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2008 (9) TMI 510 - HC - Income TaxCapital Gain- The petitioner Companies decided to invest the capital gain in bonds for the purpose of availing of the benefit of exemption under section 54EC of the Act. On transfer of their business and leasehold rights respectively. The Central Government issued a notification dated December 22, 2006, restricting the investment in bonds to a sum of Rs. 50 lakhs per person. On writ petition challenging the validity of the Notification on the ground that it was ultra vires the provisions of section 54EC of the Act. Held that- the power to limit the amount of investment by an assessee in bond having been incorporated in the section itself and by the proviso to Explanation (b), the bond notified before April 1, 2007 being deemed to be a bond notified under the amended provision. The prayer in the petition become infructuous. The petition dismissed.
Issues Involved:
1. Ultra vires nature of Notification No. 380 of 2006 under Section 54EC of the Income-tax Act, 1961. 2. Arbitrariness and violation of Articles 14 and 265 of the Constitution of India. Issue-wise Detailed Analysis: 1. Ultra Vires Nature of Notification No. 380 of 2006 under Section 54EC of the Income-tax Act, 1961: The petitioners challenged the conditions in Notification No. 380 of 2006, dated December 22, 2006, issued by the Central Board of Direct Taxes (CBDT). They argued that these conditions, which restricted the investment in bonds to a sum of Rs. 50 lakhs per person, were ultra vires Section 54EC of the Income-tax Act, 1961. Section 54EC was initially introduced by the Finance Act, 2001, and allowed for tax exemption on long-term capital gains if invested in specified bonds. The petitioners contended that the notification's conditions contradicted the benefits conferred by Section 54EC, which did not originally impose any investment limit. The court noted that Section 54EC was amended by the Finance Act, 2006, and further by the Finance Act, 2007, with retrospective effect from April 1, 2006. The amendments allowed the Central Government to impose conditions, including limits on the amount of investment in such bonds. The court observed that the impugned notification was issued under the power conferred by sub-clause (ii) of clause (b) of the Explanation to Section 54EC. The subsequent amendment validated the conditions specified in the notification, making the challenge to the notification infructuous. 2. Arbitrariness and Violation of Articles 14 and 265 of the Constitution of India: The petitioners argued that the notification was arbitrary and violative of Article 14 (Right to Equality) and Article 265 (No tax shall be levied or collected except by authority of law) of the Constitution of India. They claimed that the notification created an invidious distinction among assessees similarly situated, resulting in irrational and discriminatory denial of benefits under Section 54EC. The court, however, did not delve into these constitutional arguments in detail. It stated that since the main prayer in the writ petitions challenging the notification had become infructuous due to the retrospective amendments to Section 54EC, there was no need to consider the arguments related to the violation of Articles 14 and 265. Conclusion: The court dismissed the writ petitions, stating that the challenge to the impugned notification had become infructuous due to the retrospective amendments to Section 54EC of the Income-tax Act, 1961. The amendments empowered the Central Government to impose conditions, including limits on the amount of investment in specified bonds, thus validating the conditions specified in the notification. The court did not express any opinion on the constitutional arguments advanced by the petitioners. Consequently, the connected miscellaneous petitions were also dismissed.
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