Case: Godrej and Boyce Manufacturers Company Limited Vs. Commissioner of Income Tax, Range 10

incurred in the earning of that income would have to be disallowed. That is exactly a matter which the Assessing Officer has to determine. Whether or not any expenditure was incurred by the assessee in relation to the earning of non-taxable income falls within the domain of the Assessing Officer. The basis on which the Tribunal had come to its decision for Assessment Years 1998-99, 1999-00 and 2001-02 would not conclude that question.72. The precedents on which reliance has been placed by the assessee would have now to be analyzed. The Supreme Court in its judgment in Radhasoami Satsang (supra) held that res judicata does not apply to income tax proceedings since each assessment year is a unit. However, where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging that order, it would not be appropriate to allow the position to be changed in a subsequent year, in the absence of any material change justifying the Revenue to take a different view of the matter. Moreover, in the concluding part of the judgment the Supreme Court has held that this decision is confined to the facts of the case and may not be treated as an authority on aspects which have been decided for general application at page 329. The decision of the Supreme Court in Munjal Sales Corporation (Supra) turned purely on the facts of the case. The Supreme Court noted that the opening balance as on 1 April 1994 was Rs.1.91 Crores whereas the loan given to a sister concern was a small amount of Rs.5 lacs. The profits earned by the assessee during the relevant year were held to be sufficient to cover the loan of Rs.5 lacs. In the decision of the Division Bench of this Court in Reliance Utilities (supra) the Division Bench has held that if there be interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available. The decision of the Division Bench turned on a finding of fact by the Tribunal that there were sufficient interest free funds available in that case. The judgment in Reliance Utilities shows that there were interest free owned funds available and not merely reserves. In East India Pharmaceutical Works Ltd. v. Commissioner of Income Tax (1997) 224 ITR 627 ) the Supreme Court in the facts of the case refused to draw any such presumption. In the case of the assessee, the learned Additional Solicitor General has submitted that the reference is made only to reserves and there is no mention of interest free funds. It has been urged that reserves are shown on the liabilities side of the balance-sheet and are represented by a variety of assets on the assets side. These assets could be fixed or non liquid assets and hence not investible. The real enquiry is whether there are interest free funds available on the assets side and in the absence of sufficient proof of available interest free funds, no such presumption can be drawn. Moreover, it has been urged that after the introduction of Section 14A(1), no such presumption can in any event be drawn, since Parliament expressly requires apportionment. We recapitulate our conclusions on this point thus:a) The ITAT had recorded a finding in the earlier assessments that the investments in shares and mutual funds have been made out of own funds and not out of borrowed funds and that there is no nexus between the investments and the borrowings. However, in none of those decisions was the disallowability of expenses incurred in relation to exempt income earned out of investments made out of own funds considered. Moreover, under Section 14A, expenditure incurred in relation to exempt income can be disallowed only if the assessing officer is not satisfied with the correctness of the expenditure claimed by the assessee. In the present case, no such exercise has been carried out and, therefore, the Tribunal was justified in remanding the matter.b) Section 14A was introduced by the Finance Act 2001 with retrospective effect from 1 April 1962. However, in view of the proviso to that Section, the disallowance thereunder could be effectively made from assessment year 2001-2002 onwards. The fact that the Tribunal failed to consider the applicability of Section 14A in its proper perspective, for assessment year 2001-2002 would not bar the Tribunal from considering disallowance under Section 14A in assessment year 2002-2003.c) The decisions reported in Sridev Enterprises (supra), Munjal Sales Corporation (supra) and Radhasoami Satsang (supra) holding that there must be consistency and definiteness in the approach of the revenue would not apply to the facts of the present case, because of the material change introduced by Section 14A by way of statutory disallowance in certain cases. Therefore, the decisions of the Tribunal in the earlier years would have no relevance in considering disallowance in assessment year 2002-2003 in the light of Section 14A of the Act.73. For the reasons which we have indicated, we have come to the conclusion that under Section 14A(1) it is for the Assessing Officer to determine as to whether the assessee had incurred any expenditure in relation to the earning of income which does not form part of the total income under the Act and if so to quantify the extent of the disallowance. The Assessing Officer would have to arrive at his determination after furnishing an opportunity to the assessee to produce its accounts and to place on the record all relevant material in support of the circumstances which are considered to be relevant and germane. For this purpose and in light of our observations made earlier in this section of the judgment, we deem it appropriate and proper to remand the proceedings back to the Assessing Officer for a fresh determination.Conclusion :

