While dismissing the Writ Petition filed by M/S Nath Brothers Exim International Ltd, the division bench of Delhi High Court upheld the Constitutional Validity of Section 80 (5) and Section 10B (1) of the Income Tax Act.
The Petitioner challenged the validity of Section 80(5) of the Income Tax Act, 1961 inserted by Finance Act, 2009 with effect from 01.04.2003 and also, the fourth proviso to S.10B (1) of the Act inserted by the Finance Act, 2006 w.e.f. 01.04.2006, as arbitrary, discriminatory, unreasonable, and violative of Article 14 of the Constitution of India.
Both provisions preclude assessees from claiming deductions with respect to any profits and gains in an export oriented unit (EOU) if it fails to file a return of income claiming such deductions, within the time stipulated under Section 139(1) of the Income Tax Act.
The Court rejected the petitioner contention that in case of any bona fide reason preventing any given assessee from filing return of income within time, there is no recourse given under any provision of the Act by which a deduction can be claimed at a later stage.
The Court also rejected that there was no rationale behind insertion of the impugned provisions in the statute as before their insertion an assessee was allowed to claim deduction of profits and gains at any time before completion of assessment.
The division bench comprising of Justice S. Ravindra Bhat and Justice Najimi Waziri observed that, “those claiming benefits of deduction and those who are not, although no doubt both taxpayers, are clearly apart. Thus, it is open to legislate and prescribe different conditions in respect of those who claim benefits, just as the substantive provisions which stipulate the conditions (kind of accounts to be maintained, eligibility criteria, etc). Therefore, provision of special limitation in such cases is justified and has a rational nexus with the object which Parliament wished to achieve, i.e. to segregate the returns of assessees in such cases, for proper scrutiny”.
The Court also said that, “A proviso is therefore meant to limit the scope of the general enactment and thus any proviso which does that cannot be held to be invalid as long as the objective of the general provision is not frustrated. Going by this case, it is safe to say that the fourth proviso to Section 10B (1) is a qualifying proviso and it only seeks to limit the general provision in Section 10B (1) with a further stipulation or condition”.
“Thus with the addition of the fourth proviso to Section 10B(1) of the Act, the manner of claiming deduction is now time barred under the provisions of the Section 139(1) and relief cannot be granted after expiry of the time mentioned in Section 139(1). Thus, Parliament acted within its power to differentiate between a return of income filed under Section 139(1) and a belated return filed under Section 139(4) for the purposes of deductions claimed Section 10B(1)”, the Court also added.
Read the full text of the Judgment below.
