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2023 Supreme(Online)(KER) 39467
HIGH COURT OF KERALA
Dinesh Kumar Singh, J
GETWELL MEDICARE – Appellant
Versus
UNION OF INDIA – Respondent
WP(C) NO. 17248 OF 2019
For the Appellants/Petitioners: A. KUMAR, P.J. ANILKUMAR, G. MINI, P.S. SREE PRASAD, JOB ABRAHAM, AJAY V. ANAND
For the Respondents: Mr. K.K. SETHUKUMAR, CGC
Non-issuance of notifications under Section 54EE of the Income Tax Act regarding capital gains exemption is within governmental discretion and does not violate constitutional rights.
Headnote:(A) Income Tax Act, 1961 - Section 54EE - Writ petition for mandamus seeking notification of long term specified assets for capital gains exemption - Failure of Central Government to notify such assets deemed non-arbitrary - Invocation of promissory estoppel and legitimate expectation found inapplicable. (Paras 8, 11, 25, 28)
(B) Tax Exemption - Conditions and limitations - The petitioner sought capital gains exemption upon business transfer without notification for investment opportunities under Section 54EE; the non-issuance of such notification does not constitute a violation of Article 14 and is a matter of executive discretion. (Paras 5, 10, 12, 21)
Facts of the case:
The petitioner is a partnership firm engaged in wholesale pharmaceutical products, claimed exemption on capital gains of Rs.50 lakhs from a slump sale of business assets. (Para 1-2)
Findings of Court:
The court concluded that the Central Government’s inaction on notifying the relevant fund under Section 54EE is non-arbitrary and within its discretion, dismissing the petition for lack of substantive grounds. (Paras 19, 27)
Issues: Whether the non-notification of long term specified assets is arbitrary and violative of constitutional rights, and whether the doctrine of promissory estoppel applies. (Paras 11, 20)
Ratio Decidendi: The court established that non-issuance of notifications for tax exemptions under Section 54EE does not violate the law, and the principle of promissory estoppel does not apply in this case as it concerns governmental discretion and legislative functions. (Paras 12, 19, 22)
Result: Writ petition rejected.
| Table of Content |
|---|
| 1. petitioner business transfer and tax assessment process. (Para 1 , 2) |
| 2. criteria and limits for capital gains exemption. (Para 3 , 4) |
| 3. arguments for tax benefit under section 54ee. (Para 5 , 6 , 7 , 8) |
| 4. issues regarding government obligation to notify funds. (Para 9 , 10 , 11) |
| 5. judicial limits on mandamus regarding government policy. (Para 12 , 13 , 14) |
| 6. analysis of promissory estoppel applicability by government. (Para 15 , 16 , 17) |
| 7. limitations on fiscal policy under promissory estoppel. (Para 18 , 19 , 20) |
| 8. clarification of no binding state promise in fiscal policy. (Para 21 , 22 , 23) |
| 9. conclusion on legitimate expectations and entitlement. (Para 24 , 25 , 26) |
| 10. rejection of petition and options for future representation. (Para 27 , 28) |
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 , 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 trans
