M/S LOHIA MACHINES LIMITED AND ANR. v. UNION OF INDIA AND ORS.

A Sub-section 4 of S. 80J lays down the conditions which have •• to be fulfilled by an undertaking to qualify for the relief granted \.- under this section. Even in this sub-section there is no indication that any undertaking set up with borrowed capital or with capital part of which may be borrowed will not be entitled to the benefits of this section. An industrial nndertaking which satisfies all the conditions laid down in sub-section 4 will undoubtedly be entitled to the benefits of S. 80J. An undertaking with., borrowed capital can ,,_ also very well satisfy the conditions of sub-section (4) and qualify 1 • for the relief, as there is notliing in this sub-section which prevents an underiaking set up with wholly or partly borrowed capital from c fulfilling the conditions laid down in the sub-section 4. An under- taking satisfying all the conditions in sub-section (4) and thereby qualifying for relief if, however, set up with borrowed capital, will be denied the relief to which the undertaking in terms of the clear provisions of the section is justly entitled, morely on the ground ,. that the rule prescribed for computing the relief excludes the borrowed.._ D capital in the computation of the capital employed for the purpose of granting the relief under this section. In other words, an industrial undertaking qualifying for the relief under S. 80J by virtue of the clear and unambiguous provisions made in the section will be denied the relief because of the rule, as on computation on the basis of the rule excluding borrowed capital, no relief will be available. As the E sub-section in clear and unequivocal terms provides that S. 80J will " apply to such an undertaking, the benefit intended to be given to, the undertaking under this section cannot be denied to such an undertaking by any rule which will clearly have the effect of • negativing the clear and unambiguous statutory provisions. F The argument of Mr. Palkhivala that the expression 'capital . employed' is a term of art and is usually understood in businesl\,. .. parlance and commercial circles and also in commercial accountancy in the sense that it includes not only owner's capital but also borrowed G capital, particularly if the borrowing is on a long term basis, to my mind, has considerable force. It may be true that in different context and particularly in the context of return of capital, capital employed • may not include borrowed capital. Unless the content otherwise requires and except in the case of return of capital, the expression 'capital employed' in its ordinary sense is understood to includ~ ...,. borrowed capital. It refers to the capital, whatever may be the sourc6, which is employed in any undertaking or venture for carrying on th:e ,H business for the purpose of earning the profits and gains.

LOHIA MACHINES v. (A.N. Sen, J.) 759

In the instant case, the words 'capital employed' have to be A , understood and interpreted in the context the said words have been. -., used in S. 80J. It is quite clear from the text of the section that the words capital employed have been used in the context of the capital which has been employed in the under-taking for producing profits and gains of the undertaking in the relevant year. If borrowed capital B is also employed in the undertaking, capital employed necessarily and clearly includes such borrowed capital which has teen employed * "' in the undertaking and which has contributed to the profits and gains of the undertaking. To my mind, therefore, on a proper inter- pretation, section 80J is clear language postulates that capital employed in the undertaking includes own capital and also borrowed capital c employed in the undertaking in the relevant year and the section plainly and unequivocally makes this intention of the Parliament manifestly clear.

As the Section is clear and unambiguous it is indeed not proper and necessary to refer to any other consideration for its construction. rt may, however, be pointed out that this interpretation not only makes perfect sense but also clearly promotes the object for which this section was incorporated. To my mind, the object of S. 80J which indeed replaces the earlier section 84 which came in place of S. !SC of the earlier Income-Tax Act, is to give impetus and encouragement to the setting up of new industrial undertaking E by offering tax incentives or tax reliefs. The object clearly is to \ encourage persons to set up new industrial undertakings for rapid industrialisation of the country by offering incentives in respect of undertakings covered by this section by way of grant of tax relief on the capital employed in such undertakings. F

In the case of Textile Machinery Corporation v. Commissioner of Income-tax, West Bengal,(1) this Court while considering the object ..t of a similar provision in S. l 5C observed at page 202:-

''The principal object of section 15C is to encourage setting up of new industrial undertaking by offering tax incentives within a period of 13 years from April I, 1948. Section I SC provides for a fractional exemption from tax of profits of a newly established undertaking for five assessment years as specified there in. This section was insertedin the Act in 1949 by section 13 of the Taxation Laws (Extension to

(I} (1977) 107 I.T.R. 19~. H

760 SUPREME COURT REPORTS [1985] 2 S.C.R.

A Merged States and Amendment) Act 1949 (Act 67 of 1949), extending the benefit to the actual manufacture or produc- tion of articles commencing from a prior date, nemely, April I, 1948. After the country had gained independence in 1947 it was most essential to give fillip to trade aud industry from all quarters. That seems to be the background B for insertion of section !SC.

It is also significant that the limit of the number of J-. .. years for the purpose of claiming exemption has been progressively raised from the initial 3 years in 1949 to 6 years in 1953. 7 years in 1954, 13 years in 1956 and 18 years in 1968. The incentive introduced in 1949 has been thus stopped up ever since and the only object is that which we have already mentioned."

In the case of Rajapopa/ayan Mills Ltd. v. Commissioner of ,._ D Income Tax Madras,( 1 ) this Court had also held at page 783: ~ ... "The law of income-tax in a modern society is intended to achieve various social and economic objectives. It is often used as an instrument for accelerating economic growth and development. S. ! SC is a provision introduced in the E Indian I.T. Act, 1922, with a view to carrying out this objective and it is calculated to encourage setting up of new industrial undertakings in the country." i

The rapid industrialisation of the country for economic growth . li' in the larger interests of the country is the main object of this section which seeks to afford an incentive· or tax relief to new industrial undertakings which satisfy the requirements of the section.

To my mind, the argument of the learned Attorney General > . that the provision contained in the Section requiring 'the capital G employed to be computed in the manner prescribed' authorises the rule making authority to include or to exclude borrowed capital at its discretion by making appropriate provision in the rules as to exclusion of a part of the capital employed for compu- tation of capital employed for the purpose of granting relief under the section is clearly untenable. The section only enjoins 'that capital employed is to be computed in the manner to be prescribed and the ) ~

H (I) (1976) 115 ITR 777.

