 ITR 856
[2]   (2001) 252 ITR 590
[3]   (2002) 254 ITR 780
[4]   (2000) 243 ITR 56
[5]   (1985) 155 ITR 711

Eye Witnesses presence Doubtful - Suppression of Earlier Complaint which destroyed the entire story of present version - Resulted in Acquittal - Murder took Place at 7-30 p.m. - caught hold of Lingappa’s son Basavaraj-deceased while he was returning home, tied his hands behind his back splashed chilly powder on his face and assaulted him with a club of stones causing injuries on his head and other parts of body leading to his death. The incident is alleged to have been witnessed by Hanumantha (PW-1), brother of the deceased, and Mannamma (PW-4), mother of the deceased.- but the Eye Witness took no steps to rescue the deceased and to join him in the Hospital - even not untied the hands and all awaited till the arrival of police to take him to the treatment said to be dead on the way - Unnatural & Unbelievable reactions of the witnesses makes their presence on the spot doubtful - Earlier version as admitted by witnesses said that the injured was dead by the time police reached - that report not filed - This implies that the earliest version about the incident was destroyed by PW-19 and a new story stated in the fardbeyan was tailored to suit the prosecution version. This has the effect of completely demolishing the prosecution case and rendering its version wholly unacceptable. - Trail court rightly acquit the accused - High court committed an error and as such Apex court set aside the same and restored the orders of trial court - 2015 SC MSKLAWREPORTS


order of the Trial Court  acquitting  the  appellants  set  aside,  and  the
appellants convicted and sentenced to undergo rigorous  imprisonment  for  a
period of seven years under Section 304 Part II read with Section 34 IPC.  A
fine of Rs.5,000/- each and a default sentence of imprisonment for a  period
one year has also been awarded to the appellant.

 on 19th September,  2006  at
about  7.30  p.m.  the  appellants  are  alleged  to  have  caught  hold  of
Lingappa’s son Basavaraj-deceased while he  was  returning  home,  tied  his
hands behind his back splashed chilly powder on his face and  assaulted  him
with a club of stones causing injuries on his head and other parts  of  body
leading to his death. The incident is alleged  to  have  been  witnessed  by
Hanumantha (PW-1), brother of the deceased, and Mannamma (PW-4),  mother  of
the deceased. In connection with the  incident  Crime  No.168  of  2006  was
registered at Hutti Police Station for an offence punishable  under  Section
302 read with Section 34 IPC against the appellants herein.

 The  Trial  Court  on  an  appraisal  of  the  prosecution
evidence came to the conclusion that the prosecution  had  failed  to  bring
home the guilt of the accused for the offences allegedly committed by  them.
Aggrieved by the order of acquittal the State  preferred  an  appeal  before
the High Court of Karnataka which was heard and allowed by a Division  Bench
of that Court holding the appellants guilty of the offence punishable  under
Section 304 Part II read with Section 34 of the IPC and sentencing  them  to
undergo imprisonment for a period of  seven  years  with  fine  and  default
sentence mentioned above. The present appeal assails the correctness of  the
said order.
The prosecution case primarily rests on the depositions  of  Haumantha
(PW-1), brother of the deceased,  who  was  also  the  first  informant  and
Mannamma (PW-4), mother of the deceased both  of  whom  claimed  to  be  eye
witnesses to the occurrence.
When  he  stepped  forward  to  rescue
Basavaraj, his mother-PW4 dissuaded him from doing so.
 The  accused  persons
then left the spot whereafter the witness  and  his  mother  went  near  the
injured but returned home. 
Sometime later they again went to the field  with
PW3-Lingappa who too saw his son Basvaraj in an injured condition.  PW-3  is
then said to have gone to Gurgunta police post to inform  the  police  about
the incident and returned at about 6.00 p.m.  
It was  only  at  about  10.00
p.m. that a Sub Inspector from Hutti police station came to the  spot  in  a
Jeep. PW-1 Hanumantha  presented  to  him  a  written  complaint  about  the
incident.  
He also narrated the incident to the police Sub  Inspector  which
was reduced to writing by him and treated as  the first  information  report
marked as Ex.P-1 at the trial. 
The witness further states that  it  was  the
ASI of police who directed  him  to  untie  the  ropes  from  the  hands  of
deceased-Basavaraj which he accordingly did.  
 Deceased-Basavaraj  was  then
shifted in an injured condition to Government Hospital at Lingasugur.   PWs.
1 and 3 also accompanied the injured, but  the  injured  Basavaraj  breathed
his last on the way.   
The  deposition  of  PW-4  mother  of  the  deceased-
Basavaraj is also on the same lines.

In the  first  place,  the  Trial  Court
found the conduct of PWs 1 and 4 who are closely  related  to  the  deceased
unnatural.  
The Trial Court held  that  if  their  version  that  they  were
witnesses to the occurrence was correct, there was no reason why they  would
not intervene to rescue the deceased from the clutches  of  the  assailants.
More importantly, the Trial Court held that PW1, brother and PW4, mother  of
the deceased, instead of  untying  the  deceased  who  was  in  a  seriously
injured condition, returned home even after the  assailants  had  fled  away
from the spot. 
What is worse is that even after returning home PWs. 1 and  4
accompanied by PW-3 who is none other than the father of  the  deceased  had
gone back to the place of occurrence where they found  the  deceased  in  an
injured  condition  with  his  hands  tied  behind   his   back,   his   leg
broken/fractured and eyes burning with chilly powder, but made no effort  to
untie his hands or rush him to the hospital  for  treatment.  
Instead  PW-3
father of the deceased went to lodge a report with the  police  leaving  the
injured in a hapless condition on the spot where he was lying only  to  wait
till 10.00 p.m. at night for the  police  to  arrive. 
If  the  prosecution
version is correct, it is only after instructions were  given  by  the  Sub-
Inspector to PW-1 to untie the hands of  Basavaraj  that  he  does  so.  The
injured Basavaraj was then put in the police Jeep for  being  taken  to  the
hospital where he reached only after he had died.  
The  Trial  Court  found
the story, the sequence  of  events  and  the  conduct  of  the  prosecution
witnesses who claim to be  eye  witnesses  to  the  incident  to  be  wholly
unnatural and unreliable. 
The Trial Court  was,  in  our  opinion  perfectly
justified in taking that view. 
The  conduct  of  the  prosecution  witnesses
does not inspire confidence not only because they  did  not  intervene  when
Basavaraj  was  being  assaulted  but  also  because  post  the  event,  the
witnesses did practically nothing to help  the  unfortunate  soul,  who  was
left to die with his hands tied for over 4 hours without any  succor  coming
from any quarter.  
The High Court  has  made  light  of  these  aspects  and
thereby fallen in an error.

What makes the  entire  story  unacceptable
is that the mother PW-4 and the son PW-1  wait  till  10.00  p.m.  when  the
police arrive to untie the hands of the deceased. 
That  is  not  all.  
After
the police arrived, PW-1 presents a written complaint  about  the  incident.
His  statement  (fardbeyan)  is  recorded  by  the  Sub-Inspector  in  which
Basavaraj is said to have died,  meaning  thereby  that  Basavaraj  was  not
alive when the police reached the spot. 
What is  amazing  is  the  admission
made by PW-19 that the  report  received  by  him  about  the  incident  was
destroyed by him after the fardbeyan of PW-1 was recorded on the spot.  
This
implies  that  the  first  version  regarding  the  incident   was   totally
obliterated by the Investigating  Officer  and  Exb.  P-1  recorded  in  its
place.  It is difficult to appreciate how PW-19  could  have  destroyed  the
original complaint given to him by Hanumantha PW-1. 
This  implies  that  the
earliest version about the incident was destroyed by PW-19 and a  new  story
stated in the fardbeyan was tailored to suit the prosecution  version.  This
has the effect of completely demolishing the prosecution case and  rendering
its version wholly unacceptable.  
The  only  inference  which  can,  in  the
circumstances, be drawn is that Basavaraj was done to  death  and  his  dead
body left at the spot from where it was picked-up by the police  after  they
arrived around 10.00 p.m. 
The complaint presented to  Sub-Inspector  perhaps
did not say what the police intended to present as its case. 
 The same  was,
therefore, destroyed and a  new  version  brought  in,  according  to  which
Basavaraj was shown to be alive when the police reached the spot.  The  fact
of the matter, however, appears to be  that  Basavaraj  was  dead  when  his
brother, mother and father discovered the body, for otherwise there  was  no
question of the parents of the deceased and his brother  leaving  him  alone
in the condition, which they are alleged to have done. 
The conclusion  drawn
by the Trial Court that the prosecution had not proved the  charges  against
the appellants beyond reasonable doubt, was, in  our  opinion,  correct,  no
matter the judgment and order is not as happily worded as it  ought  to  be,
especially coming from a senior judicial officer of the level of  Additional
Sessions Judge. 
 Inasmuch  as  the  High  Court  has  overlooked  all  these
aspects, we are constrained to set aside the order passed by it  and  acquit
the appellants of the charges framed against them.  
We,  accordingly,  allow
this appeal, set aside the judgment and order passed by the High  Court  and
acquit the appellants of the charges framed  against  them.  The  appellants
shall be released from custody forthwith if not required in connection  with


any other case.-2015 S.C.MSKLAWREPORTS

Saturday, May 16, 2015

Accident case - Deceased Bachelor - Pundit - High court fixed his income as Rs.12,000/- per month - Personal expenses considered as 50% - future income prospects fixed at 50% - as the age of deceased 30 years ,multiplier fixed at 17 - Apex court fixed compensation at Rs.18,36,000.00 - 2015 S.C.MSKLawreports


