The Gauhati High Court(High Court Of Assam, Nagaland, Mizoram And Arunachal Pradesh v. Commissioner Of Income Tax, Guwahati

GAHC010227692022 2024:GAU-AS:9559-DB THE GAUHATI HIGH COURT(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH) Case No. : ITA/4/2024 WILLIAMSON FINANCIAL SERVICES LIMITED ,A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND HAVING ITS REGISTERED OFFICE SITUATED AT EXPORT PROMOTION INDUSTRIAL PARK, PLOT NO. 1, AMINGAON NORTH GUWAHATI KAMRUP, ASSAM- 781031 AND IN THE INSTANT PROCEEDINGS, THE PETITIONER COMPANY IS REPRESENTED BY ITS DIRECTOR, ADITYA KHAITAN. ……Appellant -VERSUS- 1.COMMISSIONER OF INCOME TAX, GUWAHATI- 2, GUWAHATI, AAYAKAR BHAWAN, CHRISTIAN BASTI, G.S. ROAD, GUWAHATI- 781005. 2:THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- III, GUWAHATI, AAYAKAR BHAWAN, CHRISTIAN BASTI, G.S. ROAD, GUWAHATI- 781005. …… Respondents Linked Case : ITA/2/2024 WILLIAMSON FINANCIAL SERVICES LIMITEDA COMPANY INCORPORATED UNDER THE COMPANIES ACT 1956 AND HAVING ITS REGISTERED OFFICE SITUATED AT EXPORT PROMOTION INDUSTRIAL PARK, PLOT NO. 1, AMINGAON NORTH GUWAHATI KAMRUP, ASSAM- 781031 AND IN THE INSTANT PROCEEDINGS THE PETITIONER COMPANY IS REPRESENTED BY ITS DIRECTOR, ADITYA KHAITAN. ……Appellant -VERSUS- 1.COMMISSIONER OF INCOME TAX,GUWAHATI- 2, GUWAHATI, AAYAKAR BHAWAN, CHRISTIAN BASTI, G.S. ROAD, GUWAHATI- 781005. 2:THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE- III, GUWAHATI, AAYAKAR BHAWAN, CHRISTIAN BASTI, G.S. ROAD, GUWAHATI- 781005. …… Respondents Linked Case : ITA/6/2024 WILLIAMSON FINANCIAL SERVICES LIMITED,A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND HAVING ITS REGISTERED OFFICE SITUATED AT EXPORT PROMOTION INDUSTRIAL PARK, PLOT NO. 1, AMINGAON NORTH GUWAHATI KAMRUP ASSAM- 781031 AND IN THE INSTANT PROCEEDINGS, THE PETITIONER COMPANY IS REPRESENTED BY ITS DIRECTOR, ADITYA KHAITAN. ……Appellant -VERSUS- 1.COMMISSIONER OF INCOME TAX,GUWAHATI- 2, GUWAHATI, AAYAKAR BHAWAN, CHRISTIAN BASTI, G.S. ROAD, GUWAHATI- 781005. 2:THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE- III, GUWAHATI, AAYAKAR BHAWAN, CHRISTIAN BASTI, G.S. ROAD, GUWAHATI- 781005. …… Respondents Linked Case : ITA/7/2024 WILLIAMSON FINANCIAL SERVICES LIMITED,A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND HAVING ITS REGISTERED OFFICE SITUATED AT EXPORT PROMOTION INDUSTRIAL PARK, PLOT NO. 1, AMINGAON NORTH GUWAHATI KAMRUP ASSAM- 781031 AND IN THE INSTANT PROCEEDINGS, THE PETITIONER COMPANY IS REPRESENTED BY ITS DIRECTOR, ADITYA KHAITAN. ……Appellant -VERSUS- 1.COMMISSIONER OF INCOME TAX,GUWAHATI- 2, GUWAHATI, AAYAKAR BHAWAN, CHRISTIAN BASTI, G.S. ROAD, GUWAHATI- 781005. 2:THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE- III, GUWAHATI, AAYAKAR BHAWAN CHRISTIAN BASTI, G.S. ROAD, GUWAHATI- 781005. …… Respondents – BEFORE – HON’BLE THE CHIEF JUSTICE MR. VIJAY BISHNOIHON’BLE MR. JUSTICE N. UNNI KRISHNAN NAIR For the Appellant(s) : Mr. N.S. Saini, Advocate.: Mr. Z. Islam, Advocates For the respondent(s) : Mr. S. Chetia, Senior Standing Counsel, Income Tax Department. Date of Hearing : 17.09.2024 Date of Judgment : 24.09.2024 J UDGMENT&ORDER (CAV) [Vijay Bishnoi, CJ] The present appeals have been preferred by the appellant, viz,Williamson Financial Services Limited, under Section 260A of the Income TaxAct, 1961 (hereinafter to be referred as “the Act of 1961”) against the orderdated 06.07.2022, passed by the Income Tax Appellate Tribunal (ITAT)Guwahati Bench, Guwahati [hereinafter to be referred as “the Tribunal”], in ITANos.159/Gau/2019 for the Assessment Year 2009-10; 154/Gau/2019 for theAssessment Year 2012-13; 155/Gau/2019 for the Assessment Year 2013-14 and156/Gau/2019 for the Assessment Year 2014-15. 2. Since the facts and issues involved in all these appeals are identical,the said appeals were heard together and are being disposed of by this common judgment and order. 3. For the purpose of the adjudication, the facts of ITA No.2/2024 arebeing taken into consideration. 2. Since the facts and issues involved in all these appeals are identical,the said appeals were heard together and are being disposed of by this common judgment and order. 3. For the purpose of the adjudication, the facts of ITA No.2/2024 arebeing taken into consideration. The appellant, Williamson Financial Services Limited, is a Company(hereinafter to be referred as “the appellant Company”), incorporated under theCompanies Act, 1956, engaged in the business of Lease Financing, FinancialAdvisory and Capital Market Operations, had filed its return of income for theAssessment Year 2013-14 on 26.09.2013 showing a loss of Rs.6,02,59,950/-.The case of the appellant Company was selected for scrutiny through CASS anda notice under Section 143(2) of the Act of 1961 was issued and thereafter,another notice under Section 142(1) of the Act of 1961 was issued asking theAssessee to file certain details and documents for the relevant period. Theappellant Company, through its representative, had furnished the details beforethe Assessing Officer and the Assessing Officer, after considering the same,passed the Assessment Order on 04.02.2016. The operative portion of the Assessment Order dated 04.02.2016 isreproduced hereunder: “4.13 The assessee has made disallowances u/s 14A of Rs.22,548,284/-not by following any systematic or specific method of calculation but on the basisof disallowance made in assessment orders of earlier assessment years. In otherwords, the assessee has only made estimate disallowance u/s 14A. In doing thesame, assessee has in principle accepted the fact that in its case, disallowanceu/s 14A is required to be made. The assessee has however not vouched for thecorrectness of disallowance made suo moto as the same has been made onestimate basis. However, the method of disallowance u/s 14A has been providedin Rule 8D(1)(b)(ii) of the Income Tax Rules, 1962. 