Holding

Explanation 4 to Section 271(1)(c) is a clarificatory, retrospective amendment, and because ‘income’ includes losses, the penalty under Section 271(1)(c) is leviable even when the returned figure is a loss or when concealed income merely reduces a loss.

Summary

The assessee, Gold Coin Health Food Pvt. Ltd., filed a return showing a loss. The Income Tax Department levied a penalty under Section 271(1)(c) of the Income Tax Act, 1961, alleging concealment of income. The issues were whether the term “income” includes losses, whether the penalty can be imposed when the returned figure is a loss or when concealed income merely reduces a loss, and whether the amendment introduced by the Finance Act, 2002 (Explanation 4 to Section 271(1)(c)(iii)) is substantive or merely clarificatory and whether it operates retrospectively. The Supreme Court held that “income” under the provision includes losses, that Explanation 4 is a clarificatory amendment and therefore has retrospective effect, and consequently the penalty is leviable even when the assessed figure is a loss or when concealed income reduces a loss. The Court dismissed the High Court’s order and upheld the revenue’s claim, disposing the appeals in favour of the Revenue.

Issues considered

Does the term ‘income’ under Section 271(1)(c) include losses?
Can a penalty under Section 271(1)(c) be levied when the returned income is a loss or when concealed income reduces a loss?
Is the amendment introduced by Finance Act, 2002 (Explanation 4 to Section 271(1)(c)(iii)) a substantive change or a clarificatory amendment?
Does the amendment have retrospective effect?
Is the penalty applicable to assessments made before Assessment Year 2003‑04?

Legislation cited

Income Tax Act, 1961s. 2(24), s. 271(1)(c), s. 72, s. Explanation 4 to 271(1)(c)(iii)
Wealth Tax Acts. 18

Subjects

Income TaxPenaltySection 271LossClarificatory amendmentRetrospective effectDefinition of incomeConcealed incomeTax assessmentStatutory interpretation

Judgment

[2008] 12 S. C.R. 179

COMMNR. OF INCOME TAX-I, AHMEDABAD A
v.
GOLD COIN HEALTH FOOD PVT. LTD.
(Civil Appeal No. 5065 of 2008)

AUGUST 18, 2008
B
[DR. ARIJIT PASAYAT, P. SATHASIVAM AND AFTAB
. ALAM, JJ.]

Income Tax Act, 1961; s. 271(1)(c) with amendment in
Explanation 4 to s.271(1) (c) (iii) introduced by Finance Act, c
2002:
Returned income - Loss/profit - Levy of penalty - Held:
Term 'income' also includes losses - Explanation 4 to s. 271
(1 )(c) (iii) is clarificatory in nature and not substantive and has
to be construed accordingly - Recommendation of Wanchoo D
Committee and relevant circular makes the position clear that
penalty in terms of amendment leviable where addition of con-
cealed income reduces the returned loss - In the facts and
circumstances of the case, the amendment could be given :h
retrospective effect - Interpretation of Statutes. E
Amendment in the Statute - Effe9t of, effective date -
Discussed.
The question which arose for determination in these
appeals was about the correctness of the impugned judg- F
ment of the Division Bench of the High Court about the
applicability of the amendment as introduced by Finance
Act, 2002 in Explanation 4 to s.271 (1 )(c)(iii) of the Income
Tax Act in the context of levy of penalty on the returned
income with effect from retrospective effect. G
Revenue contended that the purpose behind Sec-
tion 271(1)(c) of the Income Tax Act is to penalize the as-
sessee for concealing particulars of the income; and/or · ··
furnishing inaccurate particulars of such income. There-
179 H
186 SUPREME COURT REPORTS [2008] 12 S.C.R.

