Section 92BA of
the Income-tax Act, 1961 defines ‘Specified Domestic Transaction’ by providing
an exhaustive list of transactions; this section was introduced through the
Finance Act, 2012 w.e.f. 1st April, 2013. The transaction for
expenditure payable / paid to certain persons [mentioned u/s 40A(2)(b)], being
one of the specified domestic transactions, was omitted from the statute book
through the Finance Act, 2017 w.e.f. 1st April, 2017.
The enumeration
of a domestic transaction in section 92BA is a necessary requirement for the
reference of the same to the Transfer Pricing Officer u/s 92CA. Accordingly,
the omission of clause (i) to section 92BA(1) had the effect of restraining
reference to the Transfer Pricing Officer in case of transactions for expenditure
payable / paid to certain persons [mentioned u/s 40A(2)(b)] on and after the
date of enforcement of the omission (1st April, 2017).
The above said
omission and its effect was clear enough to rule out the scope for any
ambiguities, but incidentally, there exist contradictory findings / judicial
pronouncements by certain Tribunals as well as the High Courts in relation to
(A) applicability of the above said omission since 1st April, 2013,
i.e. the date of introduction of section 92(BA); (B) on holding that the clause
(i) to be believed to have never existed on the statute book; and (C) holding
the reference to the Transfer Pricing Officer in respect of clause (i)
transactions as void ab initio. Hence, this
article puts forth a synopsis of various judicial decisions on the captioned
issue.
MOOT QUESTION FOR
CONSIDERATION
The moot question
for consideration is whether the provisions appearing in clause (i) to
section 92BA [i.e., the clause that included expenditures relating to clause
(b) of section 40A(2), under Specified Domestic Transactions], which was
omitted vide Finance Act, 2017 with effect from 1st April,
2017, will be considered as omitted since the date on which section 92BA was
brought into force (i.e., 1st April, 2013 itself), which makes
clause 92BA(1)(i) inapplicable even in respect of the period of assessment
prior to 1st April, 2017?
And accordingly, whether
it is a correct and settled position of law to state that when a provision is
omitted, its impact would be to believe that the particular provision did not
ever exist on the statute book and that the said provision would also not be
applicable in the circumstances which occurred when the provision was in force
even for the prior period?
WHAT IS CENTRAL TO THE
ISSUE
Section 92BA, as it
stood prior to the omission of clause (i), and section 92CA are central to the
issue at stake and hence are reproduced hereunder:
Section
92BA(1) – For the purposes of this section
and sections 92, 92C, 92D and 92E, ‘specified domestic transaction’ in case of
an assessee means any of the following transactions, not being an international
transaction, namely,
(i) any
expenditure in respect of which payment has been made or is to be made to a
person referred to in clause (b) of sub-section (2) of section 40A;
(ii) any
transaction referred to in section 80A;
(iii) any
transfer of goods or services referred to in sub-section (8) of section 80-IA;
(iv) any
business transacted between the assessee and other person as referred to in
sub-section (10) of section 80-IA;
(v) any
transaction referred to in any other section under Chapter VI-A or section
10AA, to which provisions of sub-section (8) or sub-section (10) of section
80-IA are applicable; or
(vi) any other
transaction as may be prescribed and where the aggregate of such transactions
entered into by the assessee in the previous year exceeds a sum of [five] crore
rupees.
Section
92CA(1) – Where any person, being the
assessee, has entered into an international transaction or specified domestic
transaction in any previous year, and the Assessing Officer considers it
necessary or expedient so to do, he may, with the previous approval of the
Principal Commissioner or Commissioner, refer the computation of the arm’s
length price in relation to the said international transaction or specified
domestic transaction under section 92C to the Transfer Pricing Officer.
PROSPECTIVE, NOT
RETROSPECTIVE
It is pertinent to
note here that the deletion by the Finance Act, 2017 was prospective in nature
and not retrospective, either expressly or by necessary implication of the
Parliament. At this juncture, the findings of ITAT Bangalore (further
upheld by the High Court of Karnataka in ITA 392/2018) in Texport Overseas Pvt.
Ltd. vs. DCIT [IT(TP)A No. 2213/Bang/2018] are of relevance:
The ITAT held that ‘clause (i) of section 92BA deemed to be omitted from its
inception and that clause (i) was never part of the Act. This is due to the
reason that while omitting the clause (i) of section 92BA, nothing was
specified whether the proceeding initiated or action taken on this continue.
