Supreme Court Declines to Hear MSEs Plea Against New Income Tax Provision

Supreme Court Declines to Hear MSEs Plea Against New Income Tax Provision

Micro and Small Enterprises (MSEs) faced a setback on Monday as the Supreme Court declined to hear their plea against the new Income Tax provision. However, the apex court granted the MSEs leave to pursue their case in the High Court.

The petition, filed by the Federation of All India Vyapar Mandal, the Federation of Madras Merchants and Manufacturers Association, and the Confederation of West Bengal Trade Associations, sought an interim stay and quashed the amendment in the Income Tax Act. The amendment, enacted for assessment year 2024-25 starting April 1, 2024, prescribes that companies not making payments to micro and small enterprises during a fiscal year will have to wait for a full year for deductions under the IT Act.

While the Finance Ministry has stated that the amendment aims to ensure timely payment to micro and small businesses, the trade bodies disagree. They argue that the new clause in the Income Tax Act infringes upon their fundamental rights and is “colourable legislation.”

The trade bodies maintain that the new provision affects the allowability of purchases and disregards norms set by the RBI for letters of credit in export and import transactions. They argue that the clause grants buyers credit of more than 45 days, impacting the ability of micro and small enterprises to conduct business on their own terms.

The three-judge bench comprising Chief Justice D. Y. Chandrachud, J B Pardiwala, and Manoj Mishra dismissed the petition under Article 32 of the Constitution but granted the petitioners the liberty to approach the High Court. The MSEs will now have the opportunity to pursue their case in the High Court to challenge the new Income Tax provision.