REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 3545/2009 Union of India & Ors. ... Appellant(s) VERSUS Exide Industries Limited & Anr. ... Respondent(s) JUDGMENT A.M. Khanwilkar, J. 1. In this appeal, constitutional validity of clause (f) of Section 43B of Income Tax Act, 1961 1 arises for our consideration as result of decision of High Court at Calcutta2 vide order dated 27.06.2007 in APO No. 301 of 2005, wherein it is held that said clause is arbitrary and violative of Article 14 of Constitution of India on various counts, as discussed hereinafter. 2. Signature Not Verified stated clause (f) was inserted in already existing Digitally signed by DEEPAK SINGH Section 43B vide Finance Act, 2001 with effect from 1.4.2002, in Date: 2020.04.24 15:21:50 IST Reason: 1 For short, 1961 Act 2 For short, High Court 2 order to provide for tax disincentive in cases of deductions claimed by assessee from income tax in lieu of liability accrued under leave encashment scheme but not actually discharged by employer. This clause made actual payment of liability to employees as condition precedent for extending benefit of deduction under 1961 Act. With application of clause (f), eligibility for deduction arises in previous year in which abovesaid payment is actually made and not in which provision was made in that regard, irrespective of system of accounting followed by assessee. Before we delve into further examination, we deem it apposite to reproduce amended Section 43B of 1961 Act as applicable to present case, which reads thus: 43 B. Certain deductions to be only on actual payment. Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of (a) any sum payable by assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force, or (b) any sum payable by assessee as employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees, or (c) any sum referred to in clause (ii) of sub section (1) of section 36, or (d) any sum payable by assessee as interest on any loan or borrowing from any public financial institution or State financial corporation or State industrial 3 investment corporation, in accordance with terms and conditions of agreement governing such loan or borrowing, or (e) any sum payable by assessee as interest on any term loan from scheduled bank in accordance with terms and conditions of agreement governing such loan, or (f) any sum payable by assessee as employer in lieu of any leave at credit of his employee, shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in section 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) or clause (e) or clause (f) which is actually paid by assessee on or before due date applicable in his case for furnishing return of income under sub section (1) of section 139 in respect of previous year in which liability to pay such sum was incurred as aforesaid and evidence of such payment is furnished by assessee along with such return: Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of cheque or draft or by any other mode on or before due date as defined in Explanation below clause (va) of sub section (1) of Section 36, and where such payment has been made otherwise than in cash, sum has been realised within fifteen days from due date. Explanation 1. For removal of doubts, it is hereby declared that where deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing income referred to in section 28 of previous year (being previous year relevant to assessment year commencing on 1st day of April, 1983, or any earlier assessment year) in which liability to pay such sum was incurred by assessee, assessee shall not be entitled to any deduction under this section in respect of such sum in computing income of previous year in which sum is actually paid by him. 4 Explanation 2. For purposes of clause (a), as in force at all material times, any sum payable means sum for which assessee incurred liability in previous year even though such sum might not have been payable within that year under relevant law. Explanation 3. For removal of doubts it is hereby declared that where deduction in respect of any sum referred to in clause (c) or clause (d) of this section is allowed in computing income referred to in section 28 of previous year (being previous year relevant to assessment year commencing on 1st day of April, 1988, or any earlier assessment year) in which liability to pay such sum was incurred by assessee, assessee shall not be entitled to any deduction under this section in respect of such sum in computing income of previous year in which sum is actually paid by him. Explanation 3A. For removal of doubts, it is hereby declared that where deduction in respect of any sum referred to in clause (e) of this section is allowed in computing income referred to in section 28 of previous year (being previous year relevant to assessment year commencing on 1st day of April, 1996, or any earlier assessment year) in which liability to pay such sum was incurred by assessee, assessee shall not be entitled to any deduction under this section in respect of such sum in computing income of previous year in which sum is actually paid by him. Explanation 3B. For removal of doubts, it is hereby declared that where deduction in respect of any sum referred to in clause (f) of this section is allowed in computing income, referred to in section 28, of previous year (being previous year relevant to assessment year commencing on 1st day of April, 2001, or any earlier assessment year) in which liability to pay such sum was incurred by assessee, assessee shall not be entitled to any deduction under this section in respect of such sum in computing income of previous year in which sum is actually paid by him. Explanation 4. For purposes of this section, (a) public financial institutions shall have meaning assigned to it in section 4A of Companies Act, 1956 (1 of 1956); 5 (aa) scheduled bank shall have meaning assigned to it in Explanation to clause (iii) of sub section (5) of section 11; (b) State financial corporation means financial corporation established under section 3 or section 3A or institution notified under section 46 of State Financial Corporations Act, 1951 (63 of 1951); (c) State industrial investment corporation means Government company within meaning of section 617 of Companies Act, 1956 (1 of 1956), engaged in business of providing long term finance for industrial projects and eligible for deduction under clause (viii) of sub section (1) of section 36. 