Bhagwan Dass Khanna Enterprises Vs. Assistant Commissioner of - Court Judgment

Excerpt:
1. this is an appeal by the assessee against the order of the id.cit(a)iv, new delhi dated 7-10-1993, for the assessment year 1990-91.2. the grounds at s. nos. 1 and 2, which arc interconnected, read as under:-- 1. "that the learned commissioner of income-tax (appeals) grossly erred on facts and in law in confirming the action of the learned assessing officer of rejecting the claim of the appellant company that the explanation to section 80hhd(2) although inserted by the finance (no. 2) act, 1991, with effect from 1st april, 1992 would apply to the past assessment years also as it merely provides a clarification to the basic provisions of section 80hhd(2) of the income-tax act, 1961." 2. "that the claim of the appellant company for deduction under section 80hhd(3) of rs. 4,65,528 being based on a certain interpretation of some provisions of the income-tax act, 1961, the assessing officer erred in observing that the claim of the appellant company was made with an intention to defraud the revenue and as such the learned commissioner of income tax (appeals) ought to have issued appropriate orders in this regard." 3. the assessee-company run a jewellery shop, selling primarily silver items. it also owned hotel jass oberoi, khajuraho, which was given to the oberoi group of hotels on an operational agreement. the facts concerning the matter, to be stated succinctly, are that on the basis of auditor's report in form no. 10ccad, in which the receipts of convertible foreign exchange were computed at rs. 83,15,526, the profit derived from providing of services of foreign tourists was worked out at rs. 4,65,528, for which deduction was claimed under section 80hhd of the income-tax act. "indirect receipts" of convertible foreign exchange, amounting to rs. 71,36,312, included in the total receipts of rs. 83,15,526, were assumed to qualify for deduction in view of explanation to section 80hhd(2)of the income-tax act. the said explanation was inserted in the provision of section 80hhd, alongwith sub-section (2a), by the finance (no. 2) act, 1991 w.e.f. 1-4-1992. the assessing officer refused to accept assessee's contention that the aforesaid explanation had a retrospective operation and as such payments of rs. 71,36,312 received in indian currency, obtained by conversion of foreign exchange brought into india through an authorised dealer, were also eligible for deduction under section 80hhd of the income-tax act. on the balance receipts of rs. 11,79,213, the assessing officer worked out the allowable deduction under' section 80hhd at rs. 65,995. accordingly, deduction for rs. 65,995 was allowed as against the claim of rs. 4,65,528. in this connection the assessing officer also observed that deduction under section 80hhd was claimed at an higher amount, to defraud the revenue and, therefore, penalty proceedings under section 271(1)(c) were initiated.3.1 in appeal, the id. cit(a) also did not agree with the assessee's contention that the explanation inserted by finance act, 1991, w.e.f.1-4-1992, was only clarificatory in nature. he referred to the memo.explaining the provisions of finance (no, 2) bill, 1991 specifying that the amendment proposed in section 80hhd by inserting explanation to subsection (2) will be applicable only in relation to the assessment year 1992-93 and subsequent year. the action of the assessing officer was thus upheld. it was pointed out that the assessee's plea against the initiation of penalty under section 271(1)(c) was not relevant.4. the submission of the id. counsel for the assessee was that the receipts of rs. 71,36,312 in indian currency had come out from foreign exchange receipts for which necessary evidence was duly furnished. he referred to the definition of "convertible foreign exchange" contained in explanation (a) to section 80hhc and that of "foreign exchange" in section 2 of the foreign exchange regulation act, 1973 besides referring to provisions of section 15 of the said act and the notification made thereunder, to plead that under the specified circumstances the foreign nationals on visit to india have been exempted from the operation of the provisions of section 15(1) of the fera. the id. counsel reiterated that the explanation to section 80hhd(2), although inserted by the finance act, 1991, w.e.f. 1-4-1992, would apply to the past assessment years also as it merely provided a clarification to the basic provisions of section 80hhd(2) of the act.in this connection our attention was invited to the notes on clauses of the finance (no. 2) bill, 1991, the relevant portion of which reads under:-- "sub-clause (b) seeks to insert an explanation at the end of sub-section (2) to clarify that payment received by an assessee in indian currency obtained by conversion of foreign exchange brought into india through an authorised dealer, from a tour operator or a travel agent on behalf of foreign tourists, shall be deemed to have been received by the assessee in convertible foreign exchange, if the person making the payment furnishes to the assessee a certificate specified in the proposed new sub-section (2a)." (emphasis supplied) the id. counsel emphasised that the use of the word "to clarify" indicated that the explanation was by way of clarification and, if that was so, it was pleaded that the same would have retrospective operation. in this connection our attention was invited to the decision of the madras high court in the case of ito v. d. manoharlal kothari [1999] 236 itr 357, the head note of which reads as under:-- "an explanation cannot be treated as an amendment because the purpose of an explanation is to explain or to clear any mental cobwebs