Therefore, the proceeding initiated or action taken under that clause would not
survive at all in the absence of any specific provisions for continuance of any
proceedings under the said provision. As a result if any proceedings have been
initiated, it would be considered or held as invalid and bad in law.’
WIDE ACCEPTANCE
This finding of the
ITAT Bangalore received wide acceptance all over the country and had been
followed by various Tribunals (such as ITAT Indore, Ahmedabad, Cuttack and
Bangalore).
The Tribunal based
its finding completely on the following judicial pronouncements pertaining to
section 6 of the General Clauses Act, 1897:
i. Kolhapur Canesugar Works Ltd. vs. Union of
India in Appeal (Civil) 2132 of 1994 vide
judgment dated 1st February, 2000 (SC);
ii. General Finance Co. vs. Assistant Commissioner
of Income-tax 257 ITR 338 (SC);
iii. CIT vs. GE Thermometrics India Pvt. Ltd. in ITA
No. 876/2008 (Kar.).
Before looking into
the findings of the Hon’ble Supreme Court in this regard, which were relied
upon by the ITAT Bangalore, sections 6, 6A and 24 of the General Clauses Act,
1897 should be considered. These sections are reproduced hereunder:
Section 6:‘Where this Act, or any Central Act or Regulation made after the
commencement of this Act, repeals any enactment hitherto made or hereafter to
be made, then, unless a different intention appears, the repeal shall not –
(a) revive
anything not in force or existing at the time at which the repeal takes effect;
or
(b) affect the
previous operation of any enactment so repealed or anything duly done or
suffered thereunder; or
(c) affect any
right, privilege, obligation or liability acquired, accrued or incurred under
any enactment so repealed; or
(d) affect any
penalty, forfeiture or punishment incurred in respect of any offence committed
against any enactment so repealed; or
(e) affect any
investigation, legal proceeding or remedy in respect of any such right,
privilege, obligation, liability, penalty, forfeiture or punishment as
aforesaid;
and any such
investigation, legal proceeding or remedy may be instituted, continued or
enforced, and any such penalty, forfeiture or punishment may be imposed as if
the repealing Act or Regulation had not been passed.’
Section 6A:‘Where any Central Act or Regulation made after the commencement of
this Act repeals any enactment by which the text of any Central Act or
Regulation was amended by the express omission, insertion or substitution of
any matter, then, unless a different intention appears, the repeal shall not
affect the continuance of any such amendment made by the enactment so repealed
and in operation at the time of such repeal.’
Section 24: ‘Where any Central Act or Regulation is, after the commencement of
this Act, repealed and re-enacted with or without modification, then, unless it
is otherwise expressly provided, any appointment notification, order, scheme,
rule, form or bye-law, made or issued under the repealed Act or Regulation,
shall, so far as it is not inconsistent with the provisions re-enacted,
continue in force, and be deemed to have been made or issued under the provisions
so re-enacted, unless and until it is superseded by any appointment
notification, order, scheme, rule, form or bye-law, made or issued under the
provisions so re-enacted.’
DEEMED ORDER
The effect of
section 24 insofar as it is material is that where the repealed and re-enacted
provisions are not inconsistent with each other, any order made under the
repealed provisions are not inconsistent with each other, any order made under
the repealed provision will be deemed to be an order made under the re-enacted provisions.
Section 24 of the
General Clauses Act deals with the effect of repeal and re-enactment of an Act
and the object of the section is to preserve the continuity of the
notifications, orders, schemes, rules or bye-laws made or issued under the
repealed Act unless they are shown to be inconsistent with the provisions of
the re-enacted statute. In the light of the fact that section 24 of the General
Clauses Act is specifically applicable to the repealing and re-enacting
statute, its exclusion has to be specific and cannot be inferred by twisting
the language of the enactments – State of Punjab vs. Harnek Singh (2002)
3 SCC 481.
WHERE AN ACT IS
REPEALED
Section 6 applies
to repealed enactments. Section 6 of the General Clauses Act provides that
where an Act is repealed, then, unless a different intention appears, the
repeal shall not affect any right or liability acquired or incurred under the
repealed enactment or any legal proceeding in respect of such right or
liability and the legal proceeding may be continued as if the repealing Act had
not been passed.
As laid down by the
Apex Court in M/s Gammon India Ltd. vs. Spl. Chief Secretary & Ors.
