Income Tax Act, 1961 – Sections 50B and 54EE – Capital gains exemption – Failure to notify long term specified asset – Petitioner is a partnership firm engaged in business of wholesale dealerships in pharmaceutical products – Petitioner transferred business of firm under ‘slump sale’ method on a ‘going concern basis’ for a lump sum consideration to its sister concern – Petitioner had computed capital gains as per Section 50B of the Act – Petitioner approached this Court for a writ in nature of mandamus commanding Respondent No.1/Union of India to notify ‘long term specified assets’ for availing capital gains exemption under Section 54EE of the Act – Whether failure to notify ‘long term specified asset‘ by Central Government under clause-b of explanation (2) to Section 54EE of the Act is arbitrary – HELD – Section 54EE of the Act allows capital gains exemption upto a limit of Rs.50 lakhs, if capital gain proceeds are invested by assessee in long term specified assets notified under Section 54EE of the Act for a minimum period of 3 years – Despite said provision having been brought into statute with effect from 1-4-2017, Central Government had not notified 'long term specified asset' for investment of long term capital gains arising from transfer of long term capital asset – Reasons for not notifying 'long term specified asset' by Central Government is in domain of fiscal policy and prudence – Court should not enter into area of making fiscal policy and decision taken in this regard – If Central Government has not notified scheme/fund under Section 54EE of the Act, it cannot be said that such a decision is arbitrary – Petition dismissed.
Issue 2: Doctrine of promissory estoppel – Applicability – Whether Central Government can be held to be bound by doctrine of promissory estoppel and direction be issued for notifying long term specified asset under Section 54EE of the Act – HELD – It is the prerogative of Central Government to issue notification under Section 54EE of the Act notifying specified long term asset for investment of capital gain arising from transfer of long term capital asset and Court cannot hold Central Government to be bound by stated position in exercise of power of judicial review – It is not a case that Petitioner had made investment on a specified long term asset as notified by Government, and thereafter, Government had withdrawn said notification – Doctrine of promissory estoppel is not applicable in facts of present case – Argument of Petitioner that Central Government should be held bound by its promise made for notifying specified long term asset/fund is not meritorious and is rejected.
Issue 3: Legitimate expectation – Whether Petitioner has legitimate expectation of notification to be issued by Central Government notifying 'long term specified asset' for investment from proceeds of sale/transfer of long term capital asset by Petitioner – HELD – Without a notification having been issued for long term specified asset/fund for investment, Petitioner could not claim exemption from tax on his capital gain arising from transfer of his long term capital asset – Issuing particular notification under provisions of the Act lies in domain of executive to carry out object and purpose of said provision – Court is not empowered to go behind reasons for not issuing notification under Section 54EE of the Act – Petitioner has no legitimate expectation for issuing notification specifying long term asset/fund for investment of capital gain arising out of transfer of long term capital asset by him – No writ of mandamus can be issued to Central Government to issue notification under Section 54EE of the Act.
2023-VIL-146-KER-DT
IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C) NO. 17248 OF 2019
Dated: 27.10.2023
GETWELL MEDICARE
Vs
1. UNION OF INDIA, REPRESENTED BY FINANCE SECRETARY,
MINISTRY OF FINANCE, NEW DELHI
2. CENTRAL BOARD OF DIRECT TAXES,
REPRESENTED BY ITS CHAIRMAN, NEW DELHI
3. PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, COCHIN
4. INCOME TAX OFFICER, ERNAKULAM
FOR THE PETITIONER: ADVS. A. KUMAR SRI. P.J. ANILKUMAR, SMT G. MINI (1748), SRI. P.S. SREE PRASAD, SHRI. JOB ABRAHAM, SRI. AJAY V. ANAND
FOR THE RESPONDENTS: ADV Mr. K.K. SETHUKUMAR, CGC
CORAM
THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH
JUDGMENT
The petitioner is a partnership firm stated to have been set up on 9th June 1997. It is engaged in the business of wholesale dealerships in pharmaceutical products. The petitioner having PAN No. AADFP2868C is an assessee under the provisions of the Income Tax Act. The petitioner, vide business transfer agreement dated 20th December 2018 transferred the business of the firm without assigning any value to its assets and liabilities, under the ‘slump sale’ method on a ‘going concern basis’, for a lump sum consideration of Rs.10,04,15,000/- to M/s Getwell Medical Solution Private Limited, an alter ego of the petitioner.
