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2015 (11) TMI 24 - BOMBAY HIGH COURT

2015 (11) TMI 24 - BOMBAY HIGH COURT - [2016] 380 ITR 60 - Constitutionality of Section 95 of the KVSS, 1998 - whether declaration under KVSS cannot be granted as scheme has expired? - Held that:- It is not possible for us to declare Section 95(iii) void on the ground of under inclusion. The non inclusion of others in the exclusionary Section 95(iii) of the KVSS 1998 will not render the classification done by the parliament as arbitrary or violative of Article 14 of the Constitution of India. < .....

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aches the Court, would the issue arise for our examination. This is neither a public interest litigation nor is the petitioner in any manner affected by the class of persons being excluded from the benefit of KVSS 1998 for the reason of prosecution being launched for enforcement of the civil liabilities. Furthermore, the Petitioner is seeking a relief under the KVSS 1998 and at the same time, he is calling upon the Court to strike down Section 95 thereof, which will result in all persons being e .....

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ail. - Decided against assessee. - Writ Petition No. 1027 of 1999 - Dated:- 13-10-2015 - M. S. Sanklecha And N. M. Jamdar, JJ. For the Petitioner : Mr. Amit Jhaveri, Petitioner-in-Person For the Respondent : Mr. Anil Singh, Additional Solicitor General a/w Mr. Suresh Kumar and Mr. Afroz Shah, Advocate JUDGMENT (Per Coram. ) This petition filed under Article 226 of the Constitution of India challenges: - (a) three orders dated 12 February 1999 by which the petitioner s declaration under the Kar V .....

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eclaration under KVSS cannot be granted as scheme has expired. Expedited. Liberty to department to apply. Therefore the only issue for our consideration is issue (b) viz. Constitutionality of Section 95 of the KVSS, 1998. Factual Background: 3. The petitioner filed his return of income for the Assessment Year 1993-94 declaring a return of income of ₹ 2.30 lakhs. The Assessing Officer by an assessment order dated 28 March 1996 assessed the same at ₹ 43.89 lakhs. For the Assessment Yea .....

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d 28 March 1996, 31March 1997 and 31 March 1998 for the Assessment years 1993-94, 1994-95 and 1995-96 respectively. As on 1Septemeber 1998, the appeal of the Petitioner for the Assessment Year 1993-94 was pending before the Income Tax Appellate Tribunal, and the appeals of the Petitioner for the Assessment Years 1994-95 and 1995-96, were pending before the Commissioner of Income Tax (Appeals). 4. The Finance Act, 1998 introduced the KVSS, 1998 with effect from 1 September, 1998 providing for set .....

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the date of filing of the declaration, there must be a pending dispute with regard to the tax arrears which is being sought to be settled under the KVSS 1998. The settlement of tax dispute was mutually beneficial measure, both to the revenue and assessee, inasmuch as it benefited the revenue to realize its assessed dues not paid, in an expeditious manner and offers the assessee an opportunity to pay the disputed liability at an discounted rate coupled with an immunity from imposition of penalty .....

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ovided that where a declaration made was found to be false, it was to be presumed that such a declaration was never made by the assessee. 5. The Petitioner filed three declarations dated 31 December 1998 under the KVSS 1998 in the prescribed form to the designated authority seeking to settle his disputes, pending before the authorities under the Act for Assessment Years 1993-94, 1994-95 and 1995-96. In each of the declarations made in the prescribed form, the petitioner had declared that he is n .....

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nformed the designated authority that his declaration would not be hit by Section 95(iii) of the KVSS 1998. This on the ground that the disqualification therein would apply where proceedings as specified under Section 95(iii) of the KVSS 1998 are instituted and not initiated. It was submitted by the petitioner that as no chargesheet has yet been filed, the proceedings against him had not yet been instituted. 7. However the designated authority did not accept the petitioner s contention. Therefor .....

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5 of the KVSS 1998. This Court admitted the petition only on the issue of constitutional validity of Section 95 of the KVSS 1998 and did not entertain the challenge to the orders dated 12 February 1999. In any case the Apex Court in CBI Vs. Sashi Balsubramanian 2006(13)SCC 252 while considering Section 95 (iii) of the KVSS 1998 has held that the term 'instituted' would not mean filing of chargesheet but would also include mere filing of a complaint. Accordingly, the view of this Court in .....

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5 of KVSS 1998 is discriminatory and liable to be questioned. He, however, pointed to the consequences of the upholding the challenge will lead to reopening the entire scheme and unsettle decided issues. 10. The petitionerinperson in support of the petition submitted as under: (a) A taxing statute like any other Act of Parliament is subject to equality clause provided under Article 14 of the Constitution of India. Section 95 of the KVSS 1998 falls foul of Article 14 of the Constitution of India .....

