Sharda Aggarwal, J.@mdashBy this writ petition under Article 226 of the Constitution of India, the petitioner has challenged the constitutional validity of Sub-section 1C of Section 54E of the Income Tax Act, 1961 (for short the Act), as introduced by the Finance Act, 1992, praying that the words and figures "29th day of February, 1992" in the said Section be struck down and instead the words and figures "31st day of March, 1992" be substituted.
2. The Finance Act, 1992, by amending Section 54E(1) of the Act, withdrew the exemption from tax in respect of long term capital gains from the assessment year 1993-34. Under this provision, as it stood prior to the amendment, exemption from tax in respect of long term capital gains was allowed u/s 54E(1) to the extent the net consideration was invested or deposited in any specified asset prescribed in that Section within a period of six months from the date of transfer.
3. Section 54E(1) of the Act prior to the amendment of 1992 stood as under:
"54E. (1) Where the capital gain arises from the transfer of a long term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessed has, within a period of six months after the date of such transfer, invested or deposited the (whole or any part of the net consideration) in any specified asset (such specified asset being hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say-
(a) If the cost of the new asset is not less than the [net consideration] in respect of the original asset, the whole of such capital gain shall not be charged u/s 45;
(b) if the scoots the new asset is less than the [net consideration] in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the [net consideration] shall not be charged u/s 45:
Provided that in a case where the original asset is transferred after the 28th day of February, 1983, the provisions of this sub-section shall not apply unless the assessed has invested or deposited the whole or, as the case may be, any part of the net consideration in the new asset by initially subscribing to such new asset:
Provided further that in a case where the transfer of the original asset is by way of compulsory acquisition under any law and the full amount of compensation avoided for such acquisition is not received by the assessed on the date of such transfer, the period of six months referred to in this sub-section shall, in relation to so much of such compensation as is not received on the date of the transfer, be reckoned from the date immediately following the date on which such compensation is received by the assessed [or the 31st day of March, 1992, whichever is earlier].
x x x x x x x x x x"
4. As technically the interpretation of Section 54E(1) of the Act could mean that exemption from tax or capital gains would not be available if part of the consideration was invested prior to the date of execution of the sale deed, the Department''s Circular No. 359 of 10th May, 1983 clarified and interpreted the provision to read, as the earnest money or advance was part of the sale consideration, if the assessed invested the same in specified asset before the date of transfer of such asset, the amount so invested would qualify for exemption u/s 54E(1) of the Act. This Circular was only to elaborate and explain the unamended provision u/s 54E(1) of the Act.
5. As a policy matter, keeping in view the economic changes in the country, major re-structuring of capital gains was undertaken and as a measure of rationalization and simplification, the provisions contained in Section 54E(1) of the Act were withdrawn from the assessment year 1993-94. Relevant para of the budget speech dated 29th February, 1992 of the Finance Minister for the year 1992-93 is as under:
"The present tax treatment of long term capital gains has been criticised on the ground that the deduction allowed in computing taxable gain is not related to the period of time for which the asset has been held. It does not take into account the inflation that may have occurred over time. The Chelliah Committee has suggested a system of indexation to take care of the problem and I propose to accept its recommendation. Taxable capital gains will be computed by allowing the cost of the asset to be adjusted for general inflation before adjustment factor for each year will be notified by the Central Government. The long term capital gains thus computed will be taxed at 20 per cent in the case of individuals and HUFs, 40 per cent, in the case of companies, firms, associations of persons and bodies of individuals and 30 per cent, in the case of others. The new system will favor those whose capital gains accrue over a longer period, while those making capital gains over a shorter period will pay a higher tax. This is as it should be. The cut off date for valuation is also being shifted from 1st April, 1974 to 1st April, 1981. With these changes, I propose to withdraw the standard deduction in computing taxable capital gains and also the exemption I u/s 54E for capital gains invested in specified assets and Section 53 in respect of capital gains arising from sale of residential house."
6. Clause 30 of the Finance Bill, 1992 proposed the following amendments in Section 54E(1) of the Act:
"30. Amendment of Section 54E--In Section 54E of the Income Tax Act, in Sub-section (1)-
(a) after the words "long term capital asset", the words, figures and letters "before the 1st day of April, 1992" shall be inserted;
(b) in the second proviso, the words, figures and letters "or the 31st day of March, 1992, whichever is earlier" shall be inserted at the end."