3. respondents, being liable to pay income tax upon profits and gains of their business, found themselves aggrieved with inclusion of clause (f) in Section 43B and contended that Section 145 of 1961 Act offers them choice of method of accounting and accordingly, they computed their profits and gains of business in accordance with mercantile system. As per mercantile system, income and expenditure are determined on basis of accrual or provision and not on basis of actual receipt/payment. respondents further contended that Section 43B has been carved out as exception to afore stated general rule of accrual for determination of liability, as it subjects deductions in lieu of certain kinds of liabilities to actual payment. According to respondents, exception under Section 43B comes into operation only in 6 limited set of cases covering statutory liabilities like tax, duty, cess etc. and other liabilities created for welfare of employees and therefore, liability under leave encashment scheme being trading liability cannot be subjected to exception under Section 43B of 1961 Act. 4. It is case of respondents that judgment of this Court in Bharat Earth Movers vs. Commissioner of Income Tax, Karnataka3 holds field of law as far as nature of liability of leave encashment is concerned. said judgment, while dealing with principles of accounting under Section 37, conclusively holds that if business liability has arisen definitely, deduction may be claimed against same in previous year in which such liability has accrued, even if it has not been finally discharged. Court further held that liability in lieu of leave encashment scheme is present and definite liability and not contingent liability. As regards nature of leave encashment liability, respondents urge that this liability is carved in nature of beneficial provision and leave can only be encashed by employees in accordance with terms and conditions of employment. It is further 3 (2000) 6 SCC 645 7 contended that since due date for encashment of leave does not arise in same accounting year in which provision is made, there is no question of subjecting deductions against such liability upon actual payment. 5. Having stated that all clauses under Section 43B, barring clause (f), cover liabilities of statutory nature and those driven by concerns of employees welfare, respondents would urge that liability covered by clause (f) is of completely distinct nature and without specifying clear objects and reasons for inclusion of this liability under Section 43B, it cannot be slipped into main section. Further, nature of this liability is neither in sync with objects and reasons of original section nor with those of other clauses enacted from time to time in different assessment years. 6. respondents also urge that enactment of clause (f) was driven by sole consideration of subjugating legal position expounded by this Court in Bharat Earth Movers (supra) without removing basis thereof. Such enactment would fall foul of scheme of Constitution. It would be 8 inroad into sphere reserved exclusively for judiciary and thereby violate essential principles of separation of powers. 7. validity of clause (f) faced judicial scrutiny first before single Judge of High Court. clause passed constitutional muster of Court, which had observed thus: Thus position of law existing at date of insertion of cl. (f) did not oblige employer to actually pay leave encashment benefit either to his employee or to any fund or to any third party, though liability was accrued one. If employer, of his own accord, maintained fund, he maintained it for his own convenience, and not because of any legal obligation. But in view of mercantile system of accounting followed he was justified in showing accrued liability and claiming deduction. There was nothing to prevent him from enjoying benefit of deduction and at same time from controlling and using amount for his own benefit, till he was compelled to give benefit of leave in question to employee concerned. It is evident that clause was inserted to curb abuse of existing law and protect interests of employee. Addressing argument that insertion of said clause was solely intended to defeat judgment of this Court in Bharat Earth Movers (supra), learned single Judge stated thus: It is true that action neutralized effect of apex court decision in Bharat Earth Movers case, but I do not agree that it has amounted to encroachment upon powers of judiciary. Once existing legal position was explained by their Lordships, I think, it was quite natural for legislature to examine situation and legislate according to need. binding decision of highest court was not nullified in process; only position of law was changed prospectively. 9 8. decision of learned single Judge was appealed and came to be reversed by Division Bench of High Court. Division Bench, while holding clause (f) as unconstitutional, observed thus: ... While inserting sub section (f) no special reasons were disclosed. His Lordship held that such disclosure was not mandatory. We do not have any reason for disagreement on such issue provided subject amendment could be termed as in furtherance to widen scope of original section on identical objects and reasons as disclosed at time of enacting original provision. As we find, original section was incorporated to plug in deductions claimed by not discharging statutory liabilities. We also find that provision was subsequently made to restrict deductions on account of unpaid loan to financial institutions. Leave encashment is neither statutory liability nor contingent liability. It was provision to be made for entitlement of employee achieved in particular financial year. employee earns certain amount by not taking leave which he or she is otherwise entitled to in that particular year. Hence, employer is obliged to make appropriate provision for said amount. Once employee retires he or she has to be paid such sum on cumulative basis which employee earns throughout his or her service career [sic] unless he or she avails leave earned [sic] by him or her. That, in our view, could not have any nexus with original enactment. employer is entitled to deduction for expenditure he incurs for running his business which includes payment of salary and other perquisites to his employees. Hence, it is trading liability. As such he is otherwise entitled to have deduction of such amount by showing same as provisional expenditure in his accounts. legislature by way of amendment restricts such deduction in case of leave encashment unless it is actually paid in that particular financial year. legislature is free to do so after they disclose reasons for that and such reasons are not inconsistent with main object of enactment. We are deprived of such reasons for our perusal ... 