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TMI Blog2024 (6) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... et-off of loss under the head "income from house property" to the extent the amount of the loss exceeds two lakh rupees. against income under another head; as being ultra vires the provisions of the Constitution of India. b) ALTERNATIVELY issue a writ of Mandamus directing that Sub-section 3A to Section 71 of the Income Tax Act, 1961, is prospective in application and not applicable to the house loans raised prior to the amendment of the Income Tax Act, 1961 vide the Finance Act, 2017, i.e. prior to 01.04.2017 resulting in losses under the head "income from house property";" 2. The petitioner is a government employee who claims to have constructed his house in April, 2014 by incurring an expenditure of Rs.1.35 crore. The said construction was financed through a housing loan, partially raised from the IDBI Bank and the rest from his father, amounting to Rs.85,00,000/- and Rs.50,00,000/-, respectively. The annual rent for the said house in the Financial Year ["FY"] 2016-17 was computed to be Rs.1,20,000/-. 3. Since the house was constructed from borrowed capital, therefore, under Section 24 of the Act, the amount of interest payable on such capital was eligible for deduction from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the amendment is retrospective in nature, the same is against the principle of fairness which must be the basis for every legal rule. He asserted that the impugned amendment creates an unreasonable restriction on the existing statutory rights of the taxpayers and thus, deprives them of their rightful claims, which is violative of Articles 14 and 19 (1) (g) of the Constitution. 9. On the contrary, learned counsel for the respondent vehemently opposed the submissions. He submitted that the petitioner does not have any vested right to claim the benefit of the provisions in question in the same manner as he has been asserting since FY 2014-15. According to him, Section 31 of the Act of 2017 explicitly mentions that the said amendment will be applicable from AY 2018-19 onwards and carry forward of the unabsorbed losses shall be governed by the provisions of the Act. It was, therefore, contended that the submission of the petitioner with respect to the effect of amendment being retrospective is vague and devoid of any merits. 10. Learned counsel further submitted that the Legislature is duly empowered under the Constitution to levy and collect taxes and any such alleged right cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctions, namely:- (a) a sum equal to thirty percent of the annual value; (b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital: Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees: Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed two lakh rupees. Explanation.-Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see shall not be entitled to have such loss set off against income under the other head. (4) Where the net result of the computation under the head "Income from house property" is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall be first set off under sub-sections (1) and (2) and thereafter the loss referred to in Section 71A shall be set off in the relevant assessment year in accordance with the provisions of that section." 17. Undisputedly, adhering to the rigour of aforenoted provisions, the petitioner had assessed his tax liability and filed ITRs for respective FYs i.e., 2014-15, 2015-16 and 2016-17. During these FYs, the petitioner was duly allowed to set off the actual amount of loss under the head "Income from house property" against his salary income. 18. However, as per newly added sub-section (3A) to Section 71 of the Act, the set off of losses under the head "Income from house property" against any other head of income has been restricted to Rs.2 lakh for any particular AY beginning from AY 2018-19 and the same has triggered the controversy at hand. Section 31 of the Act of 2017, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impairs any vested right acquired under any existing laws, or creates a new obligation or imposes a new duty or attaches a new disability in respect to transactions or considerations already past." (See Craies on Statute Law, 7th Edn., p. 387.)" 21. Further, in the case of SEBI v. Rajkumar Nagpal [(2023) 8 SCC 274], the Supreme Court was of the opinion that operation of law in certain conditions which are antecedent to its passing would not render the same to be retrospective. The relevant paragraph of the said decision reads as under: - "102. Many decisions of this Court define "retroactivity" to mean laws which destroy or impair vested rights. In real terms, this is the definition of "retrospectivity" or "true retroactivity". "Quasi-retroactivity" or simply "retroactivity" on the other hand is a law which is applicable to an act or transaction that is still underway. Such an act or transaction has not been completed and is in the process of completion. Retroactive laws also apply where the status or character of a thing or situation arose prior to the passage of the law. Merely because a law operates on certain circumstances which are antecedent to its passing does not mean t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adversely impacting the fundamental rights enshrined in the Constitution. The element of disturbance of a vested right lies at the core of any challenge on the basis of retrospectivity. In the instant case, neither the old provisions, as they existed, nor the amended provisions endeavour to create or disturb any indefeasible right in favour of the petitioner so as to allow him to claim any legitimate expectation to set off the amount in the manner canvassed before us. 25. Therefore, in the absence of any such crystallized right, the argument of the petitioner that the concerned amendment is violative of Article 14 of the Constitution does not hold any water. Additionally, the insertion of sub-section (3A) does not take away the benefits of deduction provided to the petitioner in toto, rather it only attempts to circumscribe the indefinite amount of set off to a certain amount. The change introduced by the impugned legislation is a reflection of the larger policy of the Legislature and has an equalizing effect on all the taxpayers claiming any deduction under the abovementioned head. It does not have the effect of creation of any separate class or classification. The class or cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding Article 14 is only based on the test of reasonable classification and intelligible differentia, and the same has been turned down by us. There is no challenge on the ground of manifest arbitrariness. 28. Despite so, for the clarity of reasoning, we have no hesitation in noting that the impugned legislation does not fall foul of the test of manifest arbitrariness as well. The changes introduced by the legislation is well intended and is based on relevant considerations, including abuse of erstwhile provisions and financial health of the economy. The Legislature has been guided by verifiable data and has not proceeded in a whimsical manner. 29. With respect to the challenge raised in light of the infraction of fundamental right to trade under Article 19 (1) (g) of the Constitution, the scope of the said right cannot be extended to protect one's right to profit. The right to carry on any business is certainly subject to regulatory parameters and a challenge against any such regulatory parameter could not be premised on the sole basis that it curtails the profit. There ought to be an infraction of the Constitution for attracting judicial review. A crucial test for determining a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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