4.14 As already discussed above, the assessee claims that theinvestments were made long back. Therefore, the assessee may argue that thesources were out of loans in the earlier years as on date such loans are not inevidence. This could hardly be an argument since the new loans have replacedthe old loans which were utilized for such advances. In view of above, interest on borrowed capital relevant to the investment in equity is to be disallowed u/s 14A.As already discussed, the assessee has not maintained separate books ofaccounts in respect of the activities involving income under the head dividendsand also income from other activities. Therefore, the interest relatable to thefunds invested in equity shares is determined in accordance with the method asprovided under Rule 8D(1)(b)(ii) of the Income Tax Rule, 1961 as under: Aggregate of the following: (i) Rs.22,548,285/- (the amount of expenditure directly relation to incomewhich does not form part of total income)which does not form part of total income) (ii) Rs.7,93,22,426/- (Expenditure by way of interest not attributable toparticular income or receipt)particular income or receipt) The proportionate amount to be calculated as follows: (A X B)/C Where, A= Rs.8,79,14,651/- (i.e. the amount of expenditure by way ofinterest other than the amount of interest directly relating to income whichdoes not form part of total income) B= Rs.86,78,80,470/- (being the average of Rs.89,45,35,477/- & Rs.84,12,25,463/-) (the average of value of investment, income from whichdoes not or shall not form part of the total income as appearing in thebalance sheet of the assessee, on the first day and the last day of theprevious year). C= Rs.9,61,88,95,39/- (the average of * total assets as appearing in thebalance sheet excluding the increase on account of revaluation of assets butincluding the decrease in revaluation of assets) The proportionate amount to be calculated as follows: (A X B)/C Where, A= Rs.8,79,14,651/- (i.e. the amount of expenditure by way ofinterest other than the amount of interest directly relating to income whichdoes not form part of total income) B= Rs.86,78,80,470/- (being the average of Rs.89,45,35,477/- & Rs.84,12,25,463/-) (the average of value of investment, income from whichdoes not or shall not form part of the total income as appearing in thebalance sheet of the assessee, on the first day and the last day of theprevious year). C= Rs.9,61,88,95,39/- (the average of * total assets as appearing in thebalance sheet excluding the increase on account of revaluation of assets butincluding the decrease in revaluation of assets) As per Rule 8D(3), the ‘total assets’ means, total assets asappearing in the balance sheet excluding the increase on account ofrevaluation of assets but include the decease on revaluation ofassets.revaluation of assets but include the decease on revaluation ofassets. (iii)Rs.43,39,402/- (being one half percent of the average of the value ofinvestment of Rs.86,78,80,470/-, income from which does not or shall notform part of total income, as appearing in the balance sheet of the assessee,on the first day and the last of the previous year.investment of Rs.86,78,80,470/-, income from which does not or shall notform part of total income, as appearing in the balance sheet of the assessee,on the first day and the last of the previous year. Therefore, the interest relatable to the fund in shares, etc works out toRs.10,62,10,110/- {i.e. the aggregate amount of (i)+(ii)+(iii) as determined above}.Since, assessee has already disallowed Rs.22,548,285/- as expenditure relatingto exempt income in its computation already, the balance amount ofRs.8,36,61,825/- is hereby disallowed u/s 14A of the Income Tax Act, 1961.[Addition : Rs.8,36,61,825/-] 5. In view of above discussion, the total income of the assessee is computed asfollows: COMPUTATION OF TOTAL INCOME 6. Assessed as above u/s 143(3) of the Income Tax Act, 1961. Charge interest u/s234A/234/B/234C of Income Tax Act, 1961 as applicable. Give due credit for pre-paidtaxes as reflected in the AST (ITD System) after due verification. Issue Demand Noticeu/s 156 and Challan and copy of Assessment Order to the assessee accordingly. Taxcalculation as per System shown separately.” Being aggrieved with the assessment order dated 04.02.2016, theappellant Company preferred an appeal before the Commissioner of Income Tax(Appeals), Guwahati [hereinafter to be referred as “CIT(A)”] under Section 250of the Act of 1961 and the said appeal was partly allowed vide order dated31.01.2019 affirming the action of invocation of provisions of Section 14A readwith Rule 8D of the Income Tax Rules, 1962. However, the CIT(A) held that thedisallowance under Section 14A of the Act of 1961 read with Rule 8D of IncomeTax Rules, 1962 (hereinafter referred to be as “the Rules of 1962”) cannotexceed the income claimed exempt. The operative portion of the order passed by the CIT(A) dated 31.01.2019is reproduced hereunder: “In view of the above discussion and also the above judgments, I hold thatthe Ld AO had correctly invoked the provisions of Section 14A of the IT Act,1961 read with Rule 8D of the IT Rules, 1962 and, therefore, I, hereby confirmthe invocation of the provisions of Section 