2. The petitioner had computed capital gains as per Section 50B of the Income Tax Act, 1961 as the petitioner opted for ‘slump sale’. The petitioner has approached this Court for a writ, order or direction in the nature of mandamus commanding the first respondent i.e. the Union of India to notify ‘long term specified assets’ for availing capital gains exemption under Section 54EE of the Income Tax Act, 1961 with appropriate extension of time period under Section 54EE and Explanation-2 therein or any such appropriate manner known to law.
3. Section 54EE allows capital gains exemption upto a limit of Rs.50 lakhs provided the capital gain proceeds are invested by the assessee in the long term specified assets notified under Section 54EE for a minimum period of 3 years. For ready reference, Section 54EE is extracted hereunder:
Capital gain not to be charged on investment in units of a specified fund.
54EE. (1) Where the capital gain arises from the transfer of a long-term capital asset (herein in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, namely:-
(a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;
(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer 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 long- term specified asset bears to the whole of the capital gain, shall not be charged under section 45;
Provided that the investment made on or after the 1st day of April, 2016, in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees:
Provided further that the investment made by an assessee in the long-term specified asset, from capital gains arising from the transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees.
(2) Where the long-term specified asset is transferred by the assessee at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head "Capital gains" relating to long-term capital asset of the previous year in which the long-term specified asset is transferred.
Explanation 1.-In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have transferred such specified asset on the date on which such loan or advance is taken.
Explanation 2.-For the purposes of this section,-
(a) "cost", in relation to any long-term specified asset, means the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original asset;
(b) "long-term specified asset" means a unit or units, issued before the 1st day of April, 2019, of such fund as may be notified by the Central Government in this behalf.
4. The Explanation 2(b) of Section 54EE defines a ‘long term specified asset’. Thus, under the said definition, unit(s) should have been issued before Ist day of April 2019 of such funds, as may be notified by the Central Government in this behalf. Total investment in unit(s) in the specified fund allowable is upto 50,00,000/- only. Thus, unless the Central Government would have notified the 'fund' for investment of the sale proceeds upto Rs.50,00,000/-, and investment would have been made before Ist April of 2019 in such a 'fund', notified by the Central Government, an assessee would not be entitled to claim exemption from capital gains. Admittedly, despite the said provision having been brought into statute by Finance Act, 2016 with effect from Ist April 2017, the Central Government had not notified the 'fund of funds' for investment of long term capital gains arising from the transfer of long term capital asset.
5. Sri A.Kumar, learned counsel for the petitioner has submitted that memorandum to Finance Act, 2016 delienate the reasons and objectives for insertion of Section 54EE in the Income Tax Act, 1961. He has drawn attention of this Court to relevant part of the memorandum in respect of tax incentives for startups which would read as under:
16. Tax Incentives for startups:
“16.2 In order to promote the start-up ecosystem in the country, it was envisaged in 'Start-up India Action Plan' to establish a fund of funds. With a view to provide tax incentive for investment in fund of funds, Section 54 EE has been inserted in the Income-tax Act so as to provide exemption from capital gains if the long term capital proceeds are invested by an assessee in units of notified funds subject to condition that the amount remains invested for three years failing which the exemption shall be withdrawn. The investment in the units of the notified funds shall be allowed up to Rs.50 Lakhs.”
6. Learned counsel for the petitioner has also submitted that Press Information Bureau, Ministry of Corporate Affairs vide press release dated 09.12.2016 had released the purpose of creating the fund(s) and capital gains exemption under Section 54EE. The relevant part of the press release reads as under:
A. Measures taken by Department of Industrial Policy and Promotion.
1. Fund of Funds
For providing fund support for Startups, Government has created a 'Fund of Funds for Startups (FFS)' at Small Industries Development Bank of India (SIDBI) with a corpus of Rs.10,000 crore.
The FFS shall contribute to the corpus of Alternate Investment funds (AIFS) for investing in equity and equity linked instruments of various Startups. The FFS is managed by Small Industries Development Bank of India (SIDBI) for which operational guidelines have been issued. In 2015-16, Rs.500 crores was released towards the FFS corpus.
Tax Exemption on Capital Gains:
Section 54 EE has been introduced under the Finance Act. 2016 which provides for exemption of capital gain arising out of transfer of long term capital asset invested in a fund notified by Central Government.