They are the parents of late Satendra Kumar Jain, aged 30  years,  who  died
in a motor accident on 12.07.2008. He was self-employed as Pandit. He was  a
bachelor. Hence, the claim by the parents

The appellants claimed an amount of  Rs.95,50,000.00.  The  Claims  Tribunal
awarded a total compensation of Rs.6,59,000.00 including loss of  dependency
to the tune of Rs.6,24,000.00 with interest @ 7.5 per cent from the date  of
institution of the petition.
Dissatisfied, appellants  approached  the  High
Court of Delhi in MAC APP. 687/2011 leading to the  impugned  judgment.  The
High Court enhanced the compensation and fixed it  at  Rs.12,61,800.00  with
interest as ordered by the Claims Tribunal.

The High Court fixed the  monthly  income  to  Rs.12,000.00  and  added  30%
towards future prospects relying  on  Santosh  Devi  v.  National  Insurance
Company Limited[1].
50 per cent was deducted  towards  personal  expenditure and a multiplier of 13 was applied.
Still not satisfied, the  claimants  are before this Court.

As far as future prospects are concerned, in Rajesh  and  others  v.  Rajbir
Singh and others[4], a three-Judge Bench of this Court held that in case  of
self-employed persons also, if the deceased victim is below 40 years,  there
must be addition  of  50%  to  the  actual  income  of  the  deceased  while
computing future prospects.
The multiplier, in the case of the age of the  deceased  between  26  to  30
years is 17. There is no dispute or grievance on fixation of monthly  income
as Rs.12,000.00 by the High Court.



Thus,  the  appellants  are  entitled  to  compensation  of  Rs.18,36,000.00
towards loss of dependency, which is calculated as follows –



|Calculation                                             |Total (in Rs.)   |
|?           Rs.12,000/- (Monthly Income)                |18,000.00        |
|                                                        |                 |
|add  [50% of Rs.12,000/-(Future Prospects)]  =          |                 |
|?           50% of [Rs.18,000/- (Deductions)]        =  |9,000.00         |
|? [Rs.9,000/-] multiply by [12(Annual Income)] =        |1,08,000.00      |
|? [Rs.1,08,000/-] multiply by [17(Multiplier)]    =     |18,36,000.00     |


There shall be no change on the amounts awarded by the High Court  on  other
heads or on rate of interest.

The appeal is allowed as above. There shall be no order as to costs.-2015 S.C.MSKLAWREPORTS

Indisputably, no documents were supplied to the respondent along with the charge-sheet on the basis of which charges were framed. Some of the documents were given during departmental inquiry, but relevant documents on the basis of which findings were recorded were not made available to the respondent. It further appears that the list of documents and witnesses were also not supplied and some of the documents were produced during the course of inquiry. 10. Admittedly, show cause notice was served along with 17 charges, but all the documents were not supplied to the respondent. A perusal of the impugned order will show that when the Division Bench, during the course of arguments, asked the learned counsel appearing for the appellants whether documents viz. P-21, P-25, P-23, P-19, P-30, P-31 & P-32 were supplied to the respondent, on the basis of which various charges have been held to be proved, learned counsel was not able to demonstrate that the above documents were supplied to the respondent even during the course of inquiry. The Division Bench then following a catena of decisions of this Court came to the conclusion that the order of punishment cannot be sustained in law. However, taking into consideration the fact that the respondent was out of employment since 1991, a lump sum payment of Rs.5,00,000/- towards the salary would meet the ends of justice. 11. After giving our anxious consideration, we do not find any reason to differ with the finding recorded by the learned Single Judge and also the Division Bench of the High Court in writ appeal. Therefore, this civil appeal is dismissed.

                                                                ‘REPORTABLE’

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                      Civil Appeal No.   4467 of  2015
                  (Arising out of SLP(C)No. 22488 of 2012)


Bilaspur Raipur Kshetriya Gramin Bank
and another                                              …..Appellant(s)
                                   versus

Madanlal Tandon                                   …..Respondent(s)



                                  JUDGMENT

M. Y. EQBAL, J.

      Leave granted.

2.    This appeal by special leave is  directed  against  the  judgment  and
order dated 17th February, 2012, whereby Division Bench of  the  High  Court
of Chhattisgarh in the writ appeal preferred by the  appellants  upheld  the
order of the learned Single Judge and directed payment towards  respondent’s
claim of salary up to Rs.5,00,000/- with all consequential benefits.



3.    The factual matrix of the case is that the respondent was  working  as
a Field Supervisor in the appellant Bank since 1981.  In February,  1984,  a
charge-sheet was issued to him for having committed misconduct and  after  a
departmental  inquiry,  an  order  dated  5.7.1984   was   passed   by   the
Disciplinary Authority imposing punishment of stoppage  of  his  two  annual
increments.  Thereafter a second charge-sheet was issued to  the  respondent
in November,  1987  alleging  that  the  respondent  had  committed  several
financial irregularities in various loan cases. An  inquiry  was  conducted,
wherein fourteen charges were found proved against the respondent and  three
charges were not found proved.   Consequently,  the  punishment  of  removal
from  service  was  inflicted   against   the   respondent   on   1.10.1991.
Respondent preferred  an  appeal  before  the  Board  of  Directors  of  the
appellant Bank, but the same was dismissed.



 4.   The respondent, therefore,  moved  the  High  Court  by  way  of  writ
petition,  inter  alia  contending  that  both   the   charge-sheets   being
identical, the second inquiry was not  competent.   It  was  also  contended
that along with the second charge-sheet, neither the list of  documents  nor
the documents  sought  to  be  relied  upon  were  supplied.   It  was  also
contended by the respondent-writ  petitioner  that  appropriate  opportunity
was not afforded to him to have inspection of the relevant documents and  as
such the respondent was not in a position  to  reply  the  said  show  cause
notice effectively and to defend him in the inquiry.  Learned  Single  Judge
of the High Court rejected his first contention and held  that  the  charges
were not  identical  and,  therefore,  the  second  inquiry  was  competent.
However, it was held that along with  the  charge-sheet  and  imputation  of
charges, there was no list of documents and list of witnesses were also  not
supplied as such the respondent was  not  afforded  an  opportunity  to  put
forward his case in response to show cause notice  along  with  the  charge-
sheet.  Observing that the object of rules of natural justice is  to  ensure
that a government  servant  is  treated  fairly  in  proceedings  which  may
culminate in  imposition  of  punishment  including  dismissal/removal  from
service, learned Single Judge of  the  High  Court  quashed  the  orders  of
removal passed by the  appellant  and  allowed  the  writ  petition  of  the
respondent with all consequential benefits.



5.     Aggrieved  by  aforesaid  decision,  the  appellants  preferred  writ
appeal, wherein Division  Bench  of  the  High  Court,  after  perusing  the
record, found that although the show cause notice was served along  with  17
charges, but no documents were supplied along with the  show  cause  to  the
respondent.  Even the list of documents  sought  to  be  relied  during  the
inquiry was not supplied along with the  show  cause.   The  Division  Bench
opined that it is trite law  that  when  a  delinquent  employee  is  facing
disciplinary proceeding, he is entitled to be  afforded  with  a  reasonable
opportunity to meet the charges against him in an effective manner.  If  the
copies of the documents are not  supplied  to  the  concerned  employee,  it
would be difficult for him to prepare his defence and to  cross-examine  the
witnesses and point out the inconsistencies with a view  to  show  that  the
allegations are false or baseless.