[Appeal (Civil) 1148 of 2006] that, ‘…whenever there is a repeal of
an enactment the consequences laid down in section 6 of the General Clauses Act
will follow unless, as the section itself says, a different intention appears
in the repealing statute. In case the repeal is followed by fresh legislation
on the same subject, the court has to look to the provisions of the new Act for
the purpose of determining whether they indicate a different intention. The
question is not whether the new Act expressly keeps alive old rights and
liabilities but whether it manifests an intention to destroy them. The
application of this principle is not limited to cases where a particular form
of words is used to indicate that the earlier law has been repealed. As this
Court has said, it is both logical as well as in accordance with the principle
upon which the rule as to implied repeal rests, to attribute to that
legislature which effects a repeal by necessary implication the same intention
as that which would attend the case of an express repeal. Where an intention to
effect a repeal is attributed to a legislature then the same would attract the
incident of saving found in section 6.’
Section 6A is to
the effect that a repeal can be by way of an express omission, insertion or
substitution of any matter, and in such kind of repeal unless a different
intention appears, the repeal shall not affect the continuance of any such
amendment made by the enactment so repealed and in operation at the time of
such repeal.
Now, we examine the
observations of the Apex Court in General Finance Co. vs.
ACIT. Therein, the Apex Court has examined the issue of retrospective
operation of omissions and held that the principle underlying section 6 as
saving the right to initiate proceedings for liabilities incurred during the
currency of the Act will not apply to omission of a provision in an Act but
only to repeal, omission being different from repeal as held in different
cases. In the case before the Apex Court, a prosecution was commenced against
the appellants by the Department for offences arising from non-compliance with
section 269SS of the Income-tax Act, 1961 (punishment for non-compliance with
provisions of section 269SS was provided u/s 276DD). Section 276DD was omitted
from the Act with effect from 1st April, 1989 and the complaint u/s
276DD was filed in the Court of the Chief Judicial Magistrate, Sangrur, on 31st
March, 1989.The assessee sought for quashing of the proceedings by filing a
petition u/s 482 of the Code of Criminal Procedure and Article 227 of the
Constitution. The High Court held that the provisions of the Act under which
the appellants had been prosecuted were in force during the accounting year
relevant to the assessment year 1986-87 and they stood omitted from the statute
book only from 1st April, 1989. The High Court, therefore, took the
view that the prosecution was justified and dismissed the writ petition. But
the Apex Court did not concur with the view of the High Court and ruled that:
‘…the principle
underlying section 6 of the General Clauses Act as saving the right to initiate
proceedings for liabilities incurred during the currency of the Act will not
apply to omission of a provision in an Act but only to repeal, omission being
different from repeal as held in the aforesaid decisions. In the Income-tax
Act, section 276DD stood omitted from the Act but not repealed and hence, a
prosecution could not have been launched or continued by invoking section 6 of
the General Clauses Act after its omission.’
PRINCIPLE OF EQUITY AND
JUSTICE
It is inferable
from the findings of the Apex Court that by granting retrospective operability
to the omission of a penal provision it was merciful and did uphold the
principles of equity and justice. But the moot question here is whether the
findings of the Apex Court in respect of a penal provision can be extended
universally to all kinds of provisions present under any law in force, i.e.
substantive, procedural and machinery provisions. A situation that revolves
around this moot question was before the Karnataka High Court in CIT vs.
GE Thermometrics India Pvt. Ltd. [ITA No. 876/2008] and further in DCIT
vs. Texport Overseas Pvt. Ltd. [ITA 392/2018], which followed the ratio
laid down by the Apex Court in General Finance Co. vs. ACIT and
applied the findings in an identical manner to the cases involving omission of
the provision providing definitions.
The ITAT Bangalore
in Texport Overseas also relied upon the findings of the Apex
Court in Kolhapur Canesugar Works Ltd. vs. Union of India [1998 (99) ELT
198 SC], wherein the sole question before the Hon’ble Court was whether
the provisions of section 6 of the General Clauses Act can be held to be
applicable where a Rule in the Central Excise Rules is replaced by Notification
dated 6th August, 1977 issued by the Central Government in exercise
of its Rule-making power, (and) Rules 10 and 10A were substituted. The findings
of the Apex Court herein were also similar to those in General Finance
Co. vs. ACIT, as to retrospective operability of the omission.