surrounding the meaning of a statutory provision and to prevent controversial interpretations without giving the true meaning of the provision. such explanations are intended more as a legislative exposition or clarification of the existing law than as a change in it. when the explanation serves the purpose of clarification of the existing law, there is no question of any prospective or retrospective operation of the explanation. hence, in this case, when in the year 1987, the legislature has expressed the intention or scope of section i94a of the act by making it clear that even the suspense account or interest payable account has to be deemed only as the account with credit entries, it is merely clarificatory." it was vehemently argued that the id. cit(a) was not justified in upholding the action of the assessing officer.5. the submission of the id. d.r. was that since the explanation inserted in section 80hhd(2) widened the scope of the original provisions, it could not have retrospective effect. she further pointed out that the certificate which was required to be filed under sub-section (2a) of section 80hhd was in form no. 10ccae whereas the assessee had filed the certificate in another form. she raised a question that can the assessee at this stage prove that the tour operators who had received the foreign exchange had not already claimed the benefit under section 80hhd of the act. according to the id. d.r., they must have claimed deduction on the entire amount and, therefore, in this view of the matter, the assessee could not claim the benefit of section 80hhd on receipts of rs. 71,36,312 in indian currency.6. we have given our utmost consideration to the facts and circumstances of the case, the material to which our attention was invited and the rival submissions. the controversy in the matter revolves round the question whether the explanation to section 80hhd(2) inserted by finance (no. 2) act, 1991 w.e.f. 1-4-1992 had a retrospective effect. the general rule of interpretation is that all statutes, particularly those which have been made applicable from a particular date, should be construed prospectively and not retrospectively. there is thus a general presumption against retrospective operation. there are, however, several exceptions to this rule. while in theory the principles governing the distinction between the two types of law--retrospective and prospective--may appear to be clear, it is often difficult to apply them in practice. from the law settled by the supreme court in various cases, the illustrative though no exhaustive, principles which emerge with regard to retrospective operation may be set out as under :-- (i) the general rule of interpretation is that every statute or statutory rule is prospective unless it is expressly or by necessary implication made to have retrospective effect. (ii) a statute is not to be given a retrospective operation so as to affect, alter or destroy an existing right or create a new liability or obligation. (iii) a statute which effects substantive rights is presumed to be prospective in operation, unless made retrospective, either expressly or by necessary intendment or the manifest purpose compels one to construe it as such. (iv) it cannot be said to be an invariable rule that a statute could not be retrospective unless so expressed in the very terms of the provision. the statutes which are curative or merely declaratory of the provisions or which relate to matters of procedure may have retrospective effect unless the result would be to create new liabilities or obligations. (v) with a view to finding out whether a provision is prospective or retrospective in operation, the court has to look at the general scope and purview of the statute and at the remedy sought to be applied and consider what was the former state of law and what the legislation contemplated.7. with a view to appreciating the controversy in this case, it would be relevant to refer to the provisions of sub-sections (1) & (2) of section 80hhd introduced by the direct tax laws (amendment) act, 1989, w.e.f. 1-4-1989, which read as under :-- "(1) where an assessee, being an indian company or a person (other than a company) resident in india, is engaged in the business of a hotel or of tour operator, approved by the prescribed authority in this behalf or of a travel agent, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assesses, a deduction of a sum equal to the aggregate of- (a) fifty per cent of the profits derived by him from services provided to foreign tourists; and (b) so much of the amount out of the remaining profits referred to in clause (a) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee in the manner laid down in sub-section (4). (2) this section applies only to services provided to foreign tourists the receipts in relation to which are received by the assessee in convertible foreign exchange." 