LOHIA MACil!NBS v. UNION (A.N. Sen, J.) 761

manner of computation of the capital employed only authorises the rule making authority to deal with the details regarding compu- • -..i ) talion of capital employed for carrying out the provisions of the section and the provision regarding the manner of computation does not empower or authorise the rule making authority to lay down which part of the capital employed or how much of it will have to be included or excluded and to what extent, if any: The

' .. question whether there should be any such exclusion or inclusion in the matter of consideration of the grant of relief, is essentially a matter of policy for the Legislature to decide and is not a matter for the rule making authority to prescribe. The power of the rule making authosity in terms of the provision contained in section 295 of the c Income-tax Act which confers such power is limited to the framing of rules for carrying out the purposes of the Act. The rule making authority is not competent to prescribe any rule which will be in the nature of a substantive provision of the Act itself and more ~ • particularly, which will be in conflict with the substantive provision • of the section itself and which will in any way defeat or frustrate the purpose for which any provision in the Act has been enacted. In the instant case I am clearly of the opinion on a construction of S. 80J that the said section unequivocally and in clear terms provides that capital employed for earning the profits of the undertaking is the capital which is entitled to the benefit of the relief. The exclusion of borrowed capital by the rule making authority in the rules • " prescribed for computation of the relief under S. 80J is inconsistent ' with and derogatory to the provisions of the statute. The said rule not only fails to carry out the purpose of the said section but in fact tends to defeat the same and the rule runs clearly contrary to the provisions of the statute. The rule excluding borrowed capital must, therefore, be held to be bad and_ invalid.

_. The argument of Mr. Palkhivala that any such rule framed by the rule making authority including or excluding any part of the capital employed in the undertaking in the absence of any guideline will also be clearly beyond the power of the rule making authority, to my mind. is sound. In the section itself or in any other provision of the Act it does not appear that there is any provision laying down any guideline which may entitle the rule making authority to exclude any part of the capital employed, whether it is borrowed capital or own capital. No such provision or guideline is there in the Act. To my mind, there could not possibly be any snch provision or guideline in the Act, as the section itself clearly provides that the entire amount of capital employed for earning the profits will qualify for H

762 SUPREME COURT REPORTS (1915] 2 S.C.R.

the relief. If it be held that the rule making authority enjoy~ and such __ power of excluding any part of the capital employed in the under- taking because of the provision in the section regarding "compu- • tation of capital employed in the manner prescribed" it must necessarily be held that the rule making authority enjoys the power ·- of framing a rule contrary to the provision of the section. It must furl.her be held that the rule making authority at its discretion enjoys the power to exclude the whole or part of owner's capital and . also the whole or part of the borrowed capital. This interpretation .. will mean that uncanalised power will be available with the rule . \

making authority which at its discretion and in the absence of any guideline will be entitled to exclude any or every part of the capital . employed even to an exce'nt of rendering the section itself nugatory . .This interpretation will have the effect of justifying a delegation of power to the rule making authority to an extent which cannot be _permitted, I have no hesitation in coming to the conclusion that the rule making authority does not enjoy any such power or jurisdiction. No such power or jurisdiction in the absence of specific provision and clear guideline in the Act could be delegated to the rule making authority.

In the case of Sales Tax Officer v. K.S. Abraham(l) this Court had the occasion to construe the meaning of the phrase "in the prescribed manner" occuring in S. 84 of the Central Sales-Tax Act,

1956. In dealing with the vires of rule 6 of the Central Sales Tax '(Kerela) Rules, 1967 in so far as the said rule purported to prescribe • a time limit within which the declaration was to be filed by the registered dealer, this Court held,- . -F ' "In our opinion, the phrase 'in the prescribed manner' occurring in S. 8 (4) of the Act only confers power on the rule making authority to prescribe a rule stating what parti- culars are to be mentioned in the prescribed form, the nature and value of the goods sold, the parties to whom G they are sold, and to which authority the form is to be furnished. But the phrase 'in the prescribed manner' in S. 8 (4) does not take in the time element. In other words, the section does not authorise the rule-making _authority to prescribe a time-limit within which the declaration is to be filed by the registered dealer. The view that we have taken is supported by the language of S. 13 (4) (g) of the Act .r ' ff (I) [1967] 3 S.C.R. 518.

LORIA MACH~V. UNION (A.N. Sen, J.) 763 A which states that the State Government may make rules for 'the time within which, the manner in which and the autho- rities to whom any change in the ownership of any business or in the name, place or nature of any business carried on by any dealer shall be furnished.' This makes it clear tliat the Legislature was conscious of the fact that the expression B 'in the manner' would denote only the mode in which an act was to be done, and if any time limit was to be prescri- bed for the doing of the act, specific words such as 'the time within which' were also necessary to be put in the statue. c The Privy Council in the case of Utah Construction & Engi- neering Pvt. Ltd. and Anr. v. Pataky,(1) observed at pages 653-654:

"Their lordships now pass to S. 22 (2) (g) (iv) and (v). Sub-paragraph (iv) empowers the Governor to make regu- lations "relating to the manner of carrying out .... axcavation work'. The relevant portion of reg. 98 provides 'Every drive and tunnel shall be securely protected and made safe for persons employed therein'. The expression 'manner of carrying out' the work plainly envisages a system of working, and does not in their lordships view justify a regulation imposing an absolute duty of protecting the drive and • tunnel or an absolute duty of ensuring the safety of persons \ employed Ill the drive or tunnal. The relevent portion of reg. 98 does not prescribe the manner of doing the work. Sub- paragraph (iv) therefore cannot in their lordships opinion empower the making of the relevant portion of reg. 98."

The proposition that the rule making authority does not have any power to encroach upon any substantive provision in the statute appears to be beyond dispute. By virtue ofS.295 (I) of the Income-tax Act, the rule making authority is empowered to make rules for carry- G ing out the purposes of the Act and sub-section 2 which specifically refers that such rules may provide for all or any of the matters men- tioned in the said subsection does not make any reference to S. 80J. In prescribing the manner of computation of capital employed, the rule making authority, in the absence of specific provision in the section itself or in the absence of any statutory provision, cannot exclude any

(I) (1965] 3 All. E R. 650. H

764· SUPREME COURT REPORTS [1915) 2 S.C.R.

part of the ca.Jital employed in the undertaking at its discretion under A the guise of the process of prescribing the manner of computation.

The argument of the learned Attornney General that as an undertaking which employs borrowed capital gets relief because in calculating the profits and gains the interest paid on the borrowed capital is taken into account, the rule making authority in prescribing the manner of computation of capital employed is entitled to exclude borrowed capital to avoii grant of double relief to the undertaking, is without any m'rit. Interest paid on borrowed capital by any dnuertaking, whether it is an undertaking within the meaning of S.SOJ or not, is taken into account as business expenditure in calculating the profits and gains of any undertaking. It is the prescribed mode of c calculating the profits and pins of every undrtaking and is no special benefit for any undertaking: and, undoubtedly it affords no incentive of special relief to a new undertaking which has necessarily to satisfA the required conditions laid down iu S SOJ for being entitiled to the relief intended to be granted to an undertaking which comes D within the purview of S.SOJ. In any event, such inclusion or exclusion on any consideration will be a matter of policy to be determined by the Legislature and not a matter for the rule making authority to lay down in prescribing the mode of computation.

