2013 (7) TMI 121 - HC - Income Tax

Levy of MAT (minimum alternate tax) on SEZ - removal of exemption from MAT - Promissory estoppel - Judicial review - petitioners have prayed to declare the newly inserted proviso to Section 115JB(6) and 115-O(6) of the Income Tax Act in the second schedule to the Special Economic Zones Act 2005 as ultra vires, arbitrary, unfair and violative of Article 14 of Constitution of India. - Held that - scope of judicial review power of this court under Article 226 of the Constitution is subject to certain conditions - Power of judicial review is to be exercised very rarely and in exceptional circumstances - Courts can invalidate the law made by the legislature only when the legislature lacks the competency to do and the law enacted is violative of any of the constitutional provisions - It will be wholly unwise for the court to encroach into the domain of the executive or legislative in economic and social spheres since they are essentials adhoc, experimental, extremely complicated and they are made under special situations. Jurisdiction of Ministry of Finance - Impugned amendments in the Schedule-II to the SEZ Act is made by the Ministry of Finance, Government of India through a money bill - Held that - Government of India (Allocation of Business) Rules are not applicable to the proceedings and the business of parliament - These Rules are only applicable to the Government of India and not to the Parliament - A perusal of the Rules of Loksabha do not bar the Finance Minister from moving a bill for amendment to SEZ Act - reading of the Rules specifies that Finance Minister includes any minister and as such he is competent to move a bill seeking amendment of SEZ Act which comes under the domain of Ministry of Commerce - Following the decision of Madurai District Central Cooperative Bank Ltd. vs. Third ITO 1975 (7) TMI 4 - SUPREME Court - Deceided in against assessee. Removal of exemption to SEZ units - amendments violation of Article 14 - Held that - It is settled position of law that every tax exemption and incentive shall have a sunset clause - In the instant case by introducing sub-section 6 to Section 115JB and sub-section 6 to Section 115O of Income Tax Act a permanent exemption was given to SEZ establishments/units - Realizing this lapse on the part of the Government the impugned provisos were introduced restricting the exemption only for a particular period - On account of various concessions, exemptions and allowances under different statues companies started arranging their tax affairs in such a way as to become zero tax companies - This situation has lead to discrimination amongst SEZ establishment/units and other companies - Realizing this discrimination among the companies the legislature in their wisdom brought the impugned amendments to remove the discrimination - Decided against assessee. Removal of exemption to SEZ units - Promissory estoppel - Held that - The concept of Promissory Estoppel and Legitimate Expectancy are not defined in any law - These two concepts are fashioned by the courts while reviewing the administrative acts in the field of administrative law - The Doctrine of Promissory estoppel and Legitimate expectation are the offsprings of equity and they are flexible in nature - Legislature can never be precluded from exercising its legislative power by resort to the Doctrine of Promissory Estoppel - Following the decisions of Motilal Padampat Sugar Mills Co. Limited. vs State Of Uttar Pradesh And Others 1978 (12) TMI 45 - SUPREME Court , Union of India vs. Godfrey Philips India Ltd 1985 (9) TMI 90 - SUPREME COURT OF INDIA and Sales Tax Officer vs. Shree Durga Oil Mills STC 1997 (12) TMI 114 - SUPREME COURT OF INDIA - Decided against assessee.

Summary

Issues Involved:

1. Legislative Competency of Ministry of Finance to Amend SEZ Act
2. Violation of Article 14 of the Constitution of India
3. Doctrine of Promissory Estoppel
4. Principles of Legitimate Expectancy

Issue-wise Detailed Analysis:

1. Legislative Competency of Ministry of Finance to Amend SEZ Act:

The petitioners contended that the Ministry of Finance lacked the legislative competency to amend the SEZ Act, which falls under the exclusive domain of the Ministry of Commerce. However, the court rejected this argument, stating that the Government of India (Allocation of Business) Rules are not applicable to the proceedings and business of Parliament. The Rules of Procedure and Conduct of Business in the Lok Sabha do not bar the Finance Minister from moving a bill for amendment to the SEZ Act. The court referred to the Supreme Court's decision in Madurai District Central Cooperative Bank Ltd. vs. Third ITO, which held that Parliament has the legislative competence to introduce a new charge of tax either by incorporating it in the Income-tax Act or through any other statute. Therefore, the impugned amendment was within the legislative competency of the Parliament.

2. Violation of Article 14 of the Constitution of India:

The petitioners argued that the impugned amendments were capricious, arbitrary, unfair, and violative of Article 14 of the Constitution. The court disagreed, noting that every tax exemption and incentive must have a sunset clause, and there can be no permanent tax exemption or incentive in fiscal legislation. The impugned amendments introduced a sunset clause, making the exemptions prospective in nature. The court emphasized that the amendments were intended to remove discrimination between SEZ establishments/units and other companies, thereby aligning with Article 14 of the Constitution. The court also highlighted that decisions in economic and social spheres are essentially ad hoc and experimental, and the state must be left with wide latitude in devising fiscal measures.

3. Doctrine of Promissory Estoppel:

The petitioners claimed that the impugned amendments were opposed to the Doctrine of Promissory Estoppel, as they had made investments based on the government's promise of exemptions. The court referred to several Supreme Court decisions, including Motilal Padampat Sugar Mills Co. Limited vs. State Of Uttar Pradesh and Union of India vs. Godfrey Philips India Ltd., which established that promissory estoppel cannot be applied against legislative functions or to compel the government to act contrary to law. The court noted that the exemptions lacked a sunset clause, and the impugned amendments corrected this flaw. The court also pointed out that the exemptions led to erosion of the tax base and discrimination among companies. Therefore, the Doctrine of Promissory Estoppel could not be applied to nullify the impugned amendments.

4. Principles of Legitimate Expectancy:

The petitioners argued that the impugned amendments were opposed to the principles of Legitimate Expectancy. The court explained that the Doctrine of Legitimate Expectation is not based on any legal right but on reasonable expectation from a representation or past practice. However, since the petitioners were seeking relief based on the Doctrine of Promissory Estoppel, which is a superior relief based on statutory promise, the court found it unnecessary to consider the doctrine of legitimate expectation separately. The court reiterated that the Doctrine of Promissory Estoppel must yield when equity so requires, especially in matters of fiscal policy and public interest.

Conclusion:

The court dismissed the writ petitions, holding that the impugned amendments were within the legislative competency of the Parliament, did not violate Article 14 of the Constitution, and were not opposed to the Doctrine of Promissory Estoppel or the principles of Legitimate Expectancy. The court emphasized the need for flexibility in fiscal legislation and the importance of allowing the state wide latitude in economic and social policy decisions.