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Sec. 43B(f) of Income Tax is constitutionally valid: legal basis of the judgment i.e. enactment, can be changed by legislature: SC

The SC on April 24, 2020 {Union of India & Ors. v Exide Industries Limited & Anr.} held that when there is no ambiguity about the legislative competence   and   of   the   import   of   the   enactment,   no   rule, authority or convention is there to support the view that publication of objects and reasons is quintessence for the sustenance of a duly enacted provision. It was held that the presence or absence of objects and reasons has no impact upon the constitutional validity of a provision as long as the literal features of the provision enable the Court to comprehend its true meaning with sufficient clarity. 

It was further held by the SC Bench, comprising of Justice A.M. Khanwilkar, Justice Hemant Gupta &  Justice Dinesh Maheshwari, that the approach   of   the   Court   in   testing   the   constitutional validity of a provision is well settled and the fundamental concern of the Court is to inspect the existence of enacting power and once such power is found to be present, the next examination is to ascertain whether the enacted provision impinges upon any right enshrined in Part III of the Constitution. It was held that the process of examining validity of a duly enacted provision, as envisaged under Article 13 of the Constitution, is premised on these two steps. No doubt, the second test of infringement of Part III is a deeper test undertaken in light of settled constitutional principles.

It was held that it is no more res integra that   the   examination   of   the   Court   begins   with   a presumption in favour of constitutionality. It was observed that Sub­section (1) of Section 145 explicitly provides that the method of accounting is a prerogative falling in the domain of the assessee and an assessee is well within its rights to follow the mercantile system of accounting. It was further observed that as per the mercantile system of accounting, the assessment of income is made on the basis of accrual of liability and not on the basis of actual expenditure in lieu thereof.

It was held that the constitutional power of judicial review contemplates a review of the provision, as it stands, and not a review of the circumstances in which the enactment was made. It was held  that   merely   holding   an   enacted   provision   as unconscionable   or   arbitrary   is   not   sufficient   to   hold   it   as unconstitutional unless such infirmities are sufficiently shown to exist   in   the   form,   substance   or   functioning   of   the   impugned provision. It was held that no such infirmity has been exhibited and adverted to in the impugned judgment.

It was further held that the general principles   of   exclusion   and   inclusion   do   not   apply   to   taxing statutes   with   the   same   vigour   unless   the   law   reeks   of constitutional infirmities. It was observed that no doubt, fiscal statutes must comply with the tenets of Article 14. However, a larger discretion is given to the legislature in taxing statutes than in other spheres.

It was held that it is no doubt true that the legislature cannot sit over a judgment of the Supreme Court or so to speak overrule it. It was observed that there cannot be any declaration of invalidating a judgment of the Court without altering   the   legal   basis   of   the   judgment   ­   as   a   judgment   is delivered with strict regard to the enactment as applicable at the relevant   time.     It was held that however,   once   the   enactment   itself   stands corrected, the basic cause of adjudication stands altered and necessary   effect   follows   the   same.

The SC set aside the finding of the HC that enactment of clause (f) of Section   43B has been triggered by the legislature solely to nullify the dicta of the Supreme Court in Bharat Earth Movers   vs. Commissioner of   Income Tax, Karnataka {(2000) 6 SCC 645}. It was held by the SC that upon being invalidated by the Court, the legislature is free to diagnose such law and alter the invalid elements thereof. In doing so, the legislature is not declaring the opinion of the Court to be invalid.

It was concluded that merely because a certain liability has been declared to be a present liability by the Court as per the prevailing enactment, it does not follow that legislature is denuded of its power to correct the mischief with prospective effect, including to create a new liability,   exempt   an   existing   liability,   create   a   deduction   or subject   an   existing   deduction   to   new   regulatory   measures. It was held that the   Court   cannot   venture   into   hypothetical spheres   while   adjudging   constitutionality   of   a   duly   enacted provision   and   unfounded   limitations   cannot   be   read   into   the process of judicial review. It was held that the plea that clause (f) of Section   43B  has been enacted with the sole purpose to defeat the said judgment of the Supreme Court is misconceived.

In this appeal, the constitutional validity of clause (f) of Section   43B   of   the Income   Tax   Act, 1961 arose   for consideration before the SC, as a result of the decision of the High Court at Calcutta, wherein it is held that the said clause is arbitrary and violative of Article 14 of the Constitution of India. The judgment of the Calcutta High Court was found to be not sustainable by the SC and was set aside.

It was held that the position of law leaves no manner of doubt   as   regards   the   legitimacy   of   enacting   clause   (f) of Section   43B. It was held that the respondents   have   neither   made   a   case   of   non­-existence   of competence   nor   demonstrated   any   constitutional   infirmity   in clause (f) of Section   43B.

In view of the above, the appeal   was   allowed by the SC.     Accordingly,   the   impugned judgment of the Division Bench of the High Court was reversed and clause   (f)   in   Section   43B   of   the   1961   Act   was   held   to   be constitutionally valid and operative for all purposes by the SC.

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