6.    The Division Bench of the High Court  further  observed  that  in  the
instant case neither the list of witnesses nor the  list  of  documents  was
supplied to the respondent along with the charge-sheet.  Though  during  the
course of inquiry some documents were supplied to him but  those  documents,
on which the reliance was placed by the Inquiry Officer for holding  various
charges proved, were  not  supplied  to  the  respondent.   The  High  Court
further observed that the respondent is out of employment  since  01.10.1991
and his claim for arrears of salary, as  stated  by  counsel  for  both  the
parties, would be more than 45-50 lakhs.  The Bank’s money is  public  money
and a huge amount cannot be paid to anyone for doing no work. The  principle
of “no work no pay” has been evolved in view of the public interest that  an
employee who does not discharge his duty  is  not  entitled  to  arrears  of
salary at the cost of public exchequer.  By way of  impugned  judgment,  the
High Court, therefore, concluded that in the facts and circumstances of  the
case a lump-sum payment of Rs.  5,00,000/-  towards  the  claim  of  salary,
would be just and proper in this matter.  The respondent was  also  held  to
be entitled to all other consequential benefits.



7.    Hence, the present appeal by special leave by the appellant  Bank  and
its Board of Directors.  It is worth to mention  here  that  the  respondent
has not come to this Court against the impugned judgment passed by the  High
Court.



8.    We  have  heard  Mr.  Akshat  Shrivastava,  learned  counsel  for  the
appellants and Mr.  T.V.S.  Raghavendra  Sreyas,  learned  counsel  for  the
respondent.  We have also perused the impugned order passed by the  Division
Bench  of  the  High  Court.   The  only  controversy  that  falls  for  our
consideration is as to whether the documents, which were the  basis  of  the
charges leveled against the respondent, were supplied to the  respondent  or
not?



9.    Indisputably, no documents were supplied to the respondent along  with
the charge-sheet on the basis of which charges were  framed.   Some  of  the
documents were given during departmental inquiry, but relevant documents  on
the basis of which findings were recorded were not  made  available  to  the
respondent.  It further appears that the list  of  documents  and  witnesses
were also not supplied and some of the documents were  produced  during  the
course of inquiry.



10.   Admittedly, show cause notice was served along with  17  charges,  but
all the documents were not supplied to the respondent.   A  perusal  of  the
impugned order will show that when the Division Bench, during the course  of
arguments, asked the learned counsel appearing for  the  appellants  whether
documents viz. P-21, P-25, P-23, P-19, P-30, P-31 & P-32  were  supplied  to
the respondent, on the basis of which various charges have been held  to  be
proved,  learned counsel  was   not  able  to  demonstrate  that  the  above
documents were  supplied  to  the  respondent  even  during  the  course  of
inquiry.  The Division Bench then following a catena of  decisions  of  this
Court came to  the  conclusion  that  the  order  of  punishment  cannot  be
sustained in law.  However, taking into  consideration  the  fact  that  the
respondent was  out  of  employment  since  1991,  a  lump  sum  payment  of
Rs.5,00,000/- towards the salary would meet the ends of justice.



11.   After giving our anxious consideration, we do not find any  reason  to
differ with the finding recorded by the learned Single Judge  and  also  the
Division Bench of the High Court in  writ  appeal.   Therefore,  this  civil
appeal is dismissed.




                                                              …………………………….J.
                                                                (M.Y. Eqbal)



                                                              …………………………….J.
                                                                (S.A. Bobde)
New Delhi
May 15, 2015


benefit of Section 80IB of the Income Tax Act ('Act' for short), namely, deduction in respect of profits and gains on the ground that their cases were covered by sub- section (10) of Section 80IB which provides for deduction of 100% of profits in the case of an undertaking developing and building housing projects when such profits are derived in the previous year relevant to any assessment year from such housing projects, provided the conditions contained in the said sub-section are satisfied.Under the Income Tax Act of 1922, the assessee was entitled to carry forward the losses of the speculation business and set off such losses against profits made from that business in future years. The right of carrying forward and set off accrued to the assesee under the Act of 1922. A right which had accrued and had become vested continued to be capable of being enforced notwithstanding the repeal of the statute under which that right accrued unless the repealing statute took away such right expressly or by necessary implication. This is the effect of Section 6 of the General Clauses Act, 1897. 15. In this case the 'savings' provision in the repealing statute is not exhaustive of the rights which are saved or which survive the repeal of the statute under which such rights had accrued. In other words, whatever rights are expressly saved by the 'savings' provision stand saved. But, that does not mean that rights which are not saved by the 'savings' provision are extinguished or stand ipso facto terminated by the mere fact that a new statute repealing the old statute is enacted. Rights which have accrued are saved unless they are taken away expressly. This is the principle behind Section 6(c) of the General Clauses Act, 1897. The right to carry forward losses which had accrued under the repealed Income Tax Act of 1922 is not saved expressly by Section 297 of the Income Tax Act, 1961. But, it is not necessary to save a right expressly in order to keep it alive after the repeal of the old Act of 1922. Section 6(2) saves accrued rights unless they are taken away by the repealing statute. We do not find any such taking away of the rights by Section 297 either expressly or by implication.” The aforesaid discussion persuades us to conclude that the judgments of the High Courts, which are impugned in these appeals, take correct view that the assesees were entitled to the benefit of Section 80IB(10). As a result, these appeals fail and are hereby dismissed.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                CIVIL APPEAL NO.     4476             OF 2015
                 (ARISING OUT OF SLP (C) NO. 24330 OF 2011)


|COMMISSIONER OF INCOME TAX-19                    |                       |
|MUMBAI                                           |.....APPELLANT(S)      |
|   VERSUS                                        |                       |
|M/S. SARKAR BUILDERS                             |.....RESPONDENT(S)     |

                                   W I T H
                 CIVIL APPEAL NO.     4477           OF 2015
                  (ARISING OUT OF SLP (C) NO. 9132 OF 2014)

                    CIVIL APPEAL NO.       4491   OF 2015
                 (ARISING OUT OF SLP (C) NO. 10290 OF 2014)

                    CIVIL APPEAL NO.       4485   OF 2015
                  (ARISING OUT OF SLP (C) NO. 9871 OF 2014)

                    CIVIL APPEAL NO.       4486   OF 2015
                  (ARISING OUT OF SLP (C) NO. 4652 OF 2015)

                    CIVIL APPEAL NO.       4479   OF 2015
                  (ARISING OUT OF SLP (C) NO. 4651 OF 2015)

                    CIVIL APPEAL NO.       4481   OF 2015
                  (ARISING OUT OF SLP (C) NO. 5769 OF 2015)

                    CIVIL APPEAL NO.       4487   OF 2015
                  (ARISING OUT OF SLP (C) NO. 7570 OF 2015)

                    CIVIL APPEAL NO.       4490   OF 2015
                  (ARISING OUT OF SLP (C) NO. 7575 OF 2015)


                    CIVIL APPEAL NO.       4483   OF 2015
                  (ARISING OUT OF SLP (C) NO. 7579 OF 2015)

                    CIVIL APPEAL NO.       4482   OF 2015
                  (ARISING OUT OF SLP (C) NO. 7578 OF 2015)

                    CIVIL APPEAL NO.       4489   OF 2015
                  (ARISING OUT OF SLP (C) NO. 8823 OF 2015)

                    CIVIL APPEAL NO.       4492   OF 2015
                  (ARISING OUT OF SLP (C) NO. 8390 OF 2015)

                    CIVIL APPEAL NO.       4478   OF 2015
                  (ARISING OUT OF SLP (C) NO. 8827 OF 2015)

                    CIVIL APPEAL NO.       4484   OF 2015
                  (ARISING OUT OF SLP (C) NO. 8828 OF 2015)

                    CIVIL APPEAL NO.       4493   OF 2015
                  (ARISING OUT OF SLP (C) NO. 8829 OF 2015)

                    CIVIL APPEAL NO.       4488   OF 2015
                 (ARISING OUT OF SLP (C) NO. 12063 OF 2015)

                    CIVIL APPEAL NO.       4480   OF 2015
                  (ARISING OUT OF SLP (C) NO. 8825 OF 2015)


                               J U D G M E N T


A.K. SIKRI, J.
                 Leave granted.

