2023 (12) TMI 549 - HC - Income Tax

Capital gains exemption u/s 54EE - Non-issuance of notification notifying the fund/long term specified asset - expectation for issuing the notification specifying the long term asset/fund for investment of capital gain arising out of transfer of long term capital asset - Capital Gain arising out of slump sale - petitioner had computed capital gains as per Section 50B as the petitioner opted for 'slump sale' and approached this Court for a writ, order or direction in the nature of mandamus commanding Union of India to notify 'long term specified assets' for availing capital gains exemption u/s 54EE - whether the failure to notify the 'long term specified asset' by the Central Government under clause-b of explanation (2) to Section 54EE is arbitrary and in violation of Article 14 of the Constitution of India? - HELD THAT - As it cannot be said that since Section 54EE though has been kept alive but has not been given effect to by not notifying the 'long term specified asset/fund', the Central Government has acted arbitrarily. We not find much substance in the submission that in not notifying the 'long term specified asset/fund' for investment of proceeds from transfer of long term capital asset, the Government has acted arbitrarily and the decision of the Government is justiciable for issuing a writ of mandamus for notifying the 'long term specified asset'. If a public authority has a legal duty to do an act and fails to discharge that function, mandamus can be issued to the said authority to perform its duty and it would be within the power of judicial review of an administrative action by the Court. A direction to the Government to issue a notification under Section 54EE of the Income Tax Act, 1961 specifying 'long term asset' would amount to taking a policy decision in a particular manner. Such a direction is impermissible. Issuance of notification under Section 54EE of the Income Tax Act Act, 1961 is in the nature of sub-ordinate legislation. Where a statute vests a discretionary power in an administrative authority, the Court should not interfere with the exercise of such a discretion unless it is made with an oblique end or extraneous purposes or upon extraneous considerations. As decided in the case of Mangalam Organics Ltd. v Union of India 2017 (4) TMI 1223 - SUPREME COURT while considering the nature of duty of the Central Government to issue a notification under Section 11C of the Central Excise Act, 1944 requiring that no duty shall be payable or lesser duty shall be payable on the goods manufactured when condition stipulated in Section 11-C of the Excise Act, is satisfied by the assessee and the Government chooses not to exercise the 'power', held that Court cannot issue a mandamus to the Central Government to issue a notification exercising its power under Section 11-C of the Excise Act. Thus it is neither a case of discrimination nor the petitioner would have a right under Articles 14 and/or 19 (1)(g) of the Constitution of India which has been violated by non-issuance of notification under section 54EE of the IT Act, and therefore, no writ of mandamus can be issued to the Central Government to issue a notification under Section 54EE of the Income Tax Act, 1961. Promissory Estoppel - whether the Central Government can be held to be bound by the doctrine of promissory estoppel and direction be issued for notifying the long term specified asset u/s 54EE? - case of the petitioner is that on the faith of solemn assurance given by the Government of India at the time of introduction of the Finance Act, 2016 and subsequent to the press release as well as the answer to a question given by the Hon'ble Minister on the floor of Lok Sabha, the petitioner had arranged its tax liability accordingly and therefore, the Government of India was bound to notify the 'long term specified asset/fund' for investment of proceeds from sale of long term capital asset of the petitioner to an extent of Rs. 50 lakhs - HELD THAT - Here, it is not a case that the petitioner had made investment on a specified long term asset as notified by the Government, and thereafter the Government had withdrawn the said notification. Therefore, the argument of the learned counsel for the petitioner that the Central Government should be held bound by its promise made for notifying the specified long term asset/fund is not meritorious and is rejected. In Case of State of Gujarat v Arcelor Mittal Nippon Steel India Ltd. 2022 (1) TMI 1013 - SUPREME COURT as held that the doctrine of promissory estoppel is an equitable remedy and has to be moulded depending on the facts of each case. It has been held that in tax matters, doctrine of promissory estoppel as such is not applicable. The Revenue cannot be directed to take a decision which is unmandated under the law. The principle of promissory estoppel is based on equity, it requires a valid promise based on which the promisee had changed its position. Whereas the principle of legitimate expectation is rooted in fundamental ideas like reasonableness, fairness and non-arbitrariness. Petitioner would have been entitled for exemption on capital gain under Section 54EE only when he would have invested the proceeds from the transfer of capital gain in the notified long term specified asset/fund by the Government. The petitioner should know that unless such an asset is specified and fund is notified, he would not be entitled for exemption on capital gains arising out of transfer of long term capital asset. The Union Government had not issued the notification despite Section 54EE having been incorporated by Finance Act, 2016, and in absence of such a notification for specified long term asset/fund, the petitioner could not make investment for claiming benefit under Section 54EE. Non-issuance of notification, cannot be said to be arbitrary, unfair or unreasonable. Issuing particular notification under the provisions of the Act lies in the domain of the executive to carry out the object and purpose of the said provision. Issuing the notification is in the exclusive domain of the executive, and a legislative function. This Court is not empowered to go behind the reasons for not issuing the notification under Section 54EE. No substance that the petitioner has legitimate expectation for issuing the notification specifying the long term asset/fund for investment of capital gain arising out of transfer of long term capital asset by him. In view thereof, I do not find substance in the present writ petition, hence, it is hereby rejected.

