New Conditions in clarificatory nature to existing Tax Law can’t be presumed to Be Retrospective – Supreme Court

The Apex Court held that the new conditions in clarificatory nature to existing Tax Law can not be presumed to be retrospective in nature. The assessee, M.M. Aqua Technologies Ltd. claimed a deduction of Rs.2,84,71,384/- under Section 43B based on the issue of debentures in lieu of interest accrued and payable to financial institutions. By an order dated 29th October 1998, the Assessing Officer rejected the Appellant’s contention by holding that the issuance of debentures was not as per the original terms and conditions on which the loans were granted, and that interest was payable, holding that a subsequent change in the terms of the agreement, as they then stood, would be contrary to Section 43B(d), and would render such amount ineligible for the deduction.

The Commissioner of Income Tax (Appeals) allowed the appeal which was upheld in appeal by the Income Tax Appellate Tribunal. Before the High Court, Revenue filed an appeal raising the question “Whether the funding of the interest amount by way of a term loan amounts to actual payment as contemplated by Section 43B of the Income-tax Act, 1961?” The High Court held that Explanation 3C, having a retrospective effect with effect from 01.04.1989, would be applicable to the present case, as it relates to AY1996-97. Explanation 3C squarely covers the issue raised in this appeal, as it negates the assessee’s contention that insertion of this explanation, which, an interest which has been converted into loan is deemed to be “actually paid”.

The assessee cannot claim deduction under Section 43B of the Act.” The division bench of Justice R.F.Nariman and Justice B.R.Gavai while setting aside judgments of the High Court found that Explanation 3C was squarely attracted in that outstanding interest had not actually been paid, but instead, a new credit entry of loan now appeared, bringing the case within the express language of Explanation 3C. This is far removed from the facts of the present case, which were not adverted to at all in this judgment. Consequently, this judgment is also distinguishable and would not apply to govern the facts of the present case.