Prospective operation of section 45(5A) upheld; new capital gains regime was not treated as retrospective or discriminatory.

Section 45(5A) of the Income-tax Act was held to operate prospectively from 01.04.2018 because the amendment expressly fixed a future commencement date and introduced a substantive change in the capital gains regime for specified individual and Hindu undivided family assessees. The provision was not treated as a mere clarification or remedial measure with retrospective effect. The Court also found no Article 14 violation, since the distinction between transactions before and after the cut-off date flowed from a lawful legislative classification based on the date of operation. The challenge to the amendment therefore failed.

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Issues: (i) Whether insertion of section 45(5A) of the Income-tax Act, 1961 by the Finance Act, 2017 operates retrospectively or only prospectively from 01.04.2018; (ii) Whether the prospective operation of section 45(5A) creates unconstitutional discrimination under Article 14 of the Constitution of India.

Issue (i): Whether insertion of section 45(5A) of the Income-tax Act, 1961 by the Finance Act, 2017 operates retrospectively or only prospectively from 01.04.2018.

Analysis: The amendment expressly states that it takes effect from 01.04.2018. The legal principles governing retrospectivity require the Court to determine whether an amendment is clarificatory or substantive, and whether it merely removes unintended hardship or makes a real change in legal rights and obligations. The provision introduced a new regime for capital gains arising to individual and Hindu undivided family assessees from transfers under specified agreements, tying taxability to the issue of the completion certificate and limiting the benefit to identified classes of assessees. That change was not a mere clarification of existing law and could not be treated as a remedial provision relating back to the original enactment.

Conclusion: The amendment is prospective and does not operate retrospectively.

Issue (ii): Whether the prospective operation of section 45(5A) creates unconstitutional discrimination under Article 14 of the Constitution of India.

Analysis: The differentiation complained of rests on the date of commencement of the amendment and the class of assessees chosen by Parliament. Persons entering into development agreements before 01.04.2018 continued to be governed by the pre-existing statutory regime, while the new regime applied only thereafter. A mere legislative choice to alter the method and timing of computation for a defined class of assessees does not amount to hostile discrimination when the classification is tied to the date from which the new provision was made operative. The amendment was found to be a substantive prospective change, not a concealed retrospective benefit denied to an equal class.

Conclusion: No violation of Article 14 is made out.

Final Conclusion: The challenge to the amendment failed, and the writ petitions were dismissed, leaving the parties to pursue their statutory remedies on individual facts.

Ratio Decidendi: An amendment that expressly takes effect from a specified future date and introduces a substantive change in the tax regime cannot be treated as retrospective merely because it is said to alleviate hardship or because similar transactions before the cut-off date are governed differently.

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