The Hindu Business Line : Some reprieves are too short-lived

"HEADS I win, tails you lose." That sums up the attitude of the Government to court rulings interpreting complicated provisions of fiscal laws. If courts decide an issue in favour of the Revenue, the departments concerned are all too enthusiastic about reopening completed tax assessments.

And this is what happened with reference to the export profits rebate. There was a conflict of juridical opinion about the interpretation of Section 80HHC of the Income-Tax Act, 1961.

The Bombay High Court had ruled in the IPCAL case that the disclaimer of profit under sub-section (1) refers only to positive figure of profit and excludes loss: The word `profit' in Section 80HHC (1) could not include losses, whereas `profit' in Section 80HHC (3) includes losses or negative profit.

The court held that the two sub-sections operate in completely different spheres — sub-section (1) provides for deduction from gross total income to arrive at the total income of the assessee and deals with the manner of effecting the deduction arrived at under sub-section (3)(c).

It observed that since the section is clear and unambiguous, the question of liberal interpretation does not arise, and consequently it held that the loss in respect of the export of trading goods cannot be ignored while computing deduction under sub-section (3)(c).

The Supreme Court upheld this view recently. Despite there being contrary rulings from other High Courts, the Revenue Department chose to initiate action for reopening completed assessments in conformity with the apex court decision.

Reference to valuation officer

Section 55(A) of the I-T Act enables the assessing officer (AO) to make a reference to the valuation officer in order to ascertain the fair market value of a capital asset for arriving at capital gains. This power is not available for any other matter concerning assessment. The Supreme Court, in Amiya Bala Paul vs CIT (2003 262 ITR 407), held that in making an I-T assessment the AO cannot refer to the valuation officer the question of cost of construction of a house property built by the assessee.

The Finance No. 2 Bill tries to annul these rulings of the Supreme Court by interposing a new Section 142 A. The amendment vests in the AO the power of reference to the valuation officer for the purposes of Sections 69A and 69B of the I-T Act. The new Section 142A is proposed to be given effect to retrospectively from November 15, 1972.

It is further provided that the new Section 142A shall not apply in respect of assessment made on or before September 2004 and where such assessment has become final and conclusive on or before that date, except in cases where re-assessment is required to be made under Section 153A.

Explaining the retrospective amendment, the Memorandum says:

"The authority of valuation officer was created under the Wealth-tax Act by the Taxation Laws (Amendment) Act, 1972 with effect from November 15, 1972.

"The scope of power under Section 131 vested in an assessing officer to make reference to the valuation officer for estimating the cost of construction of properties has been a matter of different legal interpretations.

"With a view to remove any doubt in this regard, it is proposed to insert a new Section 142A, with retrospective effect from November 15, 1972, so as to clarify that the assessing officer has and always had the power to make a reference to the valuation officer."

Prosecution

The company being a juristic person, no action can lie for prosecution in cases where imprisonment is compulsory. In the context of Section 278B, the Supreme Court had held in Assistant CIT vs Valliappa Textiles Ltd (263 ITR 550) that the company cannot be proceeded against in such cases.

To overcome this problem, the Finance No. 2 Bill has amended Section 278B so as to provide that if an offence has been committed by a company, then it shall be punished with fine and other person who was in charge of and was responsible for the conduct of business of the company will be liable for punishment of imprisonment and fine, wherever so provided.

Excise law

The same stand can be seen with regard to amendments made in the Central Excise Act. The Supreme Court had, in CCE vs Technoworld Industries (2003 (155) ELT 201), held that drawing wire from wire rods does not amount to manufacture, as the wires and wire rods were not commercially distinct commodities.

With the introduction of Section Note 10 to Section XV under the Central Excise Tariff Act, 1985, it is proposed to make the activity of drawing wires from wire rods manufacture, in terms of Section 2(f)(ii) of the Central Excise Act, 1944.

Customs law

Section 9A of the Customs Tariff Act has been amended to the extent the provisions of the Customs Act relating to determination of rate of duty, interest, appeals, offences and penalties shall now also apply in respect of anti-dumping duties.

Effectively, this means that for determining the levy and rate of anti-dumping duty, the dates as per Section 15 of the Customs Act would be applicable.

The Tribunal, in Commissioner vs Suja Rubber Industries (2002 (142) ELT 586) and Indo Rama Synthetics (I) Ltd vs Commissioner (2003 (156) ELT 349) held that Section 15 of the Customs Act does not apply to levy of anti-dumping duty and if no duty is leviable on the date on which the goods enter the territorial waters of India, anti-dumping duty cannot be levied on the date of presentation of the Bill of Entry or ex-bonding of the goods from the warehouse.

This position shall no longer hold good once the proposed amendment are made law.

(The author is a former chief commissioner of income-tax.)

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