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]31. The submission cannot be accepted. The expression income which does not form part of the total income under the Act must receive its plain and grammatical construction. Such income is income which is not includible in computing the total income of the assessee under the provisions of the Act for a previous year. Now it is trite law that under the Act, it is income that is taxed but it is not taxed in vacuo. It is taxed in the hands of a person.12 Section 2(45) defines the expression total income to mean the total amount of income referred to in Section 5, computed in the manner laid down in the Act. Section 4 charges the total income of the previous year of every person to income tax. Section 5 makes a reference to the scope of the total income of any previous year of a person who is the recipient. This is defined to include all income, from whatsoever sources derived, which is received or deemed to be received or which accrues or is deemed to have accrued in India or which accrues or arises outside India during the previous year. Section 10 defines those categories of income which shall not be included in computing the total income of the previous year of any person. Income tax is a tax on income in the hands of the assessee. Hence, when Section 14A disallows expenditure incurred by the assessee in relation to income which does not form part of the total income, it would include categories CIT vs. Indian Bank Limited, (AIR 1965 SC 1473   at paragraph19 page 1476) of income such as dividend from shares and income from mutual fund which under Section 10 are not to be included in the total income. Since dividend income and income from mutual funds are not included in the total income of the assessee, no deduction of expenditure is permissible under Section 14A(1).(5) of Sectionstipulates that no deduction under any other provisions of the Act shall be allowed to the Company or to a shareholder in respect of the amount which has been charged to tax under(1) or the tax thereon.32. The tax which is paid by the Company on profits declared, distributed or paid by way of dividend is not a tax which is paid on behalf of the shareholder. The company is liable to pay income tax in respect of its total income. In addition to the income tax chargeable in respect of its total income, a domestic Company is charged with the payment of additional income tax, called a tax on distributed profits on any amount declared, distributed or paid by the Company by way of dividend. The charge under(1) of Section 115O is on the profits of the Company; more specifically on that part of the profits which is declared, distributed or paid by way of dividend. The charge under(1) of Section 115O isnot on income by way of dividend in the hands of the shareholder.The additionalpayable on profits of a domestic company under Section115O is not a taxe circular notes that according to the existing provisions of the Act, corporate dividends were taxed in the hands of shareholders under the head of income from other sources. Companies while paying dividend deducted tax at source at the rate in force and issued certificates of tax deduction to their shareholders. The shareholders, in turn, showed dividend income in their returns of income and claimed credit for tax deducted on the basis of these certificates. The existing method was found to involve a lot of paper work and there were demands that tax on dividend should be abolished as it would tantamount to double taxation, once in the hands of the Company and again in the hands of the shareholders. The Circular states that the Finance Act of 1997, therefore, introduced a new system of collecting tax on profits distributed by the Company by way of dividend, which was to be in addition to the income tax chargeable in respect of the total income of the Company.39. The circular issued by the CBDT as a matter of fact clearly establishes that prior to the introduction of Sectionof the Finance Act of 1997, corporate dividends were taxed in the hands of shareholders as income from other sources. This provision was abolished by the introduction of Sectionon (1) of Sectionan additional income tax was imposed on profits distributed by a Company by way of dividend and a new clause, clause 33 was inserted in Section 10 to exempt dividend income in the hands of the shareholder.40. We have also been fortified in the conclusion which we have drawn, by the judgment of the Supreme Court in Walfort (supra). The Supreme Court has in the following observation expressly held that since dividend income does not form part of the total income, the expenditure that is incurred in the earning of such income cannot be allowed even though it is of a nature specified in Sections 15 to 59:If an income like dividend income is not a part of the total income, the expenditure/deduction though of the nature specified in Sections 15 to 59 but related to the income not forming part of the total income could not be allowed against other income includible in the total income for the purpose of chargeability to tax.Having observed thus, the Supreme Court held that the theory apportioning expenditure between taxable andincome has now, in principle, been widened under Section 14A. Hence, for the reasons that we have indicated earlier, we hold that income from dividend on shares is, in the hands of the recipient shareholder, income which does not form part of the total income. Hence, Section 14A would apply and the expenditure incurred in earning such income would have to be disallowed. Income from mutual fund stands on the same footing.We do not find any warrant for an artificial reading down of the