M/S Tamil Nadu State Marketing … vs Union Of India on 25 November, 2020


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Supreme Court of India

M/S Tamil Nadu State Marketing … vs Union Of India on 25 November, 2020

Author: M.R. Shah

Bench: Ashok Bhushan, R. Subhash Reddy, M.R. Shah

                                                           NON­REPORTABLE
                                   IN THE SUPREME COURT OF INDIA
                                   CIVIL APPELLATE JURISDICTION
                                   CIVIL APPEAL NO. 3821 OF 2020
                                   (Arising from S.L.P.(Civil) No.10613/2020)


         M/s Tamil Nadu State Marketing
         Corporation Ltd.                                       …Appellant

                                            Versus

         Union of India and others                              …Respondents




                                            JUDGMENT

M.R. SHAH, J.

1. Leave granted.

2. Feeling aggrieved and dissatisfied with the impugned

judgment and order dated 11.03.2020 passed by the High Court

of Judicature at Madras in Writ Petition No. 6284 of 2020, by

which the High Court has not entertained the said writ petition at
Signature Not Verified

this stage and consequently has dismissed the said writ petition
Digitally signed by
MEENAKSHI KOHLI
Date: 2020.11.25
16:40:03 IST
Reason:

1
without deciding the issue involved in the writ petition on merits,

the original writ petitioner has preferred the present appeal.

3. That the appellant herein – original writ petitioner filed the

aforesaid writ petition before the High Court challenging the

validity of Section 40(a)(iib) of the Income Tax Act, 1961. It was

the case on behalf of the original writ petitioner that the amount

which is deductible in computing the income chargeable in terms

of the Income Tax Act is not being allowed under the garb of the

aforesaid provision. According to the original writ petitioner, the

said provision is discriminatory and violative of Article 14 of the

Constitution of India, inasmuch as there are many Central

Government undertakings which have not been subjected to any

such computation of income tax and are enjoying exemption.

At this stage it is required to be noted that a show cause

notice was issued by the assessing officer for the Assessment

Year 2017­18 stating that the VAT expense levied on the

appellant is an exclusive levy by the State Government and

therefore squarely covered by Section 40(a)(iib) of the Income Tax

Act and therefore VAT expenditure is not allowable as deduction

in accordance with Section 40(a)(iib) of the Income Tax Act, while

computing the income of the appellant. That the assessing

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officer finalised the assessment and passed the assessment order

for the Assessment Year 2017­18 vide order dated 30.12.2019.

3.1 The High Court vide judgment and order dated 26.02.2020

in Writ Petition No. 538 of 2020 set aside the assessment order

dated 30.12.2019 insofar as disallowance in terms of Section

40(a)(iib), on the ground of violation of principles of natural

justice. Thus, the matter was pending before the assessing

officer. The appellant thereafter filed the present writ petition No.

6284 of 2020 before the High Court challenging the vires of

Section 40(a)(iib) of the Income Tax Act being ultra vires Articles

14, 19 and 265 of the Constitution of India. By the impugned

judgment and order, as observed hereinabove, the High Court

has dismissed the said writ petition without deciding the validity

of Section 40(a)(iib) of the Income Tax Act by observing that the

issue of raising a challenge to the vires of the provision at this

stage need not be entertained as the matter is still sub judice

before the Income Tax Authority, even though it is open to the

aggrieved party to question the same at the appropriate moment.

3.2 Feeling aggrieved and dissatisfied with the impugned

judgment and order passed by the High Court in dismissing the

said writ petition, without deciding the vires of Section 40(a)(iib)

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of the Income Tax Act on merits, the original writ petitioner – M/s

Tamil Nadu State Marketing Corporation Limited has preferred

the present appeal.

4. Having heard Shri Rakesh Dwivedi, learned Senior Advocate

appearing on behalf of the appellant and Shri K.M. Natraj,

learned Additional Solicitor General appearing on behalf of the

Union of India and others and considering the impugned

judgment and order passed by the High Court by which the High

Court has dismissed the said writ petition without deciding the

vires of Section 40(a)(iib) of the Income Tax Act on merits, we are

of the firm opinion that the impugned judgment and order passed

by the High Court is not sustainable at all.

5. When the vires of Section 40(a)(iib) of the Income Tax Act

were challenged, which can be decided by the High Court alone

in exercise of powers under Article 226 of the Constitution of

India, the High Court ought to have decided the issue with regard

to vires of Section 40(a)(iib) on merits, irrespective of the fact

whether the matter was sub judice before the Income Tax

Authority. Vires of a relevant provision goes to the root of the

matter. The High Court has observed that the issue of raising a

challenge to the vires of the provision at this stage need not be

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entertained, as the matter is still sub judice before the Income

Tax Authority, even though it is open to the aggrieved party to

question the same at the appropriate moment. Once the show

cause notice was issued by the assessing officer calling upon the

appellant – assessee to show cause why the VAT expenditure is

not allowable as deduction in accordance with Section 40(a)(iib)

of the Income Tax Act, while computing the income of the

appellant, it can be said that the cause of action has arisen for

the appellant to challenge the vires of Section 40(a)(iib) of the

Income Tax Act and the appellant may not have to wait till the

assessment proceedings before the Income Tax Authority are

finalised. The stage at which the appellant approached the High

Court and challenged the vires of Section 40(a)(iib) of the Income

Tax Act can be said to be an appropriate moment. Therefore, the

High Court ought to have decided the issue with respect to the

challenge to the vires of Section 40(a)(iib) of the Income Tax Act

on merits. The High Court has failed to exercise the powers

vested in it under Article 226 of the Constitution of India by not

deciding the writ petition on merits and not deciding the

challenge to the vires of Section 40(a)(iib) of the Income Tax Act

on merits.

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6. In view of the above and as the High Court has not decided

the issue with respect to vires of Section 40(a)(iib) of the Income

Tax Act on merits, the matter is required to be remanded to the

High Court to decide the writ petition on merits and decide the

question with respect to challenge to the vires of Section 40(a)(iib)

of the Income Tax Act on merits.

7. In view of the above and for the reasons stated above, the

present appeal succeeds. The impugned judgment and order

passed by the High Court is hereby quashed and set aside and

the matter is remitted to the High Court to decide the writ

petition on merits with respect to challenge to the vires of Section

40(a)(iib) of the Income Tax Act. However, it is made clear that

we have not expressed any opinion on merits with respect to

legality and validity of Section 40(a)(iib) of the Income Tax Act

and we have remanded the matter on the aforesaid ground alone.

8. The appeal is accordingly allowed. No order as to costs.

……………………………………..J.

[ASHOK BHUSHAN]

……………………………………..J.

                                 [R. SUBHASH REDDY]

NEW DELHI;                       ……………………………………..J.
NOVEMBER 25, 2020.               [M.R. SHAH]


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