2009 (3) TMI 511 - HC - Income Tax

Industrial undertaking-Special deduction- petitioners under section 80-IB of the Act industrial undertakings located in a industrially backward State specified in Eighth Schedule to the Act are eligible for 100 per cent. According to the petitioners their units are entitled to the aforesaid deductions. The petitioners further contend that section 115JB of the Act which seeks to impose tax at the rate of 7.5 per cent. of the book profit of an industrial unit like the petitioners which are situated in a notified industrially backward area is illegal and unconstitutional as it seeks to override the benefits granted under section 80-IB. Held that- the doctrine of promissory estoppel could not be made applicable to the nullity legislature exercise inasmuch as the legislature could not be estopped from exercising its power so long as such exercise was in conformity with the provisions of seventh schedule to the constitution and it did not transgress the fundamental rights guaranteed by Part III of the constitution. By enacting the provisions of section 115JB the legislature had restricted the benefits of deduction under section 80-IB by making industrial units like those of the assessees liable to tax at the rate of 7.5% of the book profits. Curtailment of benefit earlier granted by the legislative act could not be invalidated on the principles of promissory estoppels.

Summary

Issues:
Challenge against notices under section 154 of Income-tax Act for rectification of assessments for the assessment year 2001-02. Validity challenge of section 115JB of the Income-tax Act imposing tax on industrial units. Applicability of section 80-IB providing deductions for industrial undertakings in industrially backward States. Constitutionality of section 115JB overriding benefits of section 80-IB. Invocation of promissory estoppel to nullify legislative exercise.

Analysis:

The judgment pertains to two writ petitions challenging notices under section 154 of the Income-tax Act for rectification of assessments for the assessment year 2001-02 and the validity of section 115JB imposing tax on industrial units. The petitioners contested the imposition of tax under section 115JB, claiming entitlement to deductions under section 80-IB for industrial undertakings in industrially backward States. They argued that section 115JB contravened the benefits granted under section 80-IB, leading to the petitions structured around the alleged promise of tax exemption in section 80-IB to foster industrial growth in the North-Eastern region.

The court dismissed the contentions based on promissory estoppel, asserting that legislative exercise cannot be nullified by such doctrine. It emphasized that the Legislature has the authority to curtail benefits previously granted, as seen in the enactment of section 115JB, which imposes tax on industrial units at a specified rate, notwithstanding earlier deductions under section 80-IB and section 115JA. The judgment highlighted that legislative actions within constitutional bounds cannot be invalidated through promissory estoppel principles, affirming the Legislature's power to amend or restrict benefits conferred under prior provisions.

In conclusion, the court found no merit in the writ petitions and dismissed them, vacating any interim orders. The judgment underscored that the curtailment of benefits by legislative action, as exemplified by the enactment of section 115JB, does not violate legal principles, as long as it falls within the legislative authority granted by the Constitution. The ruling clarified that the doctrine of promissory estoppel cannot impede legitimate legislative actions that conform to constitutional provisions and do not infringe upon fundamental rights guaranteed by the Constitution.