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punishable under Chapter IX or Chapter XVII of the Indian Penal Code. At this stage, the complaint is merely on account of suspicion. The subsequent discharge of an accused person is not taken into account. This leads to an innocent person being excluded from the benefit of KVSS 1998. Thus the petitioner is denied the equal protection of opportunity for availing the benefit of KVSS 1998 only on account of arbitrary exclusion. (c) The classification under Section 95(iii) of the KVSS 1998 seeking .....

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stuck up in disputes. Thus the classification is violative of Article 14 of the Constitution of India. (d) The classification under Section 95 (iii) of KVSS 1998 is arbitrary and violative of Article 14 of the Constitution of India as it deprives a person as benefit of KVSS 1998 for minor crimes falling under the Chapter XVII of the Indian Penal Code. At the same time, a person against whom prosecution has been instituted for serious crimes like murder, etc. is not deprived of the benefit of KV .....

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and the State. These pending disputes has resulted in large amount being blocked up in the resolution of the dispute. Therefore, KVSS 1998 seeks to settle litigation. In the process, the Parliament in its wisdom has sought to exclude certain category of assessee as specified in Section 95 of the KVSS 1998 from the benefit of the Scheme of Settlement including those involved in socialeconomic crimes. This classification of various classes of assessee not being entitled to the benefit of KVSS 1998 .....

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iling a declaration under the KVSS 1998. The rationale for excluding a person against whom prosecution has been launched for the offences specified in Section 95 (iii) of the KVSS 1998 is to ensure that the people who have generated illegal money are kept out of the KVSS 1998 so as not to make available such class of persons from the benefit of immunity. Similar classification had been done by the State in its Bear Bond Immunity and Exemption Act, 1981. The aforesaid Act was a subject matter of .....

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ave been initiated/ instituted, to be excluded from the benefit of the KVSS 1998. This cut off date provided by the Parliament cannot be said to be arbitrary so as to violate Article 14 of the Constitution of India; (d) The classification done by the Parliament cannot be declared unconstitutional merely because in the wisdom of the Petitioner or of the Court the classification could have been better. Statutory Provision: 12. For an appropriate consideration of the contesting submission it would .....

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ax arrear in respect of a person who has been convicted for concealment on or before the date of filing the declaration; (b) in a case where an order has been passed by the Settlement Commission under subsection (4) of section 245D of the Income Tax Act or subsection (4) of section 22D of the Wealth Tax Act, as the case may be, for any assessment year, to any tax arrear in respect of such assessment year under such direct tax enactment; (c) to a case where no appeal or reference or writ petition .....

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espect of any tax arrear in respect of such case under such indirect tax enactment; (b) in a case where showcause notice or a notice of demand under any indirect tax enactment has not been issued; (c) in a case where no appeal or reference or writ petition is admitted and pending before any appellate authority or the High Court or the Supreme Court or no application for revision is pending before the Central Government on the date of declaration made under section 88; (iii) to any person in resp .....

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under any such enactment; (iv) to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974; Provided that- ( a) such order of detention being an order to which the provisions of section 9 or section 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under section 8 of the said Act or before the receipt of the report of the Advisory Board; or (b) such order .....

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sis of, the first review under subsection (3) of that section, or on the basis of the report of the Advisory Board under section 8, read with subsection (6) of section 12A, of the said Act; or (d) such order of detention has not been set aside by a court of competent jurisdiction; (v) to any person notified under subsection (2) of section 3 of the Special Court (Trial of Offences Relating to Transaction in Securities) Act, 1992. Legal Position: 13. A challenge to a legislation on the touch stone .....

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before it can be declared as ultra vires. It is not necessary for us to make a complete survey of the judgments in which the various tests have been formulated and reaffirmed. We may, however, make a reference to the judgment of this Court in Budhan Choudhary v/s. State of Bihar - AIR 1955 SC 191 wherein a Constitution Bench of seven Judges of this Court explained the true meaning and scope of Article 14 as follows: 5 .. .. .. .. It is now wellestablished that while Article 14 forbids class leg .....

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ation may be founded on different bases; namely, geographical, or according to objects or occupations or the like. What is necessary is that there mus be a nexus between the basis of classification and the object of the Act under consideration. It is also wellestablished by the decisions of this Court that Article 14 condemns discrimination not only by a substantive law but also by a law of procedure. 1 07:The aforesaid principles have been consistently adopted and applied in subsequent cases. I .....

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he constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles; (c) that it must be presumed that the legislature understands and correctly appreciate the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds; (d) that the legislature is free to recognise degrees of harm and may confine its restrictions .....