No doubt the assessees/respondents in all these appeals  are  different  and
even assessment years are different.  But  the  question  of  law  which  is
raised by the  Income  Tax  Authorities  (hereinafter  referred  to  as  the
'Revenue') is identical.  The assessees are subject to the  jurisdiction  of
the different High Courts, all of whom had claimed the  benefit  of  Section
80IB of the Income Tax Act ('Act' for short), namely, deduction  in  respect
of profits and gains on the ground that their cases  were  covered  by  sub-
section (10) of Section  80IB  which  provides  for  deduction  of  100%  of
profits in the case  of  an  undertaking  developing  and  building  housing
projects when such profits are derived in the previous year relevant to  any
assessment  year  from  such  housing  projects,  provided  the   conditions
contained in the said sub-section are satisfied.   High  Courts  have  taken
the same view  holding  that  these  assessees  would  be  entitled  to  the
deduction under Section 80IB(10) of the Act.  We may also point out at  this
stage itself that though Section 80IB has  been  on  the  statute  book  for
quite some time, a new Section 80IB had been introduced by the Finance  Act,
1999 w.e.f. 01.04.2000.  All these cases are covered by  the  said  Section,
as introduced.  However, insofar as  sub-section  (10)  is  concerned,  with
which we  are  directly  concerned,  there  have  been  amendments  in  that
provision from time to time. We are concerned  with  the  amendment  to  the
said sub-section carried out by Finance No.2 Act,  2004  w.e.f.  01.04.2005.
In all these cases, though the housing projects were sanctioned much  before
the said amendment but have been completed  after  01.04.2005  when  amended
provision has come into operation.  It is  also  not  in  dispute  that  the
amendment  is  prospective  in  nature.   Interestingly,  when  the  housing
project was approved by a local authority, which is  the  requirement  under
sub-section  (10)  of  Section  80IB,  as  on  that  date,  the   conditions
stipulated in the said sub-section were  met  by  the  assessees.   However,
condition in clause (d) which was laid  down  for  the  first  time  by  the
amendment  made  effective  from  01.04.2005  is  not  fulfilled.   In  this
scenario, the question is as to whether the new conditions mentioned in  the
amended provision have  also  to  be  fulfilled  only  because  the  housing
projects in question,  though  started  before  01.04.2005,  were  completed
after the said date.  The question of law, that arises for  discussion  that
needs to be answered is  thus  common  in  all  these  appeals  and  can  be
formulated as under:
      “Whether Section 80IB(10)(d) of the Income Tax Act, 1961 applies to  a
housing project  approved  before  31.03.2005  but  completed  on  or  after
01.04.2005?”


As pointed out above, sub-section (10) stipulates certain  conditions  which
are to be satisfied in order to avail the benefit  of  the  said  provision.
Further,  it  is  also  clear  that  the  benefit  is  available  to   those
undertakings which are developing and building 'housing  projects'  approved
by a local authority.  Thus,  this  Section  is  applicable  in  respect  of
housing projects and not commercial projects.  At  the  same  time,  we  are
conscious of the fact that even in the  housing  projects,  there  would  be
some  area  for  commercial  purposes  as  certain  shops   and   commercial
establishments are  needed  even  in  a  housing  projects.  That  has  been
judicially recognised while interpreting the provision that  existed  before
01.04.2005 and there was no limit fixed in Section  80IB(10)  regarding  the
built-up area to  be  used  for  commercial  purpose  in  the  said  housing
project. As would be noticed later,  the extent  to  which  such  commercial
area could be constructed was as  per  the  local  laws  under  which  local
authority gave the sanction to the housing  project.  However,  vide  clause
(d), which was inserted by the aforesaid amendment and made  effective  from
01.04.2005, it was stipulated that the built-up area of the shops and  other
commercial establishments in the housing projects would  not  exceed  5%  of
the aggregate built-up area  of  the  housing  project  or  2000  sq.  feet,
whichever is less (there is a further amendment whereby 5% is reduced to  3%
and  instead of the words “2000 sq. feet whichever is less” the words  “5000
sq. feet, whichever is higher” have been substituted.  However, we  are  not
concerned with this amendment).

      The question, thus, that arises for consideration is as to whether  in
respect of those housing projects which finished  on  or  after  01.04.2005,
though sanctioned  and  started  much  earlier,  the  aforesaid  stipulation
contained in clause (d) also has to be satisfied.  All the High Courts  have
held that since this amendment is prospective and has come into effect  from
01.04.2005, this condition would not apply to those housing  projects  which
had been  sanctioned  and  started  earlier  even  if  they  finished  after
01.04.2005.

As there is a commonality of issue and the judgments  of  the  various  High
Courts have spoken in one voice which are questioned  on  identical  grounds
by the appellant Revenue, all these appeals were heard  analogously  and  by
this judgment, we propose to answer the question  of  law  involved  and  as
formulated above in order to give quietus to this surging debate.

Before we come to the grip of the aforesaid central issue, it  would  be  of
some relevance to mention certain other disputes which  had  arisen  between
the Revenue and the assessees/developers of the housing projects  concerning
interpretation of sub-section (10) of Section 80IB.  That dispute  primarily
related to the meaning that is to be assigned to  'housing  projects'  prior
to 01.04.2005 because of the reason that there was  no  clause  (d)  earlier
and there is no express provision  in  this  sub-section  dealing  with  the
consequence of having a commercial establishment within a  housing  project.
One of the requirements contained in sub-section (10) is that  in  order  to
be entitled to have the deduction under this provision, housing  project  is
to be approved by a local authority.  It is a  matter  of  common  knowledge
that  there  are  Municipal  Acts  of  specific  Local  Acts  governing  the
construction of buildings, commercial  as  well  as  residential,  in  every
State.  For undertaking any such construction authority, it is necessary  to
have the building plans sanctioned from the local authorities in  accordance
with the provisions of such local acts.  There are local  laws  relating  to
the   development   and   building   of   “housing    projects”    by    the
developers/builders which also need a sanction from  the  local  authorities
as per the law prevailing in that particular area where the housing  project
is developed.  Such local laws,  while  sanctioning  the  housing  projects,
also permit use of certain area in  the  housing  projects  in  a  specified
manner for shopping and commercial purposes as well.  The question that  had
arisen was – whether deduction under Section 80IB(10)  would  be  admissible
when commercial establishment is constructed in  a  housing  project?   That
is, whether it would still retain the character of  housing  project  within
the meaning of this provision.  The Bombay High Court in the case of  C.I.T.
v. Brahma Associates[1] held that since the expression 'housing project'  is
not defined under the Act, the intention of Parliament was that whatever  is
approved by the local authority under the extent rules as a housing  project
would be treated as 'housing project'  for  the  purpose  of  this  Section,
inasmuch as sub-section (10) itself mandates that housing project is  to  be
approved by a local authority as such an approval is a  necessary  condition
for claiming the deduction under this provision. When  the  local  authority
has approved a housing project, whether 'residential'  or  'residential  cum
commercial' the assessee is entitled to a deduction  on  the  entire  profit
including the commercial establishments portion.   We  would  also  like  to
point out that  following  this  judgment  of  the  Bombay  High  Court,  or
independently, other High Courts had also taken similar  view.  Against  the
aforesaid judgments, special leave petitions were filed by  the  Revenue  in
this Court.  All these SLPs have been disposed of by this Court  vide  order
dated 29.04.2015, we would like to reproduce  the  said  order  in  entirety
hereunder:
“All these special leave petitions are filed by the Revenue/  Department  of
Income tax against the judgments rendered by various  High  Courts  deciding
identical issue which pertains to the deduction under  Section  80IB(10)  of
the Income Tax Act, as applicable prior to 01.04.2005.  We  may  mention  at
the outset that all the High Courts have taken identical view in  all  these
cases holding that the deduction under  the  aforesaid  provision  would  be
admissible to a “housing project”.

            All the assessees had  undertaken  construction  projects  which
were approved by the  municipal  authorities/local  authorities  as  housing
projects.  On that basis, they claimed deduction under Section  80IB(10)  of
the Act.   This  provision  as  it  stood  at  that  time,  i.e.,  prior  to
01.04.2005 reads as under: -

      Section 80IB(10) [as it stood prior to 01.04.2005]
“(10) The amount of  profits  in  case  of  an  undertaking  developing  and
building housing projects approved before the 31st day of March, 2005  by  a
local authority, shall be hundred per cent of the  profits  derived  in  any
previous year relevant to any assessment year from such housing project  if,
-

            (a)  such undertaking has  commenced  or  commences  development
and construction of the housing project on or after the 1st day of  October,
1998;

            (b)  the project is on the size of a plot of land  which  has  a
minimum area of one crore; and

(c)  the residential unit has  a  maximum  built-up  area  of  one  thousand
square feet where such residential unit is situated  within  the  cities  of
Delhi or Mumbai or within twenty-five kilometres from the  municipal  limits
of these cities and one thousand and five hundred square feet at  any  other
place.”