10 (emphasis supplied) It also held that subject matter of clause (f) was inconsistent with original Section 43B and observed as follows: We also do not find such enactment consistent with original provision being Section 43B which was originally inserted to plug in evasion of statutory liability. Apex Court considered situation in case of Bharat Earth Movers (Supra) when sub section (f) was not there. Apex Court, considering all aspect as disclosed by us hereinbefore, rejected contention of Revenue and granted appropriate deduction to concerned assessee. legislature to get rid of decision of Apex Court brought out amendment which would otherwise nullify judge made law. Apex Court decisions are judge made law and are applicable to all under Constitution It is noteworthy that High Court did not question existence of power of legislature to enact subject clause, as can be discerned from following observations: We, not for single moment, observe that legislature was not entitled to bring such amendment. They were within their power to bring such amendment. However, they must disclose reason which would be consistent with provisions of Constitution and laws of land and not for sole object of nullifying Apex Court decision. 9. We shall now examine clause (f) on touchstone of Constitution, to be followed by analysis of impugned judgment. 11 10. We have heard Ms. Chinmayee Chandra, learned counsel for appellants and Dr. Aman Hingorani, learned counsel for respondents. Constitutional validity of clause (f) 11. approach of Court in testing constitutional validity of provision is well settled and fundamental concern of Court is to inspect existence of enacting power and once such power is found to be present, next examination is to ascertain whether enacted provision impinges upon any right enshrined in Part III of Constitution. Broadly speaking, process of examining validity of duly enacted provision, as envisaged under Article 13 of Constitution, is premised on these two steps. No doubt, second test of infringement of Part III is deeper test undertaken in light of settled constitutional principles. In State of Madhya Pradesh vs. Rakesh Kohli & Anr.4, this Court observed thus: 17. This Court has repeatedly stated that legislative enactment can be struck down by Court only on two grounds, namely (i) that appropriate legislature does not have competence to make law, and (ii) that it does not take away or abridge any of fundamental rights enumerated in Part III of 4 (2012) 6 SCC 312 12 Constitution or any other constitutional provisions . (emphasis supplied) above exposition has been quoted by this Court with approval in catena of other cases including Bhanumati & Ors. vs. State of Uttar Pradesh & Ors.5, State of Andhra Pradesh & Ors. vs. Mcdowell & Co. & Ors. 6 and Kuldip Nayar & Ors. vs. Union of India & Ors.7, to state few. 12. In furtherance of two fold approach stated above, Court, in Rakesh Kohli (supra) also called for prudent approach to following principles while examining validity of statutes on taxability: 32. While dealing with constitutional validity of taxation law enacted by Parliament or State Legislature, court must have regard to following principles: (i) there is always presumption in favour of constitutionality of law made by Parliament or State Legislature, (ii) no enactment can be struck down by just saying that it is arbitrary or unreasonable or irrational but some constitutional infirmity has to be found, (iii) court is not concerned with wisdom or unwisdom, justice or injustice of law as Parliament and State Legislatures are supposed to be alive to needs of people whom they represent and they are best judge of 5 (2010) 12 SCC 1 6 (1996) 3 SCC 709 7 (2006) 7 SCC 1 13 community by whose suffrage they come into existence, (iv) hardship is not relevant in pronouncing on constitutional validity of fiscal statute or economic law, and (v) in field of taxation, legislature enjoys greater latitude for classification .. (emphasis supplied) 13. In present case, legislative power of Parliament to enact clause (f) in light of Article 245 is not doubted at all. That brings us to next step of examination i.e. whether said clause contravenes any right enshrined in Part III of Constitution, either in its form, substance or effect. It is no more res integra that examination of Court begins with presumption in favour of constitutionality. This presumption is not just borne out of judicial discipline and prudence, but also out of basic scheme of Constitution wherein power to legislate is exclusive domain of Legislature/Parliament. This power is clothed with power to decide when to legislate, what to legislate and how much to legislate. Thus, to decide timing, content and extent of legislation is function primarily entrusted to legislature and in exercise of judicial review, Court starts with basic presumption in favour of proper exercise of such power. 14 14. Generally, heads of income to be subjected to taxability under 1961 Act are enumerated in Section 14 which starts with saving clause and expressly predicates that profits and gains of business or profession shall be chargeable to income tax. This general declaration of chargeability is followed by Section 145, which prescribes method of accounting and reads thus: Method of accounting 145. (1) Income chargeable under head "Profits and gains of business or profession" or "Income from other sources" shall, subject to provisions of sub section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by assessee. (2) Central Government may notify in Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where Assessing Officer is not satisfied about correctness or completeness of accounts of assessee, or where method of accounting provided in sub section (1) or accounting standards as notified under sub section (2), have not been regularly followed by assessee, Assessing Officer may make assessment in manner provided in section 144. (emphasis supplied) 15. Sub section (1) of Section 145 explicitly provides that method of accounting is prerogative falling in domain of assessee and assessee is well within its rights to follow mercantile system of accounting. Be it noted that as per mercantile system of accounting, assessment of income is 15 made on basis of accrual of liability and not on basis of actual expenditure in lieu thereof. expression either cash or mercantile system of accounting offers guidance on nature of this accounting system. Be that as it may, it is noteworthy that right flowing from sub section (1) is subject to provisions of sub section (2) , which unambiguously empowers Central Government to prescribe income computation and disclosure standards for accounting. Concededly, sub section (2) is enabling provision. It signifies that general principle of autonomy of assessee in adopting system of accounting, is controlled by regulation notified by Central Government and must be adhered to by class of assessee governed thereunder. 