Explanation that s. 80IA(4) does not apply to “works contracts” is clarificatory and its retrospective operation is valid

By the Finance Act No.2 of 2009 an Explanation was added to s. 80IA(4) with retrospective effect from 1.4.2000 to provide that s. 80IA(4) would apply to a business which is in the nature of a works contract awarded by any person and executed by an undertaking or enterprise. The said retrospective amendment was challenged on the ground that (i) it was a fresh levy of tax, (ii) no reasons were given to support the retrospective levy, (iii) the period of retrospective operation was long and so it violated Article 19(1)(g) of the Constitution. HELD by the High Court dismissing the challenge:

(i) An enactment can be questioned only on the ground of lack of competence or on the ground that the statute violates the fundamental rights or any other constitutional provisions. An enactment cannot be struck down by just saying that it is arbitrary or unreasonable. Some or other constitutional infirmity has to be found before invalidating an Act. As all taxes are raised for public good, there is considerable latitude to Parliament in framing a taxing statute. There is always a presumption of constitutionality and the burden is on the Petitioner bringing such a challenge;

(ii) On merits, the argument that the Explanation below s. 80-IA (13) provides for a levy of tax which was hitherto unknown is not acceptable. It cannot be said that the Legislature in introducing the explanation materially changed the exemption which existed till such explanation was introduced. The explanation was introduced for the “removal of doubts” and is declaratory in nature. By the Explanation, the Legislature has distinguished between cases of developing/ operating etc from a works contract. It cannot be disputed that there is an intrinsic difference between developing an infrastructure facility and executing a works contract. The Explanation merely aims to clarify that deduction u/s 80IA(4) is not available in case of execution of works contract. Such an interpretation is possible even on the basis of the existing provisions of s. 80IA (4) (Radhe Developers 341 ITR 403 (Guj) referred)