TaxTMI 
TaxTMI 
2023 (12) TMI 227
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....r area are eligible for deduction under Section 10AA of the Income Tax Act, 1961 (the Act). Petitioner also has commissioned another manufacturing facility in the Special Economic Zone (SEZ) located at Manjari, Pune, which commenced production during the Financial Year 2019-2020. 4. The Government of Maharashtra had, from time to time, issued several Industrial Policies and Schemes to promote industries in less developed areas of the State of Maharashtra. The present writ petition is concerned with one such scheme being, 'Package Scheme of Incentives, 2013', which came into effect from 1st April 2013 for a period of five years (hereinafter referred to as the said Scheme). The said Scheme provides for various incentives to major industries depending on the type of project and amount of investments they make. The benefits include stamp duty concessions, exemption from electricity duty and VAT/CST/SGST subsidy. 5. The said Scheme covered various eligible industrial units as specified from time to time which included biotechnology manufacturing units. Petitioner would fall in this category. The said Scheme covered various projects as defined in the Scheme including mega projects/....
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....subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than, - (a) the subsidy or grant or reimbursement which is take ninto account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43 or (b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be. 8. The effect of the impugned sub-clause is that subsidies, grants, cash incentives, duty drawback, waivers, concessions or reimbursements provided by the Central or State Governments either in cash or kind, will be included within the meaning of term "income" and consequently, will be taxable under the Act. The impugned sub-clause, however, excludes subsidies, grants or reimbursements which are taken into account to determine the actual cost of an asset in terms of Explanation 10 to clause (1) to Section 43. This reduces the actual c....
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.... constitutional scheme that tax can be imposed only on "income'. Capital or revenue receipt has to be determined on the basis of a "purpose test". These subsidies are not taxable under the Act. The impugned sub-clause seeks to do away with the classification and the purpose test; (c) The amendment does not create any distinction between taxability of a capital subsidy or revenue subsidy. Earlier it was held that the subsidy received on capital account is not income under Sections 4 and 5 of the Act or under Section 28 of the Act. However, by insertion of the impugned sub-clause, the said distinction is sought to be done away with. The amendment which removes the said distinction is contrary to the principles of "real income" theory which is one of the foundations for levy of income tax, and hence liable to be struck down as being unconstitutional and violative of fundamental rights; (d) The State Government provides incentives, in order to promote industries and employment from its own coffers and the disbursal of the incentives and benefits is through funds of the State. For the Central Government to tax these incentives and benefits as income of recipient will b....
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....e of the incentive subsidy. As held in Sahney Steel & Press Works Ltd. (Supra) and Ponni Sugars and Chemicals Ltd. (Supra), the test laid down was the "purpose test". The point of time at which the subsidy is paid is not relevant; the source of the subsidy is immaterial; the form of subsidy is equally immaterial. It is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. In the case at hand, the subsidy scheme was to enable petitioner to set up a new unit or expand the existing unit and, therefore, the receipt of the subsidy was on capital account; (b) The legislature has sought to artificially do away with the distinction between a revenue receipt and a capital receipt, without providing any legal or rationale for the same. If the object of the scheme is only one, i.e., to promote industrial development and generation of employment, which is the case under the said Scheme, the same can be only on capital account. Any benefit provided by the Governments to augment capital investment cannot by any means be treated as income. The impugned sub-clause seeks to obliterate the clear, well established and fundamental distincti....
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....ceipt, and consequently not an income, to introduce the impugned sub-clause in the teeth of the Supreme Court's decision is ultra vires the Constitution of India. (d) The impugned sub-clause is arbitrary and ultra vires toArticle 14 of the Constitution. The impugned sub-clause without any basis and reasons overrules settled judicial precedents of the Supreme Court and various High Courts which have held that the capital subsidy is not income and cannot be subject matter of tax under the Act. To overrule these decisions by a Parliamentary exercise and without removing the basis of these decisions is arbitrary and in violation of Article 14 of the Constitution. The impugned sub-clause is manifestly arbitrary as it seeks to tax all subsidy without making any distinction between a revenue receipt or capital receipt. Imposing tax on subsidies, irrespective of whether such subsidy is received on revenue account or capital account results in violation of Article 14 of the Constitution. The impugned sub-clause makes no distinction between capital subsidy and revenue subsidy. The failure to make a proper classification is also violative of Article 14. The impugned sub-clause do....