7. The learned counsel for the petitioner has further submitted that the Hon’ble Minister of State (Independent Charge) of the Ministry of Industry and Commerce, on 17th July, 2017 during Lok Sabha question and answer session clarified regarding setting up of fund(s) for a startup and the key provision regarding tax exemption of capital gains under Section 54EE. The relevant part of the answer to the question given by the Minister is extracted hereunder:
viii. Fund of Funds for Startups with a corpus of INR 10,000 crores managed by SIDBI has been created, to be released by SIDBI by 2025. So far, SIDBI has committed INR 623.5 cr. to 17 AIFs under FFS. Out of this, Rs.55.00 crore has been disbursed and a total investment of INR 252.20 cr. has been made in Startups.
…..........
x. Key tax exemptions and regulatory benefits have been provisioned for Startups, including Income Tax Exemption for 3 years out of a block of 7 years, Tax Exemption on Capital Gains (Section 54 EE), Tax exemption on Investments made in Startups above Fair Market Value.
8. The learned counsel for the petitioner has submitted that the purpose of insertion of Section 54EE in the Income Tax Act introduced by Finance Act, 2016 is to provide impetus to the 'Start-up India Action Plan’ by giving capital gain exemptions on investment in the units of a notified 'fund'. The 'fund of funds' was already created with corpus of Rs.10,000 crores to be managed by SIDBI as is evident from the reply of the Hon'ble Minister to a question in Lok Sabha. Learned counsel for the petitioner submits that despite creation of 'fund' and insertion of the provision for notifying the 'fund' for investment by the Central Government, in absence of requisite notification having been issued by the Central Government, the petitioner would suffer higher capital gains tax. The petitioner, in view of the statutory prescription and the promise extended on the floor of the house by the Minister, had bona fide belief that the Central Government would notify the 'fund' for investment of proceeds from sale of a 'long term capital asset'. It was submitted that the Central Government is duty bound to notify the long term specified assets/funds for making investment from the transfer of long term capital asset. Section 54EE was introduced to carry out the purpose and intent of giving the capital gains benefits. No such scheme has been notified in furtherance of Section 54EE and in absence of the scheme, the petitioner would be deprived of capital gains benefits for which Section 54EE was introduced by Finance Act, 2016. Learned counsel for the petitioner has submitted that considering the provisions of Section 54EE, the memorandum to the Finance Act, 2016 and an answer given by the Hon’ble Minister of the State on the floor of the house of Lok Sabha, the Central Government was duty bound to notify the long term specified asset before Ist day of April of 2019. The Government cannot resile from providing the benefit for exemption on capital gains under the provisions of Section 54EE. The Central Government is bound by the principle of promissory estoppel. The petitioner has arranged its tax liability under the bona fide belief that the benefit of Section 54EE would be available on the same as per the provisions of Section 54EE, memorandum to the Finance Act of 2016 and press release as far as the answer of the Minister at the floor of the house. Inaction of the Central Government in not issuing the requisite notification regarding long term specified assets under Section 54EE, the petitioner’s interest would adversely get affected and therefore, the Central Government is estopped from resiling from publicly stated position on the applicability of capital gain exemption under Section 54EE of the Act. The Central Government is estopped from denying the benefit of Section 54EE by failing to notify long term specified asset under Section 54EE. The failure of the Central Government to notify long-term specified asset had prejudiced the petitioner and caused irreparable harm and injury. The outer limit of six months for investing capital gains proceeds in ‘long term specified assets’ in the case of the petitioner under Section 54EE got expired on 25th June 2019.
9. The learned counsel for the petitioner, in alternate, has submitted that if the principle of promissory estoppel is not applicable in the facts of the present case, atleast the petitioner had legitimate expectations of notifying the long term specified assets before Ist April 2019 and the petitioner has acted upon such expectation in as much as he has arranged his tax liability keeping in mind that the Central Government would notify the long term specified asset for investment of capital gain arising from the transfer of petitioner’s long term capital asset.
