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Commissioner Of Income Tax, Bombay v. Kanji Shivji & Co. .
Factual and Procedural Background
The appeal was placed before a three-judge Bench because a previous two-judge Bench had questioned the correctness of an earlier three-judge Bench decision. The controversy centres on the effect of Explanation (2) to Section 40(b) of the Income Tax Act, 1961, which was inserted with effect from 1-4-1985. The core procedural context is whether this Explanation operates prospectively or is merely declaratory of the law that already existed.
Legal Issues Presented
- Whether Explanation (2) to Section 40(b) of the Income Tax Act, 1961, introduced with effect from 1-4-1985, is prospective in operation or merely declaratory of the pre-existing law.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Brij Mohan Das Laxman Das v. CIT (1997) 1 SCC 352; 223 ITR 825 | Held that Explanation (2) to Section 40(b) is declaratory. | Accepted as representing the correct exposition of law; followed. |
| Suwalal Anandilal Jain v. CIT (1997) 4 SCC 89; 224 ITR 753 | Affirmed that Explanation (2) is declaratory. | Accepted and followed to resolve the present appeal. |
| Rashik Lal & Co. v. CIT (1998) 2 SCC 49; 229 ITR 458 | Doubted the declaratory nature of the Explanation, but acknowledged that Section 40(b) was not in issue in that case. | Characterised as containing obiter dicta; not followed. |
Court's Reasoning and Analysis
The Court reviewed prior decisions on the point. It noted that two earlier judgments—Brij Mohan Das Laxman Das and Suwalal Anandilal Jain—had definitively concluded that Explanation (2) to Section 40(b) was declaratory of the existing law. Although a two-judge Bench in Rashik Lal & Co. had expressed doubts about this conclusion, the present Bench observed that those remarks were obiter because Section 40(b) was not actually in issue in that case. Consequently, the Court reaffirmed the earlier authoritative decisions and held that the Explanation is declaratory.
Holding and Implications
Appeal Dismissed. The Court reaffirmed that Explanation (2) to Section 40(b) is declaratory, thereby maintaining the legal position established in the earlier decisions. The immediate effect is dismissal of the taxpayer’s appeal; no broader doctrinal shift or new precedent was set beyond re-endorsing the existing interpretation.
Order
1. This appeal stands referred to a Bench of three Judges because it was found that a Bench of two learned Judges had taken the view that the conclusion of an earlier Bench of three learned Judges was difficult to accept. The issue relates to whether Explanation (2) to Section 40(b) of the Income Tax Act, 1961, introduced with effect from 1-4-1985, is prospective in operation or only declaratory.
2. In Brij Mohan Das Laxman Das v. CIT (1997) 1 SCC 352, (1997) 223 ITR 825 the two learned Judges concluded that the said explanation was declaratory. This view was accepted by a Bench of three learned Judges in Suwalal Anandilal Jain v. CIT (1997) 4 SCC 89, (1997) 224 ITR 753.
3. In the case of Rashik Lal & Co. v. CIT (1998) 2 SCC 49, (1998) 229 ITR 458 this view was doubted. A Bench of two learned Judges observed that it was difficult to accept the proposition that the said explanation was only clarificatory for the reason that if what was contained in the said explanation was already the law in force, then giving effect to the said explanation from 1-4-1985 did not make any sense. But the Bench immediately noted:
“19. However, in the case before us, no question of payment of any interest is involved.”
In other words, the application of Section 40(b) and the said explanation was not really in issue in Rashik Lal case (1998) 2 SCC 49, (1998) 229 ITR 458. The observations in Rashik Lal case (1998) 2 SCC 49, (1998) 229 ITR 458 relative to the said explanation must, therefore, be treated as obiter dicta.
4. The conclusion of the Court in the earlier cases of Brij Mohan Das Laxman Das (1997) 1 SCC 352, (1997) 223 ITR 825 and Suwalal Anandilal Jain (1997) 4 SCC 89, (1997) 224 ITR 753 still represents the correct exposition of the law. Following these decisions, the civil appeal must be dismissed.
5. We are obliged to Mr B. Sen, learned counsel, for his assistance at our request.
6. Appeal dismissed.
7. No order as to costs.
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