provisions of Section 14A in the manner that is sought to be done. Section 14A plainly stipulates that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Dividend income does not form part of the total income under the Act by virtue of the provisions of Section 10(33). Consequently, it is impossible to accede to the submission that Section 14A should be confined only to those categories of income, such as agricultural income, where the income is exempt in the hands of any person. The judgment of the Privy Council in C.I.T. vs. Rameshwar Singh, (1935) 3 ITR 305) is of no relevance to the issue involved in this case. While construing the provisions of the Income Tax Act, 1922, the Privy Council observed that agricultural income is excluded altogether from the scope of the Act whatsoever or by whomsoever it may be received. This would have no bearing on the construction to be placed on the provisions of Section 14A.In order to conclude the discussion on this aspect of the case, we would proceed to recapitulate our conclusions.(i) Section 14A was enacted by Parliament in order to overcome the judgments of the Supreme Court in the case of Indian Bank, Maharashtra Sugar and Rajasthan Warehousing Corporation in which it was held that in the case of a composite and indivisible business, which results in earning of taxable andincome, it is impermissible to apportion the expenditure between that which was laid out for the earning of taxable as opposed toincome;(ii) The effect of Section 14A is to widen the theory of the apportionment of expenditure. Prior to the enactment of Section 14A where the business of an assessee was not a composite and indivisible business and the assessee earned both taxable andincome, the expenditure incurred on earningincome could not be allowed as a deduction as against the taxable income. As a result of the enactment of Section 14A, no expenditure can be allowed as a deduction in relation to income which does not form part of the total income under the Act. Hence, even in the case of a composite and indivisible business, which results in the earning of taxable andincome, it would be necessary to apportion the expenditure incurred by the assessee. Only that part of the expenditure which is incurred in relation to income which forms part of the total income can be allowed. The expenditure incurred in relation to income which does not form part of the total income has to be disallowed;(iii) From this it would follow that Section 14A has implicit within it a notion of apportionment. The principle of apportionment which prior to the amendment of Section14A would not have applied to expenditure incurred in a composite and indivisible business which results in taxable andincome, must after the enactment of the provisions apply even to such a situation;(iv) The expression expenditure incurred in Section 14A refers to expenditure on rent, taxes, salaries, interest etc. in respect of which allowances are provided for;(v)(2) and (3) of Section 14A are intended to enforce and implement the provisions of(1). The object of(2) is to provide a uniformity of method where the Assessing Officer is, on the basis of the accounts of the assessee, not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the Act;(vi) Even in the absence of(2) of Section 14A, the Assessing Officer would have to apportion the expenditure and to disallow the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The Assessing Officer would have to follow a reasonable method of apportioning the expenditure consistent with what the circumstances of the case would warrant and having regard to all the relevant facts and circumstances;(vii) Consequent upon the insertion of(2), the disputes which had arisen between tax payers and the Revenue on the method of determining the expenditure to be disallowed, have been given a quietus by adopting a uniform method of determination;(viii)(2) of Section 14A does not enable the Assessing Officer to apply the method prescribed by Rule 8D without determining in the first instance the correctness of the claim of the assessee, having regard to the accounts of the assessee.(2) of Section 14A mandates that it is only when having regard to the accounts of the assessee, the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the total income under the Act, that he can proceed to make a determination under the Rules;(ix) The satisfaction envisaged by(2) of Section 14A is an objective satisfaction that has to be arrived at by the Assessing Officer having regard to the accounts of the assessee. The safeguard introduced by(2) of Section 14A for a fair and reasonable exercise of power by the Assessing Officer, conditioned as it is by the requirement of an objective satisfaction, must, therefore, be scrupulously observed. An objective satisfaction contemplates a notice to the assessee, an opportunity to the assessee to place on record all the relevant facts including his accounts and recording of reasons by the Assessing Officer in the event that he comes to the conclusion that he is not satisfied with the claim of the assessee;(x) The effect of Sectionis that in addition to the income tax chargeable on the total income of a domestic Company, additional income tax is charged on profits declared, distributed or paid. This tax which is referred to as a tax on distributed profits is what it means, namely, a tax on the profits of the Company. This is not a tax on dividend income. Under Sectionthe charge is on a component of the profits of the Company; that component representing profits declared, distributed or paid. The tax under Section115O is not a taxwhich is paid by the Company on behalf of the shareholder, nor does the Company act as an agent of the shareholder in paying the tax. This legal position is fortified by the circumstance that the shareholder is not entitled to any deduction in respect of the amount which has been charged to tax under(1) or the tax thereon;(xi) Additionalliability on the profits declared, distributed or paid as dividend by a domestic company, cannot be considered as tax on dividend, because,(a) Provisions contained in Chapter XIID are special provisions relating to tax on the distributed profits of domestic companies. Even Sectionin Chapter XIID clearly states that the additionalliability thereunder is on the amount of profits declared, distributed or paid by a domestic company as dividend. Thus, the additional income tax under Sectionis a tax on profits and not a tax on dividend.