Section 6A of the
General Clauses Act is central to the captioned issue; it removes the ambiguity
of whether the repeal and omission both have the same effect as retrospective
operability. ‘Repeal by implication’ has been dealt with in State of
Orissa and Anr. vs. M.A. Tulloch and Co. [(1964) 4 SCR 461] wherein the
Court considered the question as to whether the expression ‘repeal’ in section
6 r/w/s 6A of the General Clauses Act would be of sufficient amplitude to cover
cases of implied repeal. It was stated that:
‘The next
question is whether the application of that principle could or ought to be
limited to cases where a particular form of words is used to indicate that the
earlier law has been repealed. The entire theory underlying implied repeals is
that there is no need for the later enactment to state in express terms that an
earlier enactment has been repealed by using any particular set of words or
form of drafting but that if the legislative intent to supersede the earlier
law is manifested by the enactment of provisions as to effect such
supersession, then there is in law a repeal notwithstanding the absence of the
word “repeal” in the later statute.’
REPEAL VS. OMISSION
The captioned issue
in reference to the findings of the Apex Court in Kolhapur Canesugar
Works Ltd. vs. Union of India and General Finance Co. vs. ACIT
was also discussed in G.P. Singh’s ‘Principles of Statutory Interpretation’ [12th
Edition, at pages 697 and 698] wherein the learned author expressed his
criticism of the aforesaid judgments in the following terms:
‘Section 6 of
the General Clauses Act applies to all types of repeals. The section applies
whether the repeal be express or implied, entire or partial, or whether it be
repeal simpliciter or repeal accompanied by
fresh legislation. The section also applies when a temporary statute is
repealed before its expiry, but it has no application when such a statute is
not repealed but comes to an end by expiry. The section on its own terms is
limited to a repeal brought about by a Central Act or Regulation. A rule made
under an Act is not a Central Act or regulation and if a rule be repealed by
another rule, section 6 of the General Clauses Act will not be attracted. It
has been so held in two Constitution Bench decisions. The passing observation
in these cases that “section 6 only applies to repeals and not to
omissions” needs reconsideration, for omission of a provision results in
abrogation or obliteration of that provision in the same way as it happens in
repeal. The stress in these cases was on the question that a “rule” not being a
Central Act or Regulation, as defined in the General Clauses Act, omission or
repeal of a “rule” by another “rule” does not attract section 6 of the Act and
proceedings initiated under the omitted rule cannot continue unless the new rule
contains a saving clause to that effect…’
In a comparatively
recent case before the Apex Court, M/s Fibre Boards (P) Ltd. vs. CIT
Bangalore [(2015) 279 CTR (SC) 89], the Hon’ble Court reconsidered its
opinion as to retrospective operability of omissions and distinguished the
findings in Kolhapur Canesugar Works Ltd. vs. Union of India, General
Finance Co. vs. ACIT and other similar cases. The Apex Court held that
sections 6 and 6A of the General Clauses Act are clearly applicable on
‘omissions’ in the same manner as applicable on ‘repeals’; it also held that:
‘…29. A reading
of this section would show that a repeal can be by way of an express omission.
This being the case, obviously the word “repeal” in both section 6 and section
24 would, therefore, include repeals by express omission. The absence of any
reference to section 6A, therefore, again undoes the binding effect of these
two judgments on an application of the per incuriam
principle.
…31. The two
later Constitution Bench judgments also did not have the benefit of the
aforesaid exposition of the law. It is clear that even an implied repeal of a
statute would fall within the expression “repeal” in section 6 of the General
Clauses Act. This is for the reason given by the Constitution Bench in M.A. Tulloch & Co. that only the
form of repeal differs but there is no difference in intent or substance. If
even an implied repeal is covered by the expression “repeal”, it is clear that
repeals may take any form and so long as a statute or part of it is obliterated,
such obliteration would be covered by the expression “repeal” in section 6 of
the General Clauses Act.
…32. In fact,
in ‘Halsbury’s Laws of England’ Fourth Edition,
it is stated that:
“So far as
express repeal is concerned, it is not necessary that any particular form of
words should be used. [R vs. Longmead (1795) 2 Leach 694 at 696]. All that is required is that an
intention to abrogate the enactment or portion in question should be clearly
shown. (Thus, whilst the formula “is hereby repealed” is frequently
used, it is equally common for it to be provided that an enactment “shall
cease to have effect” (or, if not yet in operation, “shall not have
effect”) or that a particular portion of an enactment “shall be
omitted”).’
In view of the
above-mentioned judicial pronouncements and the provision of law, it can be
interpreted that insofar as ‘omission’ forms part of ‘repeal’, the omission of
clause (i) to section 92BA(1) does not have retrospective operation and the
omission will not affect the reference to the Transfer Pricing Officer in
respect of transactions u/s 92BA(1)(i) for the accounting years prior to 1st
April, 2017. But on account of varied findings in this regard by the Tribunals
as well as the High Courts, the matter is yet to be settled.
