TMI Blog2002 (10) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... A AGGARWAL. JUDGMENT The judgment of the court was delivered by MS. SHARDA AGGARWAL J.- 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. The Finance Act, 1992, by amending section 54E(1) of the Act, withdrew the exemption from tax in respect of long-term capital gains from the assessment year 1993-94. Under this provision, as it stood prior to the amendment, exemption from tax in respect of long-term capital gains was allowed under section 54E(1) to the extent the net consideration was invested or deposited in any specified asset prescribed in that section within a period of six months from the date of transfer. Section 54E(1) of the Act prior to the amendment of 1992 stood as under "54E. (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 54E(1) of the Act. This circular was only to elaborate and explain the unamended provision under section 54E(1) of the Act. As a policy matter, keeping in view the economic changes in the country, major restructuring of capital gains was undertaken and as a measure of rationalisation and simplification, the provisions contained in section 54E(1) of the Act were withdrawn from the assessment year 1993-94. The relevant para of the Budget Speech dated 29th February, 1992, of the Finance Minister for the year 1992-93 is as under: "The present tax treatment of long-term capital gains has been criticised on the ground that the deduction allowed in computing taxable gain is not related to the period of time for which the asset has been held. It does not take into account the inflation that may have occurred over time. The Chelliah Committee has suggested a system of indexation to take care of the problem and I propose to accept its recommendation. Taxable capital gains will be computed by allowing the cost of the asset to be adjusted for general inflation before deducting from the sale proceeds. The adjustment factor for each year will be notified by the Central Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional validity of the aforesaid newly inserted sub-section (1C) in section 54E of the Act. To appreciate the controversy raised by the petitioner in the writ petition, it is necessary to give a short background of the facts. The petitioner entered into two agreements to sell with respect to his plot No. 2, Siri Fort Road, New Delhi, some time in early 1992 in favour of two persons and received an advance of Rs. 3,80,000 on March 26, 1992, towards sale consideration. On March 28, 1992, he deposited the said amount with the Unit Trust of India under the Capital Gains Unit Scheme, 1983. The sale deeds were allegedly executed on April 30, 1992 and May 12, 1992. Neither the agreement to sell nor the copies of the sale deeds are placed on record which could indicate the date of agreement and the total sale consideration. On account of the insertion of sub-section (1C) in section 54E of the Act, the petitioner could avail of the exemption from capital gains tax on the advance, if he had received the advance and invested or deposited the same in a specified asset as prescribed, before February 29, 1992. Any advance or earnest money received and invested or deposited between March 1, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had received advance or earnest money and had even invested or deposited the same in a specified asset, he would not have been entitled to any exemption of capital gains tax if the transfer did not take place prior to March 31, 1992. In the Finance Bill, 1992, the insertion of sub-section (1C) was not proposed. The Legislature must have realised that the proposed withdrawal of exemption might operate harshly and unfairly to those assessees who had agreed to transfer long-term capital assets prior to February 29, 1992, and received advance against the same and had invested or deposited the whole or any part of such amount in specified assets prior to February 29, 1992. The Legislature in its wisdom thus inserted sub-section (1C) in section 54E of the Act to protect the legitimate interest of such assessees. This object of the provision is further qualified in sub-section (1C) itself, by restricting the benefit to the investments and deposits made prior to February 29, 1992. In case the assessee had received the advance prior to February 29, 1992, but had not made the investment or deposit prior to that date, he would not have got the benefit of this sub-section. The rational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rew the exemption from tax in respect of long-term gains with effect from April 1, 1992. When the provision of section 54E itself stood withdrawn, where was the question of survival of any vested right on account of the circular. In fact, the circular also goes with the provision. The doctrine of promissory estoppel has no application in the facts of the present case. The scope and effect of amendment in various sections in Chapter IV, Part E, of the Act relating to taxation of capital gains including the amendments of sections 45 and 54E, made by the Finance Act, 1992, have been elaborated in the departmental Circular No. 636, dated August 31, 1992. The relevant clauses of the circular are as under: "35.9 Exemption from tax in respect of long-term capital gains is allowed under section 54E to the extent the net consideration is invested or deposited in any specified asset prescribed in that section. As a measure of rationalisation and simplification, this provision also stands withdrawn from assessment year 1993-94. The provisions of section 54E will be available for all sales made before April 1, 1992, if the whole or any part of the net consideration is invested in specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hased plant and machinery and set up a vanaspati factory at Kanpur. Under these circumstances, it was held in that case that the assessee had altered its position on the promise of the Government and, therefore, on the facts of that case the Government was bound by the principles of promissory estoppel to make good the representation made by it. The said authority has no application on the facts of the instant case. As such, there is no promise extended in this case. The 1983 circular of the Department simply elaborated the provisions contained in section 54E (unamended) and exempted the tax on advance or earnest money received and invested in specified assets before the transfer of the assets from capital gains tax as it formed part of the sale consideration. With the amendment of section 54E of the Act by the Finance Act, 1992, the exemption of capital gains tax is withdrawn on all the transfers after April 1, 1992. There can be no promissory estoppel against the exercise of legislative powers. The Legislature can never be precluded from exercising its legislative functions by resorting to the doctrine of promissory estoppel. Reference in this respect is made to an authoritative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act provided punishment with imprisonment for a borrower who without a reasonable cause or excuse takes or accepts any loan or deposit in contravention of the provisions of section 269SS. It was under these circumstances that it was urged that it discriminated between a borrower and a lender and thus violated article 14 of the Constitution of India. The apex court, after considering the relevant provisions of the Act and the legislative intent behind the enactment of section 269SS of the Act, held, that though the borrower and lender could be said to be equal integral parts of the same transaction but when viewed from the angle of tax evasion, they could not be regarded as equals or similarly situated and the provision seeking to penalise the borrower alone and not the lender was held to be not discriminatory. The apex court further reaffirmed the settled position of law that a tax legislation is a policy matter and it is for Parliament to decide the manner in which legislation should be made. In fact the powers of Parliament to pass legislation having retrospective effect is fairly conceded by learned counsel for the petitioner. The challenge is mainly on the ground that it v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 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. Mr. R.D. Jolly, learned senior standing counsel, has placed reliance on three decisions of the apex court reported in Union of India v. Parameswaran Match Works, AIR 1974 SC 2349; D.C. Gouse and Co. (Agents) P. Ltd. v. State of Kerala, AIR 1980 SC 2711 and Daruka and Co. v. Union of India, AIR 1973 SC 2711 for the proposition that the choice of a date by the Legislature, as a basis of classification cannot be dubbed as arbitrary. For us, it would be sufficient to refer in this context to the following passage from the apex court's decision in the case of Parameswaran Match Works, AIR 1974 SC 2349, which was a case under the Central Excises and Salt Act, 1944: "The choice of a date as a basis for classification cannot always be dubbed as arbitrary even if no particular reason is forthcoming for the choice unless it is shown to be capricious or whimsical in the circumstances. When it is seen that a line or a point there must be and there is no mathematical or logical way of fixing it precisely, the decision of the Legi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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