(b) Distribution of profits as dividend being appropriation of profits, the company distributing profits as dividend is liable to pay tax on the total income inclusive of the amount of profits distributed as dividend. By inserting Section 115O, the legislature has imposed additionalon the amount of profits distributed as dividend. Thus, tax as well as additionalare taxes levied on the profits of a domestic company. From the fact that the additionalis levied only on profits declared, distributed, or paid as dividend, it cannot be said that the additionalis not a tax on the profits of the domestic company but a tax on dividend.(c)) Where profits of a Company are distributed as dividend, those profits are taxed in the hands of the Company and dividends are taxed in the hands of the shareholders because the character of the income in the hands of a Company and in the hands of a shareholder is totally different. Profits in the hands of a company would be business income, whereas, the said amounts when distributed as dividend, would constitute dividend income in the hands of the shareholders. In such a case, the liability on the Company is on profits of business income, where as the tax liability on the shareholder would be on the dividend income. The legislature has chosen to exempt tax on dividend income and has chosen to impose additional tax on profits distributed as dividend. Therefore, the tax as well as additional tax are taxes levied on a domestic company on its profits and it cannot be said that the regular / normal tax is levied on profits and the additional tax is levied on the dividend. When Sectionspecifically states that the additional tax is on the profits distributed as dividend, there is no reason to hold that the additionalis a tax on dividend.(d)is charged on the income earned by an assessee. When profits are distributed as dividend, there is no income earned by a domestic company and consequently, there is no question of taxing the amount distributed as dividend. However, the legislature has chosen to impose additional tax in addition to the regular tax, payable on the profits of a domestic Company. Thus, the regular tax as well as the additional tax are taxes on the profits of the domestic companies.(e) Incomes enumerated in Section 10 are not includible in the total income, because the legislature exempts such income from tax. Dividends referred to in Sectionare covered under Section 10(33) and hence exempt from tax. As noted earlier, the additional tax under Sectionis a tax on the profits distributed as dividend and not a tax on dividend. In the absence of Section 10(33), tax would have been payable on the dividends referred in SectionTherefore, it is clearly evident from Section 10(33) that dividends referred to in Sectionare exempt from tax.(f) It is contended that dividends taxed in the hands of a domestic company under Sectionif held taxable again in the hands of a shareholder, would amount to double taxation. There is no merit in this contention because, additional tax is a tax on the profits of the Company which is distributed as dividend, whereas, tax in the hands of a shareholder is a tax on dividend income.(g) This is also supported by Circular No.763 dated 18 February 1998 issued to explain the provisions of Sectionand Section 10(33) inserted by Finance Act 1997. The Circular, clearly and unequivocally states that Section 10(33) and Sectionare intended to exempt dividend income and levy a new tax on distributed profits on domestic companies. Thus, what is collected under Sectionis the additional tax on profits distributed as dividend and not a tax on dividends, because dividends received are exempt under Section 10(33).(xii) The general principle of law is that a Company is chargeable to tax on its profits as distinct taxable entity and has to pay tax in discharge of its own liability and not on behalf of or as an agent of its shareholders. This position of the general law is recognized and incorporated in Sectionand is not overridden by the statutory provision;(xiii) Income from dividend and similarly, income from mutual funds do not form part of the total income under Section 10(33). The expenditure incurred in relation to earning such income cannot be allowed under Section 14A;(xiv) In order to determine the quantum of the disallowance, there must be a proximate relationship between the expenditure and the income which does not form part of the total income. Once such a proximate relationship exists, the disallowance has to be effected. All expenditure incurred in the earning of income which does not form part of the total income has to be disallowed subject to compliance with the test adopted by the Supreme Court in Walfort and it would not be permissible to restrict the provisions of Section 14A by an artificial method of interpretation.The Court will not lightly reject the plain and grammatical construction of a statute. The subject must be within the letter of the