7.1 evident as it is, the provision was introduced to give tax concession to hotels or tour operators or travel agents in respect of earning in "convertible foreign exchange" from specified services provided to foreign tourists. the two main cumulative conditions for grant of the tax concession, are that specified services are provided to the foreign tourists and the receipts in relation thereto are received in "convertible foreign exchange". from a plain reading of the above provision it is quite evident that the deduction was available only to the first recipient of the convertible foreign exchange--whether it was the hotel or the travel agent or the tour operator. there was no provision in the section for apportioning the benefit between the travel agents, hotels, tour operators etc. even if each one of them had rendered some service (specified) to the foreign tourists.7.2 it appears that it was pointed by the assessees that in many cases, the foreign tourists visit india on a package tour and make payment in foreign exchange, in one lump sum, to a tour operator in india. the tour operator thereafter makes payments to the hotels where the tourist groups are lodged. since the foreign exchange was received only by the tour operator, it was only he who could claim the tax concession under section 80hhd and the hotel owner was denied the benefit of the said section, even though the payment for service to the foreign tourists rendered by the hotel constituted the major portion of the expenditure incurred by the foreign tourists in india. with a view to securing the benefit under section 80hhd for all the segments of the tourism industry, section 80hhd was amended by the finance act, 1991, w.e.f.1-4-1992, by inserting, inter alia.explanation to sub-section (2) and sub-section (2a), which read as under:-- "explanation.--for the purposes of this sub-section, any payment received by an assessee, engaged in the business of a hotel or of a tour operator or of a travel agent, in indian currency obtained by conversion of foreign exchange brought into india through an authorized dealer, from a tour operator or, as the case may be, a travel agent on behalf of a foreign tourist or group of foreign tourists, shall be deemed to have been received by the assessee in convertible foreign exchange if the person making the payment furnishes to the assessee a certificate specified in sub-section (2a). (2a) every person making payment to an assessee referred to in the explanation to sub-section (2) out of indian currency obtained by conversion of foreign exchange received from or on behalf of a foreign tourist or a group of foreign tourists shall furnish to that assessee a certificate in the prescribed form indicating the amount received in foreign exchange, its conversion into indian currency and such other particulars as may be prescribed." 7.3 the effect of the amendment was that in cases where payments for services to the foreign tourists provided by hotel, tour operator or a travel agent are received in indian currency from another hotel, tour operator, travel agent or air line, the person providing the service to the foreign tourists became eligible for deduction under section 80hhd in relation to profits derived therefrom, subject to the condition that the payment in indian currency is made out of funds obtained by conversion of foreign exchange brought into india, through an authorised dealer in foreign exchange, by the tour operator, travel agent or air line, on behalf of the foreign tourists. the person claiming the deduction is required to furnish, alongwith the return of income, a certificate from the person making payment in indian currency out of foreign exchange paid by the foreigner.8. let us now analyze the nature of the amendments made in section 80hhd by the finance act, 1991 in the light of the legal propositions set out in para 6 above. it is a fact that the amended provisions have not been expressly given a retrospective effect. it will, therefore, have to be considered whether by implication these could have retrospective effect. the question is whether the amendment altered or destroyed an existing right or created a new liability. in our considered opinion the answer to this question is in negative because, as is mentioned in para 7.2 above, the two main cumulative conditions for grant of concession under section 80hhd are providing of specified services to the foreign tourists and receipts in relation thereto in convertible foreign exchange. in effect, even if the person, say a tour operator, received the entire foreign exchange, he would not be legally entitled to claim benefit under section 80hhd in the context of whole of the amount because the entire services to the foreign tourists were not provided by it, there being a hotel or air line also which provided services. no problem would have arisen if the foreign tourist separately made payments in foreign currency for services rendered by each segment. in that situation each one of them could claim benefit of section 80hhd for the convertible foreign exchange received by it for services rendered by it. the problem was posed when any one of them received the foreign exchange and in turn made payment to others who rendered the services, in indian currency. the amendment did not in any way affect, alter or destroy the right of the person who received the whole of the foreign exchange. the manifest purpose of the provision, therefore, compels one to construe it as retrospective.8.1 the object of introducing the provisions of section 80hhd is very clear. even at the cost of repetition we would point out that they intended to provide benefit to those who rendered services to foreign tourists and earned foreign exchange. however, if the payment to any one of them was made in indian currency, of course after the conversion of the foreign currency, it resulted in hardship inasmuch as it could not avail of the benefit under section 80hhd. this unintended hardship when pointed out by the concerned parties, the explanation was introduced by the finance act, 1991. it was thus intended to cure a deficiency and was thus curative or declaratory, introduced to correct and an unintended error. the ratio of the apex court decision in the case of citv. podar cement (p.) ltd. [1997] 226 itr 625 is that if a statute is curative or declaratory, retrospective operation is intended. in this connection it would be relevant to extract below the head note of the aforesaid decision :-- "the presumption against retrospective operation is not applicable to declaratory statutes. a declaratory act may be defined as an act to remove doubts existing as to the common law, or the meaning or effect of any statute. such acts are usually held to be retrospective. the usual reason for passing a declaratory act is to set aside what parliament deemed to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. an explanatory act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous act. it is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended." 