Supreme Court asks Madras High Court to decide constitutional validity of section 40(a)(iib) of Income Tax Act.2 min read

BY- VIDUSHI DUBEY


The Supreme Court on November 25, instructed Madras High Court to determine the constitutional validity of section 40(a)(iib) of Income tax act, 1961. A plea was filed by Tamil Nadu State Marketing Corporation Ltd. challenging the preceding order of Madras High Court, which dismissed the writ petition filed by the corporation challenging the validity of section 40(a)(iib) of the Income Tax Act, 1961.
The given act contains the provision about the disallowance of service fee, license fee, royalty etc. only if it is levied by state government under the head of profit and gains of business.
While the case was presented in the High Court, the corporation argued that the amount which could be deducted while evaluating the chargeable income in terms of Income Tax Act is not allowed in the scope of the given provision. It also pointed out that this provision is violative of Article 14 and stated that it is discriminatory based on the fact that other Central Government undertaking without being subjected to any computation of income tax and are under advantage of exemption. However, the writ petition was dismissed by the high court without deciding the validity of section 40(a)(iib) of the act on the ground that the matter was sub judice of the Income Tax Authority, hence the vires of the given provision cannot be considered by the High Court.
The bench comprising Justice Ashok Bhushan, R. Subhash Reddy and MR Shah observed that is under obligation to give decision on the issue with respect to the challenges raised against the vires of section 40(a)(iib) of the Income Tax Act under Article 226 of the constitution. It also noted that even if the issue is still sub judice before Income Tax Authority, the claimant can still challenge the order at appropriate moment and has need not to wait for the finalized assessment of the authority. Whenever the appellant approaches the High Court, challenging the vires of the given provision will considered to be the appropriate time. It observed that the High Court did not exercised its power fairly under Article 226 by not by addressing the challenges to the vires of the provision and deciding the writ petition on merits. Further, it instructed the High Court to determine the validity of section 40(a)(iib) on merits.


READ MORE: Amravati land scam: Supreme Court stays high court gag order, but case remains with HC