The decision of the Calcutta High Court in the case of Century Enka Ltd. v. I.T.0.,( 1) the decision of the Madras High Court in the case of Madras b;dustrial Linings Ltd. v. I.T.0.(2 ), the decision of the Allahabad High Court in Kota Box Manufacturing Co. v. I.T.O.(') ' the decision of the Punjab and Haryana Hige Court in the case of Ganesh Steel Industries v. I.T.O.('), the desision of the Andhra F Pradesh High Court in the case of Warner Hindustan Lid. v. I.T.0.(6) holding the rule to the extent it excludes borrowed capital in the computation of capital employed for the purpose of granting relief under section 80J to be invalid, are correct and I have no hesitation in upholding these decisions. The contrary view expressed by the Madhya Pradesh High Court in the case of Commissoiner of Income Tax, M.P. II v. Anand Bahri Steel and Wire Products(') must necessarily be held to be erroneous.

(!) [1977] 107 !TR 123. (2) [1977] 110 !TR 256. (3) [19801123 !TR 638. (4) [1980] 126 !TR 258. J (5) [19821134 !TR. 158. (6) 11982] 133 !TR 365. H

tOlt!A MACtl!N8S V, u~rnl (A"ll/.S: 1.1.) 15i It may be noticed that the M1dhya Pt'd:;h Hil1 Ciict prJ:J:· A ded to hold the rule to be valid mainly on the ground that this rule has been in existence for a long time under S.!5C of the earlier Act which subsequently came to be replaced by S.80J and the Parliament must have been aware at the time of enacting S.80J of the existence of the rule framed bY the rule making authority which held the field for a long period without any challenge. The decision proceeds on B the basis that the Parliament must have, therefore, accepted the interpretation put by the rule making authority at the time the Parliament enacted S 801. This decision does not take into considera- tion the fact that the interpretation put by the rule making authority has not been the same all throughout and has undergone changes from time to time and the rule making authority has in certain years c also permitted certain classes of borrowed capital to be taken into account in computation of capital employed for the purpose of relief. The decision of the Madhya Pradesh High Court does not also take into consideration the question whether the rule seeking to include or exclude borrowed capital at the discretion of the rule making authority in the absence of any statutory provision or guideline, D becomes bad on account of unjustified excessive delegation of authority. This decision of the Madhya Pradesh High Court has not proceeded to construe S.80J correctly to gather the true intention of the Parliament before deciding the question as to whether the rule excluding borrowed capital is consistent with the intention of Parlia- E ment clearly expressed in S.80J. In my opinion, the mere existence of an invalid rule without \ any challenge for any length of time does not affect the question of validity of the rule and cannot render a rule otherwise invalid to be valid only on the ground that the rule had remained in existence without any challenge for a number of years. In the case of Propriet- F ary Articles Trade Association v. Attorney Genera/for Canada('), the Judicial Committee while considering the vires of a statute namely, Combines Investigation Act R.S. Can. 1927, c. 26 passed by the Parliament of Canada observed at p. 317 :- "Both the Act and the section have a legislative history, G which is relevant to the discussion. Their Lordships enter- tain no doubt that time alone will not validate an Act which when challenged is found to be ultra vires ; nor will a history of a gradual series of advances till this boundary is finally crossed avail to protect the ultimate encroachment."

In the case of Campbell College Belfast (Governors) v. Commis-

(I) [1931] A.C. 310. H

766 SUPREME COURT REPORTS (1985] 2 S.C.R.

A sioner of Valuation for Northern Ireland(l), the House of Lords while considering the validity of payment of rates by fee paying public school in Northern Ireland which has continued for over 132 years \ \,.- despite the terms of s. 2 of the Valuation (Ireland) Act Amendment Act, 1954, held at p. 941 to 942 :-

"My Lords, for my part I am quite unable to apply that principle to a statute although it was passed over 100 years ago, but its language is plain and unambiguous and it was not misconstrued until the decision in the Alexandra College case 60 years later. True it is that fee paying schools did always pay rates in accordance with section 2, but until 1914 c that was not because it was assumed that section 2 was con- trolled by the proviso, and that charitable purposes bore a limited meaning. It may have been that it was thought that if some of the pupils were free paying, section 16 of the Act of 1852 was not satisfied. That argument is now untenable and, as Black L.J. pointed out at an early part of his judg- D ment, Campbell College is clearly for this purpose a chari- table institute. My Lords, in these circumstances I can attach no weight whatever to this long unquestioned pay- ment when construing section 2. To my mind, this doctrine can have no application to the circumstances of this case.

It is also well-settled that even if the rules have been laid before .the Parliament and there is a resolution of the Parliament approving the rules, the validity of the rules has to be declared by the Court and the Court can declare any rule placed before the Parliament and approved by the Parliament to be ultra vires the Act and invalid. F Jn the case of Kera/a State Electricity Board. v. Indian Alumlnium(2)., this Court held at p.576 :-

"In India many statntes both of Parliament and of State Legislatures provide for subordinate legislation made under the provisions of those statutes to be placed on the table of either the Parliament or the State Legislature and to be subject to such modification, amendment or annulment, as the case may be, as may be made by the Parliament or the State Legislature. Even so, we do not think that where an executive authority is given power to frame subordinate legislation within stated limits, rules made by such authority

(I) [1964] 1 W.L.R. 912. ,H (2) [1976] 1 S.C.R.'552.

LOI!IA MACfl!NBS v. UNION (A.lV. Sen, J.) 161 if outside the scope of the rule making power should be A. I deemed to be valid merely because such rules have been ~ placed before the legislature and are subject to such modi- fication, amendment or annulment, as the case may be, as the legislature may think fit. The process of such amend- ment, modification or annulment is not the same as the II process of legislation and in particular it lacks the assent either of the President or the Governor of the State, as the case may be. We are, therefore, of opinion that the correct view is that notwithstanding the subordinate legislation being laid on the table of the House of Parliament or the State Legislature and b~ing subject to such modification, ( annulment or amendment as they may make, the subordinate legislation cannot be said to be valid unless it is within the scope of the rule miking po ver provided in the statute."

The other impugned provision of the rule, prescribing that capital employed should be computed on the basis of the capital [ employed on the first day of the year, must on a proper construc- tion of the section be also held to be invalid. The section clearly provides that the deduction to be allowed is to be computed in the prescribed manner in respect of the previous year relevant to the assessment year. The deduction to be allowed is on the profits and gains of the undertaking earned in the releavant year in respect of the previous year relevant to the assessment year. Profits and gains • \ which are to be taken into account are the profits and gains ear- ned in the relevant year and the year must necessarily mean and include the whole of the year and not some days or months of the year. The capital employed for earning the profits and gains during the whole year must necessarily be the capital which is entitled to the benefit of the section. Capital employed on the Ist day of the year does not produce the profits of the entire rolevant year, unless the very same amount of capital remains employed throughout the year. It does not usually happen and in any event it may not happen. Therefore, by prescribing the !st diy of the year to be the date of computation of the capital employed, the capital employed during the whole year is sought to be denied by the. rule the benefit to which it is entitled under the section. This provision, therefore, is clearly contrary to and inconsistent with the specific provision of the statute, as by fixing the I st day of the year to be the date of computation of the capital employed for the year, the rule making authority is seek- ing to deny the benefit conferred by the statute.

