Income Tax Act Section 71(3A) caps house property loss set-off at Rs 2 lakh upheld as constitutional

Delhi HC dismissed petitioner's constitutional challenge to Section 71(3A) of Income Tax Act, 1961 inserted by Finance Act 2017, which caps set-off of house property losses against other income at Rs. 2 lakh. Court held the amendment is prospective from April 1, 2018, not retrospective, and constitutionally valid. The provision doesn't violate Article 14 as it applies uniformly to all taxpayers without discriminatory classification, represents reasonable policy to prevent abuse of earlier provisions, and doesn't create manifest arbitrariness. Article 19(1)(g) challenge also failed as the restriction is proportionate and doesn't absolutely prohibit deduction rights. Court emphasized Legislature's wide latitude in fiscal measures and rejected petitioner's promissory estoppel argument.

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Issues Involved:

1. Constitutional validity of Section 31 of the Finance Act, 2017.
2. Retrospective application of Section 31 of the Finance Act, 2017.
3. Violation of Articles 14 and 19 (1) (g) of the Constitution of India.

Summary:

1. Constitutional Validity of Section 31 of the Finance Act, 2017:
The petitioner challenged the constitutional validity of Section 31 of the Finance Act, 2017, which inserted sub-section (3A) to Section 71 of the Income Tax Act, 1961, restricting the set-off of loss under the head "Income from house property" to Rs. 2 lakh against income under other heads. The petitioner argued that this amendment was ultra vires the Constitution of India. The Court held that the amendment was within the legislative competence of the Parliament and did not violate any constitutional provisions. The Court noted that the amendment was a policy decision aimed at preventing abuse of tax provisions and was based on relevant considerations, including the financial health of the economy.

2. Retrospective Application of Section 31 of the Finance Act, 2017:
The petitioner contended that the amendment was retrospective in nature and imposed a heavy tax liability on him. The Court referred to the Supreme Court's definition of retrospectivity and concluded that the amendment was not retrospective as it applied prospectively from Assessment Year (AY) 2018-19 onwards. The Court emphasized that the amendment did not disturb any vested rights of the petitioner and was not arbitrary or unconstitutional.

3. Violation of Articles 14 and 19 (1) (g) of the Constitution of India:
The petitioner argued that the amendment created an unreasonable restriction on his existing statutory rights and was violative of Articles 14 and 19 (1) (g) of the Constitution. The Court held that the amendment did not create any discriminatory classification and was applicable to all taxpayers equally. The Court further stated that the amendment was a reasonable regulatory measure and did not infringe upon the petitioner's fundamental rights. The Court applied the test of proportionality and found that the amendment was proportionate to the objective sought to be achieved.

Conclusion:
The Court dismissed the writ petition, holding that the amendment to Section 71 of the Income Tax Act, 1961, was constitutionally valid, applied prospectively, and did not violate Articles 14 and 19 (1) (g) of the Constitution. The petitioner's arguments were found to be without merit, and the pending applications were also disposed of.

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