16. Section 43B, however, is enacted to provide for deductions to be availed by assessee in lieu of liabilities accruing in previous year without making actual payment to discharge same. It is not provision to place any embargo upon autonomy of assessee in adopting particular method of accounting, nor deprives assessee of any lawful deduction. 16 Instead, it merely operates as additional condition for availment of deduction qua specified head. 17. Section 43B bears heading certain deductions to be only on actual payment . It opens with non obstante clause. As per settled principles of interpretation, non obstante clause assumes overriding character against any other provision of general application. It declares that within sphere allotted to it by Parliament, it shall not be controlled or overridden by any other provision unless specifically provided for. Out of allowable deductions, legislature consciously earmarked certain deductions from time to time and included them in ambit of Section 43B so as to subject such deductions to conditionality of actual payment. Such conditionality may have inevitable effect of being different from theme of mercantile system of accounting on accrual of liability basis qua specific head of deduction covered therein and not to other heads. But that is matter for legislature and its wisdom in doing so. 18. existence of Section 43B traces back to 1983 when legislature conceptualised idea of such provision in 17 1961 Act. Initially, provision included deductions in respect of sum payable by assessee by way of tax or duty or any sum payable by employer by way of contribution to any provident fund or superannuation fund. It is noteworthy that legislature explained inclusion of these deductions by citing certain practices of evasion of statutory liabilities and other liabilities for welfare of employees. scope and effect of newly inserted provision was explained in paragraph 60 of Memorandum explaining provisions of Finance Bill, 1983 as under: 60. To curb this practice, it is proposed to provide that deduction for any sum payable by assessee by way of tax or duty under any law for time being in force (irrespective of whether such tax or duty is disputed or not) or any sum payable by assessee as employer by way of contribution to any provident fund, or superannuation fund or gratuity fund or any other fund for welfare of employees shall be allowed only in computing income of that previous year in which such sum is actually paid by him. With passage of time, legislature inserted more deductions to Section 43B including cess, bonus or commission payable by employer, interest on loans payable to financial institutions, scheduled banks etc., payment in lieu of leave encashment by employer and repayment of dues to railways. Thus understood, there is no oneness or uniformity in 18 nature of deductions included in Section 43B. It holds no merit to urge that this section only provides for deductions concerning statutory liabilities. Section 43B is mix bag and new and dissimilar entries have been inserted therein from time to time to cater to different fiscal scenarios, which are best determined by government of day. It is not unusual or abnormal for legislature to create new liability, exempt existing liability, create deduction or subject existing deduction to override regulations or conditions. 19. leave encashment scheme envisages payment of certain amount to employees in lieu of their unused paid leaves in year. nature of this payment is beneficial and pro employee. However, it is not in form of bounty and forms part of conditions of service of employee. employer seeking deduction from tax liability in advance, in name of discharging liability of leave encashment, without actually extending such payment to employee as and when time for payment arises may lead to abhorrent consequences. When time for such payment arises upon retirement (or otherwise) of employee, employer may simply refuse to pay. Consequently, innocent employee will be entangled in 19 litigation in evening of his/her life for claiming hard earned right without any fault on his part. Concomitantly, it would entail in double benefit to employer advance deduction from tax liability without any burden of actual payment and refusal to pay as and when occasion arises. It is this mischief clause (f) seeks to subjugate. 20. argument advanced by respondents that nature of leave encashment liability is such that it is impossible to make actual payment in same year, adds no weight to claim of invalidity of clause. We say so because thrust of provision is not to control timing of payment, rather, it is strictly targeted to control timing of claiming deduction in name of such liability. mischief sought to be remedied by this clause, as discussed above, clarifies position. 21. Be it noted that interpretation of statute cannot be unrelated to nature of statute. In line with other clauses under Section 43B, clause (f) was enacted to remedy particular mischief and concerns of public good, employees welfare and prevention of fraud upon revenue is writ large in said clause. In our view, such statutes are to be viewed through prism of 20 mischief they seek to suppress, that is, Heydon s case8 principle. In CRAWFORD, Statutory Construction9, it has been gainfully delineated that enactment designed to prevent fraud upon revenue is more properly statute against fraud rather than taxing statute, and hence should receive liberal construction in government s favour. 