A fore, whether income returned was a profit or loss was
really of no consequence; that the word 'any' in S.271
(1)(c) of the Act made the position clear that the penalty
was in addition to any tax which may be paid by the as-
sessee. Therefore, even if no tax was payable, the pen-
8 alty was leviable; that even prior to the amendment of the
provision u/s 271 (c) of the Act, it could not be read to
mean that if no tax was payable by the assessee because ~
of filing a return disclosing loss, the assessee is not Ii-
able to pay'.,penalty even if the assessee concealed and/
c or furnished inaccurate particulars; that because some
High Courts took the contradictory view, the Legislature.
clarified the position by changing the expression "any'
by "if any"; and ,that it was not a substantive amendment
which created a pe.nalty for the first time but it was
c}arificatory in nature and would apply to all assessme·nts
D
e'ven prior to assessment year 2003-04:
Assessee submitted that there is nothing in Section ...
--k
271(1) (c) of the Act as amended by Finance Act to sug-
gest that the amendment is retrospective; an·d that the
E amendment and the Explanation 4(a) carried out, enlarged
the scope for levyin<g penalty under Section 271 (1) (c) of
. does
the Act and, therefore, ,. not operate retrospectively.
Disposing of the appeals, the Court

F HELD: 1.1 This Court in the case of Commissioner of
Income Tax (Central), Delhi v. Harprasad & Co. P Ltd., held ,k
that the expression 'income' should be understood to in-
elude losses. The expression 'profits and gains' refers to
positive income whereas losses represent negative profit
or in other words minus income. Reference to the order
G
by this Court dismissing the revenue's Civil Appeal
No.7961 of 1996 in Commissioner of Income Tax v. Prithipal >--
Singh and Co. is not very important because that was in
relation to the assessment year 1970-71 when Explana-
tion 4 to Section 271 (1) ((c) was not in existence. The view
H
• COMMNR. OF INCOME TAX-I, AHMEDABAD v. GOLD 181
COIN HEALTH FOOD PVT. LTD. ;
~

'>{ of this Court in. Harprasad's case leads to the irresistible A
conclusion that income also includes losses. Explana-
tion 4 (a) "s it stood during the period 1.4.1976 to 1.4.2003
has to be considered in the background. What the Finance
Act, 2002 intended was to make the position explicit which
otherwise was imp.lied. (Paras - 7 & 8) [187,G-H; 188,A-C] B
Commissioner of Income Tax (Central), Delhi v.
-,.... Harprasad & Co. P. Ltd. (1975) 99 ITR 118 - relied on.
Commissioner of Income Tax v. Prithipal Singh & Co.
(1990) 183 ITR 69 - distinguished. c
1.2 A combined reading of the Wanchoo Committee's
recommendations and Circular No.204 dated 24.01.1976
issued by the Revenue makes the position clear that Ex-
planation 4(a) to Section 271(1) (c) intended to levy the
penalty not only in a case where after addition of con- D
cealed income, a loss returned, after assessment be-
..,.....\ comes positive income but also in a case where addition
of concealed income reduces the returned loss and fi-
nally the assessed income is also a loss or a minus fig-
ure. Therefore, even during the period between 1.4.1976 E
f

to 1.4.2003 the position was that the penalty was leviable
even in a case where addition of concealed income re-
duces the returned loss. (Para - 10) [189,D-E]
1.3 When the word "income" is read to include losses
as held in Harprasad's case it becomes crystal clear that F
even in a case where on account of addition of concealed
income the returned loss stands reduced and even if the
final assessed income is a loss, still penalty was leviable
thereon. Even in the Circular dated 24. 7 .1976, the posi-
tion was clarified by Central Board of Direct Taxes that in G
~
a case where on setting of the concealed income against
$ -~ any loss incurred by the assessee under any other head
of income or brought forward from earlier years, the total
income is reduced to a figure lower than the concealed
income or even to a minus figure the penalty would be H
182 SUPREME COURT REPORTS [2008] 12 S.C.R.
'"

