The Petitioner’s sought to challenge the Constitutional Validity of the introduction of impugned sub-clause (xviii) of section 2(24) by Finance Act, 2015 whereby all incentives given in whichever form by Government and with whatever purpose or objective are to be treated as income irrespective of whether they are capital or revenue in nature. The case of the Petitioner was that by amending section 2(24)(xviii), the legislature has essentially overruled judicial precedents that distinguished capital receipts from revenue receipts, subsuming both under “income” and subjecting them to taxation, thereby overriding the established legal principles. Amendment indiscriminately broadens the definition of income to include subsidies, without distinguishing between various types of subsidies and the purposes for which they are granted. Before the amendment through the Finance Act, 2015, the Supreme Court applied the “purpose test” to determine whether a subsidy was a capital or revenue receipt. The Petitioner contended that the amendment carried was violative of Articles 12, 14, 19, 246, 265 and 289 of the Constitution of India and is contrary to the provisions of sections 4 and 5 of the Income-tax Act, 1961.

Rejecting the contentions of the Petitioner, High Court held that

• Every legislation particularly in economic matters cannot provide for all possible situations or anticipate all possible abuses.
• There is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles.
• The imposition of tax on these subsidies under the amended provision does not constitute “taking away” of a benefit but rather represents a recalibration of fiscal advantages in line with broader economic and policy considerations. Profits, by their nature, are subject to fluctuations resulting from various factors, taxation being but one. 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.
• Section 2(24)(xviii) of the Act is an example of this balancing act, and its imposition is a reflection of a subsidy’s life cycle coming to its fiscal fruition. Petitioner’s argument, is ostensibly rooted in concerns over profitability. This does not, in substance, however, provide a tenable basis to impugn the constitutional validity of the amended provision. Hence, petitioner’s argument of eroded profitability due to taxation lacks constitutional merit. An extension of this logic could open floodgates of untenable demands from loss-incurring entities seeking tax exemptions to improve profitability. This could potentially create a taxing standard that is inconsistent and prone to manipulations.
• The mere excessiveness of a tax or even the circumstance that its imposition might tend towards diminution of the earnings or profits of the persons of incidence, like in the case at hand-savings get reduced resulting in lower profitability, does not, per se, and without more, constitute violation of the rights under Part III of Constitution of India.
• The legislative change was not done surreptitiously but was the result of a transparent legal process, providing ample opportunity for all stakeholders to acquaint themselves with the new provisions.
• It is permissible for a competent Legislature to overcome the effect of a decision of a Court setting aside imposition of tax by passing a suitable legislation, by amending the relevant provisions of the statute concerned with retrospective effect.
• Mere excessiveness of a tax or even the circumstances that its imposition might tend towards the diminution of the earnings or profits of petitioner, per se and cannot constitute violation of constitutional rights. If in the process a few individuals suffer severe hardship that cannot be helped, for individual interests must yield to the larger interests of the community or the country as indeed every noble cause claims its martyr.
• The High Court accepted contentions of the Revenue that

1. a) the judicial invalidation of this provision would precipitate not merely a legal conundrum but a fiscal catastrophe with far-reaching consequences. A retrospective annulment of this provision would cause a state of chaotic disarray. Individuals and entities that have availed of subsidies and concessions and complied with the tax obligations thereof stand to face an untenable situation. They have acted in good faith under the existing legislative policy, and to dismantle this retrospectively would be to penalize compliance and create an environment of uncertainty and unpredictability in tax matters. Moreover, such a judicial step would likely instigate a flood of claims and litigations for refund of taxes paid under the provision, straining the administrative machinery and judicial resources. This would not only disrupt the revenue stream but also place an undue burden on the exchequer. Hence the High Court did not incline to strike down section 2(24)(xviii).
2. b) 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 mere fact that the institution of tax by virtue of the impugned sub-clause falls more heavily on the petitioner cannot result in its invalidity.