Amendment made to Section 143(1) of Income Tax Act 1961 is merely clarificatory

The word “income” would include within it both profits as well as losses. In other words, loss is negative profit. Both positive and negative profits are of a revenue character and must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee.

The question that arose for consideration in the present appeals was the constitutional validity of the retrospective amendment to Section 143(1A) of the Income Tax Act, 1961 (Act). By the impugned finding, it was held that the retrospective effect given to the amendment would be arbitrary and unreasonable more so when the provision, being a penal provision, would operate harshly on Assessees who have made a loss instead of a profit, the difference between the loss showed in the return filed by the Assessee and the loss assessed to income tax having to bear an additional income tax at the rate of 20%.

The Revenue contended that the amendment made to Section 143 (1A) with retrospective effect was merely clarificatory and that even without such amendment, the same position would obtain qua losses as would obtain qua profits inasmuch as the expression “income” would comprehend both profits as well as losses. 

The Apex Court held that the object of Section 143(1A) is the prevention of evasion of tax. By the introduction of this provision, persons who have filed returns in which they have sought to evade the tax properly payable by them is meant to have a deterrent effect and a hefty amount of 20% as additional income tax is payable on the difference between what is declared in the return and what is assessed to tax. The word “income” would include within it both profits as well as losses. In other words, loss is negative profit. Both positive and negative profits are of a revenue character and must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. The Court further observed that even on a reading of Section 143 1(a) which is referred to in Section 143 (1A), a loss is envisaged as being declared in a return made under Section 139. It is clear, therefore, that the retrospective amendment made in 1993 would only be clarificatory of the position that existed in 1989 itself.
In the present case all assessees were put on notice in 1989 itself that the expression “income” contained in Section 143 (1A) would be wide enough to include losses also. That being the case, it was held there was in fact no retrospective imposition of additional tax – such tax was imposable on losses as well from 1989 itself. The object of Section 143 (1A) is the prevention of tax evasion and its literally reading indicates that both honest asessees and tax evaders are caught within its net. 

Section 143 (1A), as laid down, can only be invoked where it is found on facts that the lesser amount stated in the return filed by the assessee is a result of an attempt to evade tax lawfully payable by the assessee. The burden of proving that the assessee has so attempted to evade tax is on the revenue which may be discharged by the revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has, in fact, attempted to evade tax lawfully payable by it. Subject to the aforesaid construction of Section 143 (1A), the Court upheld the retrospective clarificatory amendment of the said Section and the appeals were accordingly allowed

[CIT, Gauhati & Ors. vs. M/s. Sati Oil Udyog Ltd. & Anr.]
(SC, 24.03.2015 – Civil Appeal No. 9135 OF 2003)