M/S. MINDTREE LTD. Vs. UNION OF INDIA

JUDGEMENT

(1.) In these writ petitions the 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 (for short 'SEZ Act') as ultra vires, arbitrary, unfair and violative of Article 14 of Constitution of India. In the month of April 2000, the Government of India announced Special Economic Zone scheme with a view to provide international competitive environment for exports. The object of the scheme include making available goods and services free of taxes and duties supported by integrated infrastructure for export production, expeditious and single window approval mechanism and package of incentives to attract foreign and domestic investments for promoting export lead growth. The scheme was implemented through various notifications and circulars issued by the concerned ministries/department's from time to time. This system of issuing notifications and circulars resulted in certain practical problems and does not lend enough confidence among the investors. In order to overcome the problems of the present scheme and to give a long term and stable policy frame work the Central Act for Special Economic Zones had been found necessary. Accordingly the Special Economic Zone Bill was introduced in the parliament The Bill was passed in the Loksabha on 09.05.2005 and in Rajyasabha on 11.05.2005. The President of India gave his assent to the Bill on 23.06.2005. Thus the Special Economic Zones Act, 2005 (for short 'SEZ Act') came into force. Section 7 of the SEZ Act specifies that any goods or services exported or imported from the domestic tariff area by any unit in a special economic zone shall be exempted from payment of taxes, duties or cess subject to prescribed terms, conditions and limitations. Section 26 of the SEZ Act specifies certain concessions under the Customs Act, Customs Tariff Act, Central Excise Act, Central Excise Tariff Act, Domestic Tariff Area, Service Tax Act under Chapter V of the Finance Act, 1994, Securities Transaction Tax leviable under Finance Act, 2004 etc. Section 27 of the SEZ Act specifies that provisions of Income Tax Act, 1961 to apply to SEZ units and developers subject to modifications specified in Schedule-II. Under the SEZ Act the following profit linked deductions and incentive relating to Income Tax are allowed to SEZ units:

(2.) Petitioners are SEZ developers/co-developers/units. The petitioners by taking necessary permissions and approvals under the SEZ Act and Rules are carrying on activities inside the SEZ. The petitioners contend by acting on the promises made under the provisions of SEZ Act, Rules and exemptions provided under various Acts including the Income Tax Act made huge investments in establishing the SEZ units. It is contended that petitioners borrowed massive loans from various financial institutions and investment on land, buildings, infrastructure facilities etc. Petitioners have commenced their projects on the basis that income accrued or arising from business carried on by them as SEZ developer or unit are exempted from applicability of Minimum Alternate Tax (MAT) as provided under sub-section 6 of Section 115JB and sub-section 6 of Section 115-O of the Income Tax Act.

(3.) When the matter stood at that stage, the Union Finance Minister moved the Union Budget for 2011-2012 on the floor of Parliament and the Finance Bill, 2011 was introduced. In terms of this Finance Bill, 2011 a proviso was inserted below Section 115JB(6) and 115O(6) of Income Tax Act in the Second Schedule to SEZ Act and they are as under: