The Supreme Court, in Commissioner of Income Tax Mumbai v M/s Essar Tele Holdings Ltd., has affirmed a Bombay High Court judgment holding that Rule 8D of Income Tax Rules is prospective in operation and could not have been applied to any assessment year prior to Assessment Year 2008-09.
Rule 8D, which was introduced in 2008, deals with method for determining amount of expenditure in relation to income not includible in total income. The high court held that the said rule is prospective. The revenue has assailed the said judgment before the apex court.
A bench of Justice AK Sikri and Justice Ashok Bhushan observed: “Applying the principles of statutory interpretation for interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of subsection (2) and subsection (3) of Section 14A as well as purpose and intent of Rule 8D coupled with the explanatory notes in the Finance Bill, 2006 and the departmental understanding as reflected by Circular dated 28.12.2006, we are of the considered opinion that Rule 8D was intended to operate prospectively.”
The court also took note of the contention that subordinate legislation ordinarily is not retrospective unless there were clear indications to the same. There is no indication in Rule 8D to the effect that Rule 8D intended to apply retrospectively, the bench said.
The bench also noted that the method for determining the amount of expenditure brought in force w.e.f. 24.03.2008 has been given a go-bye and a new method has been brought into force w.e.f. 02.06.2016, by interpreting Rule 8D retrospective, there will be a conflict in applicability of 5th & 14th Amendment Rules which clearly indicates that the Rule has a prospective operation, which has been prospectively changed by adopting another methodology.