14A of the IT Act, 1961 read with Rule80D of the IT Rules, 1962. Having held that the provision of Section 14A of theIT Act, 1961 read with Rule 8D of the IT Rules, 1962 are applicable to theappellant, the only question which survives is as to whether the disallowancecomputed by the AO can exceed the aggregate of expenses claimed by theappellant or otherwise. I find that in the case of Joint Investment PrivateLimited vs. Commissioner of Income Tax [ITA No.117/2015 dated25/02/2015], the Hon’ble Delhi High Court has averred as under:- “9. In the present case, the AO has not firstly disclosed why theappellant/assessee’s claim for attributing `2,97,440/- as adisallowance under Section 14A had to be rejected. Taiksha saysthat the jurisdiction to proceed further and determine amounts isderived after examination of the accounts and rejection if any ofthe assessee’s claim or explanation. The second aspect is thereappears to have been no scrutiny of the accounts by the AO-anaspect which is completely unnoticed by the CIT (A) and the ITAT.The third, and in the opinion of this court, important anomalywhich we cannot be unmindful is that whereas the entire tax`-appellant/assessee’s claim for attributing `2,97,440/- as adisallowance under Section 14A had to be rejected. Taiksha saysthat the jurisdiction to proceed further and determine amounts isderived after examination of the accounts and rejection if any ofthe assessee’s claim or explanation. The second aspect is thereappears to have been no scrutiny of the accounts by the AO-anaspect which is completely unnoticed by the CIT (A) and the ITAT.The third, and in the opinion of this court, important anomalywhich we cannot be unmindful is that whereas the entire tax`-exempt income is 48,90,000/, the disallowance ultimately``directed works out to nearly 110% of that sum, i.e. 52,56,197/-.By no stretch of imagination can Section 14A or Rule 8D beinterpreted so as to mean that the entire tax exempt income is tobe disallowed. The window for disallowance is indicated inSection 14A, and is only to the extent of disallowing expenditure“”incurred by the assessee in relation to the tax exempt income.By no stretch of imagination can Section 14A or Rule 8D beinterpreted so as to mean that the entire tax exempt income is tobe disallowed. The window for disallowance is indicated inSection 14A, and is only to the extent of disallowing expenditure“”incurred by the assessee in relation to the tax exempt income.This proportion or portion of the tax exempt income surely cannot””swallow the entire amount as has happened in this case. It is pertinent to state here that the above judgment of the Hon’ble Delhi HighCourtwas referred & relied upon by the Hon’ble Delhi High Court in the case ofPr. CIT vs. Moderate Leasing and Capital Services Pvt. Ltd. [ITA102/2018 dated 31/01/2018]. In the case of Moderate Leasing and CapitalServices Pvt. Ltd. [ITA No.102/2018 dated 31/01/2018], the Hon’ble HighCourt held/averred as follows: “The assesses have declared paltry sums as tax exemptincome for A.Y. 2009-10. The AO added back substantial amounts-in one case to the tune of `9.9 crores under Section 14A on thebasis that huge amounts of borrowings, had been converted into equity holdings. The CIT(A) and the ITAT granted relief- the latterby following the decision of this Court in Commissioner of IncomeTax v. Joint Investment Pvt. Ltd 372 ITR 694. In Joint InvestmentPvt. Ltd. (supra), it was held that the disallowance under section14A should not exceed the exempt income itself. Having regard tothese circumstances especially that the ITAT followed thejudgment of this Court which had settled this point of law, noquestion of law arises. The appeal is, therefore, dismissed.” As against the above judgment of the Hon’ble Delhi High Court, the SLP filedby the Revenue was dismissed by the Hon’ble Supreme Court of Indiain thecase of Pr. CIT vs. Moderate Leasing and Capital Services Pvt. Ltd[SpecialLeave Petition (Civil) Diary No(s).38584/2018, dated 19/11/2018] and therebythe judgment of the Hon’ble Delhi High Courtholding that the disallowanceunder Section 14A cannot exceed the exempt income has been affirmedby theHon’ble Apex Court. I therefore direct the Ld AO to restrict the disallowanceunder Section 14A of the Income claimed exempt. Thus, the above grounds ofappeal are answered as under: As against the above judgment of the Hon’ble Delhi High Court, the SLP filedby the Revenue was dismissed by the Hon’ble Supreme Court of Indiain thecase of Pr. CIT vs. Moderate Leasing and Capital Services Pvt. Ltd[SpecialLeave Petition (Civil) Diary No(s).38584/2018, dated 19/11/2018] and therebythe judgment of the Hon’ble Delhi High Courtholding that the disallowanceunder Section 14A cannot exceed the exempt income has been affirmedby theHon’ble Apex Court. I therefore direct the Ld AO to restrict the disallowanceunder Section 14A of the Income claimed exempt. Thus, the above grounds ofappeal are answered as under: a. That the AO was right in invocation of provisions of Section 14A read withRule 8D and that he had rightly done so after recording a due satisfaction.Rule 8D and that he had rightly done so after recording a due satisfaction. b. That the disallowance made suo-motto by the appellant was incorrect andwas never substantiated by the appellant.was never substantiated by the appellant. c. That the disallowance under Section 14A read with Rule 8D cannot exceedthe income claimed exempt.the income claimed exempt. In view of the above discussion, the above grounds of appeal are partlyallowed. Decision on Ground No.3 During the course of appellate proceedings, no fresh/additional ground ofappeal was raised and this ground of appeal is accordingly dismissed as notpressed. 