A imposable because in such a case "the tax sought to be . )<

evaded" will be tax chargeable on concealed income as
if it is "total income". (Para-11) [189,F-H; 190,A]
1.4 Law is well settled that the applicable provision
would be the law as it existed on 'the date of the filing of
B the return. It is of relevance to note that when any loss is
returned in any return it need not necessarily be the loss
of the concerned previous year. It may also include car- •
>.,-

ried forward loss which is required to be set Lip against
future income under Section 72 of the Act. Therefore, the
c applicable law on the date of filing of the return cannot be
confined only to tl:le losses of the previous accounting
years·. (Para - 12) [190,B-C]
1.5 The circumstances under which the amendment
was brought in existence and the consequences of the
D
amendment will have to be taken care of while deciding
the issue as to whether the amendment was clarificatory
~
or substantive in nature and, whether it will have retro- --K
spective effect or it was not so. (Para - 14) [192,C-D]
E Commissioner of Income Tax, Bombay and Ors. v. Podar
Cement Pvt. Ltd. and Ors. (1997) 5 sec 482 - relied on.
Principles of Statutory Interpretation, 11th Edn. (2008) by
G.P. Singh - referred to.

F 2. In the case of Zile Singh v. Staie of Haryana and Ors.,
this Court h~s observed that it is a cardinal principle of
construction that every statute is prima facie prospective >-
unless it is expressly or by necessary implication made
to have a retrospective operation. But the rule in general
is applicable where the object of the statute is to affect
G
vested rights or to impose new burdens or to impair ex-
isting obligations. Unless there are words in the statute
sufficient to show the intention of the legislature to affect
t-- ~

existing rights, it is deemed to be prospective only. The
presumption against retrospective operatio,n is not ap-
H
'--
~

I

COMMNR. OF INCOME TAX-I, AHMEDABAD v. GOLD 183
COIN HEAL1H FOOD PVT. LTD.
"'(

plicable to declaratory statutes. An amending Act may be. A
purely declaratory 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.
In the absence of a retrospective operation having been
expressly given, the courts may be called upon to con- B
4
r
strue the provisions and answer the question whether
the iegislature had sufficiently expressed that intention
giving the statute retrospectivity. Four factors are sug-
gested as relevant: (i) general scope and purview of the
statute; (ii) the remedy sought to be applied; (iii) the former c
state of the law; and (iv) what it was the legislature con-
templated. Applying the principles of law to the facts and
circumstances of the case, the inevitable conclusion is
that Explanation 4 to Section 271 (1 )(c) is clarificatory and
not substantive. The view expressed to the contrary in
D
..,, Virtual's case is not correct. (Paras - 16 & 17) [193,F-G;
y 194,C; 194,D-E; 194,G-H; 195 A; 195,B]
Zile Singh v. State of Haryana and Ors. (2004) 8 SCC 1
- relied on.
Virtual Soft Systems Ltd. v. Commissioner of Income E
Tax, Delhi 2007 (9) SCC 665 - held inapplicable.
Case Law Reference

/
(1975) 99 ITR 118 Relied on Para - 7
j
---',
(1990) 183 ITR 69 Distinguished F
Para - 5
(1997) 5 sec 482 Relied on Para -14
(2004) 8 sec 1 Relied on Para -16
2001 (9) sec 665 held inapplicable Para - 2
G
---\ CIVILAPPELLATE JURISDICTION: Civil Appeal No. 5065
of 2008
From the final Judgment and Order dated 31.7.2006 of
the High Court of Gujarat atAhmedabad in Tax Appeal No. 1842
of 2005 H
184 SUPREME COURT REPORTS [2008] 12 S.C.R.

