1999 PLP 695 (PTD)

The petitioner moved an application under section 154 of the Act for rectification of mistake, challenging the charging of additional tax by application, dated July 25, 1992. Respondent No.2 rejected the said application in so far as the levy of additional tax was concerned. However, so far as the demand of additional tax was concerned, it was not enforced. Respondent No.2 attached the bank account of petitioner No. l at the State Bank of Indore by order of March, 1993. Petitioner No. l made a representation, dated March 6, 1993, challenging the attachment and requested to withdraw the notice under section 226(3) of the Act. Pursuant to the representation, respondent No.2 cancelled the attachment by order, dated March 9, 1993. Petitioner No 1 also filed an appeal against an order, dated September 30, 1992, which was passed under section 154 of the Act before the Commissioner of Income-tax (Appeals), Indore, respondent No.4. Respondent No.2 by order, dated November, 16/23, 1994, again attached the amount standing to the credit of petitioner No. l in the Bank account in the State Bank of Indore, as a result of which a sum of Rs.1,85,090 was attached. He also issued recovery notice for the said amount. Petitioner No. l made a representation, dated September 22, 1994, to respondent No.3 for not pressing the demand till the disposal of the appeal pending before the first Appellate Authority (CIT (Appeals)). Therefore, the petitioner has filed this petition challenging the validity of section 143(1-A)(a)(B) of the Act on the ground that it has been given retrospective effect, i.e., with effect from April 1, 1989. It is alleged that this tax is penal in nature and cannot be made retrospective. It is submitted that it is nothing but tax on a loss which is not covered by Entry 82, List 1, Seventh Schedule, of the Constitution. The petition is contested by the respondents and they have alleged that under Entry 82, List I, of the Seventh Schedule to the Constitution, Parliament is competent to enact on income-tax other than agricultural income and it is not the loss which has been taxed. Although a similar provision existed earlier, there is little difference in the present one, which is more specific so as to check evasion of tax. In order to appreciate the contentions of the parties, it is relevant to refer to certain provisions of the Acts. Section 143(1-A)(a)(B) reads as under: "(1-A)(a)

where as a result of the adjustments made under the first proviso to clause (a) of subsection (1),

(i) the income declared by any person in the return is increased; or (ii) the loss declared by such person in the return is reduced or is covered into income. the Assessing Officer shall,

(B) in a case where the loss so declared is reduced under sub-clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income-tax) equal to twenty per cent. of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under sub-clause (i) of clause (a) of subsection (1); " According to the unamended provision, what was being taxed was the difference of income between the original return and after adding to the return the amount of loss which is added to the income and when that tax is worked out, then the difference of the tax used to be charged. But now, the actual deduction of the loss has been directly made taxable at 20 per cent. of tax on that income as additional tax. Now, the provision has been made more deterrent so as to check the tendencies of the assessees to first increase the amount of the tax, then reduce that tax so that the loss of revenue and as such the loss of revenue is sought to be plugged by insertion of this new provision. Entry 82, List I, of the Seventh Schedule to the Constitution of India empowers Parliament to enact the law on income-tax and when Parliament is competent to enact the law prospectively, it can also lay down the law retrospectively. The present incident of tax is not the loss. As a matter of fact, deduction of loss will be added to the income of the assessee. Therefore, it is not loss which is being sought to be taxed, but it is the income sought to be taxed. The contention of learned counsel that Parliament has no power under Entry 82 to enact on the loss has no substance. In the present case, it is the income and not the loss which is sought to be taxed. Hence, we find that this contention of learned counsel for the petitioner is without any merit. It is next contended that the provision has been made retrospective with effect from April 1, 1989, and such penal clause cannot be inserted with retrospective effect. From a bare perusal of the provision, it is clear that it is not penal. Penal provision means imposition of penalty or any criminal prosecution. That is not the case here. It is only the device to check evasion of tax by the clever taxpayers. Hence, it is more of a compensatory nature. Parliament is competent- to enact the law prospectively and this power also denotes the competence of Parliament to make the law retrospective also. In this connection, reference can be made to a decision in the case of Rai Ramkrishna v. State of Bihar (1963) 50 ITR 171 (SC); AIR 1963 SC 1667, wherein their Lordships have held as under (at page 1673): "The legislative power conferred on the appropriate Legislatures to enact law in respect of topics covered by the several entries in the three Lists can be exercised both prospectively and retrospectively. Where the Legislature can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law, but it can also provide for the retrospective operation of the said provisions." It is true that the power under a taxing statute can be challenged if it is found to be arbitrary, or lays down unreasonable restriction upon the freedom of trade. In the present case, restriction has been made for justifiable reason so as to check evasion of tax. By the insertion of this provision in the Act, the assessee may not be able to evade tax by resorting to the method of showing loss first and then reducing the loss. We, therefore, find that the provision is compensatory in nature and it is enacted for the purpose of checking evasion of tax. We are of the opinion that there is no illegality in section 143(1-A)(a)(B) of the Act of 1961. The petition has no merit. It is accordingly dismissed. Security amount, if any, may be refunded to the petitioner. C.M.A./1710/FC???????? Petition dismissed.