Summary
The Supreme Court held that Rule 8D of the Income-tax Rules operated prospectively and could not be applied to assessment years before 2008–09. Its new method for computing expenditure related to exempt income did not become retrospective merely because Section 14A originally had retrospective effect or because the rule provided machinery. Legislative materials, departmental explanation, the rule’s content and its later replacement supported prospectivity. All Revenue appeals in the batch were dismissed.
Issues
- Whether Rule 8D applied retrospectively to pending assessments for years before 2008–09.
Provisions considered
- Section 14A, including subsections (2) and (3), Income-tax Act, 1961The retrospective original disallowance provision did not imply retrospective operation of the subsequently prescribed computation method. (¶¶ 14, 15, 16, 17, 18, 19, 20, 28, 30, 31, 32, 35, 48)
- Rule 8D, inserted in 2008, Income-tax Rules, 1962The new method was prospective and unavailable for assessment years before 2008–09; its 2016 substitution reinforced the succession of prospective methodologies. (¶¶ 21, 32, 39, 43, 45, 46, 47, 48, 50)
Held
- Fiscal legislation imposing new burdens is ordinarily prospective absent express words or necessary implication. Machinery provisions also require examination of their content and statutory scheme; describing a rule as procedural does not automatically establish retrospective operation. (¶¶ 23, 24, 25, 26, 27, 33, 43)
- Original Section 14A was workable without Rule 8D. The 2008 rule introduced a new computational method, rather than merely selecting an already well-known accepted method. Sharvan Kumar Swarup, involving a valuation rule of that latter character, was distinguishable. (¶¶ 34, 35, 37, 38, 39)
- The Finance Bill explanation and departmental circular distinguished the later statutory and rule changes from original Section 14A’s express retrospectivity. Rule 8D contained no indication of retrospective intent; its subsequent replacement by a different method also supported prospective operation. (¶¶ 28, 29, 30, 31, 32, 45, 46, 47, 48)
- The specific issue decided was Rule 8D’s temporal application. It could not apply before assessment year 2008–09. In the lead 2003–04 case the tribunal’s remand for fresh adjudication without Rule 8D remained; the ruling did not abolish the underlying Section 14A inquiry for earlier years. (¶¶ 5, 6, 7, 49, 50, 51)
Result
All Revenue appeals dismissed. Rule 8D held prospective and inapplicable to assessment years before 2008–09.