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....he Ponni Sugars and Chemicals Ltd. (Supra), Sahney Steel & Press Works Ltd. (Supra), Chaphalkar Brothers (Supra) and CIT V/s. Shree Balaji Alloys 7 ITR-OL 50 (SC), held that the subsidies received from the Central or the State Government, whether capital or revenue receipt has to be determined on the basis of "purpose test". Therefore, if the object of the assistance under the Subsidy Scheme is to enable the assessee to set up a new unit or to expand the existing unit, then the receipt of the subsidy was on capital account. These subsidies are not taxable under the Act. However, the impugned sub-clause seeks to do away with the classification and the purpose test, and consequently, all subsidies are treated as income to be taxable under the Act. In absence of any specific head, the income is to fall under the residuary head "income from other sources". This classification, however, may not be correct as these subsidies, if assumed to be subsidies, will be treated as business income. Therefore, in absence of any corresponding amendment to Section 28 of the Act, subsidies received on capital account remains outside the scope of Section 28 and thereby not taxable under the Act. ....
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....e does not make any distinction between a capital receipt and revenue receipt, the same is contrary to the very purpose for which it has been introduced, therefore, is liable to be struck down; (i) The importance of Sahney Steel & Press Works Ltd. (Supra) lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or expand the existing unit then the receipt of the subsidy was on capital account. (j) The House of Lords in the case of Seaham Harbour Dock Co. V/s. Crook (1931) 16 TC ....
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.... Bench of the Supreme Court summarised the entire case law and held that legislative overruling is not permissible. In Vodafone International Holdings BV V/s. Union of India 341 ITR 1 it was held that rights of management or controlling interest are not separate assets; they are incidental to the holding of shares. Similarly, controlling interest in a company is not an identifiable or distinct capital asset. The basis of this judgment was removed by inserting Explanation I to Section 2(14), which reads as under : [Explanation-1.]- For the removal of doubts, it is hereby clarified that "property" includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever. Similarly, in the same Vodafone case, it was held that a share of a company incorporated outside India cannot be treated as an asset located in India even if the company's value is derived from underlying assets located in India. By another amendment, the basis of this decision was removed under Section 9(1)(i). Explanation 5 was added whereby such shares were deemed to be situated in India, i.e.,....
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....t (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of Section 43 of the Act. Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement would support further income generation and since income is to be understood in the widest sense, these items have also been included in the scope of income. It is settled law that income is a word of elastic import; (b) With regards to the challenge of constitutional validity of the impugned sub-clause, it is settled that the following parameters have to be followed by Writ Courts for examining the constitutional validity of any provision namely : (i) Whether the law under challenge lacks legislative competence? (ii) Whether it violates any Article of Part III of the Constitution, particularly, Article 147? (iii) Whether the prescribed criteria and classification resultin....
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....ible and that judgment is largely a prophecy based on meagre and uninterpreted experience. As held in R. K. Garg V/s. Union of India and Ors. (1981) 4 SCC 675, there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. The Court also held that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. There, may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The Court must while examining the constitutional validity of a legislation of this kind be resilient, not rigid, forward looking, not static, liberal and not verbal. The Court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. It would be outside the province of the Court to consider if any particular immunity or exemption is necessary. The trial and error method is inh....
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....ud 354 US 457 (1957) was relied upon and the same is reproduced in paragraph 28 of State of Himachal Pradesh and Ors. V/s. Goel Bus Service Kullu 2023 SCC Online 46. The Revenue Department's approach towards taxation of concessions or subsidies is nuanced and specific. The tax is levied on the concession amount or the subsidy received, not the total transaction value. This ensures that the taxation is limited to the extra benefit accrued due to the state's incentive schemes, thereby upholding the principles of fairness and equity in taxation. This methodology aligns with the canons of taxation which advocate for fairness, equity, and simplicity, ensuring that the tax burden is proportionate and not unduly onerous. Petitioner's claim of an indirect rollback of incentives is unfounded as the incentives remain intact. The only aspect subjected to taxation is the monetary benefit derived from the subsidy or concession, which is a fair and justifiable tax base; (g) The Constitution safeguards the right to trade under Article 19(1)(g) but does not extend this protection to the right to profit. Petitioner's assertion that taxation of subsidies and concessions under t....
