Case Note & Summary
The case involves a batch of writ petitions filed by companies operating in Special Economic Zones (SEZs) challenging the constitutional validity of the proviso to Section 115JB(6) of the Income Tax Act, 1961, inserted by the Finance Act, 2011. The petitioners, including M/s Mindtree Ltd, M/s Opto Infrastructure Limited, and others, sought a declaration that the proviso is ultra vires Section 27 of the SEZ Act, 2005 read with the Second Schedule, and hence unenforceable. The background is that the SEZ Act, 2005 provides certain tax exemptions to SEZ units, including exemption from income tax under Section 10AA of the Income Tax Act. However, the Finance Act, 2011 introduced a proviso to Section 115JB(6) which made SEZ units liable to Minimum Alternate Tax (MAT) on their book profits. The petitioners argued that this proviso negates the tax exemption granted under the SEZ Act and is therefore ultra vires. The respondents, Union of India and others, defended the proviso as a valid exercise of legislative power. The court analyzed the provisions of both Acts and applied the doctrine of pith and substance and harmonious construction. It held that the SEZ Act and the Income Tax Act operate in different fields and that the proviso does not conflict with Section 27 of the SEZ Act. The court found that the proviso is a valid taxing provision and dismissed the petitions, upholding the validity of the proviso. The decision was rendered by Justice H.N. Nagamohan Das on 12th June 2013.
Headnote
A) Constitutional Law - Validity of Taxing Provision - Ultra Vires - The court considered whether a proviso to Section 115JB(6) of the Income Tax Act, 1961 inserted by the Finance Act, 2011 is ultra vires Section 27 of the SEZ Act, 2005. The court held that the proviso does not violate Section 27 of the SEZ Act and is valid. (Paras 1-10) B) Interpretation of Statutes - Harmonious Construction - SEZ Act and Income Tax Act - The court applied the principle of harmonious construction to reconcile the provisions of the SEZ Act and the Income Tax Act. It held that the proviso to Section 115JB(6) does not conflict with Section 27 of the SEZ Act. (Paras 11-20) C) Taxation - Minimum Alternate Tax - SEZ Units - The court examined the applicability of MAT to SEZ units under the proviso to Section 115JB(6). It held that the proviso is valid and SEZ units are liable to MAT. (Paras 21-30)
Issue of Consideration
Whether the newly inserted proviso to Section 115JB(6) of the Income Tax Act, 1961 by the Finance Act, 2011 is ultra vires Section 27 of the SEZ Act, 2005 read with the Second Schedule thereto and hence unenforceable.
Final Decision
The court dismissed the writ petitions and upheld the validity of the proviso to Section 115JB(6) of the Income Tax Act, 1961 inserted by the Finance Act, 2011.
Law Points
- Validity of proviso to Section 115JB(6) of Income Tax Act
- 1961
- SEZ Act
- 2005
- Section 27 of SEZ Act
- Finance Act
- 2011
- Ultra vires
- Doctrine of pith and substance
- Harmonious construction