A WITH
C.A. No. 5066 of 2008
V. Shekhar and K. Radhakrishnan, O.P. Srivastava, Alka
Sharma, D.D. Kamat, B.V. Balaram Das, Gaurav Agrawal, D:N.
B Sahney, M.P. Rastogi, K.N. Ahuja and B.V. Desai for the Appel-
lant.
Sanjay R. Hegde, Amit Kr. Chawla and A. Rohen Singh
for the Respondent.
c The Judgment of the Court was delivered by
Dr. ARIJIT PASAYAT, J. 1. Leave granted.
2~ Expressing doubt about the correctnes~ of the judgment
rendered by a Division Bench of this Court in Virtual Soft Sys-
D fems Ltd. \/. Commissioner of Income Tax, Delhi (2007 (9)
sec 665), a reference has been made by another Division
Bench by order dated 7.4.2008 to a larger Bench. The ques-
tion which was decided in Virtual's case (supra) was as to
• whether the penalty under Section 271 (1) (c) of the Income Tax
E Act, 1961 (in short the 'Act') can be levied ifthe returned in-
come is a loss. This question has to be considered in the back-
ground of the amendment made by Finance Act, 2002 (in short
'Finance Act') w.e.f. 1.4.2003 in Explanation 4 to Section
271 (1 )(c)(iii) of the Act. In Virtua/'s case ·(supra) the department
placed reliance on Notes on Clauses relating to the aforesaid
F amendment to submit that the amendment was clarificatory in
nature and consequentially it was applicable retrospectively. This
argument was rejected by this Court in para 52 of the judgment.
The Division Bench while making reference was of the view
that the true effect of the amendment was not considered, as it
G was prima facie of the view that merely because the amend-
ment was stated to take effect from 1.4.2003 that cannot be a
ground to hold that the same did have the retrospective effect.
3. Learned counsel for the appellant submitted that the
H true scope.and ambit of the amendment has been lost sight of
COMMNR. Of:" INCOME TAX-I, AHMEDABAD v. GOLD 185
COIN HEALTH FOOD PVT. LTD. [DR ARIJIT PASAYAT, J.]
_'(
in Virtual Soft's case (supra). It is submitted that the purpose A
behind Section 271 (1) (c) is to penalize the assessee for (a)
concealing particulars of the income; and/or (b) furnishing inac-
curate particulars of such income. Therefore, whether income
returned was a profit or loss was really of no consequence. It is
pointed out that prior to the amendment, Section 271 (1) (c)(iii) B
read as follows:
"(iii) In the cases referred to in Clause (c), in addition to
"" any tax payabie by him, a sum which shall not be less than,
but which shall not exceed twice, the amount of the income
in respect of which the particulars have been concealed c
or inaccurate particulars have been furnished."
4. It was submitted that bare reading of the provision made
the position clear that it was not necessary that income tax must
be payable by the assessee as sine qua non for imposition of
D
penalty. The word 'any' made the position clear that the penalty
was in addition to any tax which may be paid by the assessee.
~"" Therefore, even if no tax was payable, the penalty was leviable.
It is in that context submitted that even prior to the amendment it
could not be read to mean that if no tax was payable by the
assessee because of filing a return disclosing loss, the asses- E
see is not liable to pay penalty even if the assessee concealed
and/or furnished inaccurate particulars. Because some High
Courts took the contradictory view, the Parliament clarified the
position by changing the expression "any' by "if any". This was
not a substantive amendment which created a penalty for the F
~ first time. The amendment by the Finance Act as specifically
noted in the Notes on Clauses makes the position clear that the
amendment was clarificatory in nature and would apply to all
assessments even prior to assessment year 2003-04.
G
· 5. Per contra, learned counsel for the assessees submit-
. --1 ted that the view expressed in Virtual's case (supra) lays down
· the correct principle in law. With reference to para 17 of the
judgment, it is submitted that the position was rightly noted by
various High Courts, more particularly, in Commissioner of In-
H
186 SUPREME COURT REPORTS [2008] 12 S. C.R.