22. In State of Tamil Nadu vs. MK Kandaswamy10, this Court expounded on interpretation of remedial statutes thus: 26. It may be remembered that Section 7 is at once charging as well as remedial provision. Its main object is to plug leakage and prevent evasion of tax. In inter preting such provision, construction which would defeat its purpose and, in effect, obliterate it from statute book, should be eschewed. If more than one construction is possible, that which preserves its worka bility, and efficacy is to be preferred to one which would render it otiose or sterile. view taken by High Court is repugnant to this cardinal canon of inter pretation. (emphasis supplied) 23. Having ruled upon constitutional validity of clause (f), we shall now examine grounds on which High Court ruled against its validity. We may note that respondents challenge to constitutional validity of said clause has primarily been accepted on three grounds: 8 (1584) 3 Co Rep 7 9 CRAWFORD, Statutory Construction p. 508 10 (1975) 4 SCC 745 21 (i) Non disclosure of objects and reasons behind its enactment and insertion into section 43B; (ii) Inconsistency of clause (f) with other clauses of Section 43B and absence of nexus of clause with original enactment; (iii) Enactment has been triggered solely to nullify dicta of this Court in Bharat Earth Movers (supra). Non disclosure of objects and reasons 24. objects and reasons behind enactment of statute signify intention of legislature behind enactment of statutory provision. Indubitably, purpose or underlying aim of law can be discerned when interpreted in light of stated objects and reasons. Inasmuch as, settled canon of interpretation is to deduce true intent of legislature, as will of people is constitutionally bestowed in legislature. It is true that express objects and reasons would be useful in understanding import of enacted provision as and when Court is called upon to interpret same. This Court, in State of Tamil Nadu & Ors. vs. K. Shyam Sunder 22 and Ors.11, laid emphasis upon usefulness of objects and reasons in process of interpretation and observed thus: 66. Statement of Objects and Reasons appended to Bill is not admissible as aid to construction of Act to be passed, but it can be used for limited pur pose of ascertaining conditions which prevailed at that time which necessitated making of law, and extent and urgency of evil, which it sought to rem edy. Statement of Objects and Reasons may be rele vant to find out what is objective of any given statute passed by legislature. It may provide for reasons which induced legislature to enact statute. For purpose of deciphering object and purport of Act, court can look to Statement of Objects and Reasons thereof. (emphasis supplied) (Vide Kavalappara Kottarathil Kochuni v. States of Madras and Kerala [AIR 1960 SC 1080] and Tata Power Co. Ltd. v. Reliance En ergy Ltd. [(2009) 16 SCC 659], SCC p. 686, para 79) 67. In A. Manjula Bhashini (2009) 8 SCC 431 this Court held as under: (SCC p. 459, para 40) 40. proposition which can be culled out from aforementioned judgments is that although Statement of Objects and Reasons contained in Bill leading to enactment of particular Act cannot be made sole basis for construing provisions contained therein, same can be referred to for un derstanding background, antecedent state of affairs and mischief sought to be remedied by statute. Statement of Objects and Reasons can also be looked into as external aid for appreciating true intent of legislature and/or object sought to be achieved by enactment of particular Act or for judging reasonableness of classification made by such Act. (emphasis added) 68. Thus, in view of above, Statement of Objects and Reasons of any enactment spells out core reason for which enactment is brought and it can be looked into for appreciating true intent of legislature or to find out object sought to be achieved by enactment of particular Act or even for judging reasonableness of classifications made by such Act. 11 (2011) 8 SCC 737 23 25. Whereas, when there is no ambiguity about legislative competence and of import of enactment, no rule, authority or convention to support view that publication of objects and reasons is quintessence for sustenance of duly enacted provision has been brought to our notice. In fact, objects and reasons feature in list of external aids to interpretation and can be looked into for limited purpose in process of interpretation. Regard may be had to State of West Bengal vs. Union of India12, wherein Court expounded legal position thus: 13. It is however well settled that Statement of Objects and Reasons accompanying bill, when introduced in Parliament, cannot be used to determine true meaning and effect of substantive provisions of statute. They cannot be used except for limited purpose of understanding background and antecedent state of affairs leading up to legislation. But we cannot use this statement as aid to construction of enactment or to show that legislature did not intend to acquire proprietary rights vested in State or in any way to affect State Governments' rights as owners of minerals. statute, as passed by Parliament, is expression of collective intention of legislature as whole, and any statement made by individual, albeit Minister, of intention and objects of Act cannot be used to cut down generality of words used in statute. 12 AIR 1963 SC 1241 24 Court was more categorical in restating position in Sanjeev Coke Manufacturing Company vs. Bharat Coking Coal Limited and Anr.13, where it noted: 25. No one may speak for Parliament and Parliament is never before court. After Parliament has said what it intends to say, only court may say what Parliament meant to say. None else. Once statute leaves Parliament House, Court is only authentic voice which may echo (interpret) Parliament. This court will do with reference to language of statute and other permissible aids .. express objects and reasons, therefore, serves limited purpose of assisting Court in examining validity of provision, especially when Court is sitting over interpretation of ambiguous provision. 26. Indubitably, when Court examines validity of provision, its primary concern is literal text of provision. It is so because legislature speaks through text and as long as it is not speaking in equivocal manner, there is limited space for Court to venture beyond text. This constitutes first test of interpretation, often termed as literal interpretation. If text of provision is unambiguous, legislative intent gets coalesced and is epitomised therefrom. 