MR.BHASKAR BHATTACHARYA v. COMMISSIONER OF INCOME TAX RAJKOT & Ors.

Judgment

1. All these writ-applications were taken up together pursuant to the order passed by the Supreme Court of India. By the said order, the Apex court transferred these matters pending before various High Courts to this court for considering whether the severable parts of the 3rd and 4th proviso to section 80 HHC (3) of the Income Tax Act, 1961 [the Act, hereafter] are ultra vires Articles 14 and 19 (1) (g) of the Constitution of India. By way of consequential relief, the petitioners have prayed for direction upon the respondents not to give effect to those severable parts of the third and the fourth proviso to section 80 HHC (3) of the Act and for prohibiting them from taking any action by taking aid of those provisos.

2. The facts giving rise to the filing of these matters may be summed up thus: SCA/7926/2006 JUDGMENT

2.1 In all these matters, the constitutional validity of insertion of conditions in the third and the forth provisos to section 80 HHC (3) of the Act by amendment of Taxation Laws (Second Amendment) Act, 2005 with retrospective effect is challenged. According to the petitioners, the benefit of deduction under section 80 HHC of the Act was available to them from the Assessment Year 1988-99 to the Assessment Year 2004-05. They claim that they have settled their affairs based on availability of the said benefit up to 31st March 2004 and by the amendment challenged in these writ-applications, the respondents seek to take away the benefit retrospectively after the entire period of benefit is over on 31st March 2004. They contend that the amendment seeks to grant some conditional benefit selectively to certain assessees in January 2006 with retrospective effect for the period from A.Y. 1988-89 to A.Y. 2004-05. The petitioners allege that the impugned portion of the said amendment discriminates between the assessee falling in the same class, which is prohibited by Article 14 of the Constitution of India and at the same time, imposes new pre-conditions retrospectively for being eligible for deduction under section 80 HHC of the Act. The petitioners further contend that the said amendment denies retrospectively the deduction under section 80 HHC to the exporters having turnover of more than Rs.10 Crore although as evident from the history of deduction u/s 80 HHC, the exporters were encouraged to increase the turnover as an incentive to avail the deduction u/s 80 HHC. The petitioners point out that the amendment grants deduction with respect to export having turnover SCA/7926/2006 JUDGMENT of more than Rs.10 Crore whose products are notified or eligible for both Duty Drawback Scheme and Duty Entitlement Pass Book Scheme [for short, DEPB hereafter] and the rate of duty draw back is higher than DEPB while rest of the exporters are singled out without there being any rational basis for making the aforesaid classification. The petitioners contend that the said denial is against the principle of promissory estoppel. They further contend that the amendment seeks to upset the financial structuring based on which the assessees had arranged and planned their business affairs and the amendment also upsets the settled law laid down by the Tribunal which is binding on the petitioners and the respondents.

3. These applications have been opposed by the respondents thereby contending that the amendment made in section 80 HHC by the Taxation Law and (Amendment) Act, 2005 with retrospective effect from 1st April 1998 by way of adding second, third, forth and fifth proviso to section 80 HHC (3) and inserting clause (iiid) and (iiie) in section 28 with effect from 1st April 1998 and 1st April 2001 respectively was a beneficial legislation conferring the benefit of section 80 HHC on the assessees also in respect of the profit on the transfer of the DEPB Scheme and Duty Free Replenishment Certificate which was not available before this amendment. According to the respondents, it would appear from paragraph 3 of the Statement of Objects and Reasons made while introducing the Taxation Laws (Second Amendment) Bill 2005 that in order to extend certain tax SCA/7926/2006 JUDGMENT incentive to the export business with effect from the Assessment Year 1998-99, it was proposed that the deductions allowable under section 80 HHC of the Act for export business may be extended to any profit on transfer of the DEPB Scheme or the Duty Free Replenishment Certificate subject to certain specified conditions.

3.1 The respondents further contend that the classification of the assessees on the basis of quantum of export turnover being more or less than Rs.10 Crore is a reasonable classification permitted by Article 14 of the Constitution of India. The respondents contend that the classification in terms of quantum of income or quantum of turnover is embedded all through in the Act as can be seen from Section 44AA(2), 44AB and 139(4A). It is further contended by the respondents that the beneficial nature of the impugned amendments made by the Taxation Laws (Amendment) Act, 2005 in section 80 HHC is further clear from the first proviso to section 80 HHC(3) added by the same amendment Act providing for set off of loss worked out under clauses (a), (b) or (c) of section 80 HHC (3) against proportionate amount of ninety per cent of export incentives with effect from 1st April 1992. According to the respondents, it thus becomes clear from the fact that based on the ratio of the Supreme Court decision in the case of IPCA LABORATORIES v/s DCIT reported in 266 ITR 521 (SC) it had been held in several decisions that in case the result of computation under section 80 HHC (3) (a), (b) and (c) is a loss, no deduction was at all admissible with reference SCA/7926/2006 JUDGMENT to the export incentives under the proviso to section 80 HHC (3) of the Act. According to the respondents, by the proposed amendment, the law was rationalized in favour of the assessees by overruling the above decisions, which were in favour of the Revenue and consequently, retrospectiveness of such legislation beneficial to the assessee is not questionable. The respondents have, therefore, prayed for dismissal of the writ-applications.

4. Mr. S.N. Soparkar, Mr. Manish J. Shah, Mr. Ketan H. Shah, Mr. Jayakumar, Mr. Tushar Hemani and Mr. Akhileshwar Sharma, learned advocates made submissions in support of the petitioners while Mr. Mohan Parasaran, learned Additional Solicitor General, Mr. G.C. Srivastava, Mr. Gaurav Dhingra, Mr. Manish R Bhatt with Ms. Mauna R Bhatt, Mr. Pranav G Desai, Ms. Paurami Sheth, Mr. Ketan Parikh, Mr.

Sudhir Mehta and Mr. Mishra appeared on behalf of the respondents to oppose the writ-applications.

5. The sum and substance of the contentions made by the learned counsel on behalf of the petitioners may be enumerated below:-

5.1. The impugned Amendment is arbitrary and unreasonable: According to the learned counsel for the petitioners, the benefit, which was conferred from A.Y. 1998-99 to A.Y. 2004-05, was obviously the basis of entire financial structuring of the petitioners’ business SCA/7926/2006 JUDGMENT including the pricing of export, payments of dividends, distribution of profits etc. They contend that the impugned amendment purports to retrospectively take away the benefit on the basis that exporter having turnover of more than Rs.10 Crore will get the benefit if he has evidence to prove that he had an option to choose either duty drawback or DEPB and that he chose DEPB, even when he was entitled to higher benefit under the duty drawback scheme. This, according to the learned counsel for the petitioners, is an absurd condition which no sensible person can ever exercise the option to choose a scheme under which he would get lesser benefit. Moreover, according to the learned advocates for the petitioners, to impose such condition retrospectively and requiring such person to prove that he had such an option in past and he had exercised it to avail lesser benefit is totally arbitrary, capricious, unjust, unfair, discriminatory and violative of both Article 14 & Article 19 (1) (g) of the Constitution. In support of such contention, the learned advocates for the petitioners rely upon the following decisions:- (1) MARADIA CHEMICALS LTD. VS. UNION OF INDIA