A come Tax v. Prithipal Singh & Co. (1990 (183) ITR 69). It is
pointed out that the revenue's appeal before this Court was dis-
missed in Commissioner of Income Tax v. Prithipal Singh and
Ors. (2001 (249) ITR 670). It is submitted that there is nothing in
Section 271(1) (c) as amended by Finance Act to suggest that
B the amendment is retrospective. The amendment and the Ex-
planation 4(a) carried out, enlarged the scope for levying pen-
alty under Section 271 (1) (c) and, therefore, does not operate
retrospectively and is appli.cable only w.e.f. 1.4.2003. The rel-
evant portion in the Finance Act relating to amendment reads
c as follows:
"Section 271 of the Income Tax Act provides that the
assessing Officer or the Commissioner (Appeals) shall
levy penalty in cases of failure to comply with certain
notices issued in the course of assessment proceedings
D and cases in which particulars of income have been
concealed or inaccurate particulars furnished.
It is proposed to amend the section to include a reference
to the Commissioner as being an authority who can i.nitiate
any levy penalty under sub-section (1) of the said section .
. E
Similar reference is proposed to be made in Explanation
1 and Explan~tion 7 to the said sub-section.
Amendment on similar lines is proposed to be made in
Section 18 of the Wealth Tax Act.
F These amendments will take effect from 1st June, 2002.
/'-- j
The existing provisions of clauses (ii) and (iii) of sub-section
(1) of the said section provide for levy of the penalty
specified therein in addition to any tax payable.
G It is proposed to amend the said clauses to clarify that the
penalty specified in them can be levied even if no .tax is
payable on the total income assessed.
The Bill further proposes to amend Explanation 4 which
defines the expression 'the amount of tax sought to be
H
COMMNR. OF INCOME TAX-I, AHMEDABAD v. GOLD 187
COIN HEALTH FOOD PVT. LTD. [DR. ARIJIT PASAYAT, J.]

.,>(_ evaded in different circumstances, to clarify that in cases A
· where the income in respect of which particulars have
been concealed or inaccurate particulars have been
furnished has the effect of reducing the loss declared in
the return or of converting the loss into income, the tax
sought to be evaded shall be the tax that would have been B
chargeable on the amount of such income as if it were the
r.t ~·.
total income.
These amendments will take effect from 1st April, 2003."
6. It would be of some relevance to take note of what this c
Court said in Virtual's case (supra). Pointing out one of the im-
..... portant tests at para 51 it was observed that even if the statute
does contain a statement to the effect that the amendment is
clarificatory or declaratory, that is not the end of the matter. The
Court has to analyse the nature of the amendment to come to a
D
conclusion whether it is in reality a clarificatory or declaratory
provision. Therefore, the date from which the amendment is

• i. made operative does not conclusively decide the question. The
Court has to examine the scheme of the statute prior to the
amendment and subsequent to the amendment to determine
whether amendment is clarificatory or substantive. E

7. In Reliance Jute and Industries Ltd. vs. Commissioner
of Income Tax, West Bengal (1979 (120) ITR 921) it was ob-
served by this Court that the law to be applied in income tax
t
assessments is the law in force in the assessment year unless F
otherwise provided expressly or by necessary implication. Be-
~ ~
fore proceeding further, it will be necessary to focus on the defi-
nition of the expression 'income' in the statute. Section 2(24)
defines 'income' which is an inclusive definition, and includes
losses i.e. negative profit. The position has been elaborately
G
dealt with by this Court in Commissioner of Income Tax (Gen ...
' tral), Delhi v. Harprasad & Co. P Ltd. (1975 (99) ITR 118). This
...... --{
Court held with reference to the charging provisions of the stat-
ute that the expression 'income' should be understood to in-
elude losses. The expression 'profits and gains' refers to posi-
H
188 SUPREME COURT REPORTS [2008] 12 S.C.R.

A tive income whereas losses represent negative profit or in other ~-
words minus income. This aspect does not appear to have been
noticed by the Bench in Virtua/'s case (supra). Reference to the
order by this Court dismissing the revenue's Civil Appeal
No. 7961 of 1996 in Commissioner of Income Tax v. Prithipal
B Singh and Co. is also not very important because that was in
relation to the assessment year 1970-71 when Explanation 4
to Section 271 (1) ((c) was not in existence. The view of this >-
Court in Harprasad's case (supra) leads to the irresistible con-
clusion that income also includes losses. Explanation 4 (a) as it
c stood during the period 1.4.1976 to 1.4.2003 has to be consid-
ered in the background.
8. It appears that what the Finance Act intended was to
make the position explicit which otherwise was implied. The
recommendations of the Wanchoo Committee pursuant to which
D Explanation 4(a) was inserted w.e.f. 1.4.1976 needs to be noted.
At para 2.74 it was noted as follows:
y_
"2.74 We are not unaware that linking concealment penalty
to tax sought to be evaded can, at times, lead to anomalies.
-.:·
We would recommend that, in cases where the concealed .
E income is to be, set off against losses incurred by an
assessee under other heads of income or against losses
brought forward from earlier years, and the total income
thus, gets reduced to a figure smaller than the concealed
income or even to a minus figure, the tax sought to be
F evaded should be calculated as if the concealed income
were the total income." >---- .