law and the Court will not abandon the words used by the legislature in preference to a diffuse if even ephemeral object of deciphering purpose. Legislative purpose in fiscal enactments must lie within the folds of the words used. Before the Court rejects the plain and grammatical construction of a statute, it must be satisfied that such a construction would lead to a result unintended by the Legislature or result in an absurdity. For one thing, individual cases of hardship, set up on the basis of hypothetical examples tendered at the Bar do not establish absurdity of the law. Moreover, it has been submitted by the Additional Solicitor General that the example tendered before the Court proceeds on several assumptions these being : (i) An assumption that had there been no tax under Sectionthe Board of Directors of a Company would have recommended a higher dividend (higher by the extent of the tax) for distribution to the shareholders; (ii) The assumption that in effect, it is the shareholder who bears the tax under Sectionsince the shareholder has forgone the assumed higher dividend; (iii) An assumption that the payment of tax under Sectionis on behalf of the shareholder. On these assumptions, the conclusion is sought to be drawn by the assessee that the shareholder will suffer twice, namely, by the assumed payment of tax on his behalf under Sectionand by the disallowance on expenditure claimed under Section 14A. We are in agreement with the submission which has been urged on behalf of the Union Government that the contention that the literal interpretation of Section 14A would lead to an absurd consequence is erroneous. As the Supreme Court observed in Walfort, Section 14A represents a serious attempt on the part of Parliament to ensure that the tax incentive to certain incomes should not be used to reduce the tax payable onincome by debiting expenses incurred to earnincome against the taxable income. In other words, what Section 14A effectuates is that a shareholder should not get the benefit both of an exemption under Section 10(33) and also a deduction in respect of the expenditure laid out towards earning tax free income. If the dividend income had not been exempt under Section 10(33), the Revenue would have taxed such dividend income and the assessee would have been entitled to a deduction in respect of its expenditure in relation to that income. Dividend income does not form part of the total income under Section 10(33). Section 14A ensures that the shareholder whose income from dividend is not included in the total income of a previous year shall not claim a deduction in respect of the expenditure incurred in relation to earning such income. Section 14A is founded on a valid rationale that the basic principle of taxation is to tax net income that is to say, gross income minus the expenditure. On that analogy as the Supreme Court observed in Walfort, the exemption is also in respect of net income and expenses allowed can only be in relation to the earning of taxable income. We do not, therefore, accept the submission of the assessee that an absurdity would result on the application of the literal interpretation of Section 14A.The charge of the assessee that there is an inherent arbitrariness in prescribing a uniform method for determining the disallowance of expenditure in relation to the earning ofincome must therefore fail for three reasons. Firstly, as a matter of fundamental principle, when the Court is confronted with a challenge to a classification by tax legislation either on the ground of over or under inclusion, it is trite law that the Court must defer to the wisdom of the legislature. Crudities and inequities are involved in making complex fiscal adjustments that are intrinsic to any fiscal measure. Diverse methods are open to the legislature to achieve a result and if the legislature adopts a particular method, the Court will not substitute its own view for that of the legislature merely because another method appears more suitable or because a better crafted measure could have been put into place. Unless the method which has been selected is capricious, fanciful or arbitrary, the Court will defer to the wisdom of the legislature and to its delegate who is subject to its legislative control. Burdens and disadvantages are not ground enough to strike down the constitutional validity of legislation or subordinate legislation. Cases of individual hardship are similarly not a valid ground for striking down constitutional validity. So long as the measure which has been put into place has nexus with the object sought to be achieved, is passes constitutional muster. Secondly, sub section (2) of Section 14A makes it abundantly clear that the power to apply the prescribed method arises only where the Assessing Officer is not satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee. It is because the assessee is unable to establish the correctness of the claim in respect of the expenditure incurred in earning income which does not form part of the taxable income that the Assessing Officer is compelled to make a determination. The Learned Additional Solicitor General has placed before the Court material that would indicate that if a simplistic prorate disallowance were to be made, that would as a matter of fact have resulted in a disallowance of Rs.82 Crores on an expenditure of Rs.189.77 Crores. As opposed to this the disallowance under Rule 8D(2)(iii) is restricted to Rs.1.57 Crores. Before the legislature prescribed a uniform method, disputes had occurred between assessees and the department in regard to the method to be adopted in computing the expenditure relatable to the earning ofincome. In this background, if the legislature considered