CPT V24P7-Art1 (Content).pmd - Taxmann

used to introduce new rules of law, and the
Act in the latter case will only be amending
the law and will not necessarily be retrospective
(Harding v. Queensland Stamp Commissioners 1898
AC 769 PC). In determining, therefore, the
nature of the Act, regard must be had to the
substance rather than to the form. If a new
Act is to ‘to explain’ an earlier Act, it would
be without object unless construed retrospective.
An explanatory Act is generally passed to supply
an obvious omission or to clear doubts as to
the meaning of the previous Act. It is wellsettled
that if the statute is curative or merely
declaratory of the previous law, retrospective
operation is generally intended. The language
‘shall be deemed always to have meant’ is
declaratory, and is in plain terms retrospective.
In the absence of clear words indicating that
the amending Act is declaratory, it would not
be so construed when the pre-amended provision
was clear and unambiguous. An amending
Act may be purely clarificatory to clear a meaning
of a provision of the principal Act which was
already implicit. A clarificatory amendment of
this nature will have retrospective effect…..”
(pp. 338-339).
6.3 No amendment is pro-tanto constitutionally
invalid due to retrospective effect - No
amendment is pro-tanto constitutionally invalid
merely because it is retrospective. The Federal
Court had examined the norms of a
constitutionally valid provision in the case of
the Governor-General-in-Council v. The Raleigh
Investment Company Ltd. [1944] 12 ITR 265 (FC)
and cited with approval the observation of
Justice Evatt in an Australian tax case – “The
Constitution requires that it must be possible
to predicate of every valid law that it is for
the peace, order and good Government of the
Dominion with respect to a granted subject,
e.g., customs, taxation, external affairs. In such
cases, the presence of non-territorial elements
in the challenged law has to be considered
upon a slightly different footing and those
affirming its validity have to show not only
that the Dominion has some real concern or
interest in the matter, thing, or circumstance
dealt with by the legislation, but that the concern
or interest is of such a nature that the challenged
law is truly one with respect to an enumerated
subject-matter.” Further, constitutional validity
of an enactment can also be challenged before
a court of law, if the enactment infringes the
fundamental rights of the citizens.
6.4 Questions connected with constitutional
validity of declaratory amendments - If the
issue of constitutional validity of these declaratory
amendments is challenged before Court of law,
the following questions may arise – (i) whether
the amendments are really declaratory of the
existing law or a new addition to the existing
law and, hence, should not have retrospective
effect ? (ii) whether the capital gains or other
income arising from the transactions described
in the declaratory amendments have sufficient
territorial nexus with India, so as to make the
income taxable in India in conformity with
constitutional principles, and, hence, whether
the amendment is constitutionally invalid.
6.5 Past amendments to Income-tax Act - In
the past, there have been several examples of
amendments to the Income-tax Act to clarify
or remove deficiencies in the existing law,
exposed by clever tax planning devices adopted
by taxpayers to circumvent a particular taxing
provision, but the reaction of the Revenue has
never been as aggressive as of now. Inclusion
of income arising to the wife and minor children
from the assets transferred by an individual,
in latter’s hands, is one of the earliest specific
anti-avoidance provisions introduced in the
Income-tax Act. It was introduced in the Incometax
Act, 1922 as section 16(3) by the Amending
Act of 1937 (counterpart of section 64 of Incometax
Act, 1961). While as clause (a) of section
16(3) dealt with inclusion of income arising
from assets transferred directly or indirectly
to the wife or a minor child by the individual,
clause (b) dealt with inclusion of so much of
the income of any person or association of
persons as arises from assets transferred to the
person or association by such individual for
the benefit of his wife or a minor child or
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