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....e rights under Part III - Constitution of India. FINDINGS : 14. The petition challenges sub-clause (xviii) of Section 2(24) of the Act, which petitioner believes infringes various provisions of the Constitution of India and oversteps the legislative competence of the Parliament. It is petitioner's case that by amending Section 2(24)(xviii), the legislature has essentially overruled judicial precedents that distinguished capital receipts from revenue receipts, subsuming both under "income" and subjecting them to taxation, thereby overriding the established legal principles. Petitioner's argument regarding the violation of Article 14 stems from the assertion that the amendment to Section 2(24)(xviii) of the Act, which brings various subsidies under the ambit of taxable income, is discriminatory and arbitrary. Petitioner's argument is based on the premise that such savings are not a gain or profit that accrues to the business but rather a reduction in expenditure. Petitioner's argument is that such amendment indiscriminately broadens the definition of income to include subsidies, without distinguishing between various types of subsidies and the purposes for which they are grante....
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....urse of a trade but was of capital nature. In Ponni Sugars and Chemicals Ltd. (Supra), while answering whether the incentive subsidy received by the assessee was a capital receipt not includible in the total income, the Apex Court in paragraphs 13 to 17 held as under : 13. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by th....
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....bsidy is given is irrelevant. 15. In the decision of House of Lords in the case of Seaham Harbour Dock Co. v. Crook (1931) 16 TC 333 the Harbour Dock Co. had applied for grants from the Unemployment Grants Committee from funds appropriated by Parliament. The said grants were paid as the work progressed the payments were made several times for some years. The Dock Co. had undertaken the work of extension of its docks. The extended dock was for relieving the unemployment. The main purpose was relief from unemployment. Therefore, the House of Lords held that the financial assistance given to the company for dock extension cannot be regarded as a trade receipt. It was found by the House of Lords that the assistance had nothing to do with the trading of the company because the work undertaken was dock extension. According to the House of Lords, the assistance in the form of a grant was made by the Government with the object that by its use men might be kept in employment and, therefore, its receipt was capital in nature. The importance of the judgment lies in the fact that the company had applied for financial assistance to the Unemployment Grants Committee. The Committee gave ....
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....mittee from funds appropriated by Parliament. The said grants were paid as the work progressed and were equivalent to half the interest on approved expenditure met out of loans. The payment were made several times a year for some years. The Dock company had undertaken an extension of its docks. The extended dock was also for relieving unemployment problem. Because the work undertaken was extension of the dock and the main purpose was relief of unemployment, the House of Lords held that the financial assistance given to the company for extension of the dock cannot be regarded as trade receipt. It was found that the assistance had nothing to do with trading of the company because the work undertaken was dock extension. Lord Buckmaster, in his judgment, wrote as under : Now I do not myself think that the matter can be put more succinctly than it was put by Mr. Hills when he said : "Was this a trade receipt?", and my answer is most unhesitatingly : No. It appears to me that it was nothing whatever of the kind. It was a grant which was made by a government department with the idea that by its use men might be kept in employment, and it was paid to and received by the Dock Compa....
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.... If income does not result at all, there cannot be a tax, even though in book-keeping an entry is made about a hypothetical income, which does not materialise. 21. Before the amendment through the Finance Act, 2015, the Supreme Court applied the "purpose test" to determine whether a subsidy was a capital or revenue receipt. In the landmark cases of Sahney Steel and Press Works Ltd. (Supra) and Ponni Sugars and Chemicals Ltd. (Supra), the Court held that if the subsidy's purpose was to help the assessee run the business more profitably or meet daily business expenses, it was considered a revenue receipt (and thus taxable). Conversely, if the subsidy aimed at setting up a new unit or expanding an existing unit, it was deemed a capital receipt (and not taxable). The Finance Act, 2015, significantly altered the landscape by introducing sub-clause (xviii) to Section 2(24) of the Act. This amendment defined any assistance in the form of subsidy, grant, cash incentive, duty drawback, waiver, concession, or reimbursement provided by the Central or State Government as income, hence taxable, unless used to determine the actual cost of an asset. This amendment sought to end disputes by....
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....e judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. It would be outside the province of the Court to consider if any particular immunity or exemption is necessary or not for the purpose of inducing disclosure of black money. The trial and error method is inherent in every legislative effort to deal with an obstinate social or economic issue and if it is found that any immunity or exemption granted under the Act is being utilised for tax evasion or avoidance not intended by the legislature, the Act can always be amended and the abuse terminated. Paragraphs 7, 8, 16 and 19 of R. K. Garg (Supra) read as under : 7. Now while considering the constitutional validity of a statute said to be violative of Article 14, it is necessary to bear in mind certain well established principles which have been evolved by the courts as rules of guidance in discharge of its constitutional function of judicial review. The first rule is that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has bee....