Andhra Pradesh High Court in the case of Warner Hindustan

768 SUPREME COURT REPORTS (1985) 2 S.C.R·

Ltd. and Anr. v. Income-tax Officer and Ors. (supra) in dealing with this question has referred to the decision of the Calcutta High I Court in Century Enka Ltd. v. Income-tax Officer (supra) on this very '~

point and in agreement with the decisions of the Calcutta High Court, the Andhra Pradesh High Court held at p. 195 :-

"As observed by a learned Judge of the Calcutta High Court in Century Enka Ltd. v. Income tax Officer(I),the main consideration upon which this question has to be resolved is (p. 132), 'whether having regard to the purpose for which provisions of S. 80J of the Act was introduced, it was the legislative intent to restrict the capital employed in any manner so as to limit it to the first day of the computation period'. So far as S. 80 J is concerned, it does not give any such indication. That apart, such computation of capital employed in an industrial undertaking would defeat the very purpose of the undertaking and would lead to incongruous D and anomalous results. While an assessee who has employed the capital in an industrial undertaking on the very first day but has withdrawn it for the major part of the year would be antitled to the full benefit, an assesses who has not em- ployed the capital on the first day but has employed it dur- ing the major part of the previous year would be deprived of the benefit. If the intendment of the Act is to give tax holiday for the new industrial undertaking with a view to help them find their roots and encourage enterpreneure to establish new industrial undertakings and pave the way for rapid industrial growth in the country then the purpose would be not served. In fact, it would be defeated if the capital employed is computed with reference to the first day of the computation period and not in respect of the previous year relevant to the assessment year".

The Calcutta High Court and Andhra Pradesh High Court have both held this part of the rule fixing the first day of the year for computing the capital employed for the purpose of granting relief under S. 80J to be invalid. I find no difficulty in upholding the decision of the Calcutta High Court and of the Andhra Pradesh High Court on this question. T know proceed to consider the other question about the vali- dity of the amendment of section 80J introduced by the Finance 7' (!) ~19771107 I.T.R. 123.

LOHIA MACHINES v. UNION (A.N. Sen, J.) 769

Act 2 of 1980. By the amendment the provisions contained in the rule excluding borrowed capital and fixing the first day of th_e year for computation of capital employed for the purpose of relief under S. 80J have been incorporated in the section itself with retrospective effect from 1.4. 72.

On behalf of some of the assessees the amendment both with regard to its prospective and retrospective operation has been challenged. Dr. D. Pal, supported by other learned counsel, addressed us mainly on the aspect of prospective operation, while supple- • menting and supporting the submissions of Mr. Palkhivala on the aspect of retrospective operation. Mr. Palkhivala who has been the principal spokesman for the assessees, confined his challenge to the validity of the amendment mainly to the retrospective part, although he made it clear that he was not conceding the validity of the pros- pective operation.

I propose to consider the submission of Dr. Pal in the first D ' instance. If the submission of Dr. Pal that the entire amendment is invalid is accepted, the submission of Mr. Palkhivala that the amend- ment in so far as it is made retrospective is also bad must necessarily succeed.

Dr. Pal has argued that the amendment seeks to make an nvidious distinction between own capital and borrowed capital in the matter of granting relief under this section. It is the argument of Dr. Pal that having regard to the object of the section which is to promote new industries and to give relief on the basis of the capital employed in such new industries by way of incentive, distinc- tion between own capital and borrowed capital is wholly irrelevant and does not have any nexus with the object sought to be achieved and this distinction between own capital and borrowed capital in the matter of computation of capital employed in the undertaking for the purpose of granting relief results in unjustified discrimination and is therefore violative of Art. 14 of the Constitution. To my mind, there is no merit in the submission of Dr. Pal. It is entirely a matter for the Parliament to decide whether any relief by way of incentive should be allowed and if so to what extent and in what manner. There is no obligation on the part of the Parliament to make any provision for granting relief to promote new industries. The Legis- lature in its wisdom may decide to grant relief and may equally decide not to grant any relief. It is essentially for the Legislature to decide as to whether any incentive for promoting industrial growth of the country is called for and if the Legislature feels that in the 11

11() SUP!i.EME COCRT REPORTS [198S] 2 s.c.R. A situ1tion pr0vailing in the country such incentive should be provided it will be again for the Legislature to decide what kind of incentive and in what form and to what extent the same should be provided and to pass appropriate legislation in this regard. The Parliament would have been legally competent to withdraw the entire relief under section B SOJ and to abrogate the said section in its entirety, if the Parliament had considered such withdrawal to be necessary. The Parliament is equally competent to increase or reduce the quantum of relief intended i.-, to be given under this section. In providing that relief intended under S. SOJ would be allowed only to owner's own capital and not to any • borrowed capital, there can be no infringement of Art. 14. No entrepre- • c nuer or businessman can claim as a matter of right that relief by way of incentive should be 12rovided to new undertakings to be set up by him. The Parliament provides for such relief in pursuance of a policy and policy may change from time to time in view of the situation prevailing from time to time. The Parliament may legitimately feel that borrow- ing by businessman may not be encouraged and persons should be encouraged to bring their own money for setting up new undertakings ' and Parliament may provide for appropriate relief by way of incentive to the owner's capital employed to the exclusion of borrowed capital in the setting up of any new industrial undertaking. Whether it is prodent to do so is essentially a matter for the Parliament in its wisdom to decide. It is not for this Court to sit in judgment over the wisdom of the Parliament in the framing of its policy. The discrimination in the matter of grahting relief to own capital to the r exclusion of borrowed capital in pursuance of a policy cannot be said to be violative of Art. 14, as the two classes of capital, though forming a part of the total capital of the undertaking, are distinct and they stand on a different footing. A classification between these two classes of capital for encouraging investment of own capital in setting up new industrial undertakings, cannot be held to be unreaso- nable and unjustified. The contention of Dr. Pal that the amendment in discriminating between borrowed capital and owner's own capital in the enjoyment of relief under section 80J infringes Art. 14, must -G therefore, be rejected. Very properly in challenging the validity of the amendment in so far as it operates prospectively, no grievance in regard to violation of Art. 19 of the Constitution has been made. I now pass on to the question of the validity of the amend· ment with retrospective effect from 1.4 I 972.