9. In the result, the appeal is partly allowed. In the result, the appeal is decided asabove. 10. This order has been passed under Section 250 read with Section 251 ofthe Income Tax Act, 1961. 4.Similarly, in ITA No.4/2024, the Assessment Order dated 01.12.2011; inITA No.6/2024, Assessment Order dated 13.03.2015 and in ITA No.7/2024,Assessment Order dated 29.12.2016 were issued by the Assessing Officer. The appellant Company preferred separate appeals challenging the aforesaidAssessment orders under Section 250 of the Act of 1961 before the CIT(A) andthe CIT(A) passed separate orders dated 31.01.2019 partly allowing the appealspreferred by the Appellant Company affirming the action of invocation ofprovisions of Section 14A read with Rule 8D of the Income Tax Rules, 1962.However, the CIT(A) held that the disallowance under Section 14A of the Act of1961 read with Rule 8D of the Rules of 1962 cannot exceed the income claimedexempt. 5.Being aggrieved with the said finding of the CIT(A) dated 31.01.2019,the Revenue has preferred appeals, being ITA Nos.154 to 156/Gau/2019 forAssessment Years 2012-13 to 2014-15 and ITA No.159/Gau/2019 for theAssessment Year 2009-10 before the Tribunal and the Tribunal, vide order dated06.07.2022, has accepted the said appeals and set aside the orders passed bythe CIT(A) dated 31.01.2019 relating to different assessment years and affirmedthe orders passed by the Assessing Officer. 6. Being aggrieved with the said findings of the Tribunal, the appellantCompany has preferred the instant appeals. 7. This Court, vide order dated 09.02.2024, while admitting the appeals,has framed the following substantial questions of law: “A. Whether in the facts and circumstances of the case, the order dated06.07.2022 passed by the learned Income Tax Appellate Tribunal inholding that the insertion of the Explanation to Section 14A of the IncomeTax Act of 1961 is clarificatory and thereby retrospective in nature iserroneous as well as perverse and thereby the same is erroneous in law. 06.07.2022 passed by the learned Income Tax Appellate Tribunal inholding that the insertion of the Explanation to Section 14A of the IncomeTax Act of 1961 is clarificatory and thereby retrospective in nature iserroneous as well as perverse and thereby the same is erroneous in law. 7. This Court, vide order dated 09.02.2024, while admitting the appeals,has framed the following substantial questions of law: “A. Whether in the facts and circumstances of the case, the order dated06.07.2022 passed by the learned Income Tax Appellate Tribunal inholding that the insertion of the Explanation to Section 14A of the IncomeTax Act of 1961 is clarificatory and thereby retrospective in nature iserroneous as well as perverse and thereby the same is erroneous in law. 06.07.2022 passed by the learned Income Tax Appellate Tribunal inholding that the insertion of the Explanation to Section 14A of the IncomeTax Act of 1961 is clarificatory and thereby retrospective in nature iserroneous as well as perverse and thereby the same is erroneous in law. B. Whether the finding of the learned Tribunal to the effect that the insertionof the Explanation to Section 14A of the Income Tax Act, 1961 isclarificatory is contrary to the legislative intention as expressed in theMemorandum to the Finance Bill, 2022 whereby it was stated that theof the Explanation to Section 14A of the Income Tax Act, 1961 isclarificatory is contrary to the legislative intention as expressed in theMemorandum to the Finance Bill, 2022 whereby it was stated that the amendment shall be applicable from 01.04.2022 and the Assessmentyear 2022-2023 onwards and thereby whether the said order passed bythe learned Tribunal is erroneous in law.” 8. Learned counsel for the appellant Company has vehemently arguedthat the Tribunal has grossly erred in setting aside the orders dated 31.01.2019passed by the CIT(A) while observing that the Explanation to Section 14A of theAct of 1961 inserted by Finance Act, 2022 being clarificatory in nature hasretrospective effect. It is contended that the said finding recorded by theTribunal is contrary to law because the Ministry of Finance, Union of India, hasissued Memorandum Explaining the Provisions in the Finance Bill, 2022 andclarified that the amendment to Section 14A of Income Tax Act wherebyexplanation is inserted will take effect from 01.04.2022 and will accordinglyapply in relation to the assessment year 2022-23 and subsequent assessmentyears. It is also contended that the various High Courts have held that theExplanation inserted under Section 14A is prospective in nature. 9.In support of his submission, the learned counsel for the appellant hasplaced reliance on the decisions of the Delhi High Court rendered in (i)Principal Commissioner of Income Tax Vs. Era Infrastructure (India)Ltd, reported in [2022] 448 ITR 674(Delhi), ITA No.204/2022, judgment“dated 20.07.2022[hereinafter to be referred as Pr.CIT Vs. EraInfrastructure (India) Ltd., Judgment dated 20.07.2022”]; [ii) Pr.Commissioner of Income Tax (Central)-2 Vs. M/s Era Infrastructure IndiaLtd., [ITA No.359/2024 & CM APPL. 39600/2024, order dated16.07.2024][hereinafter to be referred as “Pr.CIT Vs. M/s EraInfrastructure India Ltd., order dated 16.07.2024”];(iii) PrincipalCommissioner of Income Tax Vs. Uniparts India Ltd.,reported in [2024]160 taxmann.com 92 (Delhi).He has also placed reliance on the decisions rendered by the High Court of Calcutta in (i) Principal Commissioner ofIncome Tax, Central-1, Kolkata Vs. M/S Jas Toli Road Company Ltd.,[ITAT/7/2024, I.A. No.GA/2/2024,decided on 26.02.2024]and (ii) PrincipalCommissioner of Income-tax (Central) Vs. Avantha Realty Ltd.,reported in[2024] 164 taxmann.com 376 (Calcutta). 