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....at many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry" that exact wisdom and nice adoption of remedy are not always possible and that "judgment is largely a prophecy based on meagre and un-interpreted experience". Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There, may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Reig Refining Company 94 Lawyers Edition 381 be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its l....
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....ts may differ. The court must while examining the constitutional validity of a legislation of this kind, "be resilient, not rigid, forward looking, not static, liberal, not verbal" and the court must always bear in mind the constitutional proposition enunciated by the Supreme Court of the United States in Munn v. Illinois namely, "that courts do not substitute their social and economic beliefs for the judgment of legislative bodies". The court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. The court should constantly remind itself of what the Supreme Court of the United States said in Metropolis Theater Co. v. City of Chicago : The problems of government are practical ones and may justify, if they do not require, rough accommodations, illogical it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible, the wisdom of any choice may be disputed or condemned. Mere errors of government are not subject to our judicial review. It is true that one or the other of th....
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....ve permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. 24. Therefore, though taxing laws are not outside Article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy, legislature enjoys a wide latitude in the matter of taxation. Legislative assumption cannot be condemned as irrational. Judicial veto is to be exercised only in cases that leave no room for reasonable doubt. Constitutionality is presumed. Every statute, including fiscal statutes, comes with a presumption of constitutionality unless proven otherwise. The onus falls on petitioner to demonstrate a clear transgression of constitutional principles. In the realm of fiscal laws, the presumption of constitutionality is particularly significant due to the complex nature of economic regulation. Since these laws are instrumental in the financial governance of the state and are often the outcome of detailed economic planning and consideration, courts are inclined to approach them with deference. Unless a ....
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....of selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions. A legislature does not as an old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of this Court on the matter have permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. 47. But, with all this latitude certain irreducible desiderata of equality shall govern classifications for differential treatment in taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. But this alone is not sufficient. Differentia must have a rational nexus with the obje....
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.... reasonable classification. It is based on the use to which those goods can be put. Hence, in our opinion, the impugned classification is not violative of Article 14." 51. In State of Gujarat v. Sri Ambika Mills Ltd., Mathew J. said : "Statutes are directed to less than universal situations. Law reflects distinction that exist in fact or at least appear to exist in the judgment of legislators - those who have the responsibility for making law fit fact. Legislation is essentially empiric. It ad- dresses itself to the more or less crude outside world and not to the neat, logical models of the mind. Classification is inherent in legislation. To recognize marked differences that exist in fact is living law; to disregard practical differences and concentrate on some abstract identities is lifeless logic." and concluded "In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of econom....
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....ial accommodation is priced at over Rs.400 per day per individual is, in the legislative wisdom, considered a class apart by virtue of the economic superiority of those who might enjoy its custom, comforts and services. This legislative assumption cannot be condemned as irrational. It is equally well recognised that judicial veto is to be exercised only in cases that leave no room for reasonable doubt. Constitutionally is presumed. These words of James Bradley Thayer may be recalled : "This rule recognizes that, having regard to the great, complex ever-unfolding exigencies of government, much which will seem unconstitutional to one man, or body of men, may reasonably not seem so to another; that the constitution often admits of different interpretations; that there is often a range of choice and judgment; that in such cases the constitution does not impose upon the legislature any one specific opinion, but leaves open this range of choice; and that whatever choice is rational is constitutional." 55. Thayer also referred to the words of a Chief Justice of Pennsylvania way back in 1811 which are also worth recalling : "For weighty reasons, it has been assum....
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....established legislative practice which would enable one to limit the concept of an expenditure tax in the manner suggested. So far as expenditure tax is concerned, the only legislation earlier in force was the 1957 Act which was in force for a period of eight years. Such short lived legislation can hardly furnish the foundation of an argument to limit the scope of legislative power to the manner in which it was exercised under that enactment. If, after withdrawing this legislation, Parliament considered that it was not worthwhile or possible to impose a tax on all expenditure and that it would be sufficient, expedient or necessary to impose such a levy only on lavish spending in certain directions, that cannot certainly be precluded on any theory of established legislative practice, as was done in State of Madras v. Gannon Dunkerley Co., in respect of sales tax. In that case the legislative trend prevalent over decades was relied upon in interpreting the expression "sale of goods" used in the Constitution. But there the Court was concerned with a legal term, "sale", which had acquired a definite connotation in law and in legislative instruments and that analogy cannot be availed of....
