Doesn’t Deprive Taxpayer From Benefit: Delhi HC Dismisses Plea Challenging Constitutional Validity Of Section 71(3A) Income Tax Act
The Delhi High Court dismissed the writ petition that challenged the constitutional validity of Section 31 of the Finance Act, 2017, which brought about an amendment in the Income Tax Act, 1961 (ITA) by inserting sub-section (3A) to Section 71 of the Act.
A government employee had filed the petition who claimed to have constructed his house in 2014 by incurring an expenditure of Rs. 1.35 crore.
A Division Bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav held, “… the alteration in the manner of imposing tax in the present case cannot be said to deprive the taxpayer from a benefit, rather it tantamounts to a realignment of the existing provisions bearing in mind the broader economic and policy considerations, which the Legislature is duly empowered to do. … Further, the petitioner has also failed to allude to any specific material which could suggest that the amended provision is liable to be struck down on account of any permissible parameters. In any case, it has been well-settled that the State must be left with a wide latitude in devising ways and means of fiscal or regulatory measures and the Court should not, unless compelled by the statute or by the Constitution, transcend into this field, or invalidate such law.”
The Bench said that the impugned legislation does not fall foul of the test of manifest arbitrariness as the changes introduced by the legislation is well intended and is based on relevant considerations, including abuse of erstwhile provisions and financial health of the economy. It added that the Legislature has been guided by verifiable data and has not proceeded in a whimsical manner.
Advocate M.K. Pandey represented the petitioner while CGSC Pratima N. Lakra, SSC Puneet Rai, and JSC Rishabh Nangia represented the respondent.
In this case, the petitioner’s house construction was financed through a housing loan, partially raised from the IDBI Bank and the rest from his father, amounting to Rs. 85 lakhs and Rs. 50 lakhs, respectively. The annual rent for the same in the Financial Year (FY) 2016-17 was computed to be Rs. 1,20,000/-. Since the house was constructed from borrowed capital, therefore, under Section 24 of ITA , the amount of interest payable on such capital was eligible for deduction from the head “Income from house property”. The income chargeable under the said head was required to be computed after making deduction of the interest payable on such capital and the same was also eligible for set off as per Section 71 of ITA.
Accordingly, after availing deduction and setting off the same against his salary income, the petitioner filed his Income Tax Return (ITR) for FY 2014-15 to 2016-17. However, by virtue of Finance Act, 2017, the threshold limit for set off of loss under the head “Income from house property” against any other head of income was restricted to an amount of Rs. 2 lakhs for a particular Assessment Year (AY) with effect from April 1, 2018 i.e., for AY 2018-19 and subsequent AYs. The petitioner contended that such amendment to 2017 Act is against the tenets of Constitution and is illegal as the same was introduced with retrospective application, imposing heavy tax liability on him. As per him, the said amendment shorn off his pre-existing right to set off the loss exceeding Rs. 2 lakhs, which was curtailed vide 2017 Act.
The High Court after hearing both sides noted, “The element of disturbance of a vested right lies at the core of any challenge on the basis of restrospectivity. In the instant case, neither the old provisions, as they existed, nor the amended provisions endeavour to create or disturb any indefeasible right in favour of the petitioner so as to allow him to claim any legitimate expectation to set off the amount in the manner canvassed before us.”
The Court added that in the absence of any such crystallized right, the argument of the petitioner that the concerned amendment is violative of Article 14 of the Constitution does not hold any water.
“Additionally, the insertion of sub-section (3A) does not take away the benefits of deduction provided to the petitioner in toto, rather it only attempts to circumscribe the indefinite amount of set off to a certain amount. The change introduced by the impugned legislation is a reflection of the larger policy of the Legislature and has an equalizing effect on all the taxpayers claiming any deduction under the abovementioned head. It does not have the effect of creation of any separate class or classification”, it observed.
Moreover, the Court said that the amendment is applicable to all the category of persons without any apparent or real discriminatory classification and as a sequitur, it cannot be said to be against the tenets of equality encapsulated in Article 14 of the Constitution.
“Notably, the petitioner’s challenge regarding Article 14 is only based on the test of reasonable classification and intelligible differentia, and the same has been turned down by us. There is no challenge on the ground of manifest arbitrariness. … With respect to the challenge raised in light of the infraction of fundamental right to trade under Article 19(1)(g) of the Constitution, the scope of the said right cannot be extended to protect one’s right to profit. The right to carry on any business is certainly subject to regulatory parameters and a challenge against any such regulatory parameter could not be premised on the sole basis that it curtails the profit. There ought to be an infraction of the Constitution for attracting judicial review”, it also noted.
The Court remarked that the impugned provision does not create an absolute restriction on the taxpayer’s pre-existing right to claim the deduction in question and the capping of Rs. 2 lakhs is meant to prevent the abuse of the relevant provision.
“… there is clearly no applicability of the doctrine of promissory estoppel in the present case. … In the case at hand, it is palpably observed that the ―Notes on Clauses‖, appended to Section 31 of the Act of 2017, clearly stipulate that the amendment shall be applicable from AY 2018-19”, it concluded.
Accordingly, the High Court dismissed the writ petition.
Cause Title- Sanjeev Goyal v. Union of India (Neutral Citation: 2024:DHC:4573-DB)
Appearance:
Petitioner: Advocates M.K. Pandey and V.V. Chaudhary.
Respondent: CGSC Pratima N. Lakra, SSC Puneet Rai, JSC Rishabh Nangia, Advocates Vrinda Baheti, Kashish G. Baweja, Ashvini Kumar, and Nikhil Jain.