However, the income tax authorities rejected the claim of deduction  on  the
ground that the  projects  were  not  “housing  project”  inasmuch  as  some
commercial activity was also undertaken in those projects.  This  contention
of the Revenue is not accepted by the income tax Appellate Tribunal as  well
as the High Court in the impugned judgment.  The High Court interpreted  the
expression “housing  project”  by  giving  grammatical  meaning  thereto  as
housing project is not defined under the  Income  Tax  Act  insofar  as  the
aforesaid provision is concerned.  Since sub-section (10)  of  Section  80IB
very categorically mentioned that such a  project  which  is  undertaken  as
housing project is approved by  a  local  authority,  once  the  project  is
approved by the local authority it is to be treated as the housing  project.
 We may also point out that the High Court  had  made  observations  in  the
context of Development  Control  Regulations  (hereinafter  referred  to  as
'DCRs' in short) under which  the  local  authority  sanctions  the  housing
projects and noted that in these  DCRs  itself,  an  element  of  commercial
activity is provided but the total  project  is  still  treated  as  housing
project.  On the basis of this  discussion,  after  modifying  some  of  the
directions given by the ITAT, the conclusions which are arrived  at  by  the
High Court are as follows: -

            “30.  In the result, the questions  raised  in  the  appeal  are
answered thus:-
            a)  Upto 31/3/2005 (subject  to  fulfilling  other  conditions),
deduction under Section 80IB(10) is allowable to housing  projects  approved
by the local authority having residential units with commercial user to  the
extent permitted under DC Rules/Regulations framed by the  respective  local
authority.

            b)  In such a case, where the commercial user permitted  by  the
local authority  is  within  the  limits  prescribed  under  the  DC  Rules/
Regulation, the deduction under Section 80IB(10)  upto  31/3/2005  would  be
allowable irrespective of the fact that the project is approved as  'housing
project' or 'residential plus commercial'.


            c)  In the absence of any provisions under the Income  Tax  Act,
the Tribunal was not justified in  holding  that  upto  31/3/2005  deduction
under Section 80IB(10) would be allowable to the projects  approved  by  the
local authority having residential building with commercial  user  upto  10%
of the total built-up area of the plot.

            d)  Since deductions under Section 80IB(10) is  on  the  profits
derived from the housing projects approved  by  the  local  authority  as  a
whole, the Tribunal  was  not  justified  in  restricting  Section  80IB(10)
deduction only to a part of the project.   However,  in  the  present  case,
since the assessee has accepted the decision of  the  Tribunal  in  allowing
Section 80IB(10) deduction to a part of the project, we do not  disturb  the
findings of the Tribunal in that behalf.

            e)  Clause (d) inserted to Section  80IB(10)  with  effect  from
1/4/2005 is prospective and not retrospective and hence  cannot  be  applied
for the period prior to ¼/2005.”

            We are in agreement with the  aforesaid  answers  given  by  the
High Court to the various issues.  We  may  only  clarify  that  insofar  as
answer at para (a) is concerned, it would  mean  those  projects  which  are
approved by the  local  authorities  as  housing  projects  with  commercial
element therein.

            There was much debate on the answer given  in  para  (b)  above.
It was argued by Mr. Gurukrishna  Kumar,  learned  senior  counsel,  that  a
project which is cleared as “residential plus commercial” project cannot  be
treated as housing project and therefore, this direction is contrary to  the
provisions of  Section  80(I)(B)(10)  of  the  Act.   However,  reading  the
direction in its entirety and particularly the first  sentence  thereof,  we
find that commercial user which is permitted is  in  the  residential  units
and that too, as per DCR.  Examples given before us by the  learned  counsel
for the assessee was that such commercial user to some extent  is  permitted
to the professionals like Doctors, Chartered Accountants,  Advocates,  etc.,
in the DCRs itself.  Therefore, we clarify that direction (b) is to be  read
in that context  where  the  project  is  predominantly  housing/residential
project but the commercial activity in the residential units  is  permitted.
With the aforesaid clarification, we dispose  of  all  these  special  leave
petitions.”


The reason  for  recapitulating  the  aforesaid  events  pertaining  to  the
earlier litigation is that before 01.04.2005, the legal  position  was  that
once the project is sanctioned by the local authority as 'housing  project',
the extent of area sanctioned for shops  and  commercial  establishments  in
the  said  housing  project  was  immaterial  and  had  no  bearing.   Thus,
irrespective of the said of area where shops and  commercial  establishments
were permitted by the local authority in a housing  project,  it  was  still
treated as housing project and further that while granting 100%  deductions,
the  area  covered  by  shops  and  commercial   establishments   was   also
includible.  This position has changed with the insertion of clause  (d)  to
sub-section (10).  As per the amendment carried out and made effective  from
01.04.2005, even if the local  authority  had  sanctioned  larger  area  for
shops and commercial establishment, the benefit of  Section  80IB(10)  would
not be admissible to these assessees/developers in case  the  area  utilised
for shops and commercial establishment exceeded 5% of the  aggregate  built-
up area of the housing project or 2000 sq. feet, whichever is less.

In the aforesaid scenario, we revert back to the  question  that  is  to  be
answered.  We have already pointed out that the parties  are  ad  idem  that
the amendment is prospective in nature  and,  therefore,  it  operates  from
01.04.2005.  We have also mentioned that in the instant appeals,  all  these
assessees had got the housing projects sanctioned prior  to  01.04.2005  and
the  construction  of  the  said  housing  project   also   started   before
01.04.2005.  All  other  conditions  mentioned  namely  the  date  by  which
approval was to be given and the dates by which  the  projects  were  to  be
completed as on the date when the project was sanctioned, are  also  met  by
the assessees.  Notwithstanding  this  position,  the  argument  of  Mr.  S.
Gurukrishna Kumar, learned senior counsel appearing for the Revenue is  that
amendment w.e.f. 01.04.2005 is retroactive even if  not  retrospective.   He
has, thus, endeavoured to draw a fine distinction  between  the  retroactive
nature of amendment in contrast with retrospectivity  of  a  provision.   He
argued that once the  project  is  financed  after  01.04.2005  and  on  the
completion of the said project, a particular assessee has earned the  income
which is shown by the assessee in a particular assessment year, it  is  that
assessment year  which  would  be  the  determinative  factor  and  the  law
prevailing on the date relevant to the  assessment  year  will  have  to  be
applied.  On that basis, it was argued that since the assessment  years  are
post 01.04.2005, clause (d) of sub-section (10) of Section 80IB of  the  Act
gets attracted.  In support of this plea, he referred  to  the  judgment  of
this Court in Commissioner of Income Tax I, Ahmedabad v.  Gold  Coin  Health
Food Private Limited[2]  and,  particularly,  the  discussion  contained  in
paras 9 and 16 which are reproduced hereunder:
“9.  In Reliance Jute and Industries Ltd. v. CIT, (1980) 1 SCC 139,  it  was
observed by this Court that the law to be applied in income tax  assessments
is the law in  force  in  the  assessment  year  unless  otherwise  provided
expressly or by necessary implication.

                          xx          xx         xx

16.  The law is well settled that the applicable provision would be the  law
as it existed on the date of the filing of the return.  It is  of  relevance
to note  that  when  any  loss  is  returned  in  any  return  it  need  not
necessarily be the loss  of  the  previous  year  concerned.   It  may  also
include carried-forward loss which is required to be set up  against  future
income under Section 72 of the Act.  Therefore, the applicable  law  on  the
date of filing of the return cannot be confined only to the  losses  of  the
previous accouting years.”

He also referred to the decision in the case of The Karimtharuvi Tea  Estate
Ltd. v. The State of Kerala[3] which is to the same effect.

Mr. J.D. Mistry, learned senior  counsel  who  appeared  on  behalf  of  the
assessees in some of these  appeals  emphatically  countered  the  aforesaid
arguments.  In the first instance, he pointed  out  that  this  argument  of
retroactivity was not even raised by the  Revenue  in  the  High  Courts  or
before the lower forum or even in the special leave petitions filed in  this
Court.  He further submitted that it was necessary to keep the objective  of
the amendment in mind which would clearly  evince  that  the  conditions  in
clause (d) could not be applied in respect of those projects which had  been
sanctioned and commenced  prior  to  01.04.2005.   He  further  argued  that
vested rights had accrued in favour of  such  persons  which  could  not  be
taken away by the amendment.  He also advanced various reasons, as would  be
noted later, necessitating the approach as to why the principle of  tax  law
that the law in force in the Assessment Year is  to  be  applied,  insisting
that it was a case where departure  was  needed  and  such  a  departure  is
recognised in certain circumstances, by the  courts.   He  relied  upon  the
judgments of this Court in Commissioner of Income  Tax  v.  Shah  Sadiq  and
Sons[4] and Commissioner of Income Tax  (Central)-I,  New  Delhi  v.  Vatika
Township  Private  Limited[5].   Senior  counsel  who  appeared  for   other
assessees argued on the same lines  drawing our  attention  to  the  reasons
which are given by the High Courts in the impugned judgments and  supporting
those reasons.