it appropriate to prescribe a particular method that legislative choice cannot be held to be arbitrary or oppressive. Thirdly, sub sections (2) and (3) and the proviso to Section 14A contain sufficient safeguards that would ensure a reasonable exercise of power. Apart from the safeguards to which a reference has been made earlier, the proviso stipulates that nothing contained in the Section shall empower the Assessing Officer to reassess under Section 147; or enhance the assessment or reduce the refund already made; or otherwise increase the liability of the assessee under Section 154, for any assessment year beginning on or before 1 April 2001.60. In the affidavit in reply that has been filed on behalf of the Revenue an explanation has been provided of the rationale underlying Rule 8D. In the written submissions which have been filed by the Additional Solicitor General it has been stated, with reference to Rule 8D(2)(ii) that since funds are fungible, it would be difficult to allocate the actual quantum of borrowed funds that have been used for making tax free investments. It is only the interest on borrowed funds that would be apportioned andthe amount of expenditure by way of interest that will be taken (asin the formula) will exclude any expenditure by way of interest which is directly attributable to any particular income or receipt (for exampleany aspect of the assessees business such as plant/machinery etc.). As regards Rule 8D(2)(iii) it has been submitted that some mechanism or formula had to be adopted for attributing part of the administrative /managerial expenses to tax exempt investment income. The administrative expenses attributable to tax free investment income have a fixed component and a variable component. A view was taken that the disallowance should also be linked to the value of the investment rather than the amount of exempt income. Under Portfolio Management Schemes (PMS) the fee charged ranges between 2 and 2.5% of the portfolio value which would be inclusive of a profit element for the portfolio manager. While the fixed administrative expenses were excluded, on the ground that in the case of a large corporate tax payer they would be spread over a large number of voluminous activities, the variable expenses were computed atpercent of the value of the investment. The justification that has been offered in support of the rationale for Rule 8D cannot be regarded as being capricious, perverse or arbitrary. Applying the tests formulated by the Supreme Court it is not possible for this Court to hold that there is writ on the statute or on the subordinate legislation perversity, caprice or irrationality. There is certainly no63. The fundamental principle of law is that Parliament has plenary power to legislate, on matters falling within its legislative competence and that power extends to the enactment of legislation with prospective and retrospective effect. Legislative competence of Parliament to enact the law is not in dispute. Law raises a presumption that an amendment which affects substantive rights and obligations is intended by the legislature to have prospective effect. On the other hand, amendments on matters of procedure are presumed to be retrospective so as to apply to pending cases. These are, however, presumptions which can be out weighed by the language of an amending statute. That is because the legislature has plenary power to legislate both prospectively and retrospectively. Therefore whether an amending provision is to operate with prospective or retrospective effect has to be determined on the language and ambit of the statutory provision. Amendments which are clarificatory or declaratory of the position in law, as the legislature intended it always to be, are regarded as being retrospective. Hence, when the legislature steps in by amending the law to set right an incorrect judicial interpretation, an inference can be drawn that the amendment was intended to be retrospective. An amendment which is inserted to remedy unintended consequences and to make a provision workable or which supplies an obvious omission and is required to be read into a section to give it reasonable interpretation has been treated as retrospective in operation.64. These principles emerge from the precedent on the subject :(i) In Income Tax Officer v. M.C.Ponnoose (1970) 75 ITR 174  ), the Supreme Court dealt with a case where Section 2(44) containing the definition of the expressionRecovery Officer was substituted by the Finance Act of 1963 and it was provided that the new definition shall be and shall be deemed always to have been substituted. As amended, Clause (ii) of Section 2(44) empowered the State Government to authorize by notification certain land revenue officers to exercise the powers of a tax recovery officer. The State Government issued a notification dated 14 August 1963 which was published in the gazette on 20 August 1963 authorizing various revenue officers to exercise the powers of the Tax Recovery Officer. The notification stated that it shall come into force on 1 April 1962. The Tahsildar had effected an attachment subsequent to 1 April 1962 but prior to 14 August 1963. The Supreme Court held thus:Where any rule or regulation is made by any person or authority to whom such powers have been delegated by the legislature it may or may not be possible to make the same so as to give retrospective operation. It will depend on the language employed in the statutory provision which may in express terms or by necessary implication empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found it has been held by the courts that the person or authority exercising subordinate legislative functions cannot make a rule, regulation or