2012 (7) TMI 190 - HC - Income Tax

Constitutional validity of insertion of conditions in the third and the forth provisos to Section 80 HHC(3) by amendment of Taxation Laws (Second Amendment) Act, 2005 with retrospective effect - petitioner contended such amendment to be violative of Article 14 of the Constitution of India as it is arbitrary and unreasonable on ground that two assessees of similar description having export turnover of more than Rs.10 Crore are discriminated inasmuch as the assessees whose assessments have become final is not required to comply with the two conditions and would avail deduction u/s. 80 HHC as against the assessees whose assessments are pending and who would be required to comply with the two conditions - Held that - In the matter of completion of assessment, the assessees have little role to pay. After the assessees have submitted their returns within the time fixed by law, if for any reason the respondent delays in making the assessment, taking advantage of their own delay, the Revenue cannot deprive a class of the assessees of the benefit whereas other assessees of the same class whose assessment have already been completed would get the benefit. Therefore, discrimination based on two classes, first, whose assessments have become final and secondly, whose assessment are pending, definitely violates Article 14 of the Constitution of India as there is no rationale nexus with the object of the amendment, and, therefore, such classification fails the test of Article 14 of the Constitution, being a case of palpable arbitrariness . Further, Revenue has failed to discharge that burden by pointing out the reason for making classification based on the above two aspects which have no reasonable connection with the object of amendment. Legislature is not bound by the doctrine of promissory estoppel and thus proposed amendment cannot be struck down on the ground that the same is violative of principles of promissory estoppel although individually an assessee can take the plea of promissory estoppel if the amended provision adversely affects such an assessee. Substantive amendment cannot be made with retrospective operation - Held that - Present amendment has been made at a point of time when the application of section 80HHC has already been exhausted and the same was not even in the statute book. In such situation, it is not permissible to take away the benefit already granted through a concluded scheme by introducing fresh amendment by virtue of which an expired scheme has been revived with benefit conferred upon only a limited section and snatching the same from some other sections. Hence, impugned amendment is quashed only to this extent that the operation of the said section could be given effect from the date of amendment and not in respect of earlier assessment years of the assessees whose export turnover is above Rs. 10 Crore. In other words, the retrospective amendment should not be detrimental to any of the assesses.

Summary

Issues Involved:
1. Constitutional validity of the third and fourth provisos to Section 80 HHC (3) of the Income Tax Act, 1961.
2. Whether the amendment is arbitrary and unreasonable.
3. Violation of Article 14 of the Constitution of India.
4. Application of the doctrine of promissory estoppel and legitimate expectation.
5. Retrospective application of the amendment.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Third and Fourth Provisos to Section 80 HHC (3):
The writ applications challenge the constitutional validity of the third and fourth provisos to Section 80 HHC (3) of the Income Tax Act, 1961, inserted by the Taxation Laws (Second Amendment) Act, 2005, with retrospective effect. The petitioners argue that the amendment discriminates between assessees of the same class, violating Article 14 of the Constitution of India, and imposes new pre-conditions retrospectively for eligibility for deduction under Section 80 HHC.

2. Whether the Amendment is Arbitrary and Unreasonable:
The petitioners contend that the amendment is arbitrary and unreasonable as it imposes an absurd condition that no sensible person would exercise. The amendment purports to retrospectively take away the benefit on the basis that exporters with a turnover of more than Rs.10 Crore will get the benefit if they can prove they had an option to choose either duty drawback or DEPB and chose DEPB even when they were entitled to a higher benefit under the duty drawback scheme. The court held that classification based on export turnover is a recognized way of classification throughout the world and found no substance in the petitioners' contention regarding the legality of the amendment based on turnover.

3. Violation of Article 14 of the Constitution of India:
The petitioners argue that the amendment places two assessees of the same class on different footing, violating Article 14 of the Constitution of India. The court agreed that discrimination based on the pendency of assessment proceedings violates Article 14, as the assessees have little role in the completion of assessment. The court found that such classification fails the test of Article 14, being a case of 'palpable arbitrariness.'

4. Application of the Doctrine of Promissory Estoppel and Legitimate Expectation:
The petitioners argue that the amendment violates the principles of promissory estoppel and legitimate expectation, as the benefit of Section 80 HHC was given to encourage exports, and they are now deprived of the incentive. The court held that there is no estoppel against legislation, and the legislature is not bound by the doctrine of promissory estoppel. However, an individual assessee can take the plea of promissory estoppel if the amended provision adversely affects them.

5. Retrospective Application of the Amendment:
The petitioners argue that the substantive amendment cannot have retrospective effect. The court held that although the legislature has the right to confer benefits prospectively or retrospectively, such curtailment with retrospective effect cannot be made to overcome a judicial decision without taking recourse to the provision of appeal prescribed by law. The court found that the amendment, which takes away the benefit already granted through a concluded scheme, is arbitrary and opposed to law. The court quashed the impugned amendment to the extent that its operation could be given effect from the date of amendment and not in respect of earlier assessment years of assessees with export turnover above Rs. 10 Crore.

Conclusion:
The court quashed the impugned amendment to the extent that it should not have retrospective effect detrimental to any of the assessees. The writ applications were disposed of accordingly, with no order as to costs.