We have given our due consideration to the respective submissions.

As pointed out above, the judgment pronounced by the Bombay  High  Court  in
Brahma Associates case  has  already  been  upheld  by  this  Court  on  the
interpretation given to the expression 'housing project' occurring  in  sub-
section (10) of Section 80IB of the Act.  Interestingly,  in  the  batch  of
appeals decided by the High Court in that  very  judgment,  the  issue  with
which we are concerned was also taken  up.   The  Revenue  had  argued  that
clause  (d)  inserted  with  effect  from  01.04.2005  should   be   applied
retrospectively, which argument was repelled by the High  Court.  Therefore,
for better understanding, we would like to begin  our  discussion  with  the
meaning given to 'housing project' along with the issue  of  retrospectivity
of clause (d), as raised by the Revenue, which was dealt with  by  the  High
Court and repelled.  That portion of the discussion contained  in  the  High
Court judgment, which has some bearing on the issue at hand, runs as under:
“21.  Thus, on the date on which the legislature introduced  100%  deduction
under the Income Tax Act, 1961 on the profits derived from housing  projects
approved by a local authority, it  was  known  that  the  local  authorities
could approve the projects as houding projects with commercial user  to  the
extent  permitted  under  the  DC  Rules  framed  by  the  respective  local
authority.  In other words, it was known that the  local  authorities  could
approve a housing project without or with  commercial  user  to  the  extent
permitted under the Development Control Rules.  If the legislature  intended
to  restrict  the  benefit  of  deduction  only  to  the  projects  approved
exclusively  for  residential  purposes,  then  it  would  have  stated  so.
However, the legislature has provided that  Section  80IB(10)  deduction  is
available to all the housing projects approved by a local authority.   Since
the local authorities could approve a project to be a housing  project  with
or without the commercial user, it is evident that the legislature  intended
to allow Section 80IB(10) deduction to all the housing projects approved  by
a local authority without or with commercial user to  the  extent  permitted
under the DC Rules.

22.  It is not in dispute that where a project  is  approved  as  a  housing
project without or with commercial user to the extent  permitted  under  the
Rules/Regulations,  then,  deduction  under  Section   80IB(10)   would   be
allowable.  In other words, if a project could  be  approved  as  a  housing
project having residential units with permissible commercial user,  then  it
is not open to the income tax authorities to  contend  that  the  expression
'housing project' in Section 80IB(10) is applicable to projects having  only
residential units.

23.  Once it is held that the local authorities could approve a  project  to
be housing project without  or  with  the  commercial  user  to  the  extent
permitted  under  the  DC  Rules,  then  the  project  approved   with   the
permissible  commercial  user  would  be  eligible  for   Section   80IB(10)
deduction irrespective of the fact that the project is approved as  'housing
project' or approved as 'residential  plus  commercial'.   In  other  words,
where a project fulfills the  criteria  for  being  approved  as  a  housing
project, then deduction cannot  be  denied  under  Section  80IB(10)  merely
because the project is approved as 'residential plus commercial'.

24.  The fact that the deduction under Section 80IB(10)  prior  to  1.4.2005
was allowable on the profits derived from the housing  projects  constructed
during  the  specified  period,  on  a  specified  size  of  the  plot  with
residential units of the specified size, it  cannot  be  inferred  that  the
deduction under Section 80IB(10) was allowable to  housing  projects  having
residential units only, because, restriction on the size of the  residential
unit is with a view to make available large number of affordable  houses  to
the common man and not with a view to deny commercial  user  in  residential
buildings.   In  other  words,  the  restriction  under   Section   80IB(10)
regarding the size of the residential unit  would  in  no  way  curtail  the
powers of the local authority to approve a project with commercial  user  to
the  extent  permitted  under  the  DC  Rules/Regulations.   Therefore,  the
argument of the Revenue that the restriction on the size of the  residential
unit in Section 80IB(10) as it stood prior to 1.4.2005 is suggestive of  the
fact that the deduction is  restricted  to  housing  projects  approved  for
residential units only cannot be accepted.

25.  The above conclusion is further fortified  by  Clause  (d)  to  Section
80IB(10)  inserted  with  effect  from  1.4.2005.   Clause  (d)  to  Section
80IB(10) inserted w.e.f.  1.4.2005  provides  that  even  though  shops  and
commercial establishments are included in  the  housing  project,  deduction
under Section 80IB(10) with effect from 1.4.2005 would  be  available  where
such commercial user does not exceed five per cent of the  aggregate  built-
up area of the housing project or two  thousand  square  feet  whichever  is
lower.  By Finance Act, 2010, clause (d) is amended to the effect  that  the
commercial user should not exceed three percent of  the  aggregate  built-up
area of the housing project  or  five  thousand  square  feet  whichever  is
higher.  The expression 'included' in clause (d) makes it amply  clear  that
commercial user is an integral part of housing project.  Thus, by  inserting
clause (d) to Section 80IB(10)  the  legislature  has  made  it  clear  that
though  the  housing  projects  approved  by  the  local  authorities   with
commercial user to the extent  permissible  under  the  DC  Rules/Regulation
were entitled to Section 80IB(10) deduction, with effect from 1.4.2005  such
deduction would be subject to the restriction  set  out  in  clause  (d)  of
Section 80IB(10).  Therefore, the argument of the revenue that  with  effect
from 1.4.2005 the legislature for the first time  allowed  Section  80IB(10)
deduction to housing projects having commercial user cannot be accepted.

                          xx          xx         xx

29.  Lastly, the argument of the revenue that Section  80IB(10)  as  amended
by inserting  clause  (d)  with  effect  from  1.4.2005  should  be  applied
retrospectively is also without any  merit,  because,  firstly,  clause  (d)
specifically inserted with effect from 1.4.2005, and therefore, that  clause
cannot be applied for the period prior to 1.4.2005.   Secondly,  clause  (d)
seeks to deny Section 80IB(10) deduction to projects having commercial  user
beyond the limit prescribed under clause (d), even  though  such  commercial
user is  approved  by  the  local  authority.   Therefore,  the  restriction
imposed under the Act for the first time with effect  from  1.4.2005  cannot
be applied retrospectively.  Thirdly, it is  not  open  to  the  revenue  to
contend on the one hand that Section 80IB(10) as  stood  prior  to  1.4.2005
did not permit commercial user in housing projects and  on  the  other  hand
contend that the restriction on commercial user introduced with effect  from
1.4.2005 should be applied retrospectively.  The argument of the revenue  is
mutually contradictory and hence  liable  to  be  rejected.   Thus,  in  our
opinion, the Tribunal was justified in holding that clause (d)  inserted  to
Section  80IB(10)  with  effect  from  1.4.2005  is  prospective   and   not
retrospective and hence cannot be applied to the period prior to 1.4.2005.”


The issues dealt with from paras 21 to 25 by the High Court  already  stands
approved by this Court.  In para 29, the High Court  has  held  that  clause
(d) has prospective operation, viz., with effect from 01.04.2005,  and  this
legal position is not disputed by the Revenue before us.  What follows  from
the above is that prior to 01.04.2005, these  developers/assessees  who  had
got their  projects  sanctioned  from  the  local  authorities  as  'housing
projects',  even  with  commercial  user,  though  limited  to  the   extent
permitted under the DC Rules, were convinced that they would be getting  the
benefit of 100% deduction of their income from such projects  under  Section
80IB of the Act.  Their projects were  sanctioned  much  before  01.04.2005.
As per the permissible commercial user on which the project was  sanctioned,
they started the projects and the date of commencing such projects  is  also
before 01.04.2005.  All these assessees were made known of the provision  by
which these projects are to be completed as those dates have been  specified
from time to time by successive Finance Acts in the same  provision  Section
80IB. In these cases, completion dates  were  after  01.04.2005.  Once  they
arrange their affairs in this manner, the Revenue cannot  deny  the  benefit
of this section applying  the  principle  of  retroactivity  even  when  the
provision has no retrospectivity.  Take for example, a case where under  the
extant DC Rules, for shops and commercial  activity  construction  permitted
was, say, 10% and the project was  also  sanctioned  allowing  a  particular
assessee to construct 10% of the area  for  commercial  purposes.  The  said
developer started with  its  project  much  prior  to  01.04.2005  with  the
aforesaid permissible use and the construction was at a very advanced  stage
as on 01.04.2005. Can it be argued by that Revenue that he  is  to  demolish
the extra coverage meant for commercial purpose and bring  the  same  within
the limits prescribed by the  new  provision  if  he  wanted  to  avail  the
benefit of deduction under Section 80IB(10) of the Act, only because of  the
reason that the project was not complete as on  01.04.2005?  As  in  such  a
case he filed  his return for an assessment year after  01.04.2005  and  for
the purpose of assessment of the said return,  law  prevailing  as  on  that
date would be applicable? Answer has to be in the negative on the  principle
that with the  aforesaid  planning  as  per  the  law  prevailing  prior  to
01.04.2005, these assessees acted and acquired vested  right  thereby  which
cannot be  taken  away.   It  is  ludicrous  on  the  part  of  the  Revenue
authorities to  expect  the  assessees  to  do  something  which  is  almost
impossible