10. In support of his submissions, learned counsel for the petitioner has placed reliance on the following judgments:
(1) State of Punjab v Nestle India (2004(6) SCC 465)
(2) MRF Ltd., Kottayam v Asstt. Commissioner (Assessment) Sales Tax and others (2006) 8 SCC 702)
(3) Shrijee Sales Corporation and another v Union of India (1997) 3 SCC 398
(4) State of Gujarat v Arcelor Mittal Nippon Steel India Limited (2002) 6 SCC 459
(5) Augustan Textile Colours Limited v Director of Industries and another (2022) 6 SCC 626
(6) Hero Motocorp Limited v Union of India and others (2023) 1 SCC 386
11. The three issues that arise for consideration in the present case are:
i) 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.
ii) 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.
iii) 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 petitioner? If so, what relief can be granted to the petitioner at this point of time?
12. In the Finance Act, 2016, the Government rolled out certain benefits for the start ups. In furtherance of the said objective, certain amendments and new provisions were introduced by the Finance Act, 2016 in the Income Tax Act. One of such provision is Section 54EE for giving benefits for capital gains on investment of Rs.50 lakhs from the proceeds of transfer of a long term capital asset. However, the said exemption from the capital gain for a period of three years was with certain limitations. The investment was to be made in the 'long term specified asset' on or after Ist day of April 2017 during the financial year, and it should not exceed Rs.50 lakhs and investment should be in the long term specified asset as notified by the Central Government for a minimum period of three years. Despite the said provisions, the Government did not notify the 'long term specified asset/fund' for investment of capital gains arising from the transfer/sale of a long term capital asset. The reasons for not notifying the 'long term specified asset'/fund by the Central Government is in the domain of fiscal policy and prudence, this Court would not like to go behind the reasons for not notifying the fund/long term specified asset. This is the domain of the executive and matter of policy decision. The Court should not enter into the area of making fiscal policy, and the decision taken in this regard. If the Central Government has not notified the scheme/fund under Section 54EE, it cannot be said that such a decision is arbitrary. A provision may or may not be given effect to in the wisdom of the executive for giving effect to the necessary notification would be required to be issued. Therefore, it cannot be said that since Section 54EE though has been kept alive but has not been given effect to by not notifying the 'long term specified asset/fund', the Central Government has acted arbitrarily. In view thereof, I do not find much substance in the submission that in not notifying the 'long term specified asset/fund' for investment of proceeds from transfer of long term capital asset, the Government has acted arbitrarily and the decision of the Government is justiciable for issuing a writ of mandamus for notifying the 'long term specified asset'. If a public authority has a legal duty to do an act and fails to discharge that function, mandamus can be issued to the said authority to perform its duty and it would be within the power of judicial review of an administrative action by the Court.
However, a direction to the Government to issue a notification under Section 54EE of the Income Tax Act, 1961 specifying 'long term asset' would amount to taking a policy decision in a particular manner. Such a direction is impermissible. Issuance of notification under Section 54EE of the Income Tax Act Act, 1961 is in the nature of subordinate legislation. Where a statute vests a discretionary power in an administrative authrotiy, the Court should not interfere with the exercise of such a discretion unless it is made with an oblique end or extraneous purposes or upon extraneous considerations.
13. The Supreme Court, in the case of Mangalam Organics Ltd. v Union of India [(2017) 7 SCC 221], while considering the nature of duty of the Central Government to issue a notification under Section 11C of the Central Excise Act, 1944 requiring that no duty shall be payable or lesser duty shall be payable on the goods manufactured when condition stipulated in Section 11-C of the Excise Act, is satisfied by the assessee and the Government chooses not to exercise the 'power', held that Court cannot issue a mandamus to the Central Government to issue a notification exercising its power under Section 11-C of the Excise Act.
14. Paragraphss 33-35 of Mangalam Organics (supra) held as under:
33. Insofar as the argument based on obligation of the Government to issue such a notification is concerned, a clear distinction is to be made between the duty to act in an administrative capacity and the power to exercise statutory function. If a public authority is foisted with any duty to do an act and fails to discharge that function, mandamus can be issued to the said authority to perform its duty. However, that is done while exercising the power of judicial review of an administrative action. It is entirely different from judicial review of a legislative action.
34. According to de Smith (Sunley A. de Smith, Judicial Review of Administrative Action (Stevens, 1973), the following legal consequences flow from the aforesaid distinction:
34.1. If an order is legislative in character, it has to be published in a certain manner, but it is not necessary if it is of an administrative nature.
34.2. If an order is legislative in character, the court will not issue a writ of certiorari to quash it, but if an order is an administrative order and the authority was required to act judicially, the court can quash it by issuing a writ of certiorari.