It bas been contedned by the learned counsel for the assessees T ' that the retrospective operation of the provision is unreasonable, H arbitrary and violative of Arts. 14 and 19 of the Constitution. The

LO!lIA MACHINES v. UNION (A.N. Sen, J.) 771

- main argument is that the withdrawal of relief granted by the statute before the present amendment and lawfully enjoyed by the assessee during all these years and thereby imposing on the assessee an unjust, unmerited and accumulated huge financial liability, cannot be consi- dered to be reasonable; and such imposition of accumulated liability will seriously affect the financial stability of the undertakings and A

will further create various other difficulties which may be almost B impossible for the assessees to overcome. It bas been argued that the present amendment has not been necessitated as a result of any pro- vision of the statute being declared ultra vires for any lacuna in the statutory provision and there is no question of any liability being foisted on the Government of refunding any large sun of money collected as tax from the assessees on account of any statutory provision impo- c sing any levy being declared invalid or unconstitutional. It is submitted that in view of the unequivocal provision of the statute granting relief to borrowed capital which was sought to be negated • and denied by an invalid rule which has been struck down, the assessees are legitimately entitled to the relief and they have rightly and justifiably arranged their affairs on the basis of the law as it stood. The existence of an invalid rule and the pendency of appeals in this Court against the judgment of the various High Courts declaring the rule to be invalid cannot be considered to be relevant factors, particularly when the statutory provision is clear, for guiding the assessee who has to carry on its normal trading activities, in arranging its affairs. The submission is that the withdrawal or relief lawfully granted and properly enjoyed by the assessees after this Jong lapse of time, when no serious prejudice is caused or is likely to be caused to the public exchequer and on the other hand a heavy unwarranted financial burden alongwith other difficulties and prob- lems are created for the assessee, cannot be said to be in public interest and must be held to be unreasonable, arbitrary and violative of Art. 14 and 19 of the Constitution. The learned Attorney General bas submitted that retrospective operation of the provision does not suffer from any infirmity and is not arbitrary or unreasonable nor is it violative of Art. 14 and 19 of the Constitution. He argues that prior to rule 19-A being considered by some of the tribunals and by various High Courts, the said rule excluding borrowed capital in the matter of computation of relief and fixing the 1st day of the year as the relevant date for the compu- tation of relief has remained in force for a number of years. It is his argument that after the said rule bad been struck down, the validity of the decisions bas been challenged and was pending appeal in this court; and the appeal was pending at the time when the present H

772 SUPREMB COURT REPORTS [1988] 2 S.C.R.

- A am~ndmJnt c1m~ to b~ enacted in 1980. The Learned Attorney General contends that as rule 19-A excluding borrowed capital and fixing the first day of the year as the date for computation of relief had remained in force for a number of years and as· the decision striking down the rule is now pending appeal, the assessees were not justified in arranging their affairs on the basis of the said rule being B invalid and as prudent men of business they should have so arranged their affairs as to cover every contingency and particularly th.e contingency of the validity of the rule being upheld by this Court. The Learned Attorney General has submitted that the amendment • has been introduced before the decision of this Court in the pending appeals, as the Parliament wanted to clarify the position in the c interest of all concerned and more so in the interest of the assessees to enable the undertakings which qualified for relief under S. 80J to enjoy the benefit intended to. be conforred by the Section. It is the submission of the Learned Attorney General that in the absence of any valid rule prescribing the manner of computation of relief to • .. D which the assessee may be entitled under S. 80J, the benefit cannot be computed and, therefore, no benefit contemplated under S. 80J may be at all available to the assessees. He submits that if the rule is held to be valid by this Court in these appeals, the arguments of the assessee that the assessee has arranged its affairs on the basis of invalidity of the rule will be of no avail; and he further submits that if the invalidity is upheld by this Court in these appeals, the assessee in the absence of any valid rule prescribing the manner of computation of the relief will not be entitled to the benefit of any J

relief under the section. It is his submisson that in these circumstances the Parliament with the object of seeing that the assessee who is entitled to any relief under S. 80J is not denied such relief over these years for lack of provision of a suitable rule prescribing the manner of computation of such relief, has amended the section itself with retrospective effect from 1972 in the interest of the assessees them- selves. It is the submission of the Attorney General that as the amendment with retrospective effect has been made essentially in the interast of the assessees to enable them to enjoy the relief intended to be given under S. 80J, the retrospective effect of the amendment cannot be said to be unreasonable or arbitrary and the retrospective a 11'1J 11' 1 t dose not violate either Art. 14 or 19 of the Constitution, even if the retrospective effect may operate harshly on some assessees. Before considering the arguments advanced on behalf of the parties, I propose at this stage to refer to some of the decisions cited from the Bar on this aspect.

LOHIA MACHINES v. UNION (A.N. Sen, J.) 773

In the case of Epari Chinna Krishna Moorthy, Proprietor Epari A Chinna Moorty and Sons, Berhampur Orissa v. State of Orissa,(1} it was observed at p. 191:- "' "Mr. Sastri also argued that the retrospective operation of the impugned section should be struck down as unconsti- tutional, because it imposes an unreasonable restriction on B the petitioners' fundamental right under Art. 19 (I} (g). It _,. is true that in considering the question as to whether legis- > !alive power to pass an Acl retrospectively has been reaso- nably exercised or not, it is relevant to enquire how the retrospective operation operates. But it would be difficult to accept the argument that because the retrospective opera- c lion may operate harshly in some cases., therefore, the legislation itself is invalid. Besides, in the present case, the retrospective operation dose not spread over a very long . •, period either . Incidentally, it is not clear from the racord that the petitioners did not recover sales tax from their customers when they sold the gold ornaments to them". ,D

In the c;ise of Rai Ram Krishna & Ors. v. State of Biharf). this Court observed at pp. 914-917:- "Mr. Setalvad contends that since it is not disputed ) that the retrospective operation of a taxing statute is a rele- vant fact to consider in determining its reasonableness, it E ' may not be unfair to suggest that if the retrospective opera- tion covers a long period like ten years, it should be held to impose a restriction which is unreasonable and as such, must be struck down as being unconstitutional. In support of this plea, Mr. Set1lvad has referred ns to the observations made by Sutherland. 'Tax Statute,' says Sutherland, 'may be retrospective if the legislature clearly so intends. If the F _;; retrospective feature ofa law is arbitrary and burdensome, the statute will not be sustained. The roasonableness of each retrospective tax statute will depend on the circumstances of each case. A statute retroactively imposing a tax on income .. earned between the adoption of an amendment making ,.._/

income taxestes legal and the passage of the income tax Act G is not unreasonable. Likewise an Income tax not retroactive beyond the year of its passage is clearly valid. The longest ~ -i '· (I) (1964 7) S.C.R. 185. (2) (1964] 1 S.C.R. 897. H •