10. Learned counsel for the appellant has further submitted that theIncome Tax Department has accepted the proposition that the Explanationinserted to Section 14A through amendment is applicable prospectively beforethe Delhi High Court in Principal Commissioner of Income Tax Vs.Uniparts India Ltd.(supra) and therefore, now it is not open for the Revenueto change its stand in claiming that the Explanation inserted to Section 14Athrough the Finance Bill, 2022 is retrospective in nature. 10. Learned counsel for the appellant has further submitted that theIncome Tax Department has accepted the proposition that the Explanationinserted to Section 14A through amendment is applicable prospectively beforethe Delhi High Court in Principal Commissioner of Income Tax Vs.Uniparts India Ltd.(supra) and therefore, now it is not open for the Revenueto change its stand in claiming that the Explanation inserted to Section 14Athrough the Finance Bill, 2022 is retrospective in nature. Learned counsel for the appellant has, therefore, submitted that in viewof the above decisions, the impugned order dated 06.07.2022 passed by theTribunal is liable to be set aside. 11. Learned counsel for the appellant has further invited our attention tothe fact that the Bench of the Tribunal which had passed the impugned order,later on, while relying on the decision of the Delhi High Court rendered in“Pr.CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022”(supra) has passed an order on 09.11.2022 in ITA No.103/Kol/2021 and heldthatabiding by the principle of judicial hierarchy, the Hon’ble Delhi High Courtbeing a higher Court, the Tribunal is obliged to follow the same. However,subsequently, the same Bench of the Tribunal, vide order dated 02.01.2023passed MA Nos.2 to 4/GTY/2022 and MA No.5/GTY/2022, has dismissed theMiscellaneous Applications filed on behalf of the appellants while holding thatthe Delhi High Court is of a non-jurisdictional High Court and therefore, its decision is not binding upon the Tribunal. It is submitted by the learned counselfor the appellant that though the same Bench of the Tribunal, on 09.11.2022has held that the decision of the Delhi High Court is binding on it, however, on02.01.2023, the same Bench of the Tribunal has declared that the judgment ofDelhi High Court is not binding upon it. It is submitted that the said conduct ofthe members of the Tribunal is liable to be condemned. Learned counsel for the appellant has, therefore, prayed that the presentappeals may kindly be allowed and the impugned order passed by the Tribunalmay kindly be set aside and substantial questions of law may be answeredaccordingly. 12.Learned counsel for the Revenue has frankly admitted that in view of theMemorandum Explaining the Provisions of the Finance Bill, 2022, issued by theMinistry of Finance, it is now settled that the Explanation inserted to Section14A of the Act of 1961, is prospective in nature and cannot be made effectiveretrospectively. 13.Heard the learned counsel appearing for the parties and also perusedthe material placed on record. The Explanation to Section 14A of the Income Tax Act, 1961 is inserted vide Finance Bill, 2022. The Ministry of Finance, Union of India, issuedMemorandum Explaining the Provisions in the Finance Bill, 2022. The relevant extract of the said Memorandum reads as under: “Clarification in respect of disallowance under Section 14A in absence of anyexempt income during an assessment year. Section 14A of the Act provides that no deduction shall be allowed in respect ofexpenditure incurred by the assessee in relation to income that does not formpart of the total income as per the provisions of the Act (exempt income). 2. Over the years, disputes have arisen in respect of the issue whetherdisallowance under section 14A of the Act can be made in cases where noexempt income has accrued, arisen or received by the assessee during anassessment year. vide Finance Bill, 2022. The Ministry of Finance, Union of India, issuedMemorandum Explaining the Provisions in the Finance Bill, 2022. The relevant extract of the said Memorandum reads as under: “Clarification in respect of disallowance under Section 14A in absence of anyexempt income during an assessment year. Section 14A of the Act provides that no deduction shall be allowed in respect ofexpenditure incurred by the assessee in relation to income that does not formpart of the total income as per the provisions of the Act (exempt income). 