NON REPORTABLE IN 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 impugned judgment and order dated 11.03.2020 passed by High Court of Judicature at Madras in Writ Petition No. 6284 of 2020, by which High Court has not entertained said writ petition at Signature Not Verified this stage and consequently has dismissed said writ petition Digitally signed by MEENAKSHI KOHLI Date: 2020.11.25 16:40:03 IST Reason: 1 without deciding issue involved in writ petition on merits, original writ petitioner has preferred present appeal. 3. That appellant herein original writ petitioner filed aforesaid writ petition before High Court challenging validity of Section 40(a)(iib) of Income Tax Act, 1961. It was case on behalf of original writ petitioner that amount which is deductible in computing income chargeable in terms of Income Tax Act is not being allowed under garb of aforesaid provision. According to original writ petitioner, said provision is discriminatory and violative of Article 14 of 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 show cause notice was issued by assessing officer for Assessment Year 2017 18 stating that VAT expense levied on appellant is exclusive levy by State Government and therefore squarely covered by Section 40(a)(iib) of Income Tax Act and therefore VAT expenditure is not allowable as deduction in accordance with Section 40(a)(iib) of Income Tax Act, while computing income of appellant. That assessing 2 officer finalised assessment and passed assessment order for Assessment Year 2017 18 vide order dated 30.12.2019. 3.1 High Court vide judgment and order dated 26.02.2020 in Writ Petition No. 538 of 2020 set aside assessment order dated 30.12.2019 insofar as disallowance in terms of Section 40(a)(iib), on ground of violation of principles of natural justice. Thus, matter was pending before assessing officer. appellant thereafter filed present writ petition No. 6284 of 2020 before High Court challenging vires of Section 40(a)(iib) of Income Tax Act being ultra vires Articles 14, 19 and 265 of Constitution of India. By impugned judgment and order, as observed hereinabove, High Court has dismissed said writ petition without deciding validity of Section 40(a)(iib) of Income Tax Act by observing that issue of raising challenge to vires of provision at this stage need not be entertained as matter is still sub judice before Income Tax Authority, even though it is open to aggrieved party to question same at appropriate moment. 3.2 Feeling aggrieved and dissatisfied with impugned judgment and order passed by High Court in dismissing said writ petition, without deciding vires of Section 40(a)(iib) 3 of Income Tax Act on merits, original writ petitioner M/s Tamil Nadu State Marketing Corporation Limited has preferred present appeal. 4. Having heard Shri Rakesh Dwivedi, learned Senior Advocate appearing on behalf of appellant and Shri K.M. Natraj, learned Additional Solicitor General appearing on behalf of Union of India and others and considering impugned judgment and order passed by High Court by which High Court has dismissed said writ petition without deciding vires of Section 40(a)(iib) of Income Tax Act on merits, we are of firm opinion that impugned judgment and order passed by High Court is not sustainable at all. 5. When vires of Section 40(a)(iib) of Income Tax Act were challenged, which can be decided by High Court alone in exercise of powers under Article 226 of Constitution of India, High Court ought to have decided issue with regard to vires of Section 40(a)(iib) on merits, irrespective of fact whether matter was sub judice before Income Tax Authority. Vires of relevant provision goes to root of matter. High Court has observed that issue of raising challenge to vires of provision at this stage need not be 4 entertained, as matter is still sub judice before Income Tax Authority, even though it is open to aggrieved party to question same at appropriate moment. Once show cause notice was issued by assessing officer calling upon appellant assessee to show cause why VAT expenditure is not allowable as deduction in accordance with Section 40(a)(iib) of Income Tax Act, while computing income of appellant, it can be said that cause of action has arisen for appellant to challenge vires of Section 40(a)(iib) of Income Tax Act and appellant may not have to wait till assessment proceedings before Income Tax Authority are finalised. stage at which appellant approached High Court and challenged vires of Section 40(a)(iib) of Income Tax Act can be said to be appropriate moment. Therefore, High Court ought to have decided issue with respect to challenge to vires of Section 40(a)(iib) of Income Tax Act on merits. High Court has failed to exercise powers vested in it under Article 226 of Constitution of India by not deciding writ petition on merits and not deciding challenge to vires of Section 40(a)(iib) of Income Tax Act on merits. 5 6. In view of above and as High Court has not decided issue with respect to vires of Section 40(a)(iib) of Income Tax Act on merits, matter is required to be remanded to High Court to decide writ petition on merits and decide question with respect to challenge to vires of Section 40(a)(iib) of Income Tax Act on merits. 7. In view of above and for reasons stated above, present appeal succeeds. impugned judgment and order passed by High Court is hereby quashed and set aside and matter is remitted to High Court to decide writ petition on merits with respect to challenge to vires of Section 40(a)(iib) of 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 Income Tax Act and we have remanded matter on aforesaid ground alone. 8. 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] 6 Tamil Nadu State Marketing Corporation Ltd. v. Union of India and other