34.3. Generally, subordinate legislation cannot be held invalid for unreasonableness, unless its unreasonableness is evidence of mala fides or otherwise shows the abuse of power. But in case of unreasonable administrative order, the aggrieved party is entitled to a legal remedy.
34.4. Only in most exceptional circumstances can legislative powers be sub-delegated, but administrative powers can be sub-delegated.
34.5. Duty to give reasons applies to administrative orders but not to legislative orders.
35. Issuance of a notification under Section 11-C of the Act is in the nature of subordinate legislation. Directing the Government to issue such a notification would amount to take a policy decision in a particular manner, which is impermissible. This Court dealt with this aspect recently in Census Commr. v. R. Krishnamurthy (2015) 2 SCC 796). The following discussion from the said judgment is useful and worth a quote:
"25. Interference with the policy decision and issue of a mandamus to frame a policy in a particular manner are absolutely different. The Act has conferred power on the Central Government to issue notification regarding the manner in which the census has to be carried out and the Central Government has issued notifications, and the competent authority has issued directions. It is not within the domain of the court to legislate. The courts do interpret the law and in such interpretation certain creative process is involved. The courts have the jurisdiction to declare the law as unconstitutional. That too, where it is called for. The court may also fill up the gaps in certain spheres applying the doctrine of constitutional silence or abeyance. But, the courts are not to plunge into policy-making by adding something to the policy by way of issuing a writ of mandamus. There the judicial restraint is called for remembering what we have stated in the beginning. The courts are required to understand the policy decisions framed by the executive. If a policy decision or a notification is arbitrary, it may invite the frown of Article 14 of the Constitution. But when the notification was not under assail and the same is in consonance with the Act, it is really unfathomable how the High Court could issue directions as to the manner in which a census would be carried out by adding certain aspects. It is, in fact, issuance of a direction for framing a policy in a specific manner.
26. In this context, we may refer to a three-Judge Bench decision in Suresh Seth v. Commr., Indore Municipal Corpn. (2005(13) SCC 287), wherein a prayer was made before this Court to issue directions for appropriate amendment in the M.P. Municipal Corporation Act, 1956 so that a person may be debarred from simultaneously holding two elected offices, namely, that of a Member of the Legislative Assembly and also of a Mayor of a Municipal Corporation. Repelling the said submission, the Court held:
5...... In our opinion, this is a matter of policy for the elected representatives of people to decide and no direction in this regard can he issued by the Court. That apart this Court cannot issue any direction to the legislature to make any particular kind of enactment. Under our constitutional scheme Parliament and Legislative Assemblies exercise sovereign power to enact laws and no outside power or authority can issue a direction to enact a particular piece of legislation. In Supreme Court Employees Welfare Assn v. Union of India (1989(4) SCC 187), it has been held that no court can direct a legislature to enact a particular law. Similarly, when an executive authority exercises a legislative power by way of a subordinate legislation pursuant to the delegated authority of a legislature, such executive authority cannot be asked to enact a law which it has been empowered to do under the delegated legislative authority. This view has been reiterated in State of J&K v A.R. Zakki (1992suppl.1 SCC 548). In A.K. Roy v. Union of India's (1982(1) SCC 271) it was held that no mandamus can be issued to enforce an Act which has been passed by the legislature.
29. In this context, it is fruitful to refer to the authority in Rustom Cavasjee Cooper v. Union of India (1970(1) SCC 248), wherein it has been expressed thus:
'63..... It is again not for this Court to consider the relative merits of the different political theories or economic policies... This Court has the power to strike down a law on the ground of want of authority, but the Court will not sit in appeal over the policy of Parliament in enacting a law. (emphasis supplied)
xxx xxxx xxxx
39. The matter can be looked into from another angle as well. When "power" is given to the Central Government to issue a notification to the effect not to recover duty of excise or recover lesser duty than what is normally payable under the Act, for deciding whether to issue such a notification or not, there may be various considerations in the mind of the Government. Merely because conditions laid in the said provisions are satisfied, would not be a reason to necessarily issue such a notification. It is purely a policy matter. No doubt, the principle against arbitrariness has been extended to subordinate legislation as well [see Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India (1985(1) SCC 641). At the same time, the scope of judicial review in such cases is very limited. Where the statute vests a discretionary power in an administrative authority, the court would not interfere with the exercise of such discretion unless it is made with oblique end or extraneous purposes or upon extraneous considerations, or arbitrarily, without applying its mind to the relevant considerations, or where it is not guided by any norms which are relevant to the object to be achieved.“
15. Thus, it is neither a case of discrimination nor the petitioner would have a right under Articles 14 and/or 19 (1)(g) of the Constitution of India which has been violated by non-issuance of notification under section 54EE of the IT Act, and therefore, no writ of mandamus can be issued to the Central Government to issue a notification under Section 54EE of the Income Tax Act, 1961.
