TMI Blog2023 (12) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... d that since Section 54EE though has been kept alive but has not been given effect to by not notifying the 'long term specified asset/fund', the Central Government has acted arbitrarily. We not find much substance in the submission that in not notifying the 'long term specified asset/fund' for investment of proceeds from transfer of long term capital asset, the Government has acted arbitrarily and the decision of the Government is justiciable for issuing a writ of mandamus for notifying the 'long term specified asset'. If a public authority has a legal duty to do an act and fails to discharge that function, mandamus can be issued to the said authority to perform its duty and it would be within the power of judicial review of an administrative action by the Court. A direction to the Government to issue a notification under Section 54EE of the Income Tax Act, 1961 specifying 'long term asset' would amount to taking a policy decision in a particular manner. Such a direction is impermissible. Issuance of notification under Section 54EE of the Income Tax Act Act, 1961 is in the nature of sub-ordinate legislation. Where a statute vests a discretionar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious and is rejected. In Case of State of Gujarat v Arcelor Mittal Nippon Steel India Ltd. [ 2022 (1) TMI 1013 - SUPREME COURT] as held that the doctrine of promissory estoppel is an equitable remedy and has to be moulded depending on the facts of each case. It has been held that in tax matters, doctrine of promissory estoppel as such is not applicable. The Revenue cannot be directed to take a decision which is unmandated under the law. The principle of promissory estoppel is based on equity, it requires a valid promise based on which the promisee had changed its position. Whereas the principle of legitimate expectation is rooted in fundamental ideas like reasonableness, fairness and non-arbitrariness. Petitioner would have been entitled for exemption on capital gain under Section 54EE only when he would have invested the proceeds from the transfer of capital gain in the notified long term specified asset/fund by the Government. The petitioner should know that unless such an asset is specified and fund is notified, he would not be entitled for exemption on capital gains arising out of transfer of long term capital asset. The Union Government had not issued the notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known to law. 3. Section 54EE allows capital gains exemption upto a limit of Rs. 50 lakhs provided the capital gain proceeds are invested by the assessee in the long term specified assets notified under Section 54EE for a minimum period of 3 years. For ready reference, Section 54EE is extracted hereunder: Capital gain not to be charged on investment in units of a specified fund. 54EE. (1) Where the capital gain arises from the transfer of a long-term capital asset (herein in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, namely:- (a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment in this behalf. Total investment in unit(s) in the specified fund allowable is upto 50,00,000/- only. Thus, unless the Central Government would have notified the 'fund' for investment of the sale proceeds upto Rs. 50,00,000/-, and investment would have been made before Ist April of 2019 in such a 'fund', notified by the Central Government, an assessee would not be entitled to claim exemption from capital gains. Admittedly, despite the said provision having been brought into statute by Finance Act, 2016 with effect from Ist April 2017, the Central Government had not notified the 'fund of funds' for investment of long term capital gains arising from the transfer of long term capital asset. 5. Sri A.Kumar, learned counsel for the petitioner has submitted that memorandum to Finance Act, 2016 delineate the reasons and objectives for insertion of Section 54EE in the Income Tax Act, 1961. He has drawn attention of this Court to relevant part of the memorandum in respect of tax incentives for startups which would read as under: 16. Tax Incentives for startups: 16.2 In order to promote the start-up ecosystem in the country, it was envisaged in &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FFS. Out of this, Rs. 55.00 crore has been disbursed and a total investment of INR 252.20 cr. has been made in Startups. .............. x. Key tax exemptions and regulatory benefits have been provisioned for Startups, including Income Tax Exemption for 3 years out of a block of 7 years, Tax Exemption on Capital Gains (Section 54EE), Tax exemption on Investments made in Startups above Fair Market Value. 8. The learned counsel for the petitioner has submitted that the purpose of insertion of Section 54EE in the Income Tax Act introduced by Finance Act, 2016 is to provide impetus to the 'Start-up India Action Plan' by giving capital gain exemptions on investment in the units of a notified 'fund'. The 'fund of funds' was already created with corpus of Rs. 10,000 crores to be managed by SIDBI as is evident from the reply of the Hon'ble Minister to a question in Lok Sabha. Learned counsel for the petitioner submits that despite creation of 'fund' and insertion of the provision for notifying the 'fund' for investment by the Central Government, in absence of requisite notification having been issued by the Central Government, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified assets' in the case of the petitioner under Section 54EE got expired on 25th June 2019. 9. The learned counsel for the petitioner, in alternate, has submitted that if the principle of promissory estoppel is not applicable in the facts of the present case, atleast the petitioner had legitimate expectations of notifying the long term specified assets before Ist April 2019 and the petitioner has acted upon such expectation in as much as he has arranged his tax liability keeping in mind that the Central Government would notify the long term specified asset for investment of capital gain arising from the transfer of petitioner's long term capital asset. 