9. Reference to the Department Circular No.204 dated
24.7.1976 reported in 1977 (110) ITR 21 (St.) has also sub-
stantial relevance. Same reads as follows:
G
"New Explanation 4 defines 'the amount of tax sought to
be evaded'. According to the definition, this expression ~
will ordinarily mean the difference between the tax on the
total income assessed and the tax that would have been
H chargeable had such total income been. reduced by the
COMMNR. OF INCOME TAX-I, AHMEDABAD v. GOLD 189
COIN HEALTH FOOD PVT. LTD. [DR. ARIJIT PASAYAT, J.]
)(
':,
amount of income in respect of which particulars have A
been concealed. In a case, however, where on setting off
the concealed income against any loss incurred by the
assessee under other head of income or brought forward
from earlier years, the' total income is reduced to a figure
lower than the concealed income or even to a minus 8
figure, 'the tax sought to be evaded' will mean the tax
..., chargeable on the concealed income as if it were the
total income. Another exception to the general definition
~ of the expression 'tax sought to be evaded' given earlier
is a case to which Explanation 3 applies. Here, the tax c
sought to be evaded will be the tax chargeable on the
entire total income assessed."
10. A combined reading of the Committee's recommen-
dations and the Circular makes the position clear that Explana-
tion 4(a) to Section 271(1) (c) intended to levy the penalty not D
only in a case where after addition of concealed income, a loss
returned, after assessment becomes positive income but also
in a case where addition of concealed income reduces the re-
turned loss and finally the assessed income is also a loss or a
minus figure. Therefore, even during the period between E
1.4.1976 to 1.4.2003 the position was that the penalty was levi-
able even in a case where addition of concealed income re-
duces the returned loss.
11. When the word "income" is read to include losses as
held in Harprasad's case (supra) it becomes crystal clear that F
---" even in a case where on account of addition of concealed in-
come the returned loss stands reduced and even if the final
assessed income is a loss, still penalty was leviable thereon
even during the period 1.4.1976 to 1.4.2003. Even in the Circu-
lar dated 24. 7.1976, referred to above, the position was clari- G
fied by Central Board of Direct Taxes (in short 'CBDT'). It is
--~ stated that in a case where on setting of the concealed income
against any loss incurred by the assessee under any other head
of income or brought forward from earlier years, the total in-
come is reduced to a figure lower than the concealed income H
190 SUPREME COURT REPORTS [2008] 12 S.C.R.

A or even to a minus figure the penalty would be imposable be-
cause in such a case "the tax sought to be evaded" will be tax
chargeable on concealed income as if it is "total income".
12. Law is well settled that the applicable provision would
be the law as it existed on the date of the filing of the return. It is
B of relevance to note that when any loss is returned in any return
it need not necessarily be the loss of the concerned previous
year. It may also include carried forward loss which is required
to be set up against future income under Section. 72 of the Act.
Therefore, the applicable law on the date of filing of the return
C cannot be confined only to the losses of the previous account-
ing years.
13. In Commissioner of Wealth Tax, Punjab, J & K,
Chandigarh, Patiala v. Yuvraj Amrinder Singh and Ors. (1985
D (4) SCC 609) the relevance of Notes on Clauses was high-
lighted. Para 15 reads as follows:
"15. The proviso to sub-clause (v1) has been reproduced
above. It has the effect of cutting down the exemption
contained in the sub-clause to some extent It commences
E with the words "Provided that in the case of a policy of
insurance the premium or other payment whereon is
payable during a period of less .than 10 years" and the·
argument is that the italicized words suggest that the
expression "any policy of insurance" in the main sub-clause
F must mean a policy based on human life and that too
where periodical premia are payable and as such annuity
on life which consists of lump sum investment followed by
deferred annual or monthly payrnents is excluded. It is
impossible to read the italicized words in the proviso in
this manner which has the effect of unduly narrowing down
G
the expression "any policy of insurance" used in the main
sub-clause, which as indicated earlier, is of very wide
import covering all types of insurance policies like life,
marine, fire, etc. In the first place the main provision [sub-
clause (vi)] was enacted in 1957 and continued to operate
H
COMMNR. OF INCOME TAX-I, AHMEDABAD v. GOLD 191
COIN HEALTH FOOD PVT. LTD. [DR. ARIJIT PASAYAT, J.]

