2002 (10) TMI 67 - HC - Income Tax

Capital Gains - By this writ petition under article 226 of the Constitution of India the petitioner has challenged the constitutional validity of sub-section (1C) of section 54E of the Income-tax Act 1961 (for short the Act ) as introduced by the Finance Act 1992 praying that the words and figures 29th day of February 1992 in the said section be struck down and instead the words and figures 31st day of March 1992 be substituted. - Circular No. 636 dated August 31 1992 interprets and explains the amendment. We find that there are valid reasons and justification for the insertion of the date of February 29 1992 in sub-section (1C) of section 54E of the Act. There is no discrimination between the two sets of assessees similarly placed in the same fiscal year. There is no violation of article 14 of the Constitution. - we find no merit in any of the contentions raised by learned counsel for the petitioner. The writ petition fails and is accordingly dismissed.

Issues Involved:
1. Constitutional validity of sub-section (1C) of section 54E of the Income-tax Act, 1961.
2. Alleged discrimination under Article 14 of the Constitution of India.
3. Applicability of the doctrine of promissory estoppel.
4. Retrospective effect of the Finance Act, 1992.

Detailed Analysis:

1. Constitutional Validity of Sub-section (1C) of Section 54E:
The petitioner challenged the constitutional validity of sub-section (1C) of section 54E of the Income-tax Act, 1961, introduced by the Finance Act, 1992. The petitioner argued that the words and figures "29th day of February, 1992" should be struck down and replaced with "31st day of March, 1992." The Finance Act, 1992, amended section 54E(1) to withdraw the exemption from tax on long-term capital gains from the assessment year 1993-94. The petitioner contended that this amendment was discriminatory and violated Article 14 of the Constitution.

2. Alleged Discrimination Under Article 14:
The petitioner argued that the amendment discriminated against assessees who received and invested advances between March 1, 1992, and March 31, 1992, as compared to those who did so before February 29, 1992. The court found that the provisions of sub-section (1C) are based on rational and intelligible criteria. The Legislature inserted sub-section (1C) to protect assessees who had received advances and invested them in specified assets before February 29, 1992, as they had no notice of the proposed withdrawal of exemption before that date. The court held that this classification was not arbitrary and did not violate Article 14.

3. Applicability of the Doctrine of Promissory Estoppel:
The petitioner claimed that the CBDT Circular No. 359, dated May 10, 1983, created a vested right that could not be taken away by the amendment. The court rejected this argument, stating that the circular merely explained the provisions of section 54E(1) as it existed before the 1992 amendment and did not create any vested rights. The court held that the doctrine of promissory estoppel did not apply, as there was no promise extended by the circular, and the amendment withdrew the exemption from tax on long-term gains with effect from April 1, 1992.

4. Retrospective Effect of the Finance Act, 1992:
The petitioner contended that the Finance Act, 1992, notified on May 14, 1992, could not be made retrospective by restricting the benefit of exemption from capital gains tax up to February 29, 1992. The court held that the amendment of section 54E(1) was prospective, effective from April 1, 1992, and not retrospective. The court further stated that tax legislation is a policy matter for Parliament, which can enact laws with retrospective effect, subject to constitutional limitations. The court referenced several authoritative pronouncements to support this view.

Conclusion:
The court found no merit in the petitioner's contentions. The provisions of sub-section (1C) of section 54E of the Income-tax Act, 1961, were held to be based on rational and intelligible criteria, and the classification did not violate Article 14 of the Constitution. The doctrine of promissory estoppel was not applicable, and the amendment was prospective, not retrospective. The writ petition was dismissed, and parties were left to bear their own costs.

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