13 (1983) 1 SCC 147 25 27. In other words, when textual element of provision reeks of ambiguity and is susceptible to multiple meanings, Court enters into proactive examination to find out real meaning of provision. This proactive examination by Court offers multiple avenues and methods to achieve ultimate purpose of interpretation. Adverting to express objects and reasons may be useful for limited purpose to understand surrounding circumstances at time of enactment. Court is not bound by such external elements, as discussed above. Therefore, presence or absence of objects and reasons has no impact upon constitutional validity of provision as long as literal features of provision enable Court to comprehend its true meaning with sufficient clarity. 28. Division Bench of High Court, in present case, plainly glossed over fundamental presumption of constitutionality in favour of clause (f) and based its judgment upon absence of objects and reasons as striking at root of its validity. In our view, this approach is flawed for at least three reasons. First, it steers clear from necessary attempt to discover any constitutional infirmities in enacted provision. 26 Second, it makes no attempt to dissect text of provision so as to display need to go beyond text. Third, it goes into background of enactment and ventures into sphere which is out of bounds for Court as long as need for interpretation borne out of any ambiguity arises. 29. process of testing validity is not to sneak into prudence or proprieties of legislature in enacting impugned provision. Nor, is it to examine culpable conduct of legislature as appellate authority over legislature. only examination of Court is restricted to finding of constitutional infirmity in provision, as is placed before Court. Thus, non disclosure of objects and reasons per se would not impinge upon constitutionality of provision unless provision is ambiguous and possible interpretation violate Part III of Constitution. In absence of any finding of any constitutional infirmity in provision, Court is not empowered to invalidate provision. 30. To hold provision as violative of Constitution on account of failure of legislature to state objects and reasons would amount to indirect scrutiny of motives of 27 legislature behind enactment. Such course of action, in our view, is unwarranted. raison d etre behind this self imposed restriction is because of fundamental reason that different organs of State do not scrutinise each other s wisdom in exercise of their duties. In other words, time tested principle of checks and balances does not empower Court to question motives or wisdom of legislature, except in circumstances when same is demonstrated from enacted law. following instructive passage from United States vs. Butler et al.14 offers guidance on above proposition, wherein Justice Stone observed thus: power of courts to declare statute unconstitutional is subject to two guiding principles of decision which ought never to be absent from judicial consciousness. One is that courts are concerned only with power to enact statutes, not with their wisdom. other is that while unconstitutional exercise of power by executive is subject to judicial restraint, only check upon our own exercise of power by executive is subject to judicial restraint. For removal of unwise laws from statute books appeal lies not to courts but to ballot and to processes of democratic government... In Indian constitutional jurisprudence, above principle has been reckoned by this Court in its early years in 1954 in 14 297 US 1 (1936) 28 K.C. Gajapati Narayan Deo & Ors. vs. State of Orissa15, wherein Court observed thus: If Legislature is competent to pass particular law, motives which impelled it to act are really irrelevant. On other hand, if legislature lacks competency, question of motive does not arise at all. Whether statute is constitutional or not is thus always question of power.... If Constitution of State distributes legislative powers amongst different bodies, which have to act within their respective spheres marked out by specific legislature entries, or if there are limitations on legislative authority in shape of fundamental rights, questions do arise as to whether legislature in particular case has or has not, in respect to subject matter of statute or in method of enacting it, transgressed limits of its constitutional powers . We have noted that High Court has characterised clause (f) as arbitrary and unconscionable while imputing it with unconstitutionality. It is pertinent to note that High Court reaches this conclusion without undertaking actual examination of clause (f). Instead, declaration is preceded by enquiry into circumstances leading upto enactment. As discussed above, constitutional power of judicial review contemplates review of provision, as it stands, and not review of circumstances in which enactment was made. Be it noted that merely holding enacted provision as unconscionable or arbitrary is not sufficient to hold it as 15 (1954) SCR 1 29 unconstitutional unless such infirmities are sufficiently shown to exist in form, substance or functioning of impugned provision. No such infirmity has been exhibited and adverted to in impugned judgment. Inconsistency of clause (f) and absence of nexus with Section 43B 31. High Court has supported its finding of invalidity by recording two observations vis vis previously existing (unamended) clauses of Section 43B first, that clause (f) is inconsistent with other clauses and nature of deduction targeted in clause (f) is distinct from other deductions. Second, that clause (f) has no nexus with objects and reasons behind enactment of original Section 43B and therefore, objects and reasons attributed to Section 43B cannot be used to deduce object and purpose of clause (f). 32. At outset, we observe that both grounds are ill founded. In basic scheme of Section 43B, there is no direct or indirect limitation upon power of legislature to include only particular type of deductions in ambit of Section 43B. To say that Section 43B is restricted to deductions of statutory nature 30 would be nothing short of reading provision in purely imaginative manner. As already discussed above, from 1983 onwards, Section 43B had taken within its fold diverse nature of deductions, ranging from tax, duty to bonus, commission, railway fee, interest on loans and general provisions for welfare of employees. external examination of this journey of Section 43B reveals that legislature never restricted it to particular category of deduction and that intent cannot be read into main Section by Court, while sitting in judicial review. Concededly, it is provision to attach conditionality on deductions otherwise allowable under Act in respect of specified heads, in that previous year in which sum is actually paid irrespective of method of accounting. 