7. The Finance Bill, 1992 was presented in the Parliament on 29th February, 1992. Certain amendments were proposed in the Finance Bill, 1992 on 30th April, 1992 in his speech by the Finance Minister. The Finance Bill, 1992 was passed by the Parliament which received the assent of the President on 14th May, 1992. In the said Finance Act, Sub-section IC was inserted after Sub-section 1B of Section 54E of the Act, which reads as under:
"1C Notwithstanding anything contained in Sub-section (1), where the capital gain arises from the transfer of the original asset, made after the 31st day of March, 1992, in respect of which the assessed had received any amount by way of advance on or before the 29th day of February, 1992, and had invested or deposited the whole or any part of such amount in the new asset on or before the later date, then, the provisions of Clause (a) and (b) of Sub-section (1) shall apply in the case of such investment or deposit as they apply in the case of investment or deposit under that sub-section."
8. The petitioner being aggrieved, has challenged the constitutional validity of the aforesaid newly inserted Sub-section IC in Section 54E of the Act.
9. To appreciate the controversy raised by the petitioner in the writ petition, it is necessary to give a short background of the facts. The petitioner entered into two agreements to sell with respect of his plot No.2, Sirifort Road, New Delhi, sometimes in early 1992 in favor of two persons and received an advance of Rs. 3,80,000/- on 26th March, 1992 towards sale consideration, on 28th March, 1992 he deposited the said amount with the Unit Trust of India under Capital Gains Unit Scheme, 1983. The sale deeds were allegedly executed on 30th April, 1992 and 12th May, 1992. Neither the agreement to sell nor the copies of the sale deeds are placed on record which could indicate the date of agreement and the total sale consideration.
10. On account of the insertion of Sub-section IC of Section 54E of the Act, petitioner could avail exemption from capital gains tax on the advance, if he had received the advance and invested or deposited the same in a specified asset as prescribed, before 29th February, 1992. Any advance or earnest money received and invested or deposited between 1st March, 1992 and 31st March, 1992 was not exempted. The petitioner''s contention is that by restricting the benefit of exemption of capital gains tax to the assessed who received the advance and invested or deposited the same in specified asset up to 29th February, 1992, Legislature has discriminated the said assessed as compared to the assessed who received and invested or deposited such advance in specified asset during the period 1st March, 1992 to 31st March, 1992. Thus according to the petitioner two identically situated assessed have been discriminated in the same fiscal year which violates Article 14 of the Constitution of India. Learned counsel for the petitioner contends that either the benefit of exemption be extended up to 31st March, 1992 or Sub-section IC as a whole be done away with. The submission is that this sub-section did not find place in the Finance Bill, 1992 and without any discussion in the Finance Minister''s speech dated 30th April, 1992, the provision was inserted in the Finance Act, 1992.
11. No doubt, insertion of Sub-section 1C did not find place in the Finance Bill, 1992, but in the Finance Minister''s speech on 30th April, 1992 there was a proposal to move certain amendments to the bill. It is not material if the proposed insertion of sub-section does not specifically find place in the speech. The contention of the assessed appears to be mis-conceived. In our view, the provisions of Sub-section IC of Section 54E of the Act is based on rational and intelligible criteria. In case Sub-section 1C was not inserted and the assessed had transferred the long term capital asset after 31st March, 1992, whatever capital gain would have arisen from the transaction, it would not be exempted from the capital gains tax, even though part of the consideration was received by the assessed prior to 31st March, 1992 and had been invested in a specified asset. It would have been immaterial that part of the net consideration was received by the assessed prior to 31st March, 1992 whether as an advance or earnest money. The Budget was presented on 29th February, 1992 and the Finance Bill moved on that date proposed the withdrawal of exemption on capital gain u/s 54E(1) of the Act w.e.f. 1st April, 1992. The assessed had no notice of the proposed withdrawal prior to that date i.e. 29th February, 1992. The effect would have been that even if an assessed had received advance or earnest money and had even invested or deposited the same in specified asset, he would not have been entitled to any exemption of capital gains tax if the transfer did not take place prior to 31sat March, 1992. In the Finance Bill, 1992, the insertion of Sub-section 1C was not proposed. The Legislature must have realised that the proposed withdrawal of exemption might operate harshly and unfairly to those assessed who had agreed to transfer long term capital assets prior to 29th February, 1992 and received advance against the same and had invested or deposited the whole or any part of such amount in specified assets