174 SUPREME COURT REPORTS [1985] 2 s.c.a. period of retroactivity yet sustained has been three years. A In general, income taxes are valid although retroactive, if they affect prior but recent transaction.' Basing himself on ~

these observations Mr. Setalvad contends that since the period covered by the retroactive operation of the Act is between April 1, 1950 and september 25, 1961, it should be held that the restrictions imposed by such retroactive opera- B tion are unreasonable, and so, the Act should be struck down in regard to its retrospective operation. We do not k thiuk that such a mechanical test can be applied in deter, mining the validity of the retrospective operation of the Act. ' It is conceivable that cases may arise in which the retros- pective operation of a taxing or other statute may introduce · G such an element of unreasonableness that the )estrictions imposedby it may be open to serious challenge as unconstitu- tional, but the test of the length of time covered by the retros- pective operation cannot, by itself, necessarily be a decisive test. We may have a statute whose retrospective operation .\ .. D covers a comparatively short period and yet it is possible that the nature of the restriction imposed by it may be of such a character as to introduce a serious infirmity in the retrospec· tive operation. On the other hand we may get cases where the period covered by the retrospective operation of the statute, though long, will not introduce any such infirmity. Take the E case of a Validating Act. If a statute passed by the legislature is challenged in proceedings before a Court, and the challen- ,"' ge is ultimately sustained and the statute is struck down, it is not unlikely that the judicial proceedings may occupy a fairly long period and the legislature may well decide to await the final decision in the said proceedings before it p uses its legislative power to cure the alleged infirmity in the earlier Act. In such a case, if after the final judicial verdict is pronounced in the matter the legislature passes a validat- _t.. ing Act, it may well cover a long period taken by the judicial proceedings in Court and yet it would be inappro· priate to hold that because the retrospective operation G covers a long period, therefore, the restriction imposed by it is unreasonable. That is why we think the test of the length of time covered by the retrospective operation cannot by itself be treated as a decisive test". It the case of Jawaharlal v. State of Rajasthan & Ors.( 1) this _'r .... Court held at p. 905:- H (I) (1966] l S.C.R. 890.

LOIITA MACHINES v. UNION (A.N. Sen, J.) 775 "We have already stated that the power to make laws A involves the power to make them effective prospectively as well as retrospectively, and tax laws are no exception to this rule. So it would be idle to contend that merely because a taxing statute purports to opera! retrospectively, the retros- pective operation per se involves contravention of the funda- mental right of the citizen taxed under Art. 19(1)(fJ or (g). B It is true that cases may conceivably occur where the Court may have to consider the question as to whether excessive retrospective operation prescribed by a taxing statute • amounts to the contravention of the citizens' fundamental right; and in dealing with such a question, the Court may C have to take into account all the relevant and surrounding facts and circumstances in relation to the taxation".

In the case of Assistant Commissioner of Urban Land Tax v. The Buckingham & Carnatic Co. Ltd.' etc. it was observed at P.287:- D "It is contended on behalf of the petitioners that the retrospective operation of the law from !st July, 1963 would make it unreasonable. We are unable to accept the argument of the petitioners as correct. It is not right to say as a general proposition that the imposition of tax with retros- pective effect per se renders the law unconstitutional. In E applying the test of reasonableness to a taxing statute it is of course a relevant consideration that the tax is being enforced with retrospective effect hut that is not conclusive in itseif".

In the case of M/s. Krishnamurthi & Co. Etc. v. State of Madras & Anr.(2) this Court observed at P. 61:- F

"The object of such an enactment is to remove and rectify the defeat in phraseology or lacuna of other nature and also to validate the proceedings, including realisation of tax, which have taken place in pursuance of the earlier enactment which has been found by the Court to be vitiated G by an infirmity. Such an amending and validating Act in the very nature of things has a retrospective operation. Its aim is to effectuate and carry out the object for which the earlier principal Act had been enacted. Such an amenclmg

(I) [1970] I S.C.R. 268. (2) [1973] 2 S.C.R. 54.

776 SUPREME COURT REPORTS [1985] S.C.R. A and validating Act to make ·small repairs' is a permissible mode of legislation and is frequently resorted to in fiscal enactments."

Similar observations have been made by this Court in the case of Hira Lal Rattan Lal etc. etc, v. State of U.P. & Anr. etc(') at B p. 5ll:-

"A feable attempt was made to show that the retros- pective levy made under the Act is violative of Art. 19(1) (f) and (g). But we see no substance in that contention. As • seeri earlier, the amendment of the Act was necessitated c because of the legislature's failure to bring out clearly in the principal Act its intention to separate the processed or spilit pulses from the unsplit or unprocessed pulses. Further the retrospective amendment became necessary as otherwise the State would have to refund large sum of money". D In the case of State of Gujarat v. Ramanalal Keshave Lal Soni(2), this Court observed at p. 62:-

"The Legislature is undoubtedly competent to legislate with retrospective effect to take away or impair any vested right acquired under existing laws but since the laws are E made under a written Constitution, and have to conform to do's and don'ts of the Constitution; neither prospective nor retrospective laws can be made so as to contravene funda- mental rights. The law must satisfy the requirements of the Constitution today taking into account the accrued. or acquired rights of the parties today. The law cannot say 20 F years ago the parties had no rights, therefore, the require- ments of the Constitution will be satisfied if the Jaw is dated back by 20 years. We are concerned with today's rights and not yesterday's. A legislature cannot legislate today with reference to a situation that obtained 20 years ago and ignore the march of events and the constitutional rights accrued in the course of the 20 years. That, would be most . ' arbitrary, unreasonable and a negation of history".

The power and competence of the Parliament to amend any )' -

(I) (1973) 2 S.C.R. 502. (2) (1983) 2 s.c.c. 33.

LORIA MACHINES v. UNION (A.N. Sen, J.) 777 statutory provisiou with retrospective effect cannot be doubted. Any A retrospective amendment to be valid must, however, be reasonable and not arbitrary and must not be violative of any of tbe fundamental rights guaranteed under the Constitution. The mere fact that any statutory provision has been amended with retrospective effect does not by itself make the amendment unreasonable. Unreasonableness or arbitrariness of any such amendment with retrospective effect has B necessarily to be judged on the merits of the amendment in the light of the facts and circumstances under which such amendment is made. ,, In considering the question as to whether the legislative power to amend a provision with retrospective operation has been reasonably exercised or not, it becomes relevant to enquire as to how the retrospective effect of the amendment operates. c In the large interest of administration and for promotion of public interest and welfare of the country power has been conferred by the Constitution on the Parliament to mobilize resources and to levy tax. In view of the complexity of fiscal adjustment of diverse elements the Parliament necessarily enjoys a very wide discretion in the matter of fiscal legislation. To meet various expenses for proper administration, maintenance of defence and security, for promoting peace and prosperity and for development of social, economic and all round growth of the country, the Government must have resource and sufficient funds at its disposal. Suitable provisions have necessarily to be made for raising the revenue and for proper realisation of funds to be collected to meet such expenses. Appropriate legislations inclu- ding various fiscal Jaws are enacted for this purpose. Imposition of any tax by the Parliament is therefore considered to be made in public interest. It may so happen that any provision of any enact- ment imposing a particular levy may be challenged in Court and may be challenged successfully ; and the particular levy may, for some reason or other, be held to be constitutionally invalid. If any parti- cular provision of any statute imposing any tax which has been or is being collected, is struck down as unconstitutional, the financial arrangement of the State may become upset and the Government which might have already collected and even utilised the tax, may be called upon to refund taxes so collected. lf such a situation arises the economy of the State may get unbalanced and difficulties may arise for meeting the various commitments and obligations. Under such circumstances a Validating Act may be passed and is often enacted to remove the infirmities which might have led to the invalidation of the provision imposing the levy. Validating Acts for meeting such situ- ations have necessarily to be passed with retrospective operation so that the fiscal arrangement of the State and its financial commitments H