33. Further, it be noted that broad objective of enacting Section 43B concerning specified deductions referred to therein was to protect larger public interest primarily of revenue including welfare of employees. Clause (f) fits into that scheme and shares sufficient nexus with broad objective, as already discussed hitherto. 31 34. Before stepping into next ground, we are inclined to observe that approach of constitutional courts ought to be different while dealing with fiscal statutes. It is trite that legislature is best forum to weigh different problems in fiscal domain and form policies to address same including to create new liability, exempt existing liability, create deduction or subject existing deduction to new regulatory measures. In very nature of taxing statutes, legislature holds power to frame laws to plug in specific leakages. Such laws are always pin pointed in nature and are only meant to target specific avenue of taxability depending upon experiences of tax evasion and tax avoidance at ground level. general principles of exclusion and inclusion do not apply to taxing statutes with same vigour unless law reeks of constitutional infirmities. No doubt, fiscal statutes must comply with tenets of Article 14. However, larger discretion is given to legislature in taxing statutes than in other spheres. In Anant Mills Co. Ltd. vs. State of Gujarat & Ors. 16, this Court noted thus: 25. ...But, in application of principles, courts, in view of inherent complexity of fiscal adjustment of diverse elements, permit larger discretion to 16 (1975) 2 SCC 175 32 Legislature in matter of classification so long as it adheres to fundamental principles underlying said doctrine. power of Legislature to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reasonable ways... Viewed thus, reason weighed with Division Bench of High Court in impugned judgment is untenable. Defeating dictum in Bharat Earth Movers case 35. We shall now examine clause (f) on ground that it defeats judgment of this Court in Bharat Earth Movers (supra). We have carefully analysed decision in Bharat Earth Movers (supra) and note that Court was sitting in appeal over nature of liability under leave encashment scheme and held such liability to be present liability. Resultantly, it became deductible from profit and loss account of assessee in same accounting year in which provision against same is made. Court rejected that leave encashment liability is contingent one and observed thus: 7. Applying abovesaid settled principles to facts of case at hand we are satisfied that provision made by appellant Company for meeting liability incurred by it under leave encashment scheme proportionate with entitlement earned by employees of Company, inclusive of officers and staff, subject to ceiling on accumulation as applicable on relevant date, is entitled to deduction out of gross receipts for accounting year during which 33 provision is made for liability. liability is not contingent liability. High Court was not right in taking view to contrary. 36. Before judgment in Bharat Earth Movers (supra), various tribunals and High Courts across country were treating liability in lieu of leave encashment as contingent liability. This did not go down well with assessees following mercantile accounting system, as they were not able to avail deductions upon mere creation of provision against such liability without making actual payment. challenge to this legal position reached before this Court in Bharat Earth Movers (supra), wherein Court reversed position. 37. It is no doubt true that legislature cannot sit over judgment of this Court or so to speak overrule it. There cannot be any declaration of invalidating judgment of Court without altering legal basis of judgment as judgment is delivered with strict regard to enactment as applicable at relevant time. However, once enactment itself stands corrected, basic cause of adjudication stands altered and necessary effect follows same. legislative body is not supposed to be in possession of heavenly wisdom so as to contemplate all possible exigencies of their enactment. As and 34 when legislature decides to solve problem, it has multiple solutions on table. At this stage, Parliament exercises its legislative wisdom to shortlist most desirable solution and enacts law to that effect. It is in nature of trial and error exercise and we must note that law making body, particularly in statutes of fiscal nature, is duly empowered to undertake such exercise as long as concern of legislative competence does not come into doubt. Upon law coming into force, it becomes operative in public domain and opens itself to any review under Part III as and when it is found to be plagued with infirmities. Upon being invalidated by Court, legislature is free to diagnose such law and alter invalid elements thereof. In doing so, legislature is not declaring opinion of Court to be invalid. 38. In Welfare Association. A.R.P., Maharashtra and Anr. vs. Ranjit P. Gohil and Ors.17, this Court relied upon Indian Aluminium Co. and Ors. vs. State of Kerala and Ors. 18 and upon elaborate analysis, laid down certain principles to preserve delicate balance of separation of powers and observed thus: 17 (2003) 9 SCC 358 18 (1996) 7 SCC 637 35 47. ...(v) in exercising legislative power, legislature by mere declaration, without anything more, cannot directly overrule, revise or override judicial decision. It can render judicial decision ineffective by enacting valid law on topic within its legislative field fundamentally altering or changing its character retrospectively. changed or altered conditions are such that previous decision would not have been rendered by court, if those conditions had existed at time of declaring law as invalid . It is competent for legislature to enact law with retrospective effect; (vi) consistent thread that runs through all decisions of this Court is that legislature cannot directly overrule decision or make direction as not binding on it but has power to make decision ineffective by removing base on which decision was rendered, consistent with law of Constitution and legislature must have competence to do same. Court then relied upon State of T.N. vs. Arooran Sugars Ltd.19 to reaffirm point and noted thus: 48. In State of Tamil Nadu v. Arooran Sugars Ltd., Constitution Bench made exhaustive review of all available decisions on point and summed up law by holding: It is open to legislature to remove defect pointed out by court or to amend definition or any other provision of Act in question retrospectively. In this process it cannot be said that there has been encroachment by legislature over power of judiciary. court's directive must always bind unless conditions on which it is based are so fundamentally altered that under altered circumstances such decisions could not have been given. This will include removal of defect in statute pointed out in judgment in question, as well as alteration or substitution of provisions of enactment on which such judgment is based, with retrospective effect. 