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....ssity to uphold constitutional mandates with the practical implications of interfering with legislative judgments in fiscal matters. In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events - self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The Apex Court, in State of Himachal Pradesh (Supra) in paragraphs 27 to 30, held as under : 27. It is by now well settled that any tax legislation may not be easily interfered with. The Courts must show judicial restraint to interfere with tax legislation unless it is shown and proved that such taxing statute is manifestly unjust or glaringly unconstitutional. Taxing statutes cannot be placed or tested or viewed on the same principles as laws affecting c....
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.... state that in the context of a changed economic scenario the expertise of the people dealing with the subject should not be lightly interfered with. It was also observed that while dealing with economic legislation, this court would interfere only in those few cases where the view reflected in the legislation is not possible to be taken at all. 30. In the case of Indian Oil Corporation Limited vs. State of Bihar and another, (2018) 1 SCC 242, provisions of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act 1993, was under challenge. Justice Nariman speaking for the Bench observed in paragraph 25 that when it comes to taxing statute, the law laid down by this Court is clear that it can be said to be breach only when there is perversity or gross disparity resulting in clear and hostile discrimination without any rational justification for the same. (emphasis supplied) 28. It was submitted on behalf of petitioner that the test of manifest arbitrariness was a ground to invalidate even the primary legislation and Mr. Datar relied upon Shayara Bano V/s. Union of India 1981 (4) SCC 675 and In Re Natural Resources Allocation 1989 (3) S....
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....rovision. The raison d'être behind this self-imposed restriction is because of the fundamental reason that different organs of the State do not scrutinise each other's wisdom in the exercise of their duties. The time-tested principle of checks and balances does not empower the Court to question the motives or wisdom of the legislature, except in circumstances when the same is demonstrated from the enacted law. The approach of constitutional Courts ought to be different while dealing with fiscal statutes. It is trite that the legislature is the best forum to weigh different problems in the fiscal domain and form policies to address the same including to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to new regulatory measures. In the very nature of taxing statutes, the legislature holds the power to frame laws to plug in specific leakages. "Such laws are always pin-pointed in nature and are only meant to target a specific avenue of taxability depending upon the experiences of tax evasion and tax avoidance at the ground level". The general principles of exclusion and inclusion does not apply to taxing statutes w....
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....s arbitrary or unreasonable or irrational but some constitutional infirmity has to be found, (iii) the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law as Parliament and State Legislatures are supposed to be alive to the needs of the people whom they represent and they are the best judge of the community by whose suffrage they come into existence, (iv) hardship is not relevant in pronouncing on the constitutional validity of a fiscal statute or economic law, and (v) in the field of taxation, the legislature enjoys greater latitude for classification....." 17. In the present case, the legislative power of the Parliament to enact clause (f) in the light of Article 245 is not doubted at all. That brings us to the next step of examination i.e. whether the said clause contravenes any right enshrined in Part III of the Constitution, either in its form, substance or effect. It is no more res integra that the examination of the Court begins with a presumption in favour of constitutionality. This presumption is not just borne out of judicial discipline and prudence, but also out of the basic scheme ....
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....latory measures. In the very nature of taxing statutes, legislature holds the power to frame laws to plug in specific leakages. Such laws are always pinpointed in nature and are only meant to target a specific avenue of taxability depending upon the experiences of tax evasion and tax avoidance at the ground level. The general principles of exclusion and inclusion do not apply to taxing statutes with the same vigour unless the law reeks of constitutional infirmities. No doubt, fiscal statutes must comply with the tenets of Article 14. However, a larger discretion is given to the legislature in taxing statutes than in other spheres. In Anant Mills Co. Ltd. vs. State of Gujarat & Ors. 16, this Court noted thus : "25. ...But, in the application of the principles, the courts, in view of the inherent complexity of fiscal adjustment of diverse elements, permit a larger discretion to the legislature in the matter of classification so long as it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reasonable ways..." Viewed....