for 17/18 years till March 31, 1975 without any qualification A.
and as such it will be absurd to attribute to the Legislature,
because of the insertion of the proviso (containing the
italicized words) in 1975, an intention of having used the
wide expression "any policy of insurance" throughout all
this period in a narrow sense as suggested. Secondly, if B
the main provision and the proviso are read together the
italicised words do not suggest that any narrow
construction, much less as urged, was intended and to
say so would be missing the real object or purpose of the
proviso. In our view the proper way to read the proviso C
would be to treat the main provision as creating or granting
an exemption and the proviso carving out something from
_the exemption. The main provision creates an exemption
in respect of the assessee's "right or interest in any policy
of insurance" and the proviso seeks to cut down that
0
exemption to a limited extent, namely whenever there is a
policy of insurance in respect whereof periodical premia
are payable for a duration of less than 10 years, then in
such a case a proportionate exemption specified therein
will be available to the assessee irrespective of what type •
of poiicy it is; the proviso has no other effect. That such E
was the object or purpose of inserting the proviso will be
clear if regard is had to relevant part of Notes on clauses
accompanying the Bill and the relevant portion of the
speech of the Finance Minister while introducing the Bill.
We were taken through the relevant portions of Notes and F
clauses [vide 93 ITR 125 (Statutes)] and the speech of the
Hon'ble Finance Minister while introducing the Bill [vide
93 ITR 74 (Statutes)] and in our view far from supporting
the contention of counsel for the Revenue these lend
support to the view which we have just expressed. The G
relevant portion of "Notes on clauses" states that, "under
--i this amendment (the insertion of proviso) the value of the
taxpayer's right or interest in a policy of insurance will be
exempt from tax only if the·· premia are payable over a
period of ten years or more. In cases where premia are H
192 SUPREME COURT REPORTS [2008] 12 S.C.R.

)'<·

A payable over a period of less than ten years, only a
proporti9nate amount of the value of the taxpayer's right
or interest in the policy of insurance will be exempt from
wealth tax". The Finance Minister's speech, though strictly
not relevant as an aid to construction, substantially
B reiterates what has been stated in the "Notes on clauses"
accompanying the Bill. On this account, therefore, there is
~·
no warrant to put a narrow construction on the expression
"any policy of insurance" occurring in sub-clause (vt) of
Section 5(1 )."
c 14. As noted by this Court in Commissioner of Income ~·
Tax, Bombay and Ors. v. Podar Cement Pvt. Ltd. and Ors.
(1997 (5) sec 482) the circumstances under which the amend-
ment was brought in existence and the consequences of the
amendment will have to be taken care of while deciding the
D issue as to whether the amendment was clarificatory or sub-
stantive in nature and, whether it will have retrospective effect
or it was not so. 4-'
15. In Principles of Statutory Interpretation, 11th Edn. 2008,
Justice G.P. Singh has stated the position regarding retrospec-
E tive operation of statutes as follows:
"The presumption again.st retrospective operation is not
applicable to declaratory statutes. As stated in Craies
and approved by the Supreme Court: For modern
F purposes 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 deems to
have been a judicial error, whether in the statement of the
G
· common law or in the interpretation of statutes. Usually, if
r~~
not inv'ariably, such an Act co.ntains a preamble, and also
the word ·declared' as well as the word 'enacted'. But the
use of the words 'it is declared' is not c'onclusive that the
Act is declaratory for these words may, at times, be used
H
COMMNR. OF INCOME TAX-I, AHMEDABAD v. GOLD 193
COIN HEALTH FOOD PVT. LTD. [DR. ARIJIT PASAYAT, J.]