In  M/s.  Reliance  Jute  and  Industries  Ltd.  v.  C.I.T.,  West   Bengal,
Calcutta[6], this Court had, no doubt, pointed out  the  cardinal  principle
of tax law that the law to be applied has to be the  law  in  force  in  the
assessment year.  However, this is qualified by the  exception  when  it  is
provided otherwise expressly or by necessary implication, as is  clear  from
the following observations:
“6.  The assessee claims a vested right  under  Section  24(2)(iii),  as  it
stood before its amendment in 1957, to have the unabsorbed loss  of  1950-51
carried forward from year to year until the  loss  is  completely  absorbed.
The claim is based on a misconception of the  fundamental  basis  underlying
every income tax assessment.  It is a cardinal  principle  of  the  tax  law
that the law to be applied is that in force in the  assessment  year  unless
otherwise provided expressly or by necessary implication...”

In the same paragraph, the Court also remarked that 'a right claimed  by  an
assessee under  the  law  in  force  in  a  particular  assessment  year  is
ordinarily available only in relation to a  proceeding  pertaining  to  that
year'.  Thus, it clearly follows that though normally the law  which  is  in
force in the assessment year would prevail, but  this  is  not  an  absolute
principle as the Court itself carved out exceptions  thereto  by  making  it
clear that such exception can be either  express  or  implied  by  necessary
implication. Even the principle which is mentioned  is  qualified  with  the
words 'ordinarily available'.

On examining the scheme of sub-section (1) of Section 80IB of the  Act,  its
historical turn around by amendments from time to time and keeping  in  view
of the real purpose behind such a provision, we are of the view that in  the
peculiar scenario as projected in this  provision,  the  aforesaid  cardinal
principle of tax law is not to be  applied  as,  by  necessary  implication,
application thereof stands excluded.  We have already narrated  the  essence
of this provision.  For the purpose of discussing this particular issue,  it
is required to be noted that with effect from 01.04.2001,  Section  80IB(10)
stipulated that any housing project approved by the local  authority  before
31.03.2001 was entitled to a deduction  of  100  per  cent  of  the  profits
derived in any previous year relevant  to  any  assessment  year  from  such
housing project, provided - (i) the  construction/development  of  the  said
housing project commenced on or after 1.10.1998  and  was  completed  before
31.03.2003; (ii) the housing project was on a size of a plot of  land  which
had a minimum area of one acre; and (iii) each individual  residential  unit
had a maximum built-up area of 1000 sq.ft., where such housing  project  was
situated within the cities of Delhi or Mumbai or within  25  kms.  from  the
municipal limits of these cities,  and  a  maximum  built-up  area  of  1500
sq.ft. at any other place.  Therefore, for the  first  time,  a  stipulation
was added with reference to the date of approval, namely, that approval  had
to be accorded  to  the  housing  project  by  the  local  authority  before
31.03.2001.  Before this amendment there was  no  date  prescribed  for  the
approval being granted by  the  local  authority  to  the  housing  project.
Prior to this amendment, as long as the  development/construction  commenced
on or after 1.10.1998 and was completed before 31.03.2001, the assessee  was
entitled to the deduction.  Also by this amendment, the date  of  completion
was  changed  from  31.03.2001  to  31.03.2003.   Everything  else  remained
untouched.  Thereafter, by Finance Act, 2003, further amendments  were  made
to Section 80IB(10), which read as under:
“(10) The amount of profits  in  case  of  an  undertaking  developing  and,
building housing projects approved before the 31st day of March  2005  by  a
local authority, shall be hundred per cent of the  profits  derived  in  any
previous year relevant to any assessment year from such housing  project  if
-

(a)  such  undertaking  has   commenced   or   commences   development   and
construction of the housing project on or  after  the  1st  day  of  October
1998;

(b) the project is on the size of a plot of land which has  a  minimum  area
of one acre; and

(c) the residential unit has a maximum built-up area of one thousand  square
feet where such residential unit is situated within the cities of  Delhi  or
Mumbai or within twenty-five kilometres from the municipal limits  of  these
cities and one thousand and five hundred square feet at any other place.”

As can be seen from the aforesaid provision, now the only changes that  were
brought about were that with effect from 1.4.2002: (i) the  housing  project
had to be approved before 31.03.2005; and  (ii)  there  was  no  time  limit
prescribed for completion of the said project.  Though  these  changes  were
brought about by the Finance Act, 2003, the Legislature thought it fit  that
these changes be deemed to have been  brought  into  effect  from  1.4.2002.
All the remaining provisions of Section 80IB(10) remained unchanged.

Thereafter, significant amendment, with which  we  are  directly  concerned,
was carried out by Finance (No.2)  Act,  2004  with  effect  from  1.4.2005.
This  amendment  has  already  been  noted  above.   The  Legislature   made
substantial changes  in  sub-section  (10).   Several  new  conditions  were
incorporated for the  first  time,  including  the  condition  mentioned  in
clause (d).  This condition/restriction was not on the statute book  earlier
when all these projects were sanctioned.  Another  important  amendment  was
made by this Act to sub-section  (14)  of  Section  80IB  with  effect  from
1.4.2005 and for the first time under clause (a) thereof the  words  'built-
up area' were defined.  Section 80IB(14)(a) reads as under:
“(14) For the purposes of this section -

(a) “built-up area” means the inner measurements of the residential unit  at
the floor level, including the projections and balconies,  as  increased  by
the thickness of the walls but does not  include  the  common  areas  shared
with other residential units;”


Prior to insertion  of  Section  80IB(14)(a),  in  many  of  the  rules  and
regulations of the local authority approving the housing  project  “built-up
area” did not include projections and balconies. Probably, taking  advantage
of this fact, builders provided large balconies and projections  making  the
residential units far bigger than as stipulated  in  Section  80IB(10),  and
yet claimed the deduction under the said provision.  To  plug  this  lacuna,
clause (a) was inserted in Section 80IB(14)  defining  the  words  “built-up
area” to mean the inner measurements of the residential unit  at  the  floor
level,  including  the  projections  and  balconies,  as  increased  by  the
thickness of the walls, but did not include the  common  areas  shared  with
other residential units.

Can it be said that in order to avail the benefit in  the  assessment  years
after 1.4.2005, balconies should be  removed  though  these  were  permitted
earlier?  Holding so would lead to absurd results as one  cannot  expect  an
assessee to comply with a condition that was not a part of the statute  when
the housing project was approved.  We, thus,  find  that  the  only  way  to
resolve the issue would be to hold that clause  (d)  is  to  be  treated  as
inextricably linked with  the  approval  and  construction  of  the  housing
project and an assessee cannot be  called  upon  to  comply  with  the  said
condition when it was not in contemplation either of the  assessee  or  even
the Legislature, when the housing  project  was  accorded  approval  by  the
local authorities.

