Bombay High Court Dismisses Petition Filed By Serum Institute Of India Challenging 2016 Amendment To Income Tax Act

The Bombay High Court has dismissed a petition filed by Serum Institute of India Pvt. Ltd. challenging a 2016 amendment to the Income Tax Act.

The bench of Justice K. R. Shriram and Justice Neela Gokhale has observed that the amendment to Section 2(24) by insertion of the impugned sub-clause that includes various subsidies and concessions only indicates the well-established jurisprudential path ensuring that the income tax laws remain attuned to the economic realities and continue to serve as a vital cog in the nation's fiscal machinery. It is the duty of the legislature to ensure that taxation policy reflects a balance between incentivizing economic activity and ensuring the equitable distribution of fiscal resources.

The petitioner/assessee, Serum Institute, is a biotechnology company manufacturing drugs and vaccines. The assessee has a manufacturing plant in Hadapsar, Pune. The petitioner's units in the Hadapsar area are eligible for deduction under Section 10AA of the Income Tax Act, 1961. The petitioner also commissioned another manufacturing facility in the Special Economic Zone (SEZ) located at Manjari, Pune, which commenced production during the financial year 2019–2020.

The petitioner has challenged a 2016 amendment to Section 2(24) by the insertion of sub-clause (xviii) under the Finance Act, 2015, that deals with the definition of 'income'. The challenge was to include subsidies, grants, waivers, concessions, reimbursements by the centre or states, or incentives in cash or kind, as 'income'.

The petitioner contended that the sub-clause is contrary to the scheme of the Income Tax Act, which is to levy tax on "income." The expression “income” defined under clause (24) of Section 2 of the Act read with Section 4 denotes that income is any monetary return coming in. In the case of capital subsidies, there is no monetary return coming in. Only “real income” is taxable.

The department contended that subsidies, exemptions, and waivers are incentives in order to attract industries to invest in the state of Maharashtra. These incentives encourage capital investments, which will indirectly create jobs and nurture the economy. Though the true nature of subsidy is to support or supplement the capital invested by the industries, therefore, a capital receipt, it is now sought to be treated as “income” under the sub-clause.

The court noted that matters of economic policy should be best left to the wisdom of the legislature. In the context of a changed economic scenario, the expertise of the people dealing with the subject should not be lightly interfered with. While dealing with economic legislation, this court would interfere only in those few cases where the view reflected in the legislation is not possible to take at all. The case of the petitioner certainly does not fall within this exception.

The court did not find that by inserting the impugned subclause, there is any perversity or gross disparity resulting in clear or hostile discrimination.

“It is true that the legislature is the best forum to weigh different problems in the fiscal domain and form policies to address them, including creating a new liability, exempting an existing liability, creating a deduction, or subjecting an existing deduction to new regulatory measures. In the very nature of taxing statutes, the legislature holds the power to frame laws to plug in specific leakages,” the court said.

Counsel For Petitioner: Arvind Datar

Counsel For Respondent: Devang Vyas

Case Title: Serum Institute of India Private Limited Versus Union of India

Case No.: Writ Petition No. 3735 Of 2021

Click Here To Read The Order