8.2 in cases of doubt or difficulties encountered in ascertaining the true nature of a provision, the statement of objects or the explanatory notes on clauses relating to the amendment can be usefully referred.the relevant note on clauses in the finance bill, 1991 which introduced the amendments under consideration in section 80hhd, has been reproduced in para 4 above. in the said note, the use of the words "to clarify" is very significant. it goes a long way to show that the amendment was clarificatory in nature. in fact, the amendment would not serve its object unless it is considered as retrospective.8.3 one of the objects of the explanation is to clarify an obscurity or vagueness in the main enactment, so as to make it consistent with the dominant object which it seems to subserve. in the case of d.manoharlal kothari (supra), relied upon by the assessee, the madras high court has held that when the explanation serves the purpose of clarification of the existing law, there is no question of any prospective or retrospective operation of the explanation. if the explanation to section 80hhd is read so as to harmonise with and clear up the ambiguity in the main provision, it has to be given a retrospective effect.8.4 in allied motors (p.) ltd. v. cit.1997] 224 itr 677, it has been held by the apex court that the provisions of the first proviso, which was inserted by the finance act, 1987, w.e.f. 1-4-1988, was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation, and is of clarificatory nature.therefore, it has to be treated as retrospective w.e.f. 1-4-1984, the date on which section 43b was inserted by the finance act, 1983. it would be useful to refer to the following observations of the hon'ble supreme court at page 686 :-- "therefore, in the well known words of judge learned hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. in the case of r.b. jodha mat kuthiala v. cit [1971] 82 itr 570, this court said that one should apply the rule of reasonable interpretation. a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole." if the amendment in section 80hhd, introduced by the finance act, 1991 is considered in the light of the above propositions, it would emerge that the same having been introduced to remedy unintended consequences, has to be given a retrospective effect.9. we would now consider the submissions of the id. d.r. which oppose the retrospectivity of the provisions. one of the arguments is that the explanation inserted in section 80hhd(2) widened the scope of original provisions. we are unable to agree with this contention, because as has been discussed above, the object of introducing section 80hhd was to grant the benefit to the person who rendered the services. insofar as the requirement of furnishing a certificate as per sub-section (2a) of section 80hhd is concerned, we are of the considered opinion that this is only a procedural provision for allowing the correct amount of deduction under the above section. there is nothing in this procedural or machinery section which may compel to treat the provision as prospective. the prescribed form 10ccae requires details only in respect of factual aspects in relation to bills paid on behalf of the foreign tourists, details of conversion of foreign exchange and details of foreign tourists etc. furnishing of these details in respect of an earlier year if the amendment is treated to be retrospective would neither pose any practical problem nor will have any legal implication.the peculiar fact pointed out by the id. d.r. in the present case that the certificate has not been filed in the prescribed form, even if it is correct, is of no consequence because the correct form could be filed even at a later stage, the requirement being only a procedural one. the id. d.r. has also expressed a fear that if deduction on the entire amount has been claimed by the person who received the convertible foreign exchange, there would be a double deduction. we have already said that the person who receives the foreign exchange is not entitled to claim relief in relation to the whole of the amount, because the relief is admissible only on services being rendered by it.in any case, on realising a lacuna in law, the provisions were amended by the finance act, 1994, w.e.f. 1-4-1995, so as to provide that the first recipient of foreign exchange would be entitled to deduction under section 80hhd in respect of the amount retained by him and not in respect of amount which represents payments passed on to the other assessees. we are presently not concerned with the question whether this provision is retrospective or not.9.1 on a careful consideration of the facts and circumstances of the case in its entirety and in view of the foregoing discussion we hold that the above referred amendments made by the finance act, 1992 by introducing explanation to section 80hhd(2) and sub-section (2a) are retrospective in nature. we would, therefore, set aside the orders of the authorities below and restore the matter to the file of the assessing officer for recomputing relief under section 80hhd, after verifying that the procedural requirements have been satisfied by the assessee.10 to 18. [these paras are not reproduced here as they involve minor issues.]