16. The next issue is of Promissory Estoppel. The case of the petitioner is that on the faith of solemn assurance given by the Government of India at the time of introduction of the Finance Act, 2016 and subsequent to the press release as well as the answer to a question given by the Hon’ble Minister on the floor of Lok Sabha, the petitioner had arranged its tax liability accordingly and therefore, the Government of India was bound to notify the 'long term specified asset/fund' for investment of proceeds from sale of long term capital asset of the petitioner to an extent of Rs.50 lakhs. By not notifying the long term specified asset/fund by the Central Government, the petitioner would suffer as he would not be able to get exemption from capital gain tax from sale proceeds of his logn term capital asset to an extent of Rs.50 lakhs.
17. If the provision of Section 54EE is scrutinised, it would be evident that the Government would have notified long term specified asset/fund for investment before Ist April 2019. In as much as the unit(s) in the fund notified by the Central Government ought to have been issued before Ist April 2019. The Central Government has not issued necessary notication for availing the benefit under Section 54EE. As the Government has not notified a 'long term specified asset or fund, can it be said that since, the Cetral Government held out a promise to issue a notification, the Government is estopped from not issuing a notification. A person would not be entitled to claim exemption from payment of capital gain tax on transfer of long term capital asset to an extent of Rs.50 lakhs without the necessary notification issued by the Central Government.
18. It is also well settled, the Government is competent to resile from a promise even if there is no manifest public interest is involved, provided no one is put in any adverse situation which cannot be rectified. As stated above, the fiscal decisions are in the prudence and realm of the executive. The reasons for which the Government did not issue notification is within the domain of the executive's discretion. The petitioner would know that without a notification having been issued for long term specified asset/fund for investment, the petitioner could not claim exemption from tax on his capital gain arising from transfer of his long term capital asset.
19. The judgment in the case of Nestle India (supra) relied on by the learned counsel for the petitioner does not apply to the facts of the present case. In the said case, the Chief Minister of Punjab on 26th February 1996, while addressing the dairy farmers in public function, made announcement that the State Government had abolished purchase tax on milk and milk products in the State. The Finance Minister, while presenting the budget for the year 1996-1997, in his speech re-iterated the announcement made by the Chief Minister regarding abolition of purchase tax on milk. The Financial Commissioner issued memo thereafter on 26.4.1996, that the decision had been taken in principle to abolish purchase tax on milk with effect from Ist February 1996 and in pursuance to the said memo, circular dated 18th May 1996 was issued by the Excise & Commissioner of Tax, Punjab that the Government had decided to abolish purchase tax on milk and the said notification would be issued shortly. As similar promissory circulars and notifications were issued regarding exemption of purchase tax on milk, the companies producing milk, products, passed on the benefit of tax exemption of purchase tax, to the farmers and milk producers and therefore, this Court, in the said judgment, held that as the companies purchasing milk had passed on the benefit of tax exemption by providing various facilities and concession for the upliftment of milk producers, it would be inequitable to allow the State Government to resile from the decision to exempt milk from purchase tax and demand of purchase tax with retrospective effect from Ist April 1996 was set aside.
20. This judgment has been recently clarified in the case of Hero Motorcorp Ltd. v Union of India and others (supra). It has been held in the said judgment that general rule of doctrine of estoppel would not be applied against the Government except to prevent fraud and manifest injustice. In the Nestle India (supra), the respondent milk producers did not pay the purchase tax for the period between 1.4.1996 to 4.6.1997, as the Government had decided to abolish purchase tax for the said period and for the rest period tax was paid and therefore, the respondent’s claim against recovery of tax for such period for which the Government had taken decision to abolish the said tax and also considering the fact that the respondents had passed on the benefit of exemption of purchase tax on the milk producers, the decision was rendered.
