2023 (12) TMI 549 - HC - Income Tax

Government cannot be compelled to notify long-term assets under Section 54EE for capital gains exemption

GETWELL MEDICARE Versus UNION OF INDIA, CENTRAL BOARD OF DIRECT TAXES, PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, INCOME TAX OFFICER, NON-CORP, CIRCLE 1 (1), ERNAKULAM

GETWELL MEDICARE Versus UNION OF INDIA, CENTRAL BOARD OF DIRECT TAXES, PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, INCOME TAX OFFICER, NON-CORP, CIRCLE 1 ... Issues Involved:1. Whether the failure to notify the 'long term specified asset' by the Central Government under clause-b of explanation (2) to Section 54EE of the Income Tax Act is arbitrary and in violation of Article 14 of the Constitution of India.2. Whether the Central Government can be held to be bound by the doctrine of promissory estoppel and direction be issued for notifying the long term specified asset under Section 54EE.3. Whether the petitioner has legitimate expectation of notification to be issued by the Central Government notifying the 'long term specified asset' for investment from the proceeds of sale/transfer of long term capital asset by the petitionerRs. If so, what relief can be granted to the petitioner at this point of timeRs.Summary:Issue 1: Arbitrariness and Violation of Article 14The petitioner argued that the Central Government's failure to notify the 'long term specified asset' under Section 54EE of the Income Tax Act was arbitrary and violated Article 14 of the Constitution of India. The court held that the decision not to notify the 'long term specified asset' falls within the domain of fiscal policy and prudence, which is an executive and policy decision. The court emphasized that it should not interfere with fiscal policy decisions unless they are made with an oblique end, extraneous purposes, or without applying relevant considerations. The court concluded that the Central Government's decision not to notify the 'long term specified asset' was not arbitrary and did not violate Article 14.Issue 2: Doctrine of Promissory EstoppelThe petitioner contended that the Central Government was bound by the doctrine of promissory estoppel due to the promise made during the introduction of the Finance Act, 2016, and subsequent press releases and statements by the Hon'ble Minister. The court held that the doctrine of promissory estoppel does not apply against the state in its governmental, public, or sovereign functions except to prevent fraud or manifest injustice. The court emphasized that the petitioner would not be entitled to claim exemption from capital gains tax without the necessary notification issued by the Central Government. The court concluded that the doctrine of promissory estoppel was not applicable in this case and rejected the petitioner's argument.Issue 3: Legitimate ExpectationThe petitioner argued that they had a legitimate expectation that the Central Government would notify the 'long term specified asset' before April 1, 2019, and had arranged their tax liability accordingly. The court held that the principle of legitimate expectation is rooted in reasonableness, fairness, and non-arbitrariness. The court concluded that non-issuance of the notification was not arbitrary, unfair, or unreasonable. The court emphasized that issuing a notification under Section 54EE lies within the exclusive domain of the executive and is a legislative function. The court found no substance in the petitioner's claim of legitimate expectation and rejected the writ petition.Conclusion:The court concluded that the Central Government's decision not to notify the 'long term specified asset' under Section 54EE was not arbitrary and did not violate Article 14. The doctrine of promissory estoppel was not applicable in this case, and the petitioner did not have a legitimate expectation for the issuance of the notification. The court rejected the writ petition but allowed the petitioner to make a representation to the Central Government regarding their demands, which should be dealt with expeditiously.