Judgment:
1. This is an appeal by the assessee against the order of the Id.

CIT(A)IV, New Delhi dated 7-10-1993, for the assessment year 1990-91.

2. The grounds at S. Nos. 1 and 2, which arc interconnected, read as under:-- 1. "That the Learned Commissioner of Income-tax (Appeals) grossly erred on facts and in law in confirming the action of the Learned Assessing Officer of rejecting the claim of the Appellant Company that the Explanation to section 80HHD(2) although inserted by the Finance (No. 2) Act, 1991, with effect from 1st April, 1992 would apply to the past assessment years also as it merely provides a clarification to the basic provisions of section 80HHD(2) of the Income-tax Act, 1961." 2. "That the claim of the Appellant Company for deduction under section 80HHD(3) of Rs. 4,65,528 being based on a certain interpretation of some provisions of the Income-tax Act, 1961, the Assessing Officer erred in observing that the claim of the Appellant Company was made with an intention to defraud the revenue and as such the Learned Commissioner of Income Tax (Appeals) ought to have issued appropriate orders in this regard." 3. The assessee-company run a jewellery shop, selling primarily silver items. It also owned Hotel JASS Oberoi, Khajuraho, which was given to the Oberoi group of hotels on an operational agreement. The facts concerning the matter, to be stated succinctly, are that on the basis of auditor's report in form No. 10CCAD, in which the receipts of convertible foreign exchange were computed at Rs. 83,15,526, the profit derived from providing of services of foreign tourists was worked out at Rs. 4,65,528, for which deduction was claimed under section 80HHD of the Income-tax Act. "Indirect receipts" of convertible foreign exchange, amounting to Rs. 71,36,312, included in the total receipts of Rs. 83,15,526, were assumed to qualify for deduction in view of Explanation to section 80HHD(2)of the Income-tax Act. The said Explanation was inserted in the provision of section 80HHD, alongwith sub-section (2A), by the Finance (No. 2) Act, 1991 w.e.f. 1-4-1992. The Assessing Officer refused to accept assessee's contention that the aforesaid Explanation had a retrospective operation and as such payments of Rs. 71,36,312 received in Indian currency, obtained by conversion of foreign exchange brought into India through an authorised dealer, were also eligible for deduction under section 80HHD of the Income-tax Act. On the balance receipts of Rs. 11,79,213, the Assessing Officer worked out the allowable deduction under' section 80HHD at Rs. 65,995. Accordingly, deduction for Rs. 65,995 was allowed as against the claim of Rs. 4,65,528. In this connection the Assessing Officer also observed that deduction under section 80HHD was claimed at an higher amount, to defraud the revenue and, therefore, penalty proceedings under section 271(1)(c) were initiated.

3.1 In appeal, the Id. CIT(A) also did not agree with the assessee's contention that the Explanation inserted by Finance Act, 1991, w.e.f.

1-4-1992, was only clarificatory in nature. He referred to the Memo.

explaining the provisions of Finance (No, 2) Bill, 1991 specifying that the amendment proposed in section 80HHD by inserting Explanation to subsection (2) will be applicable only in relation to the assessment year 1992-93 and subsequent year. The action of the Assessing Officer was thus upheld. It was pointed out that the assessee's plea against the initiation of penalty under section 271(1)(c) was not relevant.

4. The submission of the Id. counsel for the assessee was that the receipts of Rs. 71,36,312 in Indian currency had come out from foreign exchange receipts for which necessary evidence was duly furnished. He referred to the definition of "Convertible foreign exchange" contained in Explanation (a) to section 80HHC and that of "foreign exchange" in section 2 of the Foreign Exchange Regulation Act, 1973 besides referring to provisions of section 15 of the said Act and the Notification made thereunder, to plead that under the specified circumstances the foreign nationals on visit to India have been exempted from the operation of the provisions of section 15(1) of the FERA. The Id. counsel reiterated that the Explanation to section 80HHD(2), although inserted by the Finance Act, 1991, w.e.f. 1-4-1992, would apply to the past assessment years also as it merely provided a clarification to the basic provisions of section 80HHD(2) of the Act.