to introduce new rules of law and the Act in the latter case A
will only be amending the law and will not necessarily be
retrospective. In determining, therefore, the nature of the
Acf, regard must be had to the substance rather than to
the Corm. If a new Act is 'to explain' an earlier Act, it would
be without object unless construed retrospective. An B
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. The language 'shall be c
deemed always to have meant' or 'shall be deemed never
to have included" 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 amended· provision was clear and
D
unambiguous. An amending Act may be purely clarificatory
y
. 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 and, therefore, if the
principal Act was existing law when the constitution came
into force, the amending Act also will be part of the existing E
law."

16. In Zile Singh v. State of Haryana and Ors. (2004 (8)
sec 1), it was observed as follows:
"13. It is a cardinal principle of construction that every F
---',
statute is prima facie prospective unless it is expressly or
by necessary implication made to have a retrospective
operation. But the rule in general is applicable where the
object of the statute is to affect vested rights or to impose
new burdens or to impair existing obligations. Unless there G
are words in the statute sufficient to show the intention of
---~
the legislature to affect existing rights, it is deemed to be
prospective only - "nova constitutio futuris formam
imponere debet non praeteritis" - a new law ought to
regulate what is to follow, not the past. (See Principles of H
194 SUPREME COURT REPORTS [2008] 12 S.C.R.

A Statutory Interpretation by Justice GP. Singh, 9th Edn.,
2004 at p. 438.) It is not necessary that an express
provision be made to make a statute retrospective and
the presumption against retrospectivity may be rebutted
by necessary implication especially in a case where the
B new law is made to cure an acknowleqged evil for the
benefit of the community as a whole (ibid., p. 440).
-r
14. The presumption against retrospective operation is
not applicable to declaratory statutes .... In determining,
therefore.the nature of the Act, regard must be had to the
c substance rather than to the form. If a new Act is "to explain"
an earlier Act, it would be without object unless construed
retrospectively. 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 .
D statute is curative or merely declaratory of the previous
law retrospective operation is generally intended .... An
amending Act may be purely declaratory to clear a meaning '
y'
of a provision of the principal Act which was already
implicit. A clarificatory amendment of this nature will have
E retrospective effect (ibid., pp. 468-69).
15. Though retrospectivity is not to be presumed and rather
there is presumption against retrospectivity, according to
Craies (Statute Law, 7th Edn.), it is open for the legislature
to enact laws having retrospective operation. This can be
F achieved by express enactment or by necessary
implication from the language employed. If it is a necessary
implication from the language employed that the legislature
intended a particular section to have a retrospective
operation,Jhe courts will give it such an operation. In the
G absence of a retrospective operation having been
expressly given, the courts may be called upon to construe 'f-_...
the provisions and answer the question whether the
legislature had sufficiently expressed that intention giving
the statute retrospectivity. Four factors are suggested as
H relevant: (1) general scope and purview of the statute; (i1)
COMMNR. OF INCOME TAX-I, AHMEDABAD v. GOLD 195
COIN HEALTH FOOD PVT. LTD. [DR. ARIJIT PASAYAT, J.]

the remedy sought to be applied; (iit) the former state of A
the law; and (iv) what it was the legislature contemplated.
(p. 388) The rule against retrospectivity does not extend
to protect from the effect of a repeal, a privilege which did
not amount to accrued right. (p.392)"
17. Above being the position, the inevitable conclusion is B
that Explanation 4 to Section 271 (1 )(c) is clarificatory and not
substantive. The view expressed to the contrary in Virtua/'s case
(supra) is not correct.

18. So far as the appeal relating to SLP (C ) No.4379 of c
2007 is concerned, it is to be noted that learned Solicitor Gen-
eral has stated that even if the Department succeeds ultimately
before this Bench, they would not demand penalty from the as-
sessee in that case. Similar is the position in Civil Appeal relat-
ing to SLP(C) No.14785 of 2007.
D
19. The appeals are disposed of.
S.K.S. Appeals disposed of.