2. Over the years, disputes have arisen in respect of the issue whetherdisallowance under section 14A of the Act can be made in cases where noexempt income has accrued, arisen or received by the assessee during anassessment year. 3. The CBDT issued Circular No.5 of 2014, dated 11/02/2014, clarifying thatrule 8D read with Section 14A of the Act provides for disallowance of theexpenditure even where tax payer in a particular year has not earned anyexempt income. However, still some courts have taken a view that if there is noexempt income during a year, no disallowance under section 14A of the Act canbe made for that year. Such an interpretation is not in line with the intention ofthe Legislature. To illustrate, if during a previous year, an assessee incurs anexpense of Rs. 1 lakh to earn non-exempt income of Rs. 1.5 lakh and also incursan expense of Rs. 20,000 to earn exempt income which may or may not haveaccrued/received during the year. By holding that provisions of section 14A ofthe Act does not apply in this year as the exempt income was notaccrued/received during the year, it amounts to holding that Rs.20,000 wouldbe allowed as deduction against non-exempt income of Rs.1.5 lakh even thoughthis expense was not incurred wholly and exclusively for the purpose of earningnon-exempt income. Such an interpretation defeats the legislative intent of bothSection 14A as well as Section 37of the Act. 4. In order to make the intention of the legislation clear and to make it freefrom any misinterpretation, it is proposed to insert an Explanation to section14A of the Act to clarify that notwithstanding anything to the contrary containedin this Act, the provisions of this section shall apply and shall be deemed tohave always applied in a case where exempt income has not accrued or arisenor has not been received during the previous year relevant to an assessmentyear and the expenditure has been incurred during the said previous year inrelation to such exempt income. 5. This amendment will take effect from 1[st] April, 2022. 6. It is also proposed to amend sub-section (1) of the said section, so as toinclude a non-obstante clause in respect of other provisions of the Income-taxact and provide that no deduction shall be allowed in relation to exempt income,notwithstanding anything to the contrary contained in this Act. 7. This amendment will take effect from 1[st] April, 2022 and will accordinglyapply in relation to the assessment year 2022-23 and subsequent assessmentyears.” 14.Taking note of above, the Division Bench of Delhi High Court in “Pr. CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022”(supra),considering the question whether the Explanation inserted to Section 14A of Actof 1961 is retrospective or prospective in nature, has held as under: “However a perusal of the Memorandum of the Finance Bill, 2022([2022]440 ITR (St.) 226) reveals that it explicitly stipulates that the amendmentmade toSection 14Awill take effect from 1st April, 2022 and will apply inrelation to the assessment year 2022-23 and subsequent assessment years.The relevant extract of Clauses 4, 5, 6 & 7 of the Memorandum of Finance Bill,2022 are reproduced hereinbelow: 14.Taking note of above, the Division Bench of Delhi High Court in “Pr. CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022”(supra),considering the question whether the Explanation inserted to Section 14A of Actof 1961 is retrospective or prospective in nature, has held as under: “However a perusal of the Memorandum of the Finance Bill, 2022([2022]440 ITR (St.) 226) reveals that it explicitly stipulates that the amendmentmade toSection 14Awill take effect from 1st April, 2022 and will apply inrelation to the assessment year 2022-23 and subsequent assessment years.The relevant extract of Clauses 4, 5, 6 & 7 of the Memorandum of Finance Bill,2022 are reproduced hereinbelow: "4. In order to make the intention of the legislation clear and tomake it free from any misinterpretation, it is proposed to insert anExplanation tosection 14Aof the Act to clarify that notwithstandinganything to the contrary contained in this Act, the provisions of thissection shall apply and shall be deemed to have always applied in a casewhere exempt income has not accrued or arisen or has not been receivedduring the previous year relevant to an assessment year and theexpenditure has been incurred during the said previous year in relation tosuch exempt income. 5. This amendment will take effect from 1st April, 2022. 6. It is also proposed to amend sub-section (1) of the said section, so as toinclude a non-obstante clause in respect of other provisions of the Income-tax Act and provide that no deduction shall be allowed in relation toexempt income, notwithstanding anything to the contrary contained inthis Act. 7. This amendment will take effect from 1st April, 2022 and willaccordingly apply in relation to the assessment year 2022-23 andsubsequent assessment years." (emphasis supplied) Furthermore, the Supreme Court in Sedco Forex InternationalDrill.Inc. v. CIT, (2005) 12 SCC 717 has held that a retrospective provision in atax act which is "for the removal of doubts" cannot be presumed to beretrospective, even where such language is used, if it alters or changes the lawas it earlier stood. The relevant extract ofthe said judgmentis reproduced hereinbelow (page 316 of 279 ITR) “The High Court did not refer to the 1999 Explanation inupholding the inclusion of salary for the field break periods in theassessable income of the employees of the appellant. However, therespondents have urged the point before us. In our view the 1999 Explanation could not apply to assessmentyears for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in CIT v. S.G.Pgnatale [(1980) 124 ITR 391 (Guj)] was followed in 1989 by a DivisionBench of the Gauhati High Court in CIT v. Goslino Mario [(2000) 241 ITR314 (Gau)] . It found that the 1983 Explanation had been given effectfrom 1-4-1979 whereas the year in question in that case was 1976-77and said (page 318) : ‘……It is settled law that assessment has to be made withreference to the law which is in existence at the relevant time. The merefact that the assessments in question had somehow remained pending on1-4-1979, cannot be cogent reason to make the Explanation applicableto the cases of the present assessees. This fortuitous circumstance cannottake away the vested rights of the assessees at hand.’ The reasoning of the Gauhati High Court was expressly affirmedby this Court in CIT v. Goslino Mario [(2000) 10 SCC 165 : (2000) 241ITR 312] . These decisions are thus authorities for the proposition that the1983 Explanation expressly introduced with effect from a particular datewould not effect the earlier assessment years. ‘……It is settled law that assessment has to be made withreference to the law which is in existence at the relevant time. The merefact that the assessments in question had somehow remained pending on1-4-1979, cannot be cogent reason to make the Explanation applicableto the cases of the present assessees. This fortuitous circumstance cannottake away the vested rights of the assessees at hand.’ The reasoning of the Gauhati High Court was expressly affirmedby this Court in CIT v. Goslino Mario [(2000) 10 SCC 165 : (2000) 241ITR 312] . These decisions are thus authorities for the proposition that the1983 Explanation expressly introduced with effect from a particular datewould not effect the earlier assessment years. In this state of the law, on 27-2-1999 the Finance Bill, 1999substituted the Explanation to Section 9(1)(ii) (or what has been referredto by us as the 1999 Explanation). Section 5 of the Bill expressly statedthat with effect from 1-4-2000, the substituted Explanation would read: ‘Explanation.--For the removal of doubts, it is hereby declaredthat the income of the nature referred to in this clause payable for-- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeededby services rendered in India and forms part of the service contract ofemployment, shall be regarded as income earned in India." The Finance Act, 1999 which followed the Bill incorporated the substitutedExplanation to Section 9(1)(ii) without any change. The Explanation asintroduced in 1983 was construed by the Kerala High Court in CIT v. S.R.Patton [(1992] 193 ITR 49 (Ker), while following the Gujarat High Court'sdecision in CIT v. S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] to hold that theExplanation was not declaratory but widened the scope of Section 9(1)(ii). Itwas further held that even if it were assumed to be clarificatory or thatit removed whatever ambiguity there was in Section 9(1)(ii) of the Act, itdid not operate in respect of periods which were prior to 1-4-1979. It was held that since the Explanation came into force from 1-4-1979, itcould not be relied on for any purpose for an anterior period. In the appeal preferred from the decision by the Revenue beforethis Court, the Revenue did not question this reading of the Explanationby the Kerala High Court, but restricted itself to a question of fact viz.whether the Tribunal had correctly found that the salary of the assesseewas paid by a foreign company. This Court dismissed the appeal holdingthat it was a question of fact. (CIT v. S.R. Patton [(1998) 8 SCC 608].Given this legislative history of Section 9(1)(ii), we can only assume that itwas deliberately introduced with effect from 1-4- 2000 and thereforeintended to apply prospectively [See CIT v. Patel Bros. & Co. Ltd.,(1995) 4 SCC 485, 494. It was also understood as such by CBDT whichissued Circular No. 779 dated 14-9-1999 containing Explanatory Noteson the provisions of the Finance Act, 1999 insofar as it related to directtaxes. It said in paras 5.2 and 5.3 : ‘5.2 The Act has expanded the existing Explanation which statesthat salary paid for services rendered in India shall be regarded asincome earned in India, so as to specifically provide that anysalary payable for the rest period or leave period which is bothpreceded and succeeded by service in India and forms part of theservice contract of employment will also be regarded as incomeearned in India.that salary paid for services rendered in India shall be regarded asincome earned in India, so as to specifically provide that anysalary payable for the rest period or leave period which is bothpreceded and succeeded by service in India and forms part of theservice contract of employment will also be regarded as incomeearned in India. 5.3 This amendment will take effect from 1-4-2000, and willaccordingly, apply in relation to Assessment Year 2000-2001 and subsequent years.’ 5.3 This amendment will take effect from 1-4-2000, and willaccordingly, apply in relation to Assessment Year 2000-2001 and subsequent years.’ The departmental understanding of the effect of the 1999 Amendmenteven if it were assumed not to bind the respondents under Section 119 ofthe Act, nevertheless affords a reasonable construction of it, and there isno reason why we should not adopt it. