TMI Blog2023 (10) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in Yokogawa (supra) is not applicable in the instant case since that decision dealt with Section 10A of the Act, and not Section 10AA of the Act. Sections 10A and 10AA of the Act are not in pari materia and thus it cannot be said that the decision in Yokogawa (supra) was in any manner applicable to this instant case, and thus there was no need for the legislature to insert the aforesaid Explanation to circumvent the decision in Yokogawa (supra). Therefore, the contention of the petitioner that the Explanation to Section 10AA(1) of the Act is unconstitutional is without merits. As principle of legitimate expectation is not applicable to the case of the petitioner and Explanation after Sub-section (1) of Section 10AA of the Income Tax Act, 1961, inserted by amendment with prospective from 1st April, 2018, applicable in respect of the assessment year 2018-19 and subsequent years is constitutional and is a valid piece of legislation and is not arbitrary, discriminatory and is not violative of Articles 14, 19 265 of the Constitution of India. WP dismissed. - Hon ble Mr. Justice Md. Nizamuddin For the Petitioners : Mr. J.P. Khaitan, Sr. Adv. Mr. Saurabh Bagaria, Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners in challenging the aforesaid impugned legislation are as follows: Section 10AA of the Income Tax Act, 1961, contained in Chapter III of the Income Tax Act, 1961 Income Not Forming Part of Total Income provides for exemption to eligible units established in a Special Economic Zone while computing the gross total income of the unit. Petitioner submits that the petitioner has two manufacturing units, one situated in Kalunga Industrial Estate, Odisha (ineligible Unit) and the other in New Area of Kandla Special Economic Zone, Gujarat (Eligible Unit for claiming exemption under Section 10AA of the Income Tax Act, 1961). The said eligible unit was set up in May, 2012 for availing the scheme provided in Section 10AA under Chapter III of the Income Tax Act, 1961 entitling it for exemption from the Assessment Year 2013-14 onwards. Petitioner submits that Section 10AA of the Income Tax Act, 1961 is in pari materia to the provision of Section 10A of the Income Tax Act, 1961. Interpreting the nature and the stage at which exemption as per Section 10A of the Income Tax Act, 1961, is available, the Hon ble Supreme Court of India in the case of CIT and Anr. vs- Yokogawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed before giving effect to the provisions of section 10AA of the Act i.e. after doing inter unit profit/loss adjustments and thereafter setting off the brought forward losses of the petitioner. By the said Explanation the decision of the Hon ble Supreme Court of India in the case of Yokogawa (supra) stands nullified. Thus from the Assessment Year 2018-19 onwards, by reason of the said Explanation the petitioner company stands deprived of the exemption/entire exemption which was available to it under Section 10AA of the Income Tax Act, 1961, prior to insertion of the said Explanation since loss from its ineligible unit and brought forward losses to get adjusted with the total income of the unit/undertaking, before the exemption under Section 10AA of the Income Tax Act, 1961. Petitioner submits that Section 10AA of the Income Tax Act, 1961, as contained in Chapter III of the Income Tax Act, 1961, incomes under which do not form part of total income. Since section 10AA of the Income Tax Act, 1961 does not form part of total income, it cannot be included in total income. The Explanation inserted in Section 10AA(1) of the Income under the Act 1961, which is in Chapter III has cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the substantive provision for availing exemption under the said Section as it negates the exemption guaranteed under Section 10AA (1) of the Income Tax Act, 1961 and results in an absurdity and Section 10AA of the Income Tax Act, 1961 which is otherwise clear and unambiguous, is rendered redundant. Petitioner submits that the Explanation inserted in Section 10AA(1) of the Income Tax Act, 1961 is a piece of colourable legislation as it denies the exemption available under Section 10AA of the Income Tax Act, 1961 to eligible units/undertakings, resulting in discrimination and therefore offends Article 14 of the Constitution of India. The Explanation is also arbitrary, unreasonable since it denies the exemption available as per Section 10AA of the Income Tax Act, 1961 to eligible units established in Special Economic Zones established for the purpose of availing the benefit as per Section 10AA of the Income Tax Act, 1961, and violates Article 19(1)(g) of the Constitution of India. In support of his contention, Mr. Khaitan learned Senior Advocate representing the petitioner has relied on the following judgments: (1) S. Sundaram Pillai vs- V.R. Pattabiraman, (1985) 1 SCC 591- Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 SCC 717, (paragraph 17), that an Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section. The explanation 10AA of the Act did not expand the scope of the provision, or curtail any rights. It is merely clarifactory with only prospective effect. However, even if it is hypothetically considered that the explanation expanded the scope of Section 10AA of the Act even then as per Sedco Forex (supra), there is no bar to such Explanation. Respondent submits that the case of S. Sundaram Pillai vs- Pattabiraman, reported at (1985) 1 SCC 591, (paragraph 53), lays down the scope of Explanations. The said paragraph inter alia states that an Explanation can be inserted to clarify any vagueness in the parent provisions and to suppresses the mischief arising from the gap in interpretation of the parent provision. In the instant case, the Explanation to sub section (1) of Section 10AA of the Act was inserted merely to plug the gap after the decision in Yokogawa (supra) and to suppress the mischief of deliberate misinterpretation of the Section as has been done by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the merger. Respondents submit that if the assessee had not merged with the lossmaking ineligible unit, then there would have been no dispute. The assessee would have had only one unit and it would have taken benefits under Section 10AA of the Act as applicable. However, the assessee merged with the lossmaking unit to take undue benefits under Section 10AA of the Act. The explanation would have changed nothing for the assessee if it did not try to evade tax through merger with the ineligible unit. Thus, the assessee changed the situation and then tried to take undue advantage, but there can be no legitimate expectation on its part with regard to Section 10AA of the Act. Respondents submit that scope of legitimate expectation as held in MRF Ltd. vs- Asst. Comm. Sales Tax, reported at (2006) 8 SCC 702, (paragraphs 38 and 39) that legitimate expectation of a person cannot be defeated by arbitrariness, but the test of arbitrariness is based on the facts and circumstances of each case. In this instant matter, there was no retrospective curtailment of rights since the Explanation inserted in Section 10AA of the