Summary

Issues Involved:
1. Whether the failure to notify the 'long term specified asset' by the Central Government under clause-b of explanation (2) to Section 54EE of the Income Tax Act is arbitrary and in violation of Article 14 of the Constitution of India.
2. Whether the Central Government can be held to be bound by the doctrine of promissory estoppel and direction be issued for notifying the long term specified asset under Section 54EE.
3. Whether the petitioner has legitimate expectation of notification to be issued by the Central Government notifying the 'long term specified asset' for investment from the proceeds of sale/transfer of long term capital asset by the petitioner? If so, what relief can be granted to the petitioner at this point of time?

Summary:

Issue 1: Arbitrariness and Violation of Article 14
The petitioner argued that the Central Government's failure to notify the 'long term specified asset' under Section 54EE of the Income Tax Act was arbitrary and violated Article 14 of the Constitution of India. The court held that the decision not to notify the 'long term specified asset' falls within the domain of fiscal policy and prudence, which is an executive and policy decision. The court emphasized that it should not interfere with fiscal policy decisions unless they are made with an oblique end, extraneous purposes, or without applying relevant considerations. The court concluded that the Central Government's decision not to notify the 'long term specified asset' was not arbitrary and did not violate Article 14.

Issue 2: Doctrine of Promissory Estoppel
The petitioner contended that the Central Government was bound by the doctrine of promissory estoppel due to the promise made during the introduction of the Finance Act, 2016, and subsequent press releases and statements by the Hon'ble Minister. The court held that the doctrine of promissory estoppel does not apply against the state in its governmental, public, or sovereign functions except to prevent fraud or manifest injustice. The court emphasized that the petitioner would not be entitled to claim exemption from capital gains tax without the necessary notification issued by the Central Government. The court concluded that the doctrine of promissory estoppel was not applicable in this case and rejected the petitioner's argument.

Issue 3: Legitimate Expectation
The petitioner argued that they had a legitimate expectation that the Central Government would notify the 'long term specified asset' before April 1, 2019, and had arranged their tax liability accordingly. The court held that the principle of legitimate expectation is rooted in reasonableness, fairness, and non-arbitrariness. The court concluded that non-issuance of the notification was not arbitrary, unfair, or unreasonable. The court emphasized that issuing a notification under Section 54EE lies within the exclusive domain of the executive and is a legislative function. The court found no substance in the petitioner's claim of legitimate expectation and rejected the writ petition.

Conclusion:
The court concluded that the Central Government's decision not to notify the 'long term specified asset' under Section 54EE was not arbitrary and did not violate Article 14. The doctrine of promissory estoppel was not applicable in this case, and the petitioner did not have a legitimate expectation for the issuance of the notification. The court rejected the writ petition but allowed the petitioner to make a representation to the Central Government regarding their demands, which should be dealt with expeditiously.