This
feature was launched in April, 2002, to summarise the direct taxes judgments of
the highest court of the country. Although Closements carried analysis of
Supreme Court decisions, this column was started as the number of decisions on
tax matters from the Supreme Court kept increasing. Kishor Karia and Atul
Jasani, the first contributors, continue to digest important cases. The feature
covers judgments other than those covered under Closements.
16.
Ravi Agrawal vs. Union of India (UOI) and Anr. (2019) 410 ITR 399 (SC)
Special Deduction u/s. 80DD in respect of
maintenance including medical treatment of a dependant who is a person with
disability – Supreme Court urged to Union of India to have a relook into this
provision considering the hardships faced by the parent/guardian of the
disabled
A Public Interest Litigation was filed by
the Petitioner in the interest of handicapped children whose parents have taken
Jeevan Aadhar Policy from the Life Insurance Corporation of India (for short,
LIC) for the livelihood of their children.
The Petitioner pointed out that even when
the entire subscription is paid under this policy meant for handicapped
persons, this policy does not have maturity claim. The amount is payable to the
dependant only on the demise of the proposer/life assured. This was in
confirmity with the requirement of section 80DD
It was the submission of the Petitioner that
by incorporating such a provision, the Respondents are denying the benefit of
the insurance to the handicapped persons to get annuity or lump sum amount
during the lifetime of the parent/guardian of such a handicapped person,
whereas the beneficiaries of other life insurance policy are getting annuity
during the lifetime of the person who has taken insurance policy. This,
according to the Petitioner, violates the fundamental right of equality of the
handicapped person enshrined in Article 14 of the Constitution.
According to the Supreme Court, in essence,
the grievance of the Petitioner was that benefit of Jeevan Aadhar policy should
not be deferred till the death of the Assessee/life assured and it should be
allowed to be utilised for the benefit of the disabled person even during the
lifetime of the Assessee.
It was the submission of the Respondent No.
1/Union of India that the aforesaid provision was specifically provided for in
the Act keeping in view the fact that the guardians of children with disability
were always faced with the grim reality about the need for maintenance of the
disabled after the death of the primary care giver, i.e. the parent or the
guardian. Many of them would like to deposit some amount during their lifetime
in some special instrument which would ensure payment of a reasonable sum
regularly to the disabled on their death. Thus, a separate deduction from Gross
Total Income of a specified amount deposited in a year in any scheme of LIC or
any other insurer specifically framed for providing recurring or lump sum
payment for the maintenance and upkeep of a handicapped dependant after the
death of the Assessee and approved by the CBDT in this behalf was incorporated
in the statute. As the scheme was designed to, to a great extent, to assuage
the anxiety in the minds of parents/guardians of handicapped dependants about
the destiny of their wards on their death and, therefore, to allow for annuity
payments to the handicapped dependant under Jeevan Aadhar policy to commence
after a certain age of the subscriber was not possible.
Meeting the argument of the Petitioner based
on Article 14 of the Constitution of India, it is argued that the deduction
u/s. 80DD of the Act had been specifically provided for persons with
disability. This was a valid classification for providing specific regime for
this class of persons.
The Supreme Court observed that section 80DD
of the Act was a provision made by the Parliament under the Act in order to
give incentive to the persons whose dependants were persons with disability.
Incentive was to give such persons concessions in income tax by allowing
deductions of the amount specified in section 80DD of the Act in case such
parents/guardians of dependants with disability take insurance policies of the
nature specified in this provision. Purpose was to encourage these
parents/guardians to make regular payments for the benefit of dependants with
disability. In that sense, the Legislature, in its wisdom thought it
appropriate to allow deductions in respect of such contribution made by the
parent/guardian in the form of premium paid in respect of such insurance
policies. This deduction was admissible only when conditions stipulated therein
are satisfied. Insofar as insurance policy was concerned, it incorporated a condition
(which was impugned in the present writ petition) to the effect that the amount
shall not be given to the handicapped persons during the lifetime of the
parent/guardian/life assured. This was in conformity with section 80DD(2)(b) of
the Act.
According to the Supreme Court, to some
extent, the grievance of the Petitioner was justified in this behalf in the
plea that when there was a need to get these funds for the benefit of
handicapped persons, that would not be given to such a person only because of
the reason that the assured who was a parent/guardian was still alive. This
would happen even when the entire premium towards the said policy has been paid
as the policy did not have maturity claim. Thus, after making the entire
premium for number of years, i.e. during the duration of the policy, the amount
would still remain with the LIC.
However, the Supreme Court noted that the
purpose behind such a policy was altogether different. As noted from the
provisions of section 80DD as well as from the explanatory memorandum of the
Finance Bill, 1998, by which this provision was added, the purpose was to
secure the future of the persons suffering from disability, namely, after the
death of the parent/guardian. The presumption was that during his/her lifetime,
the parent/guardian would take care of his/her handicapped child.
Further, the Supreme Court observed that
such a benefit of deduction from income for the purposes of tax was admissible
subject to the conditions mentioned in section 80DD of the Act. The Legislature
had provided the condition that amount/annuity under the policy was to be
released only after the death of the person assured. This was the legislative
mandate. There was no challenge to this provision. The prayer was that section
80DD of the Act be suitably amended.
According to the Supreme Court, it could not
give a direction to the Parliament to amend or make a statutory provision in a
specified manner. The Court can only determine, in exercise of its power of
judicial review, as to whether such a provision passes the muster of the
Constitutional Scheme. Though, there was no specific prayer in this behalf, but
in the body of writ petition, argument of discrimination was raised. However,
according to the Supreme Court, the Respondents were able to successfully
demonstrate that the main provision was based on reasonable classification,
which had a valid rational behind it and there was a specific objective sought
to be achieved thereby.