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165 :(2000) 241 ITR 312] a cardinal principle of the tax law is that the law tobe applied is that which is in force in the relevant assessment yearunless otherwise provided expressly or by necessary implication. (Seealso Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139 :1980 SCC (Tax) 67] .) An Explanation to a statutory provision may fulfilthe purpose of clearing up an ambiguity in the main provision or anExplanation can add to and widen the scope of the main section[See Sonia Bhatia v. State of U.P., (1981) 2 SCC 585, 598 : AIR 1981SC 1274, 1282 para 24] . If it is in its nature clarificatory then the Explanation must be read into the main provision with effect fromthe time that the main provision came into force [See ShyamSunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); Brij Mohan DasLaxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P)Ltd., (1997) 5 SCC 482, 506]. But if it changes the law it is notpresumed to be retrospective, irrespective of the fact that thephrases used are “it is declared” or "for the removal of doubts". (emphasis supplied) 7. The aforesaid proposition of law has been reiterated by the Supreme Courtin M.M Aqua Technologies Ltd. V. Commissioner of Income Tax, Delhi-III,[2021] SCC OnLine SC 575. The relevant portion of the said judgment isreproduced hereinbelow (page 597 OF 436 ITR):- “Second, a retrospective provision in a tax act which is “for theremoval of doubts” cannot be presumed to be retrospective, even wheresuch language is used, if it alters or changes the law as it earlier stood.This was stated in Sedco Forex International Drill. Inc. v. CIT, (2005)12 SCC 717 as follows (page 318 of 279 ITR): ‘17. As was affirmed by this Court in Goslino Mario [(2000) 10SCC 165] a cardinal principle of the tax law is that the law to be appliedis that which is in force in the relevant assessment year unless otherwiseprovided expressly or by necessary implication. (See also Reliance Juteand Industries Ltd. v. CIT [(1980) 1 SCC 139].) An Explanation to astatutory provision may fulfil the purpose of clearing up an ambiguity inthe main provision or an Explanation can add to and widen the scope ofthe main section [See Ku.Sonia Bhatia v. State of U.P., (1981) 2 SCC585]. If it is in its nature clarificatory then the Explanation must be readinto the main provision with effect from the time that the main provisioncame into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC24; Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352; CIT v.Podar Cement (P) Ltd., (1997) 5 SCC 482]. But if it changes the law it isnot presumed to be retrospective, irrespective of the fact that the phrasesused are “it is declared” or “for the removal of doubts”. 18. There was and is no ambiguity in the main provision of Section9(1)(ii). It includes salaries in the total income of an assessee if theassessee has earned it in India. The word “earned” had been judiciallydefined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court ofGujarat, in our view, correctly, to mean as income “arising or accruing inIndia”. The amendment to the section by way of an Explanation in 1983effected a change in the scope of that judicial definition so as to include with effect from 1979, “income payable for service rendered in India”. 18. There was and is no ambiguity in the main provision of Section9(1)(ii). It includes salaries in the total income of an assessee if theassessee has earned it in India. The word “earned” had been judiciallydefined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court ofGujarat, in our view, correctly, to mean as income “arising or accruing inIndia”. The amendment to the section by way of an Explanation in 1983effected a change in the scope of that judicial definition so as to include with effect from 1979, “income payable for service rendered in India”. 19. When the Explanation seeks to give an artificial meaning to“earned in India” and brings about a change effectively in the existinglaw and in addition is stated to come into force with effect from a futuredate, there is no principle of interpretation which would justify readingthe Explanation as operating retrospectively.” (emphasis supplied) Consequently, this Court is of the view that the amendment of Section14A, which is “for removal of doubts” cannot be presumed to be retrospectiveeven where such language is used, if it alters or changes the law as it earlierstood.” 15. In Pr.CIT Vs. M/s Era Infrastructure India Ltd., order dated 16.07.2024(supra), the Delhi High Court, relying on the decision rendered in“Pr.CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022”(supra), has dismissed the appeal preferred on behalf of the Revenue. 16. The High Court of Kolkata in M/S Jas Toll Road Company Ltd.(supra) has dismissed the appeal filed by the Revenue while relying on thedecision of the Delhi High Courtrendered in “Pr.CIT Vs. Era Infrastructure(India) Ltd., Judgment dated 20.07.2022” (supra) and held that theexplanation inserted to Section 14A by Finance Act, 2022 will be applicableprospectively. The operative portion of the decision rendered in M/s Jas Toll RoadCompany Ltd.(supra) is reproduced hereunder: “Upon careful consideration and going through the materials on record wefind that the learned tribunal was fully justified in dismissing the appeal filedby the revenue affirming the order passed by the Commissioner of Income Tax[Appeals], Kolkata-20. The issue involved in the case is that whetherdisallowance under Section 14A of the Act can be made even if the assesseehas not earned any exempt income, the issue is no longer res integra and thereare several decisions to the effect that amendment made under Section 14A ofthe Act by Finance Act, 2022 will be applicable prospectively and disallowanceshould not exceed the exempt income earned by the assessee during the year. The PCIT has also noted the decision of the Hon’ble Supreme Court in CIT vs.Chettinad Logistics Pvt. Ltd [2018] 95 taxmann.com 250 and PCIT-18 vs. OilIndustrices Development Board, SLP (Civil) Diary No.2755/2019. Thus, we find no ground to interfere with the order passed by the learnedtribunal. Accordingly, the appeal is dismissed and the substantial questions of laware answered against the revenue.” 17. In Avantha Realty Ltd.(supra), the High Court of Calcutta, rel