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....ader economic and policy considerations. Profits, by their nature, are subject to fluctuations resulting from various factors, taxation being but one. It is the duty of the legislature to ensure that taxation policy reflects a balance between incentivizing economic activity and ensuring the equitable distribution of fiscal resources. Section 2(24)(xviii) of the Act is an example of this balancing act, and its imposition is a reflection of a subsidy's life cycle coming to its fiscal fruition. Petitioner's argument, is ostensibly rooted in concerns over profitability. This does not, in substance, however, provide a tenable basis to impugn the constitutional validity of the amended provision. Hence, petitioner's argument of eroded profitability due to taxation lacks constitutional merit. An extension of this logic could open floodgates of untenable demands from loss-incurring entities seeking tax exemptions to improve profitability. This could potentially create a taxing standard that is inconsistent and prone to manipulations; In Nazeria Motor Service etc. (Supra), the Apex Court held that even on the assumption that the profits would be diminished or greatly reduced, it c....
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....d nor has any attempt been made to satisfy us that the provisions of the impugned Validating Act with regard to imposition of tax are not in public interest. 8. This is sufficient to dispose of the challenge under Article 19(1)(g), as well. We may in this connection refer briefly to the conclusion of the High Court which was reached on a consideration of the affidavits filed before it. It has been found that there is no material which would warrant the conclusion that the increase in the surcharge of the fares and freight contemplated by the impugned Validating Act would constitute an impediment to the trade. The utmost that could be said was that it would result in the diminution of profits. Even on the assumption that the profits would be diminished or greatly reduced it cannot be held that there is any infringement of Article 19(1)(g). (emphasis supplied) 32. Taxation is an economic reality that every business entity must contend with. The interplay between taxation and profitability is a complex one, subject to numerous variables beyond merely the taxation of subsidies. The mere fact that a tax falls more heavily on certain goods or persons may not result in its ....
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....Datar's submissions that the parliament to remove the basis of the Hon'ble Supreme Court rulings on subsidies should have done it by a suitable explanation and not by the impugned sub clause, it is settled law as held in Hindustan Gum and Chemicals Ltd. vs. State of Haryana and Ors. (1985) 4 SCC 124 that it is permissible for a competent Legislature to overcome the effect of a decision of a Court setting aside imposition of tax by passing a suitable legislation, by amending the relevant provisions of the statute concerned with retrospective effect, thus taking away the basis on which the decision of the Court had been rendered and by enacting an appropriate provision validating the levy and collection of tax made before the decision in question was rendered. 35. As stated earlier, it should be left to the wisdom of the Legislature to decide whether there should be an amendment or explanation. 36. We are unable to find or even assume that what the legislature has done for inserting the impugned sub-clause is irrational. There is no room for any doubt. There is nothing to even question the constitutionality and in our view petitioner has not been able to demonstrate a clear tra....
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.... for consideration was whether it was open to the Revenue to include in the income of the assessee any amount calculated in accordance with Section 23(2) of the Act in respect of a house in the occupation of the assessee for the purposes of his own residence. The assessee contended that inclusion of any amount under Section 23(2) of the Act in his income was unconstitutional as there could be no income at all in such a case accruing to him in the true sense of that term. The liability that was sought to be imposed under the Act in respect of his residential house was, therefore, in its pith and substance a tax on building falling under Entry 49 of List II of the Seventh Schedule to the Constitution and hence, Parliament could not impose the said liability under a law made in exercise of its legislative power under Entry 82 of List I of the Seventh Schedule to the Constitution which authorised it only to levy taxes on income other than agricultural income. The argument made by the assessee was that as assessee is not deriving any monetary benefit by residing in his own house, no tax can be levied on him on the ground that he is deriving income from that house. It was contended that ....
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....dia Act, 1935 was enacted when the Indian Income-tax Act, 1922 was in force. Section 9 of the Indian Income-tax Act, 1922 provided for levy of income tax on the basis of the bona fide annual value of the property even when it was in the occupation of the assessee for the purposes of his own residence. While enacting entry 54 of list I of the Seventh Schedule to the Government of India Act, 1935, the British Parliament must have had in its view the Indian Income-tax Act, 1922 which was probably the only law relating to tax on incomes in force in British India then. Similarly the Constituent Assembly while enacting Entry 82 of List I of the Seventh Schedule to the Constitution must have understood that the word 'income' used in that Entry would in any event include within its scope all items which came within the definition of income and were subjected to charge in the Indian Income-tax Act, 1922 which was in force at the time the Constitution was adopted. That the Constitution makers had the Indian Income- tax Act, 1922 in their view is borne out from Article 270(1) of the Constitution which provides for collection of taxes on income by the Government of India and distributi....