The Supreme Court noted that the Petitioner
may be justified in pointing out that there could be harsh cases where
handicapped persons may need the payment on annuity or lump sum basis even
during the lifetime of their parents/guardians. For example, where guardian has
become very old but is still alive, though he may not able to earn any longer
or he may be a person who was in service and has retired from the said service
and is not having any source of income. In such cases, it may be difficult for
such a parent/guardian to take care of the medical needs of his/her disabled
child. Even when he/she has paid full premium, the handicapped person is not
able to receive any annuity only because the parent/guardian of such
handicapped person is still alive. There may be many other such situations.
However, it is for the Legislature to take
care of these aspects and to provide suitable provision by making necessary
amendments in section 80DD of the Act. In fact, the Chief Commissioner for
Persons with Disabilities has also felt that like other policy holders, Jeevan
Aadhar policy should also be allowed to mature after 55 years of age of the
proposer and the annuity amount should be disbursed through the LLCs or
National Trust.
In the aforesaid circumstances, the Supreme
Court disposed of this writ petition by urging upon Respondent No. 1 to have a
relook into this provision by taking into consideration all the aspects,
including those highlighted by it in the judgment, and explore the possibility
of making suitable amendments.
17. Commissioner of Income-tax (Exemptions) vs.
Progressive Education Society (2019) 410 ITR 370 (SC)
Appeal to the High Court – Condonation of delay – Delay of 362 days –
Delay owing to difference of opinion between two officers – Appeal filed after
taking legal oinion – Delay condoned subject to payment of costs
The Supreme Court found that the High Court
had dismissed the appeal preferred by the Appellant on the ground of delay. The
delay was of 362 days. As per the High Court, the delay was not satisfactorily
explained. The Supreme Court noted that the main cause of the delay was
difference of opinion between the two Officers and ultimately legal opinion was
taken and it was decided to file the appeal.
According to the Supreme Court, having
regard to the importance of the matter, the High Court should hear the appeal
on merits. The Supreme Court set aside the impugned order condoning the delay
in filing the appeal in the High Court subject to payment of costs of rupees
one lakh to be paid the respondent within a period of four weeks.
The Supreme Court remitted the matter to the
High Court with a direction that it shall decide the appeal on merits.
18. CIT (LTU) vs. Reliance Industries Ltd (2019) 410 ITR 466 (SC)
Business expenditure – Interest on borrowed
capital – The finding that the interest free funds available to the assessee
were sufficient to meet its investment was a finding of fact
The Supreme Court noted that the appeals
before it arose from the judgment of the Bombay High Court dated 22 and 23
August, 2017 for Assessment Years 2003-04, 2004-05, 2005-06 and 2006-07. The
High Court had passed a common order for all the Assessment Years. The appeals
by the Revenue raised the following questions:
1. Whether the High
Court is correct in holding that interest amount being interest referable to
funds given to subsidiaries is allowable as deduction u/s. 36(1)(iii) of the
Income Tax Act, 1961 (for short the Act’) when the interest would not have been
payable to banks, if funds were not provided to subsidiaries;
2. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view that prior to insertion of
Explanation-5 to section 32 of the Act, the claim of depreciation was optional
and could not be thrust on the assessee, if it had not claimed it;
3. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view that pre-operative expenses incurred
in connection with creation of plant & machinery in units which have not
commenced production, are revenue in nature;
4. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view that expenditure on estimated basis
cannot be reduced from dividends for deduction u/s. 80M of the Act; and
5. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view in sustaining the deletion of the
Transfer Pricing adjustment made to consultancy charges, especially when the
TPO had adopted the same mark up in relation to its European associate, what
the assessee itself had adopted in relation to its USA associate.
The Supreme Court held that insofar as the
first question was concerned, the issue raised was a pure question of fact. The
High Court had noted the finding of the Tribunal that the interest free funds
available to the assessee were sufficient to meet its investment. Hence, it
could be presumed that the investments were made from the interest free funds
available with the assessee. The Tribunal has also followed its own order for
Assessment Year 2002-03. In view of the above findings, the Supreme Court found
no reason to interfere with the judgment of the High Court in regard to the
first question. Accordingly, the appeals were dismissed in regard to the first
question.
The Supreme Court held that insofar as the
second question was concerned, the issue, was governed by the decision of this
Court in Plastiblends India Limited vs. Additional Commissioner of Income
Tax, Mumbai and Another (2017) 398 ITR 568 (SC). The High Court did not
have the benefit of this decision. Hence, it was appropriate that the issue be
remanded for fresh decision by the High Court bearing in mind the law laid down
in the above case. The Supreme Court kept open all the rights and contentions
of the Revenue and the assessee in regard to the applicability of the provision
for the relevant Assessment Years.
As regards, the third question pertaining to
pre- operative expenses; the fourth question pertaining to the deduction u/s.
80M of the Act; and the fifth question pertaining to transfer pricing, the
Supreme Court found that the High Court has failed to independently evaluate
the merits of the departmental appeals. Hence, the Supreme Court was of the opinion that it would be appropriate that the aforesaid
questions were considered afresh by the
High Court.
In order to facilitate a fresh exercise
being conducted in relation to the aforesaid four questions (Question Nos.2, 3,
4 and 5), the Supreme Court allowed the appeals and set aside the impugned
judgment of the High Court. The appeals were restored to the file of the High
Court for that purpose.
These appeals were accordingly disposed of.