prior to 29th February, 1992. The Legislature in its wisdom thus inserted Sub-section IC in Section 54E of the Act to protect the legitimate interest of such assessed. This object of the provision is further qualified in Sub-section 1C itself, by restricting the benefit to the investments and deposits made prior to 29th February, 1992. In case the assessed had received the advance prior to 29th February, 1992, but had not made the investment or deposit prior to that date, he would not have got the benefit of this sub-section. The rationale, that the sub-section gave benefit of exemption from capital gains tax to the assessed who had received the advance and deposited the same prior to 29th February, 1992 is, that the assessed had notice on 29th February, 1992 when the Budget was presented that the Legislature had withdrawn the exemption of capital gains tax. In case the argument of the assessed that the date of 29th February, 1992 should be read as 31st March, 1992 is taken to be correct, there was a possibility of the provision being mis-used by the assessed, who cold after 29th February, 1992 and before 31st March, 1992 receive substantial advance against the proposed sale of capital assets and invest the same in specified assets even though the transfer was to take place after 31st March, 1992. This would have been against the intent and object of re-structuring of taxation of capital gains. A reading of the amended Section 54E(1) of the Act and the newly inserted Sub-section 1C, in fact does not indicate any unreasonable classification or discrimination between the two sets of assessed. On the contrary, there is justification for restricting the benefit of exemption in case of any advance or earnest money received or invested in specified assets up to 29th February, 1992.
12. Another contention of the petitioner is that the right of the assessed created by CBDT Circular No. 359 dated 10th Mar, 1983 cannot be taken away by restricting the benefit of exemption from capital gains tax only to the assessed who received the advance of sale on or before 29th February, 1992 for transfer of capital assets even before 31st March, 1992 while denying the same to those who received the same between 1st March, 1992 to 31st March, 1992. The assertion is that the circular created a vested right in his favor which could not be taken away by the amendment. The petitioner claims the benefit of the doctrine of promissory estoppel. The petitioner''s assertion claiming applicability of the doctrine of promissory estoppel, is unfounded and without any substance. So far as the Circular dated 10th May, 1983 is concerned, same was only to explain and elaborate the provisions of Section 54E(1) as it existed at that point of time i.e. prior to 1992 amendment. Neither any vested right was created, nor any promise was extended by the said circular. The amendment of Section 54E(1) by the Finance Act, 1992 withdrew the exemption from tax in respect of long term gains w.e.f. 1st April, 1992. When the provision of Section 54E itself stood withdrawn, where was the question of survival of any vested right on account of the circular. In fact, the circular also goes with the provision. The doctrine of promissory estoppel has no application in the facts of the present case.
13. The scope and effect of amendment in various sections in Chapter IV Part E of the Act relating to taxation of capital gains including the amendments of Section 45 and 54E, made by the Finance Act, 1992 have been elaborated in the departmental circular No. 636 dated 31st August, 1992. The relevant clauses of the circular area as under:
"35.9 Exemption from tax in respect of long term capital gains as allowed u/s 54E to the extent the net consideration is invested or deposited in any specified asset prescribed in that section. As a measure of rationalisation and simplification, this provision also stands withdrawn from assessment year 1993-94. The provisions of Section 54E will be available for all sales made before 1-4-1992, if the whole or any part of the net consideration is invested in specified assets within 6 months after the date of such transfer.
35.10 xxxxx
35.11 An assessed could invest or deposit in any specified assets from out of the amount received as advance money and get the benefit or exemption u/s 54E as and when long-term capital gains arise on transfer of the capital asset. It may so happened that some assessed may have invested or deposited in the specified assets as prescribed in Section 54E from out of advance money received before the presentation or the budget. In order to give protection to such deposits or investment, it has been provided that these investments or deposits will be eligible for the purpose of exemption from tax u/s 54E whenever long-term capital gains arise out of transfer of the capital asset on a date after 31-3-1992, provided such investments had been made on or before 29-2-1992. Thus, the provisions of Section 54E will be enforced in respect of only such cases where the assessed has made deposits or investments in specified assets from out of the advance money received on or before 29-2-1992.
35.12. These amendments will come into force with effect from 1st April, 1992, and will, accordingly, apply to assessment yea 1992-93 and subsequent yeas."