Act was to be prospectively applied. Thus, there was no violation of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht of sub-paragraph (7) of Paragraph 56 therein since the insertion of the Explanation to sub-section (1) of Section 10AA of the Act was not validating any invalid law, and was also not imposing any new tax, illegally or otherwise. The Explanation was not inserted to impose any new tax liability on the assessee but to merely clarify the position of law already existing as per the parent provision. The Explanation does not introduce any new method of computation of the tax thereby curtailing the rights of the assessee in any way, it merely clarifies the vagueness around the deduction that crept in due to the deliberate misapplication of the decision in Yokogawa (supra) by the assessee to the facts and circumstances of this case. The assessee does not have a vested right to claim deduction since such deduction is only allowable in terms of the provisions of Section 10AA of the Act, and the Explanation inserted merely clarifies the intention of the legislature and does not alter the position of law as contained in the parent provision. Respondent submit that in any case, the decision in Yokogawa (supra) is not applicable in the instant case since that decision dealt with Section 10A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events - self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. 29. In case of Bhavesh D. Parish and others vs. Union of India and another, (2000) 5 SCC 471, the challenge was to the validity of section 9 of Reserve Bank of India Act as amended by the Amendment Act 1997 on the ground that it was violative of Article 14 and Article 19(1)(g) of the Constitution. This Court dismissed the challenge to the said provision in paragraph 26 of the report. It observed that matters of economic policy should be best left to the wisdom of the legislature. Further, it went on to state that in the context of a changed economic scenario the expertise of the people ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developments in the common law. The doctrine of substantive legitimate expectation can be successfully invoked by individuals to claim substantive benefits or entitlements based on an existing promise or practice of a public authority. However, it is important to clarify that the doctrine of legitimate expectation cannot serve as an independent basis for judicial review of decisions taken by public authorities. Such a limitation is now well recognized in Indian jurisprudence considering the fact that a legitimate expectation is not a legal right.34 It is merely an expectation to avail a benefit or relief based on an existing promise or practice. Although the decision by a public authority to deny legitimate expectation may be termed as arbitrary, unfair, or abuse of power, the validity of the decision itself can only be questioned on established principles of equality and non-arbitrariness under Article 14. In a nutshell, an individual who claims a benefit or entitlement based on the doctrine of legitimate expectation has to establish: (i) the legitimacy of the expectation; and (ii) that the denial of the legitimate expectation led to the violation of Article 14. Respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be made fairly and should not give the impression that it was so done arbitrarily or by any ulterior criteria. The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touchstone irrespective of the field of activity of the State is an accepted tenet. The basic requirement of Article 14 is fairness in action by the State, and non- arbitrariness in essence and substance is the heart beat of fair play. Actions are amenable, in the panorama of judicial review only to the extent that the State must act validly for discernible reasons, not whimsically for any ulterior purpose. The meaning and true import and concept of arbitrariness is more easily visualized than precisely defined. A question whether the impugned action is arbitrary or not is to be ultimately answered on the facts and circumstances of a given case. A basic and obvious test to apply in such cases is to see whether there is any discernible principle emerging from the impugned action and if so, does it really satisfy the test of reasonableness. (Emphasis supplied) Respondents have relied on the relevant paragraph nos. 68-71 of the judgment in the case of Hero Motoco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consistently held that where the change of policy is in the larger public interest, the State cannot be prevented from withdrawing an incentive which it had granted through an earlier notification. Reliance in this respect could be placed on the judgments of this Court in the cases of vs. Union of India , Shrijee Sales Corpn. vs. Union of India, State of Rajasthan vs. Mahaveer Oil Industries, Shree Sidhbali Steels Ltd. vs. State of U.P., and DG of Foreign Trade vs. Kanak Exports. 71. Recently, this Court, in the case of Unicorn Industries (supra), after surveying the earlier judgments of this Court on the issue has observed thus: (SCC p. 589, para 26) 26. It could thus be seen that, it is more than well settled that the exemption granted, even when the notification granting exemption prescribes a particular period till which it is available, can be withdrawn by the State, if it is found that such a withdrawal is in the public interest. In such a case, the larger public interest would outweigh the individual interest, if any. In such a case, even the doctrine of promissory estoppel would not come to the rescue of the persons claiming exemptions and compel the State not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph no. 53 of the judgment in the case of S. Sundaram Pillai Ors. vs- V.R. Pattabiraman Ors reported in (1985) 1 Supreme Court Cases 591 which is quoted hereunder: 53. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is- (a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so a- to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mooth balance built with delicacy must always maintained; [5] In its anxiety to safeguard judicial power, it is unnecessary to be overjealous and conjure up incursion into the judicial preserve invalidating the valid law competently made; [6] The Court, therefore, need to carefully scan the law to find out: (a) whether the vice pointed out by the Court and invalidity suffered by previous law is cured complying with the legal and constitutional requirements; (b) whether the Legislature has competence to validate the law; (c) whether such validation is consistent with the rights guaranteed in Part III of the Constitution. [7] The Court does not have the power to validate an invalid law or to legalise impost of tax illegally made enact the law with retrospective effect and authorise its agencies to levy and collect the tax on that basis, make the imposition of levy collected and recovery of the tax made valid, notwithstanding the declaration by the Court or the direction given for recovery thereof. [8] In exercising legislative power, the legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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