In this connection our attention was invited to the notes on clauses of the Finance (No. 2) Bill, 1991, the relevant portion of which reads under:-- "Sub-clause (b) seeks to insert an Explanation at the end of sub-section (2) to clarify that payment received by an assessee in Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer, from a tour operator or a travel agent on behalf of foreign tourists, shall be deemed to have been received by the assessee in convertible foreign exchange, if the person making the payment furnishes to the assessee a certificate specified in the proposed new sub-section (2A)." (emphasis supplied) The Id. counsel emphasised that the use of the word "to clarify" indicated that the Explanation was by way of clarification and, if that was so, it was pleaded that the same would have retrospective operation. In this connection our attention was invited to the decision of the Madras High Court in the case of ITO v. D. Manoharlal Kothari [1999] 236 ITR 357, the head note of which reads as under:-- "An Explanation cannot be treated as an amendment because the purpose of an Explanation is to explain or to clear any mental cobwebs surrounding the meaning of a statutory provision and to prevent controversial interpretations without giving the true meaning of the provision. Such Explanations are intended more as a legislative exposition or clarification of the existing law than as a change in it. When the Explanation serves the purpose of clarification of the existing law, there is no question of any prospective or retrospective operation of the Explanation. Hence, in this case, when in the year 1987, the Legislature has expressed the intention or scope of section I94A of the Act by making it clear that even the suspense account or interest payable account has to be deemed only as the account with credit entries, it is merely clarificatory." It was vehemently argued that the Id. CIT(A) was not justified in upholding the action of the Assessing Officer.

5. The submission of the Id. D.R. was that since the Explanation inserted in section 80HHD(2) widened the scope of the original provisions, it could not have retrospective effect. She further pointed out that the certificate which was required to be filed under sub-section (2A) of section 80HHD was in form No. 10CCAE whereas the assessee had filed the certificate in another form. She raised a question that can the assessee at this stage prove that the tour operators who had received the foreign exchange had not already claimed the benefit under section 80HHD of the Act. According to the Id. D.R., they must have claimed deduction on the entire amount and, therefore, in this view of the matter, the assessee could not claim the benefit of section 80HHD on receipts of Rs. 71,36,312 in Indian currency.

6. We have given our utmost consideration to the facts and circumstances of the case, the material to which our attention was invited and the rival submissions. The controversy in the matter revolves round the question whether the Explanation to section 80HHD(2) inserted by Finance (No. 2) Act, 1991 w.e.f. 1-4-1992 had a retrospective effect. The general rule of interpretation is that all statutes, particularly those which have been made applicable from a particular date, should be construed prospectively and not retrospectively. There is thus a general presumption against retrospective operation. There are, however, several exceptions to this rule. While in theory the principles governing the distinction between the two types of law--retrospective and prospective--may appear to be clear, it is often difficult to apply them in practice. From the law settled by the Supreme Court in various cases, the illustrative though no exhaustive, principles which emerge with regard to retrospective operation may be set out as under :-- (i) The general rule of interpretation is that every statute or statutory rule is prospective unless it is expressly or by necessary implication made to have retrospective effect.

(ii) A statute is not to be given a retrospective operation so as to affect, alter or destroy an existing right or create a new liability or obligation.

(iii) A statute which effects substantive rights is presumed to be prospective in operation, unless made retrospective, either expressly or by necessary intendment or the manifest purpose compels one to construe it as such.

(iv) It cannot be said to be an invariable rule that a statute could not be retrospective unless so expressed in the very terms of the provision. The statutes which are curative or merely declaratory of the provisions or which relate to matters of procedure may have retrospective effect unless the result would be to create new liabilities or obligations.

(v) With a view to finding out whether a provision is prospective or retrospective in operation, the court has to look at the general scope and purview of the statute and at the remedy sought to be applied and consider what was the former state of law and what the legislation contemplated.

7. With a view to appreciating the controversy in this case, it would be relevant to refer to the provisions of sub-sections (1) & (2) of section 80HHD introduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, which read as under :-- "(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of a hotel or of tour operator, approved by the prescribed authority in this behalf or of a travel agent, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assesses, a deduction of a sum equal to the aggregate of- (a) fifty per cent of the profits derived by him from services provided to foreign tourists; and (b) so much of the amount out of the remaining profits referred to in clause (a) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee in the manner laid down in sub-section (4).

(2) This section applies only to services provided to foreign tourists the receipts in relation to which are received by the assessee in convertible foreign exchange." 7.1 Evident as it is, the provision was introduced to give tax concession to hotels or tour operators or travel agents in respect of earning in "convertible foreign exchange" from specified services provided to foreign tourists. The two main cumulative conditions for grant of the tax concession, are that specified services are provided to the foreign tourists and the receipts in relation thereto are received in "convertible foreign exchange". From a plain reading of the above provision it is quite evident that the deduction was available only to the first recipient of the convertible foreign exchange--whether it was the hotel or the travel agent or the tour operator. There was no provision in the section for apportioning the benefit between the travel agents, hotels, tour operators etc. even if each one of them had rendered some service (specified) to the foreign tourists.