778 SUPREME COURT REPORTS (1985] 2 S.C.R

A may not in any way be in jeopardy and the State may be relieved of the liability of refunding any tax already collected. A validating Act validating any fiscal provision with retrospective operation is usually held not to be unreasonable or arbitrary. In the case of any Validating I - Act, the intention of the legislature is generally made sufficiently clear in the section or in the Act which is declared invalid on account B of some flaw or defect which is within the competence of the Parlia- ment to rectify. Such Valiuating Acts, it may be observed, do not in >- fact have the effect of imposing a fresh tax with retrospective effect ~ ' and they only legalise the levy already imposed. There is in effect and substance no imposition of any new tax for the earlier years by virtue of the retrospective operation and the retrospective operation merely c validates the levy already imposed and possibly collected. The present amendment has been necessitated not as a result of any part of S. 80J being declared invalid. There was no lacuna or defect in section 80J prior to the impugned amendment and the section which was perfectly valid granted relief in clear and unambiguous language to "" the assessee in respect of capital employed, whether assesees's own • "- D or borrowed, in an undertaking which qualified for relief under the section. The rule making authority by framing an invalid rule sought to deny the assessee the benefit of the relief lawfully and validly gran- tcd by the section. The rule was contrary to the clear provisions of the statute and the invalid rule has been rightly struck down. By the

E present amendment the P~rliament is seeking to validate not any pro- vision of the State declared invalid because of any flaw or defect, as " there was none, but is seeking to validate an invalid rule which had sought to deprive the assessee of the benefit which the Parliament had clearly bestowed on the assessee by the section. The eJect of the pre- sent amendment by seeking to incorporate the provisons of the rule declared invalid in the section itself is to withdraw with retrospective effect the relief which had been earlier granted by the Parliament in so far as the relief extends to borrowed capital employed in the ,lo:' undertaking and thereby to impose on the assessee a burden of tax which was not there for all these years. As a matter of policy it may be open to the Parliament to withdraw the relief granted to borrowed capital by an amendment with prospective effect consequent on any such amendment. To withdraw with retrospective effect the benefit of relief unequivocally granted by the section to an assessee who quali- fled for such relief and was lawfully entitled to enjoy the benefit of such relief and has in fact in many cases enjoyed the benefit for all )- these years, prior to the present amendment with retrospective effect, cannot, in my opinion, be said to on any just and valid grounds and cannot be considered to be reasonable. If any fiscal statute grants relief to any assessee and the assessee enjoys the benefit of that relief, tt

LOHIA MACHINES v, UNION (A.N. Sen, J.) 779 as the assessee is legally entitled under the statute, the withdrawal of the relief validly and unequivocally granted and enjoyed by any A assessee must necessarily in the absence of proper grounds be held to be unreasonable and arbitrary. The relief granted under section SOJ before the present amendment was not merely a promise on the part of the Government relying on which the assessee might have set up new undertakings, but it was in the nature of a statutory right confer- B red on any assessee mighi have set up new undertakings, but it was in the nature of a statutory right conferred on any assessee who qualified for such relief under the section. The withdrawal with retrospective effect of any relief granted by a valid statutory provision to an assessee, depriving the assessee of the benefit of the relief vested in the assessee, stands on a footing entirely different from the footing c which may necessiate the passing of a Validating Act seeking to vali- date any statutory provision declared unconstitutional. When Parlia- ment passes an amendment validating any provision which might have been declared invalid for some defect or lacuna, the Parliament seeks to enforce its intention which was already there by removing the defect or lacuna. The Parliament indeed seems to remedy the situation D created as a result of the statutory provision being declared invalid. As I have earlier observed, this is done in public interest for properly regulating the fiscal structure and to relieve the Government of any financial burden by way of refund of taxes collected for enabling the State to implement its budget by proper collection of revenue expec- E ted to be realised. When the Parliament in any fiscal statute proposes to grant any relief to any assessee the Parliament must be presumed to do so in public interest. In the instant case section SOJ granted relief for the purpose of promoting the industrial growth of the country by affording incentive for the setting up of new undertakings. As a matter of policy again the Parliament may withdraw such relief or any part thereof or modify the nature, extent and kind of relief, if Parliament may withdraw such relief or any part thereof or modify the nature, extent and kind of relief, if Parliament in its wisdom may consider any such action necessary and proper and any such act done by the Parliament must also be regarded to have been done in public interest. However, the withdrawal or modification with retrospective effect of the relief properly granted by the statute to an assessee which the assessee has lawfully enjoyed or is entitled to enjoy as his vested statutory right depriving the assessee of the vested statutory right, has the effect of imposing a levy with retrospective effect for the years for which there was no such levy and cannot, unless there be strong and exceptional circumstances justifiying such withdrawal or modi- fication, be held to be reasonable or in public interest. This kind of retrospective amendment, seeking to defeat an accrued statutory right H

780 SUPREME COURT REPORTS (1985] 2 S.C.R.

is likely io affect the sanctity of any statuory provision and may create a state of confusion. The only circumstance which appears to have Jed to the present retrospective amendment is the existence of \ .. the invalid rule. The existence of any invalid rule seeking to deny an assessee a benefit clearly and unequivocally granted to an assessee by the Legislature, lawfully and properly enjoyed or to be impugned amendment in 1980 the relief granted by S. 80J had been in force and had been legitimately available to the assessee. In view of the clear provision made in the statute by Parliament itself the Parliamant must be presumed to have been aware that the relief as contemplated under S. 80J was available to the assessee and the assessee had been • enjoying and were entitled to enjoy the benefit of the said relief. The c Parliament must have and in any event must be presumed to have arranged the financial affairs of the State on the footing that the relief allowed to an assessee under S. 80J was being enjoyed and would be enjoyed by the assessee In view of the clear provision of the statute which must be held to manifest the true intention of the Parliament it will be idle to contend that Parliament could have intended that the relief so granted would not be available to the assessees who would be liable to pay a larger amount of tax. The years for which relief had remained in force had already passed out. It does not appear that as a result of the relief enjoyed by the assessee, the finan- cial position of the State for all these years, had been or could be in any way affected. The facts and circumstances also do .not indicate that there will be any heavy burden on the State to sound taxes collected which may upset the economy of the State. It appears that J in the majority of the cases, the assessees have succeeded and they .have been assessed after being allowed the relief and under S. 80J in respect of the borrowed capital also.

