2013 (11) TMI 482 - HC - Income Tax

Constitutional validity of amendments in Section 80 HHC(3) of the Income Tax Act, 1961 brought by the Taxation Laws (Amendment) Act, 2005 - Deduction in respect of DEPB and DFRC benefits - classification between exporters with less than Rs.10 crore and more than Rs. 10 crore export turnover - Held that - as per plain reading of the unamended provisions of Section 80HHC, deduction was not available in respect of profit on the transfer of DEPB. It became available to exporters in respect of DEPB credit sale and DFRC referable to Section 28(iiid)/(iiie), when 2nd, 3rd and 4th Proviso in Section 80 HHC(3) were inserted. Simultaneously clauses (iiid)(iiie) were also inserted in Section 28 of the Act by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998. Thus, no one can have grievance falling under the scope of Section 80HHC against the amended provisions inasmuch as such eligible person would be getting benefit of deduction under section 80HHC with retrospective effect. - The petitioners do not have any right to be aggrieved for the reason that deduction or exemption is available strictly in accordance with the statutory provisions. No one has any fundamental right for deduction or to ask for deletion or modification of the conditions so as to qualify for exemption or deduction. - Decided against the assessee. Retrospectivity - Held that - the amendment in Section 80HHC made by the Taxation Laws ( Amendment) Act, 2005 with retrospective effect from 1.4.1998, does not suffer from the vice of unconstitutionality. The amendment so made with retrospective effect is accordingly held to be valid. - Decided against the assessee. Classification & Article 14 - issue of discrimination - Held that - classification of exporters on the basis of turn over of less than Rs. 10 crores and more than Rs. 10 crores is a valid classification based on intelligible differentia. The exporters having export turn-over not exceeding Rs. 10 crores referable to the 2nd Proviso of Section 80HHC(3) fall under one group while the exporter having export turn-over exceeding Rs. 10 crores referable to 3rd and 4th proviso of Section 80HHC(3) fall under another group. Thus, the classification so made is founded on an intelligible differentia which distinguishes the exporters falling under one group (having export turn-over not exceeding Rs. 10 crores) from those who fall under another group (exporters having export turned over exceeding Rs. 10 crores). - provisions are not violative of Article 14 of the Constitution of India. The classification as provided in the 2nd, 3rd and 4th proviso are wholly valid and based on intelligible differentia. - Decided against the assessee. Principles of estoppel - promissory estoppel - Held that - there is no estoppel against the legislature and the vires of the Act cannot be tested by invoking the said plea but so far as the government was concerned the rule of estoppel did apply. Thus, it is clear that there cannot be any promissory estoppel against the legislature even if on the basis of the representation or promise made certain concessions have been allowed. The legislature is not bound by the principles of promissory estoppel. In view of this settled position of law, we reject the contention of the petitioners that the impugned provision is violative of the principles of promissory estoppel. - Decided against the assessee. Presumption of Validity - Held that - A provision conferring very wide and expansive powers on authority can be construed in conformity with legislative intent of exercise of power within constitutional limitations. Where a Statute is silent or is inarticulate, the Court would attempt to transmutate the inarticulate and adopt a construction which would lean towards constitutionality albeit without departing from the material of which the law is woven. These principles have given rise to rule of reading down the provisions if it becomes necessary to uphold the validity of the law. - the petitioners have completely failed to rebut the presumption of constitutional validity of the impugned provision. The provisions of Section 80 HHC(3) of the Act as amended by the Taxation Laws (Amendment Act) 2005 to be wholly valid with retrospective effect from 1.4.1998. - Decided against the assessee.

Summary

Issues Involved:
1. Legislative competence of Parliament to enact retrospective amendments in Section 80 HHC of the Income Tax Act, 1961.
2. Entitlement to the benefit of deduction under Section 80 HHC for exporters with turnover exceeding Rs. 10 crores before the amendment.
3. Constitutionality of the 3rd and 4th Proviso of Section 80 HHC(3) as arbitrary, unreasonable, or discriminatory.
4. Validity of retrospective amendments in Section 80 HHC.
5. Violation of Article 19(1)(g) of the Constitution by the retrospective amendment.
6. Validity of classification between exporters with turnover less than Rs. 10 crores and those with more than Rs. 10 crores.
7. Applicability of the principle of estoppel against the retrospective amendment.

Detailed Analysis:

Issue No. (i) - Legislative Competence:
The court held that the amendments in Section 80 HHC by the Taxation Laws (Amendment) Act, 2005, fall within the legislative competence of Parliament under Entry 82 of List I in the 7th Schedule, which pertains to "Taxes on Income other than Agricultural Income." The provision of deduction or exemption presupposes the levy of tax on the items, event, or persons in respect of which exemption or deduction has been provided. Hence, the amendment does not suffer from a lack of legislative competence.

Issue No. (ii) - Entitlement under Amended/Unamended Section 80 HHC:
The court found that under the unamended Section 80 HHC, exporters with a turnover exceeding Rs. 10 crores were not entitled to the benefit of deduction regarding DEPB credit sales and DFRC. The deduction became available only due to the insertion of the 2nd, 3rd, and 4th Proviso in Section 80 HHC(3) by the Taxation Laws (Amendment) Act, 2005. The court emphasized that the profit from DEPB credit sales is a business profit and not an export profit since it does not arise out of export or import activity.

Issue No. (iii), (iv), and (v) - Retrospectivity:
The court upheld the retrospective amendment in Section 80 HHC, stating that a competent legislature has the power to enact laws both prospectively and retrospectively. The court cited several Supreme Court judgments, affirming that retrospective taxation is permissible and does not inherently violate constitutional provisions. The court found that the retrospective amendment was valid and did not violate Articles 14 and 19(1)(g) of the Constitution.

Issue No. (vi) - Classification & Article 14:
The court held that the classification between exporters with export turnover of less than Rs. 10 crores and those with more than Rs. 10 crores is valid and based on intelligible differentia. The classification is not arbitrary and has a rational nexus to the object sought to be achieved by the Act. The court emphasized that economic legislation should be viewed with greater latitude, and the legislature should be allowed some play in the joints to deal with complex economic problems.

Issue No. (vii) - Estoppel:
The court rejected the argument that the retrospective amendment is hit by the principles of promissory estoppel. It stated that there cannot be any estoppel against the legislature, even if certain concessions were allowed based on previous representations. The court reiterated that the legislature is not bound by the principles of promissory estoppel and can enact laws with retrospective effect.

Conclusion:
The court upheld the constitutional validity of the amendments in Section 80 HHC(3) of the Income Tax Act, 1961, made by the Taxation Laws (Amendment) Act, 2005, with retrospective effect from 1.4.1998. It dismissed all writ petitions, granting liberty to the petitioners to pursue statutory remedies against the assessment orders and to respond to the show cause notices within a month. The concerned assessing authority is directed to pass appropriate orders within three months.