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law or the surrounding circumstances brought to the notice of the court on which the classification may reasonably be regarded as biased, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile or discriminating legislation. 14. It is also a settled position in law that a tax legislation like any other legislation is subject to a rigour of Article .....

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erved as under: 8:-Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straightjacket formula and this is particularly true in case of legisla .....

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n this utilities, tax and economic regulation cases, there are goods reasons for judicial selfrestrains if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times, the judges have been overruled by events - self li .....

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nt is largely a prophecy based on meagre and uninterpreted experience . Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed .....

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against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is th .....

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ed to the assessee and is a deviation from strict implementation of a taxing statute. It is in the aforesaid circumstances, that the Petitioner has assailed the Constitutional validity of Section 95 of KVSS 1998. It must also be clarified that though the prayer in the Petition is to declare the entire Section 95 of the KVSS 1998 as unconstitutional in view of violation of Article 14 of the Constitution of India, before us, the submission made by the Petitioner was only in respect of challenge to .....

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in respect of whom a complaint has been filed in a Criminal Court, alleging offences under Chapter IX and XVII of the Indian Penal Code. This in view of the fact that the complaint in the Criminal Court is filed on mere suspension and if ultimately the person so excluded is discharged even then a benefit of KVSS 1998 would not be applicable. Thus this is arbitrary; (ii) The various categories listed out in Section 95 (iii) being excluded from the benefit of KVSS 1998 are person who are being pro .....

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deprived benefit of KVSS 1998. This itself is evidence of the arbitrary nature of the exclusion having no nexus to the objection of the Act to collect Revenue; and (iv) Section 95 (iii) of the KVSS 1998 also excludes the class of persons against whom proceedings for enforcements of Civil liabilities has been instituted from the benefit of KVSS 1998. This is completely arbitrary and in the face of Article 14 of Constitution of India as according to the Petitioner, this would cover a civil dispute .....

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axman Kale v/s. Union of India 1990 (4) SCC 366 has held that the purpose or the object of the legislation can be found out by looking at the circumstances which prevail when the law was passed including the necessity of the law. It is, therefore, permissible to look at the statement of objects/ reasons while introducing the Act and also the historical facts and surrounding circumstances to ascertain the mischief sought to be remedied. In the present case, the objective/ purpose of the KVSS 1998 .....

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9 Budged: Litigation has been the bane of both direct and indirect taxes. A lot of energy of the Revenue Department is being frittered in pursuing large number of litigations pending at different levels for long periods of time. Considerable revenue also gets locked up in such disputes. Declogging the system will not only incentivise honest taxpayers, it would enable the Government to realise it's reasonable dues much earlier but coupled with administrative measures, would also make the syst .....

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inance Minister, whilst replying to the Debate after incorporating amendments to the Finance (No.2) Bill, 1998 made a speech dated 1771998 (1998) 232 ITR (St) 11. The relevant portion of the Speech, which highlights the object or purpose of the Scheme, is extracted below: The Kar Vivad Samadhan Scheme has evoked a positive response from a large number of organizations and tax professionals. The Hon'ble Members of Parliament have also taken a keen interest in the Scheme. The lack of clarity i .....

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connected limbs - 'kar' and 'vivad'. Collection of tax arrears is as important as settlement of disputes. The Scheme is not intended to settle disputes when there is no corresponding gain to the other party. The basic objective of the Scheme cannot be altered. (emphasis supplied) In fact the Supreme Court has repeatedly held that KVSS 1998 was introduced with a view to collect revenue and avoid litigation (Sushila Kumari v/s. CIT 2000 (2) SCC 697, Killick Nixon Ltd v/s. CIT 2003 .....

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ed an affidavit indicating that the policy / intent of KVSS 1998 to exclude offenders specified under Section 95 (iii) of the Act from the benefit of the KVSS 1998. The benefit of KVSS 1998 was not to be extended to all those who have, inter alia, income/ property which had been acquired by illicit means. The benefit of KVSS 1998 was to all those whose income/ property are acquired through legally permissible process but not disclosed. The KVSS 1998 provides for immunity from penalty and prosecu .....

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e objective of the Act which was extended by way of benefit to all assessees who have disputes with the Revenue pending before the authority under the Act or in the High Court. However, the aforesaid benefit under the KVSS 1998 was not available to a person against whom proceedings have been instituted under the Indian Penal Code, Prevention of Corruption Act, 1988, TADA, FERA and Narcotic Drugs and Psychotropic Substances Act, 1985. It would therefore be noticed that the class of people who hav .....