7.2 It appears that it was pointed by the assessees that in many cases, the foreign tourists visit India on a package tour and make payment in foreign exchange, in one lump sum, to a tour operator in India. The tour operator thereafter makes payments to the hotels where the tourist groups are lodged. Since the foreign exchange was received only by the tour operator, it was only he who could claim the tax concession under section 80HHD and the hotel owner was denied the benefit of the said section, even though the payment for service to the foreign tourists rendered by the hotel constituted the major portion of the expenditure incurred by the foreign tourists in India. With a view to securing the benefit under section 80HHD for all the segments of the tourism industry, section 80HHD was amended by the Finance Act, 1991, w.e.f.

1-4-1992, by inserting, inter alia.

Explanation to sub-section (2) and sub-section (2A), which read as under:-- "Explanation.--For the purposes of this sub-section, any payment received by an assessee, engaged in the business of a hotel or of a tour operator or of a travel agent, in Indian currency obtained by conversion of foreign exchange brought into India through an authorized dealer, from a tour operator or, as the case may be, a travel agent on behalf of a foreign tourist or group of foreign tourists, shall be deemed to have been received by the assessee in convertible foreign exchange if the person making the payment furnishes to the assessee a certificate specified in sub-section (2A).

(2A) Every person making payment to an assessee referred to in the Explanation to sub-section (2) out of Indian currency obtained by conversion of foreign exchange received from or on behalf of a foreign tourist or a group of foreign tourists shall furnish to that assessee a certificate in the prescribed form indicating the amount received in foreign exchange, its conversion into Indian currency and such other particulars as may be prescribed." 7.3 The effect of the amendment was that in cases where payments for services to the foreign tourists provided by hotel, tour operator or a travel agent are received in Indian currency from another hotel, tour operator, travel agent or air line, the person providing the service to the foreign tourists became eligible for deduction under section 80HHD in relation to profits derived therefrom, subject to the condition that the payment in Indian currency is made out of funds obtained by conversion of foreign exchange brought into India, through an authorised dealer in foreign exchange, by the tour operator, travel agent or air line, on behalf of the foreign tourists. The person claiming the deduction is required to furnish, alongwith the return of income, a certificate from the person making payment in Indian currency out of foreign exchange paid by the foreigner.

8. Let us now analyze the nature of the amendments made in section 80HHD by the Finance Act, 1991 in the light of the legal propositions set out in para 6 above. It is a fact that the amended provisions have not been expressly given a retrospective effect. It will, therefore, have to be considered whether by implication these could have retrospective effect. The question is whether the amendment altered or destroyed an existing right or created a new liability. In our considered opinion the answer to this question is in negative because, as is mentioned in para 7.2 above, the two main cumulative conditions for grant of concession under section 80HHD are providing of specified services to the foreign tourists and receipts in relation thereto in convertible foreign exchange. In effect, even if the person, say a tour operator, received the entire foreign exchange, he would not be legally entitled to claim benefit under section 80HHD in the context of whole of the amount because the entire services to the foreign tourists were not provided by it, there being a hotel or air line also which provided services. No problem would have arisen if the foreign tourist separately made payments in foreign currency for services rendered by each segment. In that situation each one of them could claim benefit of section 80HHD for the convertible foreign exchange received by it for services rendered by it. The problem was posed when any one of them received the foreign exchange and in turn made payment to others who rendered the services, in Indian currency. The amendment did not in any way affect, alter or destroy the right of the person who received the whole of the foreign exchange. The manifest purpose of the provision, therefore, compels one to construe it as retrospective.

8.1 The object of introducing the provisions of section 80HHD is very clear. Even at the cost of repetition we would point out that they intended to provide benefit to those who rendered services to foreign tourists and earned foreign exchange. However, if the payment to any one of them was made in Indian currency, of course after the conversion of the foreign currency, it resulted in hardship inasmuch as it could not avail of the benefit under section 80HHD. This unintended hardship when pointed out by the concerned parties, the Explanation was introduced by the Finance Act, 1991. It was thus intended to cure a deficiency and was thus curative or declaratory, introduced to correct and an unintended error. The ratio of the Apex Court decision in the case of CITv. Podar Cement (P.) Ltd. [1997] 226 ITR 625 is that if a statute is curative or declaratory, retrospective operation is intended. In this connection it would be relevant to extract below the Head Note of the aforesaid decision :-- "The presumption against retrospective operation is not applicable to declaratory statutes. A declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deemed to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act.

