Abrupt Withdrawal Of MAT And DDT Benefits To SEZ Valid – HC

Issue- Petitioners have prayed to declare the newly inserted proviso to Section 115JB(6) and 115-O(6) of the Income Tax Act in the second schedule to the Special Economic Zones Act 2005 as ultra vires, arbitrary, unfair and violative of Article 14 of Constitution of India.

Held- Legislature can never be precluded from exercising its legislative power by resort to the Doctrine of Promissory Estoppel. Since it is an equitable doctrine, it must yield when equity so requires. The courts would decline to enforce this doctrine if it results in great hardship to government and would be prejudicial to the public interest. Keeping these principles in mind it is necessary to examine the fact situation in the instant case.

It is not in dispute that by inserting sub-section 6 to Section 115JB and Section 115O of the Income Tax Act the petitioners are exempted from paying minimum alternate tax and tax on distribution of dividends. By introducing the impugned provisos in the second schedule to SEZ Act the benefit extended is now withdrawn. In the circumstances, the petitioners are claiming relief on the basis of Doctrine of Promissory Estoppel. It is settled position of law that this doctrine must yield when the equity so requires. Firstly the exemption provided do not have a sunset clause and now under the impugned amendment this flaw in the law is removed. Secondly, the inequality between SEZ companies and other companies is removed. Thirdly, the exemptions provided to SEZ companies resulted in erosion of tax base. Respondents in their statement of objections stated that they have foregone revenue from SEZ units to the tune of Rs.692 crores in 2006-07, Rs.2710 crores in 2007-08, Rs.4099 crores in 2008-09 and Rs.4990 crores in 2009-10. Fourthly, the impugned amendment relates to fiscal policy of the state and any decision in the economic sphere is adhoc and experimental in its nature and therefore the Government is well within it sovereign power to regulate the same. Lastly the impugned amendments do not transgress any of the fundamental rights of the petitioners guaranteed under the Constitution. Therefore, I hold that Doctrine of Promissory Estoppel cannot be made applicable to nullify the impugned amendments. Accordingly these two points 3 and 4 are held in negative. For the reasons stated above, the writ petitions are hereby dismissed.

Source- Mindtree Limited vs. Union of India (Karnataka High Court), W.P.No. 16896/2012, Dated 12th June 2013