10. In support of his submissions, learned counsel for the petitioner has placed reliance on the following judgments : (1) State of Punjab v Nestle India (2004(6) SCC 465) (2) MRF Ltd., Kottayam v Asstt. Commissioner (Assessment) Sales Tax and others (2006) 8 SCC 702) (3) Shrijee Sales Corporation and another v Union of India (1997) 3 SCC 398 (4) State of Gujarat v Arcelor Mittal Nippon Steel India Limited (2002) 6 SCC 459 (5) Augustan Textile Colours Limited v Director of Industries and ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Government has not notified the scheme/fund under Section 54EE, it cannot be said that such a decision is arbitrary. A provision may or may not be given effect to in the wisdom of the executive for giving effect to the necessary notification would be required to be issued. Therefore, it cannot be said that since Section 54EE though has been kept alive but has not been given effect to by not notifying the 'long term specified asset/fund', the Central Government has acted arbitrarily. In view thereof, I do not find much substance in the submission that in not notifying the 'long term specified asset/fund' for investment of proceeds from transfer of long term capital asset, the Government has acted arbitrarily and the decision of the Government is justiciable for issuing a writ of mandamus for notifying the 'long term specified asset'. If a public authority has a legal duty to do an act and fails to discharge that function, mandamus can be issued to the said authority to perform its duty and it would be within the power of judicial review of an administrative action by the Court. However, a direction to the Government to issue a notification under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of certiorari. 34.3. Generally, subordinate legislation cannot be held invalid for unreasonableness, unless its unreasonableness is evidence of mala fides or otherwise shows the abuse of power. But in case of unreasonable administrative order, the aggrieved party is entitled to a legal remedy. 34.4. Only in most exceptional circumstances can legislative powers be sub-delegated, but administrative powers can be sub-delegated. 34.5. Duty to give reasons applies to administrative orders but not to legislative orders. 35. Issuance of a notification under Section 11-C of the Act is in the nature of subordinate legislation. Directing the Government to issue such a notification would amount to take a policy decision in a particular manner, which is impermissible. This Court dealt with this aspect recently in Census Commr. v. R. Krishnamurthy (2015) 2 SCC 796). The following discussion from the said judgment is useful and worth a quote: 25. Interference with the policy decision and issue of a mandamus to frame a policy in a particular manner are absolutely different. The Act has conferred power on the Central Government to issue notification regarding the manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular law. Similarly, when an executive authority exercises a legislative power by way of a subordinate legislation pursuant to the delegated authority of a legislature, such executive authority cannot be asked to enact a law which it has been empowered to do under the delegated legislative authority. This view has been reiterated in State of J K v A.R. Zakki (1992suppl.1 SCC 548). In A.K. Roy v. Union of India's (1982(1) SCC 271) it was held that no mandamus can be issued to enforce an Act which has been passed by the legislature. 29. In this context, it is fruitful to refer to the authority in Rustom Cavasjee Cooper v. Union of India (1970(1) SCC 248), wherein it has been expressed thus: '63..... It is again not for this Court to consider the relative merits of the different political theories or economic policies... This Court has the power to strike down a law on the ground of want of authority, but the Court will not sit in appeal over the policy of Parliament in enacting a law. (emphasis supplied) xxx xxxx xxxx 39. The matter can be looked into from another angle as well. When power is given to the Central Government to issue a notificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government would have notified long term specified asset/fund for investment before Ist April 2019. In as much as the unit(s) in the fund notified by the Central Government ought to have been issued before Ist April 2019. The Central Government has not issued necessary notification for availing the benefit under Section 54EE. As the Government has not notified a 'long term specified asset or fund, can it be said that since, the Central Government held out a promise to issue a notification, the Government is estopped from not issuing a notification. A person would not be entitled to claim exemption from payment of capital gain tax on transfer of long term capital asset to an extent of Rs. 50 lakhs without the necessary notification issued by the Central Government. 18. It is also well settled, the Government is competent to resile from a promise even if there is no manifest public interest is involved, provided no one is put in any adverse situation which cannot be rectified. As stated above, the fiscal decisions are in the prudence and realm of the executive. The reasons for which the Government did not issue notification is within the domain of the executive's disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d period and for the rest period tax was paid and therefore, the respondent's claim against recovery of tax for such period for which the Government had taken decision to abolish the said tax and also considering the fact that the respondents had passed on the benefit of exemption of purchase tax on the milk producers, the decision was rendered. 21. The Constitution Bench of the Supreme Court in the case of Ramanatha Pillai v State of Kerala (1973) 2 SCC 650 had held that the doctrine of promissory estoppel would not apply against an authority which owed a duty to the public. Doctrine of promissory estoppel would not apply against the state in its governmental, public or sovereign function except to prevent fraud or manifest injustice. It is also well settled that doctrine of promissory estoppel does not apply against legislative function of the Government. It would not be appropriate to burden the judgment with case law on the settled principle regarding applicability of doctrine of promissory estoppel. I, therefore, conclude by saying that the doctrine of promissory estoppel is not applicable in the facts of the present case. It is the prerogative of the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the exemption notification. 25. In paragraph-37 of the judgment in Augustan Textile Colours Ltd. v Director of Industries and another (supra) it is stated as follows: While the equitable principle of promissory estoppel requires a valid promise, based on which the promisee has changed its position, it is necessary to observe that the principle of legitimate expectation does not take into account such considerations. Instead, it is rooted in fundamental ideas like reasonableness, fairness and non-arbitrariness. 26. As discussed above, the principle of promissory estoppel is based on equity, it requires a valid promise based on which the promisee had changed its position. Whereas the principle of legitimate expectation is rooted in fundamental ideas like reasonableness, fairness and non-arbitrariness. 27. The petitioner would have been entitled for exemption on capital gain under Section 54EE only when he would have invested the proceeds from the transfer of capital gain in the notified long term specified asset/fund by the Government. The petitioner should know that unless such an asset is specified and fund is notified, he would not be entitled for exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X
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