It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended." 8.2 In cases of doubt or difficulties encountered in ascertaining the true nature of a provision, the statement of objects or the explanatory notes on clauses relating to the amendment can be usefully referred.

The relevant note on clauses in the Finance Bill, 1991 which introduced the amendments under consideration in section 80HHD, has been reproduced in para 4 above. In the said note, the use of the words "to clarify" is very significant. It goes a long way to show that the amendment was clarificatory in nature. In fact, the amendment would not serve its object unless it is considered as retrospective.

8.3 One of the objects of the Explanation is to clarify an obscurity or vagueness in the main enactment, so as to make it consistent with the dominant object which it seems to subserve. In the case of D.Manoharlal Kothari (supra), relied upon by the assessee, the Madras High Court has held that when the Explanation serves the purpose of clarification of the existing law, there is no question of any prospective or retrospective operation of the Explanation. If the Explanation to section 80HHD is read so as to harmonise with and clear up the ambiguity in the main provision, it has to be given a retrospective effect.

8.4 In Allied Motors (P.) Ltd. v. CIT.1997] 224 ITR 677, it has been held by the Apex Court that the provisions of the first proviso, which was inserted by the Finance Act, 1987, w.e.f. 1-4-1988, was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation, and is of clarificatory nature.

Therefore, it has to be treated as retrospective w.e.f. 1-4-1984, the date on which section 43B was inserted by the Finance Act, 1983. It would be useful to refer to the following observations of the Hon'ble Supreme Court at page 686 :-- "Therefore, in the well known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodha Mat Kuthiala v. CIT [1971] 82 ITR 570, this court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole." If the amendment in section 80HHD, introduced by the Finance Act, 1991 is considered in the light of the above propositions, it would emerge that the same having been introduced to remedy unintended consequences, has to be given a retrospective effect.

9. We would now consider the submissions of the Id. D.R. which oppose the retrospectivity of the provisions. One of the arguments is that the Explanation inserted in section 80HHD(2) widened the scope of original provisions. We are unable to agree with this contention, because as has been discussed above, the object of introducing section 80HHD was to grant the benefit to the person who rendered the services. Insofar as the requirement of furnishing a certificate as per sub-section (2A) of section 80HHD is concerned, we are of the considered opinion that this is only a procedural provision for allowing the correct amount of deduction under the above section. There is nothing in this procedural or machinery section which may compel to treat the provision as prospective. The prescribed form 10CCAE requires details only in respect of factual aspects in relation to bills paid on behalf of the foreign tourists, details of conversion of foreign exchange and details of foreign tourists etc. Furnishing of these details in respect of an earlier year if the amendment is treated to be retrospective would neither pose any practical problem nor will have any legal implication.

The peculiar fact pointed out by the Id. D.R. in the present case that the certificate has not been filed in the prescribed form, even if it is correct, is of no consequence because the correct form could be filed even at a later stage, the requirement being only a procedural one. The Id. D.R. has also expressed a fear that if deduction on the entire amount has been claimed by the person who received the convertible foreign exchange, there would be a double deduction. We have already said that the person who receives the foreign exchange is not entitled to claim relief in relation to the whole of the amount, because the relief is admissible only on services being rendered by it.

In any case, on realising a lacuna in law, the provisions were amended by the Finance Act, 1994, w.e.f. 1-4-1995, so as to provide that the first recipient of foreign exchange would be entitled to deduction under section 80HHD in respect of the amount retained by him and not in respect of amount which represents payments passed on to the other assessees. We are presently not concerned with the question whether this provision is retrospective or not.

9.1 On a careful consideration of the facts and circumstances of the case in its entirety and in view of the foregoing discussion we hold that the above referred amendments made by the Finance Act, 1992 by introducing Explanation to section 80HHD(2) and sub-section (2A) are retrospective in nature. We would, therefore, set aside the orders of the authorities below and restore the matter to the file of the Assessing Officer for recomputing relief under section 80HHD, after verifying that the procedural requirements have been satisfied by the assessee.

10 to 18. [These paras are not reproduced here as they involve minor issues.]