Having regard to the above, let us take note of the special  features  which
appear in these cases:
(a)  In the present case, the approval of the housing  project,  its  scope,
definition and conditions, all are decided and dependent by  the  provisions
of the relevant DC Rules.  In contrast, the judgment in M/s.  Reliance  Jute
and Industries Ltd. was concerned with income tax only.
(b)  The position of law and  the  rights  accrued  prior  to  enactment  of
Finance Act, 2004 have to be  taken  into  account,  particularly  when  the
position becomes irreversible.
(c)  The provisions of Section 80IB(10) mention not only a  particular  date
before which such  a  housing  project  is  to  be  approved  by  the  local
authority, even a date by which the housing project is to be  completed,  is
fixed.  These dates  have  a  specific  purpose  which  gives  time  to  the
developers to arrange their affairs  in  such  a  manner  that  the  housing
project is  started  and  finished  within  those  stipulated  dates.   This
planning, in the context of facts in these appeals, had to  be  much  before
01.04.2005.
(d)  The basic objective behind Section 80IB(10) is to encourage  developers
to undertake housing projects for weaker section of  the  society,  inasmuch
as to qualify for  deduction  under  this  provision,  it  is  an  essential
condition that the residential unit be constructed on  a  maximum  built  up
area of 1000 sq.ft. where such  residential  unit  is  situated  within  the
cities of Delhi and Mumbai or within 25 kms. from the  municipal  limits  of
these cities and 1500 sq.ft. at any other place.
(e)  It is the cardinal principle  of  interpretation  that  a  construction
resulting in unreasonably harsh and absurd results must be avoided.
(f)   Clause (d) makes it clear that a housing project  includes  shops  and
commercial establishments also.  But from the day  the  said  provision  was
inserted,  they  wanted  to  limit  the  built  up   area   of   shops   and
establishments to 5%  of  the  aggregate  built  up  area  or  2000  sq.ft.,
whichever is less.  However, the Legislature  itself  felt  that  this  much
commercial  space  would  not  meet  the  requirements  of  the   residents.
Therefore, in the year  2010,  the   Parliament  has  further  amended  this
provision by providing that it should not exceed 3% of the  aggregate  built
up area of the housing project or 5000 sq.ft., whichever  is  higher.   This
is a significant modification making complete  departure  from  the  earlier
yardstick.  On the one hand, the permissible built up area of the shops  and
other commercial shops is increased from 2000 sq.ft. to 5000 sq.ft.  On  the
other  hand,  though  the  aggregate  built  up  area  for  such  shops  and
establishment is reduced from 5% to 3%,  what  is  significant  is  that  it
permits the builders to have 5000 sq.ft. or 3% of  the  aggregate  built  up
area, 'whichever is higher'.  In contrast, the provision earlier was  5%  or
2000 sq.ft., 'whichever is less'.
(g)   From this provision, therefor, it is clear that  the  housing  project
contemplated under sub-section (10)  of  Section  80IB  includes  commercial
establishments or shops also.  Now, by way of an amendment in  the  form  of
Clause (d), an attempt is made to  restrict  the  size  of  the  said  shops
and/or commercial establishments.  Therefore, by necessary implication,  the
said provision has to be read prospectively and not retrospectively.  As  is
clear from the amendment, this provision came into effect only from the  day
the provision was substituted.  Therefore, it cannot  be  applied  to  those
projects which  were  sanctioned  and  commenced  prior  to  01.04.2005  and
completed by the stipulated date,  though  such  stipulated  date  is  after
01.04.2005.

These aspects  are  dealt  with  by  various  High  Courts  elaborately  and
convincingly in their judgments.   It  is  not  necessary  to  go  into  the
detailed reasoning given by these High Courts.  However, we  would  like  to
extract the following discussion from the judgment dated 25.07.2014  of  the
Bombay High Court in ITA Nos. 201 and 308 of 2012, where  this  very  aspect
is answered in the following manner:
“36. There is yet another reason for coming  to  the  aforesaid  conclusion.
Take a scenario where an Assessee, following the project  completion  method
of accounting, has completed the  housing  project  approved  by  the  local
authority complying with all the conditions as set out in section  80-IB(10)
as it stood prior to 1st April, 2005.  If we were to accept the argument  of
the Revenue, then  in  that  event,  despite  having  completed  the  entire
construction prior to 1st April, 2005 and complying with all the  conditions
of section 80-IB(10) as it stood then, the Assessee would be disentitled  to
the entire deduction claimed in  respect  of  such  housing  project  merely
because he offered his profits to tax in the A.Y. 2005-06.  In contrast,  if
the same Assessee had followed the work-in-progress  method  of  accounting,
he would have been entitled to the deduction under  section  80-IB(10)  upto
the A.Y. 2004-05, and denied the same from A.Y. 2005-06 and thereafter.   It
could never have been the intention of the Legislature  that  the  deduction
under  section  80-IB(10)  available  to  a  particular  Assessee  would  be
determined on the basis of the accounting method  followed.   This,  to  our
mind and as rightly  submitted  by  Mr.  Mistry,  would  lead  to  startling
results.  We therefore have no hesitation in holding that section  80-IB(10)
is prospective in nature and can have no application to  a  housing  project
that is approved before 31st March, 2005.  As the  deduction  sought  to  be
claimed under section 80-IB(10) is  inseparably  linked  with  the  date  of
approval of the  housing  project,  it  would  make  no  difference  if  the
construction of the said project was completed on or after 1st  April,  2005
or that the profits were offered to tax after 1st Apri, 2005  i.e.  in  A.Y.
2005-06 or thereafter.  We therefore find no substance in  the  argument  of
the Revenue that notwithstanding the  fact  that  the  housing  project  was
approved prior to 31st March 2005, if the construction was completed  on  or
after 1st April, 2005 or if the profits are brought to tax in the A.Y. 2005-
06 or thereafter, the said housing project would have  to  comply  with  the
provisions of clause (d of section 80-IB(10).  To our mind, we do not  think
that the condition/restriction laid down in clause (d) of section  80-IB(10)
has to be revisited and/or looked at and complied  with  in  the  assessment
year in which the profits are offered to tax  by  the  Assessee.   When  the
Assessee claims  a  deduction  under  section  80-IB(10),  the  Assessee  is
required to comply with such a condition only if it is on  the  statute-book
on the date of the approval of the housing project and it has nothing to  do
with the year in which the profits are brought to tax by the  Assessee.   We
have come to this conclusion  only  because  we  find  that  clause  (d)  of
section 80-IB(10) is inextricably linked to the date of the approval of  the
housing project and the subsequent  development/construction  of  the  same,
and has nothing to do with the profits derived therefrom.  We may hasten  to
add that if a particular condition is not inseparably linked to the date  of
approval of the  housing  project,  different  considerations  would  arise.
However, we are not called upon to decide any such condition  and  hence  we
are not laying down any general proposition of law,  save  and  except  that
clause (d) of section 80-IB(10), being a condition linked  to  the  date  of
the approval of the housing project, would not apply to any housing  project
that was approved prior to 31st March, 2005 irrespective of  the  fact  that
the profits of the said housing project are brought to tax  after  the  said
provision was brought into force.”


At this juncture,  we  would  like  to  quote  the  following  passage  from
Commissioner of Income Tax, U.P. v. M/s. Shah Sadiq and Sons[7]:
“14.  Under the Income Tax Act of 1922, the assessee was entitled  to  carry
forward the losses of the speculation  business  and  set  off  such  losses
against profits made from that business  in  future  years.   The  right  of
carrying forward and set off accrued to the assesee under the Act  of  1922.
A right which had accrued and had become vested continued to be  capable  of
being enforced notwithstanding the repeal of the statute  under  which  that
right accrued unless the repealing statute took away  such  right  expressly
or by necessary implication.  This  is  the  effect  of  Section  6  of  the
General Clauses Act, 1897.

15.  In this case the 'savings' provision in the repealing  statute  is  not
exhaustive of the rights which are saved or which survive the repeal of  the
statute under which such rights  had  accrued.   In  other  words,  whatever
rights are expressly saved by the 'savings'  provision  stand  saved.   But,
that does not mean  that  rights  which  are  not  saved  by  the  'savings'
provision are extinguished or stand ipso facto terminated by the  mere  fact
that a new statute repealing the old statute is enacted.  Rights which  have
accrued are saved unless  they  are  taken  away  expressly.   This  is  the
principle behind Section 6(c) of the General Clauses Act, 1897.   The  right
to carry forward losses which had accrued under the repealed Income Tax  Act
of 1922 is not saved expressly by Section 297 of the Income Tax  Act,  1961.
But, it is not necessary to save a right  expressly  in  order  to  keep  it
alive after the repeal of the old Act of 1922.  Section 6(2)  saves  accrued
rights unless they are taken away by the repealing statute.  We do not  find
any such taking away of the rights by Section 297  either  expressly  or  by
implication.”

The aforesaid discussion persuades us to conclude that the judgments of  the
High Courts, which are impugned in these appeals,  take  correct  view  that
the assesees were entitled  to  the  benefit  of  Section  80IB(10).   As  a
result, these appeals fail and are hereby dismissed.

                             .............................................J.
                                                                (A.K. SIKRI)



                             .............................................J.
                                                     (ROHINTON FALI NARIMAN)

NEW DELHI;
MAY 15, 2015.
-----------------------
[1]   333 ITR 289
[2]   (2008) 9 SCC 622
[3]   AIR 1966 SC 1385 :: 60 ITR 262
[4]   (1987) 166 ITR 102 (SC)
[5]   (2015) 1 SCC 1
[6]   (1980) 1 SCC 139
[7]   (1987) 3 SCC 516