On the other hand it is quite.clear that if the relief granted is to be withdrawn with retrospective operation from 1972 the assessees who have enjoyed the relief for all those years will have to face a very grave situation. The effect of the withdrawal of the relief with retros- pective operation will be to impose on the assessee a huge accumula- ted financial burden for no fault of the assessee and this is bound to create a serious financial problem for the assessee. Apart from the G heavy financial burden which is likely to upset the economy of the undertaking, the a;sessee will have to face other serious problems. On the basis that the relief was legitimately and legally available to the assessee, the assessee ha_d proceded to act and to arrange its affairs. If the relief granted is now permitted to be withdrawn with retrospective operation, the asscssee may be found guilty of violation H p1o~isicrl of otbu statuto ard uay be visited with panel consequen-

LOHIA MACHINES v. UNION (A.N. Sen, J.) 781 ces. This position cannot be and is not disputed by the learned A Attorney General who has, however, argued that taking into conside- ration the peculiar facts and circumstances, penal provisions may not be enforced. This argument does not impress me. The assessee has, in any event, to run the risk and for no fault on his part has to place itself at the mercy of the authorities for facing consequences of viola- tion of statutory provisions. which but for the introduction of retros- pective amendment, would not have been voilated by the assessee. B

To establish arbitrariness or unreasonableness it does not become necessary to prove that the undertaking of the assessee will be com- pletely crippled and will have to be closed down in consequence of the withdrawal of the relief with restrospective effect. There cannot be any doubt about the real possibility of very serious prejudice being caused to the assessee for no fault of the assessce. In my opinion, the c possibility of very grave drejudice to the assessee by the withdrawal of the relief with retrospective effect, in the absence of any justifiable ground and any serious prejudice to the interest of revenue, establi- shes unreasonableness and arbitrariness of the retrospective amend- ment is bound to have very serious effect on the assessee and there is reasonable possibility of the business of the assessee being adversely D affected and seriously prejudiced. The retrospective amendment, therefore, is also violative of Art- 19 (1) (g) of the Constitution.

The argument of the Attorney General that the amendment had to be made with retrospective effect in the interest of the assessee, as otherwise, the assessee would not be entitled to the benefit of there- E lief intended to be given under the section because there will be no valid rule for computing the relief, to my mind, is clearly untenable. I see no reason as to why there should be any difficulty in the com- putation of relief if the invalid part of the rule is struck down. It may be noted that the rule in so far it excludes borrowed capital and fixes the first day of the year for computation of the relief had been struck down by various High Courts years ago and the assessing authorities have found no difficulty in computing the relief and in proceeding to complete the assessment by granting the relief legally available to to assessee under S. 80J even after the invalid part of the rule had been struck down. It may also be noted that the Parliament had also not considered it necessary to effect this amendment earlier inspite of the decisions of the High Courts, althongh the Parliament had intro- duced other amendments into this section.

Before concluding I wish to emphasise that the withdrawal with retrospective effect by amendment of any financial benefit or H

782 SUPREME COURT REPORTS [1985] 2 S.C.R.

relief granted by a fiscal statute must ordinarily be held to be unrea- A sonable and arbitrary. Such withdrawal makes a mockery of bene- ficial statutory provision and leads to chaos and confusion. Such withdrawal in effect results in the imposition of a levy at a future date for past years for which there was no such levy in the relevant years. The imposition of any fresh tax with retrospective effect for years for B which there was no such levy is entitled to arrange and normally arranges his financial affairs on the basis of the law as it exists. Such retrospective taxation imposes an unjust and unwarranted accumula- ted burden on the assessee for no fault on his part and the assessee has to face unnecessarily without any just reason very serious financial and other problems. Imposition of any tax with retrospective effect c for years for which no such tax was there, cannot also be considered to be just and reasonable from the point of view of revenue. The years for which levy is sought to be imposed with retrospective effect bed already passed and there cannot be any proper justification for imposition of any fresh tax for those years. Such retrospective tax- ation is likely to disturb and unsettle the settled position ; and because of such imposition of retrospective levy for the years for which there was no such levy, assessments for those years which might already have been completed and concluded will get upset. If the State is in need of more funds, the State instead of seeking to levy any tax with retrospective effect can always take appropriate steps to collect any 1 larger amount so required by imposition of higher taxes or by other appropriate methods. I have already observed that Validating Acts which seek to validate the levy of any tax with retrospective effect do not in effect impose any fresh tax with retrospective effect and Vali- dating Acts stand on an entirely different footing. T, therefore, hold that the impugned amendment in so far as it is sought to be made retrospective with effect from the !st day of April 1972 is invalid and unconstitutional, though the amendment in so far as it operates pros- F pectively is valid. In the result I dismiss the appeals flied by the Union of India against the decisions of the High Courts declaring Rule 19-A to be invalid in so far as the said rule excludes borrowed capital and fixes the first day of the year for computation of the relief to be granted to an assessee under S. 80J. I set aside the judgment of the Madhya G Pradesh High Court which upholds the validity of the Rule and I allow the apeal of the assessee against the judgment of the Madhya Pradesh High Court. I hold and declare that Rule 19-A is so far as ;- . it seeks to exclude the borrowed capital and fixes the first day of the year for the computation of relief under S. 80J is invalid and unconsti- H tutional and the same has to be struck down and has been struck down

to!IIA MA.CHINES v. UNION (A.N. Sen. J.) . '183 by the various High Courts. I hold and declare that the impugned A amendment of 1980 incorporating the provision of the invalid rule 19-A in the section itself, excluding the borrowed capital and fixing the first day of the year for computation of the relief under S. 80J is valid in its prospective operation from the date of the amendment and is unconstitutional and invalid insofar as the said amendment is sought to brought into operation retrospectively with effect from !st B April 1972. Accordingly, I allow the writ petitions challenging the validity of the amendment only to the extent of its retrospective operation and I dismiss the writ petitions in so far as the amendment in its entirety is sought to be challenged. I prospose to make no order as to costs.

In view of the majority decision, all the writ petitions are dismissed and both the parties to bear their own costs. c

A.P.J. Petitions dismissed