14. The aforenoted circular in fact provides answer to the petitioner''s argument as to why the advance received prior to 29th February, 1992 only was protected. We do not find any force in the plea that the circular dated 10th May, 1983 had created any vested right in the petitioner or the same could not be withdrawn by the Legislature. The doctrine of promissory estoppel is not applicable to the instant case. The arguments are mis-conceived and do not find any favor with us.
15. Reliance on
16. The next contention of the petitioner is that, as the Finance Act, 1992 was notified on 14th May, 1992, it could not be made retrospective by restricting the benefit of exemption from capital gains tax up to 29th February, 1992. The amendment of Section 54E(1), withdrawing the exemption of capital gains tax, is w.e.f. 1st April, 1992 which is in fact prospective and not retrospective. The reason for inserting Sub-section IC and restricting the benefit of capital gains tax exemption on advance received by an assessed prior to 29th February, 1992 has already been explained above and it cannot be argued that the insertion of the date 29th February, 1992 in the said sub-section is retrospective. In any case, it is settled law that a tax legislation is a policy matter and it is for the Parliament to decide the manner in which the Legislation should be made. There is no prohibition against retrospective legislation.
17. Reference in this regard is made to a Division Bench decision of this Court in
"Parliament enjoys legislative power under Article 246 of the Constitution of India, a fact which needs no elaboration. It has passed a legislation in pursuance of that power. The power of the Legislature to pass a law postulates the power to pass it prospectively as well as retrospectively. Subject to other constitutional limitations, the power of the Legislature to enact laws is plenary."
18. Another authoritative pronouncement of the Apex Court is
19. In fact the powers of the Parliament to pass legislation having retrospective effect is fairly conceded by the learned counsel for the petitioner. The challenge is mainly on the ground that it violates Articles 14 of the Constitution as restricting the benefit of exemption of long term capital gains on advance received and deposited prior to 29th February, 1992, is arbitrary and not justified. The contention is that by inserting the date of 29th February, 1992 in Section 54E(1C) of the Act, the assessed, who received and invested the advance or earnest money prior to 29th February, 1992 and the class of assessed, who received and invested such advance after 29th February, 1992 and prior to 31st March, 1992, are discriminated, though they fall in the same fiscal year. In this respect, we have already discussed above that Sub-section IC in fact is a beneficial provision and has been introduced to protect those assessed who had received advance or earnest money and had already invested or deposited the same in specified assets before the presentation of the Budget i.e. 29th February, 1992 as up to that date they did not have any notice that exemption of capital gains tax would be withdrawn w.e.f. 1st April, 1992. The insertion of the date of 29th February, 1992 in the sub-section is fully justified and it does not give rise to any discrimination as contended by the petitioner. At the cost of repetition, it is pointed out that the amendment made by the Finance Act, 1992 in Section 54E(1) of the Act withdrew the exemption of capital gains tax prospectively w.e.f. 1st April, 1992 i.e. from the financial year 1992-93. The withdrawal of this exemption was mae public in the Budget speech on 29th February, 1992. On that date the assessed had notice that the exemption of capital gains tax would no longer be available. The transfer of the assets and investment of the net consideration in specified assets had to be before 31st March, 1992 to avail the benefit of exemption on the sale transaction which had already taken place. As it was expected that some of the assessed might have invested or deposited In the specified assets as prescribed u/s 54E, out of the advance received before the presentation of the Budget on 29th February, 1992, in order to protect them, Sub-section 1C was inserted. The aforenoted circular No. 636 dated 31st August, 1992 interprets and explains the amendment. We find that there are valid reasons and justification for the insertion of the date of 29th February, 1992 in Sub-section 1C of Section 54E of the Act. There is no discrimination between the two sets of assessed similarly placed in the same fiscal year. There is no violation of Article 14 of the Constitution.
20. Mr. R.D. Jolly, learned senior standing counsel has placed reliance on three decisions of the Apex Court
"The choice of a date as a basis for classification can not always be dubbed as arbitrary even if no particular reason is forthcoming for the choice unless it is shown to be capricious or whimsical in the circumstances. When it is seen that a line or a point there must be and there is no mathematical or logical way of fixing it precisely, the decision of the legislature or its delegate must be accepted unless we can say that it is very wide of any reasonable mark. See Louisville Gas & E. Co. v. Coleman, (1927) 277 US 32 per Justice Holmes."
21. In view of the above discussion, we find no merit in any of the contentions raised by the learned counsel for the petitioner. The writ petition fails and is accordingly dismissed. Parties are left to bear their own costs.