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alty and prosecution. Once a classification as pointed out by the Revenue is found to be based on reasons, the mere fact that the Petitioner or the Court is of the view that the classification could be better, would not entitle the Court to interfere with the classification as done by the legislature. The role of the Court is limited only to ensure that the classification is not arbitrary i.e. absence of intelligible differentia having a nexus to the object of the Act. The Courts are not in any .....

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filed on mere suspicion and if ultimately the person so excluded is discharged even then the benefit of KVSS 1998 would not be available. The legislation does not factor in the likelihood of honourable discharge. Thus it is arbitrary according to the Petitioner. The Parliament in its wisdom has provided a window period during which an offer of settlement under KVSS 1998 is kept open subject to certain conditions being satisfied on the date of filing of the declaration. This providing of cut off .....

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es have a nexus to the object of the KVSS 1998. This nexus to the object exists. Furthermore, the Apex Court in the case of Sashi Balsubramaniam (supra) has held that benefit of the KVSS 1998 Scheme is not to be extended to those against whom a complaint is pending, therefore, this condition cannot be held to be arbitrary. 19. It is next contended by the petitioner that the various categories listed out in Section 95 (iii) of KVSS 1998 excluding them from the benefit of KVSS 1998 are persons who .....

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me at the cost of the society. This benefit of KVSS 1998 would also grant immunity to such persons from penalty and prosecution which in the view of Parliament is not justified/warranted. Further, one must not loose sight of the fact that the benefit under the KVSS 1998 is a deviation from the strict application of tax laws. Thus the challenge on the above ground is also not sustainable. 20. The next contention urged by the Petitioner was that a person against whom prosecution has been launched .....

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reply filed by the State was to exclude those classes of persons who were involved in Socioeconomic crimes having obtained income / property by illegal means. The State is prosecuting those persons under the criminal law of land for having acquired / obtained income / property by committing breaches of the various Act referred to therein. The classification is restricted only to those persons who are involved in crimes which in Parliament's experience/ wisdom could have lead to generation o .....

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Parliament, may have no nexus to the generation of income. In any case at the very highest, the grievance of the Petitioner appears to be that the classification is not proper and there is room for more classification by including into those categories listed in Section 95(iii) of the Act, those who have been left out. Grievance made is one of under inclusion. 21. The issue of under inclusion in tax litigation arose before the Supreme Court in M/s. Murthy Match Works and Others v/s. Assistant C .....

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t case, a pertinent principle of differentiation , which is visibly linked to productive process, has been adopted in the broad classification of powerusers and manual manufacturers. It is irrational to castigate this basis as unreal. Indeed, the soundness of this distinction is not denied. The challenge is founded on the failure to miniclassify between large and small sections of manual match manufacturers. But ours is not to reason why that being a policy decision of Government dependent on pr .....

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micro classification among a large group has not been done by the State. Absolute justice to every producer is selfdefeating adventure for any administration and general direction, not minute classification, is all that can be attempted. For these reasons we find ourselves in agreement with the High Court in its refusal to strike down the notification under Section 3 of the Central Excise and Salt Act, 1944. 22:-It is sound law that refusal to make rational classification where grossly dissimila .....

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islative judgment and not for forensic wisdom. (American Jurisprudence 2d : vol. 16, para 496): The relationship between the legislative and judicial departments of Government in the determination of the validity of classification is well settled . . . . the authorities state with unanimity that the question a judicial question except for the purpose of determining in any given situation, whether the legislative action is clearly unreasonable. The legislative classification is subject to judicia .....

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ion in law, as in the other departments or knowledge or practice, is the grouping of things in speculation or practice because they agree with one another in certain particulars, and differ from other things in those particulars. It is almost impossible in some matters to foresee and provide for every imaginable and exceptional case, and a Legislature ought not to be required to do so at the risk of having its legislation declared void, although appropriate and proper upon the general subject up .....

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n inclusion of others in the exclusionary Section 95(iii) of the KVSS 1998 will not render the classification done by the parliament as arbitrary or violative of Article 14 of the Constitution of India. 22. It was next contended by the Petitioner that in terms of Section 95 (iii) of the KVSS 1998, a person who has any civil dispute in a Court of law is excluded from the benefit of KVSS 1998. This on account of the fact that Section 95(iii) of the KVSS 1998 inter alia excludes a class of persons .....

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es on or before the filing of the declaration under the KVSS 1998. This exclusion is in respect of persons who have not honouerd the verdict of a civil court against them leading to filing of prosecution for the enforcement of the civil liabilities. This also is a class of persons which the parliament does not wish to extend the offer of KVSS 1998. This in the Parliament's wisdom is not to make available the benefit of KVSS 1998 to those who do not honour the orders of civil court leading to .....

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