(1.) THIS is an IT reference made under Section 256 (1) of theto this Court at the instance of assessee by the Tribunal to answer following questions of law said to arise out of the order passed by the Tribunal, dt. 31st Aug. , 1998, in ITA No. 65/ind/1994:

1. Whether, on the facts and circumstances of the case, the Tribunal erred in law in not holding the appellant entitled to deduction of funded interest amounting to Rs. 2,89,61,025 under Section 43b of the ( the)

2. Whether, on the facts and circumstances of the case, the Tribunal erred in law in not holding that by funding of interest whereby the outstanding interest got converted into principal amount of loan, the outstanding interest was actually paid in terms of Section 43b of the3. Whether, on the facts and circumstances of the case, the Tribunal erred in law in not holding that the outstanding interest liability having been funded on 25th Oct. , 1989, the actual payment thereof took place before 31st Dec, 1989, the due date for filing the return for asst. yr. 1989-90, entitling the appellant to claim deduction in respect of funded interest under Section 43b of the

4. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in not holding that the conversion of outstanding interest upto 31st March, 1989 into rupees term loan had taken place on 25th Oct. , 1989 even though the deed of agreement was executed on 16th July, 1990

(2.) HEARD Shri H. Y. Mehta and Smt. S. H. Mehta, learned Counsel for the applicant/assessee and Shri R. L. Jain, senior counsel with Ku. V. Mandlik, learned Counsel for the non-applicant/revenue.

(3.) AT the outset, we may mention that controversy involved in this reference is now narrowed down to large extent because during pendency of this reference, the Parliament amended Section 43b by Finance Act, 2006 retrospectively w. e. f. 1st April, 1989 and added Explns. 3c and 3d which read as under:

12. Amendment of Section 43b.- In Section 43b of the (a)after Expln. 3b, the following Explanation shall be inserted and shall be deemed to have been inserted w. e. f. the 1st day of April, 1989, namely: Explanation 3c - For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under Clause (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid. (b)after Expln. 3c as so inserted, the following Explanation shall be inserted and shall be deemed to have been inserted w. e. f. the 1st day of April, 1997, namely: Explanation 3d.- For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under Clause (e) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or advance shall not be deemed to have been actually paid.

(4.) IN view of Expln. 3c, the question referred to this Court stands answered in favour of Revenue and against the assessee. In other words, in the light of Expln. 3c appended to Section 43b w. e. f. 1st April, 1989, the view taken by the Tribunal on interpretation of unamended Section 43b has to be upheld as being in accord with the legislative intent brought on statute book in the form of Expln. 3c to Section 43b. Since the Expln. 3c is brought on statute book retrospectively w. e. f. 1st April, 1989 and hence, it will have its application to this case as well because the question referred to this Court arises out of asst. yr. 1989-90.

(5.) IT cannot be disputed that any legislative change, if brought on statute book while pendency of lis and have material bearing over the controversy involved has got to be taken into consideration for deciding the is or for answering the question as the case may be. It cannot be ignored by the Courts. The amendment made in Section 43b by the Parliament with retrospective effect fully applies to this case and hence, this Court cannot ignore its impact on this reference. Indeed, any statute if brought on statute book retrospectively has same effect like the statute when enacted prospectively.

(6.) IN substance, the question that fell for consideration and was being debated in this reference in the form of questions referred at the instance of assessee was whether assessee is entitled to claim the benefit of deduction of funded interest under Section 43b which has been converted into loan or borrowing by agreement between the lender and assessee. In other words, whether it can be said to be a case of actual payment of interest amount made by assessee within the meaning of Section 43b so as to entitle them to claim its deduction If the contention of assessee was that it tantamount to actual payment within the meaning of Section 43b then the contention of Revenue was to its contrary.

(7.) AS observed supra, the Expln. 3c has now in clear terms provided that such conversion of interest amount into loan shall not be deemed to be regarded as "actually paid" amount within the meaning of Section 43b. In view of clear legislative mandate removing this doubt and making the intention of legislature clear in relation to such transaction, it is not now necessary for this Court to interpret the unamended Section 43b in detail, nor it is necessary for this Court to take note of facts in detail as also the submissions urged in support of various contentions except to place reliance on Expln. 3c to Section 43b and answer the questions against the assessee and in favour of Revenue.

(8.) IN view of foregoing discussion and in the light of Expln. 3c appended to Section 43b, quoted supra, we answer the questions referred to this Court against the assessee and in favour of Revenue. No costs.