21. The Constitution Bench of the Supreme Court in the case of Ramanatha Pillai v State of Kerala (1973) 2 SCC 650 had held that the doctrine of promissory estoppel would not apply against an authority which owed a duty to the public. Doctrine of promissory estoppel would not apply against the state in its governmental, public or sovereign function except to prevent fraud or manifest injustice. It is also well settled that doctrine of promissory estoppel does not apply against legislative function of the Government. It would not be appropriate to burden the judgment with case law on the settled principle regarding applicability of doctrine of promissory estoppel. I, therefore, conclude by saying that the doctrine of promissory estoppel is not applicable in the facts of the present case. It is the prerogative of the Central Government to issue notification under Section 54EE notifing the specified long term asset/fund for investment of capital gain arising from the transfer of long term capital asset and the Court cannot hold the Central Government to be bound by the stated position in exercise of the power of judicial review.
22. Here, it is not a case that the petitioner had made investment on a specified long term asset as notified by the Government, and thereafter the Government had withdrawn the said notification. Therefore, the argument of the learned counsel for the petitioner that the Central Government should be held bound by its promise made for notifying the specified long term asset/fund is not meritorious and is rejected.
23. In State of Gujarat v Arcelor Mittal Nippon Steel India Ltd. (supra) Supreme Court has held that the doctrine of promissory estoppel is an equitable remedy and has to be moulded depending on the facts of each case. It has been held that in tax matters, doctrine of promissory estoppel as such is not applicable. The Revenue cannot be directed to take a decision which is unmandated under the law.
24. Sub paragraphs 27.2 to 27.4 of Paragraph 27 of the judgment in Arcelor Mittal (supra) are extracted hereunder:
“27.2 The doctrine of promissory estoppel is an equitable remedy and has to be moulded depending on the facts of each case and not straitjacketed into pigeonholes. In other words, there cannot be any hard and fast rule for applying the doctrine of promissory estoppel but the doctrine has to evolve and expand itself so as to do justice between the parties and ensure equity between the parties. In the present case, the principle of promissory estoppel shall not be applicable.
27.3 In taxing matters, the doctrine of promissory estoppel as such is not applicable and the Revenue can take a position different from its earlier stand in a case with established distinguishing features. [See Commissioner of Central Excise, Bangalore – 1 Vs. Bal Pharma Limited, Bangalore and Ors., (2011) 2 SCC 620].
27.4 The rules of promissory estoppel and estoppel by conduct may not be applied to alter or amend the specific terms and against statutory provisions. All the terms and conditions contained in the exemption notification shall prevail and the person claiming the exemption has to fulfil and satisfy all the eligibility criteria/conditions mentioned in the exemption notification.”
25. In paragraph-37 of the judgment in Augustan Textile Colours Ltd. v Director of Industries and another (supra) it is stated as follows:
“While the equitable principle of promissory estoppel requires a valid promise, based on which the promisee has changed its position, it is necessary to observe that the principle of legitimate expectation does not take into account such considerations. Instead, it is rooted in fundamental ideas like reasonableness, fairness and nonarbitrariness.”
26. As discussed above, the principle of promissory estoppel is based on equity, it requires a valid promise based on which the promisee had changed its position. Whereas the principle of legitimate expectation is rooted in fundamental ideas like reasonableness, fairness and non-arbitrariness.
27. The petitioner would have been entitled for exemption on capital gain under Section 54EE only when he would have invested the proceeds from the transfer of capital gain in the notified long term specified asset/fund by the Government. The petitioner should know that unless such an asset is specified and fund is notified, he would not be entitled for exemption on capital gains arising out of transfer of long term capital asset. The Union Government had not issued the notification despite Section 54EE having been incorporated by Finance Act, 2016, and in absence of such a notification for specified long term asset/fund, the petitioner could not make investment for claiming benefit under Section 54EE. Non issuance of notification, in my view, cannot be said to be arbitrary, unfair or unreasonable. Issuing particular notification under the provisions of the Act lies in the domain of the executive to carry out the object and purpose of the said provision. Issuing the notification is in the exclusive domain of the executive, and a legislative function. This Court is not empowered to go behind the reasons for not issuing the notification under Section 54EE. Therefore, I do not find any substance that the petitioner has legitimate expectation for issuing the notification specifying the long term asset/fund for investment of capital gain arising out of transfer of long term capital asset by him. In view thereof, I do not find substance in the present writ petition, hence, it is hereby rejected.
28. The petitioner, however, may make a representation to the Central Government regarding his demands which may be dealt with by the Central Government in expeditious manner.
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