Bombay High Court Upholds Tax Amendment, Rejects Serum Institute's Challenge on Grounds of Profit Impact

In Mumbai, the Bombay High Court recently dismissed a petition filed by Serum Institute of India Pvt Ltd, asserting that the imposition of tax, despite its heavier impact on the petitioner, does not render the legal provision invalid. The court emphasized that while the Constitution safeguards the right to trade under Article 19(1)(g), it does not extend this protection to the right to profit.

Highlighting the fluctuating nature of profits due to various factors, with taxation being just one of them, the division bench of Justices K R Shriram and Neela Gokhale declared that it is the legislature's duty to balance incentivizing economic activity and ensuring equitable fiscal resource distribution. The Pune-based biotechnology company had challenged a 2016 amendment to Section 2(24) under the Income Tax Act, which expanded the definition of 'income' to include subsidies, grants, waivers, concessions, or reimbursements.

The court justified the inclusion of such elements in 'income,' stating that it aligns with economic realities and judicial precedent, portraying it as a legislative endeavor to adapt the definition of income to evolving economic landscapes. Additional Solicitor General Devang Vyas echoed the importance of a balanced taxation policy, and the court concurred.

Serum Institute, having participated in a State scheme with significant capital investment, argued that the amendment destroyed the distinction between capital and revenue subsidies. The court, however, dismissed this argument, asserting that the imposition of tax on subsidies is a recalibration of fiscal advantages in line with broader economic and policy considerations.

The court warned against arguments leading to potential tax exemptions for loss-incurring entities, emphasizing that such claims could create an inconsistent and manipulable taxing standard. It underlined the complex interplay between taxation and profitability, stating that the mere fact that a tax falls heavily on certain goods or persons does not invalidate it.

In conclusion, the High Court emphasized that taxation is an economic reality, and the mere impact on profitability does not constitute a violation of constitutional rights. It acknowledged that the policy of a tax may bring hardship in individual cases but deemed it inevitable in the abstraction of law from the generality of cases, representing the highest common factor.