Govt. Cannot Be Bound to Issue Notification for Capital Gain Exemption Under Section 54EE | HC

Case Details: Getwell medicare vs. Union of India - [2023] 157 taxmann.com 365 (Kerala)

Judiciary and Counsel Details

• • Dinesh Kumar Singh, J.
  • A. Kumar, P.J. Anilkumar, Smt G. Mini, P.S. Sree Prasad, Job Abraham & Ajay V. Anand, Advs. for the Petitioner.
  • K.K. Sethukumar, CGC for the Respondent.

Facts of the Case

Petitioner, a partnership firm engaged in wholesale dealerships in pharmaceutical products, transferred its business under the slump sale method on a ‘going concern basis’ for a lump sum consideration and computed capital gains under Section 50B of the Income-tax Act, 1961.

The petitioner had approached the High Court for a writ, order or direction in the nature of mandamus commanding the Union of India to notify long-term specified assets for availing capital gains exemption under Section 54EE with appropriate extension of time period under Section 54EE and Explanation 2 therein or any such appropriate manner known to law.

Section 54EE allows capital gains exemption up to a limit of Rs. 50 lakhs provided the assessee invests the capital gain proceeds in the long-term specified assets notified under Section 54EE for a minimum period of 3 years. Further, Explanation 2(b) of Section 54EE defines a long-term specified asset’ as units issued before the 1st day of April 2019 of such funds as notified by the Central Government on this behalf.

Contending that the doctrine of promissory estoppel binds the Central Government to notify such fund, the petitioner filed a writ petition to the Kerala High Court.

High Court Held

The High Court held that it was neither a case of discrimination nor the petitioner would have a right under Articles 14 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. 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.

With respect to the issue of promissory estoppel, the Court held that the principle of promissory estoppel is based on equity, and it requires a valid promise based on which the promisee had changed its position. Meanwhile, the principle of legitimate expectation is rooted in fundamental ideas like reasonableness, fairness, and non-arbitrariness. It is well settled that the Government is competent to resile from a promise even if there is no manifest public interest involved, provided no one is put in any adverse situation which cannot be rectified. The fiscal decisions are in the prudence and realm of the executive. The reasons why the Government did not issue a notification are within the domain of the executive’s discretion. The Court is not empowered to go behind the reasons for not issuing the notification under Section 54EE.

The petitioner would know that without notification having been issued for a long-term specified asset or fund for investment, the petitioner could not claim exemption from tax on his capital gain arising from the transfer of his long-term capital asset. Here, it is not a case that the petitioner had made an investment in a specified long term asset as notified by the Government, and thereafter the Government withdrew the said notification. Therefore, the petitioner’s argument that the Central Government should be held bound by its promise to notify the specified long-term asset/fund is not meritorious.

Thus, non-issuance of notification cannot be said to be arbitrary, unfair or unreasonable.