19 (1997) 1 SCC 326 36 In Indian Aluminium Co. (supra), Court relied upon set of authorities and extended its approval to above stated position of law thus: 41. Constitution Bench of this Court had held that distinction between legislative act and judicial act is well known. adjudication of rights of parties is judicial function. legislature has to lay down law prescribing norms or conduct which will govern parties and transactions to require court to give effect to that law. Validating legislation which removes norms of invalidity of action or providing remedy is not encroachment on judicial power. Statutory rule made under proviso to Article 309 was upheld. legislature cannot by bare declaration without anything more, directly overrule, reverse or override judicial decision at any time in exercise of plenary power conferred on legislature by Articles 245 and 246 of Constitution. It can render judicial decision ineffective by enacting valid law on topic within its legislative field, fundamentally altering or changing with retrospective, curative or nullifying effect, conditions on which such decision is based. In Hari Singh and Ors. v. Military Estate Officer, (1973) 1 SCR 515, prior to 1958 two alternative modes of eviction under Public Premises Act were available. When eviction was sought of unauthorised occupant by summary procedure constitutionality thereof was challenged and upheld. Act was subsequently amended in 1958 with retrospective operation from September 16, 1958. Thereunder only one procedure for eviction was available. It was contended to be legislative encroachment of judicial power. Bench of three Judges held that legislature possessed competence over subject matter and Validation Act could remove defect which court had found in previous case. It was not legislative encroachment of judicial power but one of removing defect which court had pointed out with deeming date. (emphasis supplied) 37 39. Reverting to true effect of reported judgment under consideration, it was rendered in light of general dispensation of autonomy of assessee to follow cash or mercantile system of accounting prevailing at relevant time, in absence of express statutory provision to do so differently. It is authority on nature of liability of leave encashment in terms of earlier dispensation. In absence of any such provision, sole operative provision was Section 145(1) of 1961 Act that allowed complete autonomy to assessee to follow mercantile system. Now limited change has been brought about by insertion of clause (f) in Section 43B and nothing more. It applies prospectively. Merely because liability has been held to be present liability qualifying for instant deduction in terms of applicable provisions at relevant time does not ipso facto signify that deduction against such liability cannot be regulated by law made by Parliament prospectively. In matter of statutory deductions, it is open to legislature to withdraw same prospectively. In other words, once Finance Act, 2001 was duly passed by Parliament inserting clause (f) in Section 43B with prospective effect, deduction against liability of leave encashment stood regulated in manner so 38 prescribed. Be it noted that amendment does not reverse nature of liability nor has it taken away deduction as such. liability of leave encashment continues to be present liability as per mercantile system of accounting. Further, insertion of clause (f) has not extinguished autonomy of assessee to follow mercantile system. It merely defers benefit of deduction to be availed by assessee for purpose of computing his taxable income and links it to date of actual payment thereof to employee concerned. Thus, only effect of insertion of clause (f) is to regulate stated deduction by putting it in special provision. 40. Notably, this regulatory measure is in sync with other deductions specified in Section 43B, which are also present and accrued liabilities. To wit, liability in lieu of tax, duty, cess, bonus, commission etc. also arise in present as per mercantile system, but assessees used to defer payment thereof despite claiming deductions thereagainst under guise of mercantile system of accounting. Resultantly, irrespective of category of liability, such deductions were regulated by law under aegis of Section 43B, keeping in mind peculiar exigencies of fiscal affairs and underlying concerns of public revenue. 39 priori, merely because certain liability has been declared to be present liability by Court as per prevailing enactment, it does not follow that legislature is denuded of its power to correct mischief with prospective effect, including to create new liability, exempt existing liability, create deduction or subject existing deduction to new regulatory measures. Strictly speaking, Court cannot venture into hypothetical spheres while adjudging constitutionality of duly enacted provision and unfounded limitations cannot be read into process of judicial review. priori, plea that clause (f) has been enacted with sole purpose to defeat judgment of this Court is misconceived. 41. position of law discussed above leaves no manner of doubt as regards legitimacy of enacting clause (f). respondents have neither made case of non existence of competence nor demonstrated any constitutional infirmity in clause (f). 42. In view of clear legal position explicated above, this appeal deserves to be allowed. Accordingly, impugned judgment of Division Bench of High Court is reversed and 40 clause (f) in Section 43B of 1961 Act is held to be constitutionally valid and operative for all purposes. No order as to costs. Pending interlocutory applications, if any, shall stand disposed of. ..................................J. (A.M. Khanwilkar) ..................................J. (Hemant Gupta) ..................................J. (Dinesh Maheshwari) New Delhi; April 24, 2020. Union of India & Ors. v. Exide Industries Limited & Anr