1973 (11) TMI 17
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....l applications by this common judgment. In order to appreciate the manner in which the challenge to the constitutional validity arises, we need only set out the facts in Special Civil Application No. 235 of 1971. The petitioner is carrying on business in Ahmedabad. On April 21, 1962, the petitioner had purchased a plot of land admeasuring about 2,335 square yards at Rakhial, a village near Ahmedabad City. On January 1, 1968, the petitioner sold the land and he realised a profit of Rs 28,912. On March 5, 1969, he filed his return for the assessment year 1968-69 and in that return he showed his income from business as Rs 4,000 and that too on an estimate basis. In the original return he had not shown the income from sale of the land as part of his income for the assessment year 1968-69. After the return was filed, the petitioner was required to produce the sale deed in respect of the land which he had sold on January 1, 1968, and a copy of the sale deed was filed by the petitioner with the Income-tax Officer concerned on March 12, 1969. Thereafter, on March 19, 1969, the petitioner filed a revised return showing therein capital gain of Rs. 11,114 and income from business on an estim....
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....e-tax Act. The Indian Income-tax Act, 1922, continued to remain in force till March 31, 1962. Under the Act of 1922, under section 28, no minimum penalty was laid down but the maximum penalty that could be imposed was 150 per cent. of the tax evaded by the assessee. With effect from April 1, 1962, the Income-tax Act, 1961, came into force and for the-first time a minimum penalty was laid down in section 271. With effect from April 1, 1962, the minimum penalty prescribed was twenty per cent. of the tax evaded and the maximum still continued as before at 150 per cent. of the tax evaded. With effect from April 1, 1964, an Explanation to section 271(1) was added and the statutory presumption as laid down therein was required to be raised against the assessee. Between March 1, 1965, and May 31, 1965, the first voluntary disclosure scheme was brought into force and under this scheme it was provided that if the assessee concerned paid 60 per cent. of the concealed income as tax, then no other penalty would be levied against him. As the Finance Minister pointed out at the time when he made the announcement regarding this scheme in Parliament, those persons who had undisclosed income to dec....
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....ect to any further proceedings of assessment and the identity of the declarant was not to be revealed and he was to be immune from penalty and prosecution for the past concealment of such disclosed income. Thereafter, with effect from April 1, 1968, in order to counter tax evasions, the impugned section 271(1)(c)(iii) was brought on the statute book by Act 19 of 1969. Under the impugned section, if the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under the Act is satisfied that any person has, concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed, or inaccurate particulars have been furnished. Thus, under the provisions for minimum penalty, the minimum penalty is 100 per cent. of the income which has been concealed and the maximum penalty is 200 per cent. of the income concealed. It must be noted that this penalty has to be levied in addition to the ta....
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....vaded, in fact the penalty is correlated to the income concealed instead of to the tax evaded and he urged that in the context in which the provisions have been enacted, checking evasion of taxes must be considered to be the object of the impugned legislation. The provisions of article 14 have been dealt with in various judgments of the Supreme Court and the position may be summarized as follows. It is well-settled that while article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of permissible classification, two conditions must be fulfilled, namely : (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group; and (ii) that that differentia must have a rational relation to the object sought to be achieved by the statute in question. The Supreme Court has dealt with the scope of classification in taxation statutes in several of its decisions. We need refer to only a few of them in order to cull out the principles applicable to taxation statutes in the context of article 14.....
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....even the imposition of a tax upon anthracite that is not levied upon bituminous coal. A statute providing for the assessment of one type of intangible at its actual value while other intangibles are assessed at their face value does not deny equal protection even when both are subject to the same rate of tax. The decisions of the Supreme Court in this field have permitted a State legislature to exercise an extremely wide discretion in classifying property for tax purposes so long as it refrained from clear and hostile discrimination against particular persons or classes. " Thus, unless the petitioner succeeds in establishing that there was a clear and hostile discrimination by virtue of the impugned legislation, the challenge on the ground of article 14 cannot be sustained. In Twyfoyd Tea Co. v. State of Kerala the decision in East India Tobacco Company's case was followed and it was pointed out that in Order to be able to succeed in the charge of discrimination, so far as taxation statutes are concerned, a person must establish conclusively that persons equally circumstanced have been treated unequally and vice versa. Again, in Vivian Joseph Ferreira v. Municipal Corporation of....
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....herefore, the order was liable to be set aside. In Khandige Sham Bhat v. Agricultural Income-tax Officer it was held that the impugned provision pertaining to agricultural income-tax in the State of Kerala was not violative of article 14 of the Constitution of India. It was held that the classification was founded on an intelligible differentia between the assessees of the two parts of the State and the differentia had a rational relationship to the object of the amending Act and, therefore, there was no discrimination. In K. T. Moopil Nair v. State of Kerala the majority of the learned judges of the Supreme Court struck down the Travancore-Cochin Land Tax Act as unconstitutional and violative of article 14 of the Constitution. It was held on the facts of that particular case that there was no attempt at classification in the provisions of the Act and hence the court held that there was no equality before the law. It was one of those cases where the lack of classification created inequality. It was, therefore, clearly hit by the prohibition to deny equality before the law contained in article 14 of the Constitution. One case of the Supreme Court which was very strongly relied up....
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.... persons or property either by classification or lack of classification. In our opinion, the challenge of Mr. Pathak on the ground of article 14 must fail because in this piece of taxing statute he has not been able to point out any hostile discrimination against a particular type of taxpayer. The fact that the penalty with effect from April 1, 1968, is linked up with the income concealed rather than with the tax evaded shows the gravity which the legislature attaches to such tax evasions. The fact that under section 271(1)(a)(i) the penalty for not filing a return is correlated to the amount of the tax evaded as against the correlation of penalty to concealed income under the impugned provisions of section 271(1)(c)(iii) is totally beside the point because, so far as concealed income is concerned, the penalty for concealed income proceeds on altogether a different footing from penalty for omission to file a return in time. It must not be forgotten that the history of legislation which we have pointed out shows that Parliament has progressively moved more and more stringent measures of penalty obviously with a view to deter people from evading tax by concealing their income. In Co....
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....ad become necessary because as enacted in the impugned provisions of section 271(1)(c)(iii), the taxation laws were not being properly enforced. In our opinion, the challenge on the basis of constitutional validity under article 14 cannot succeed on this argument. Ultimately, if at all the challenge succeeds, it must be on the ground of hostile discrimination, but no such hostile discrimination in the impugned provisions can be detected. The Madras High Court has pointed out in Sivagaminatha Moopanar & Sons v. Income-tax Officer, that section 28 of the 1922 Act was enacted for the purpose of rendering evasion unprofitable and of securing to the State compensation for damages caused by attempted evasion. Nor was it correct to regard the ingredients of the misconduct under the two provisions as identical. The falsity of a declaration wilfully made is enough to satisfy the requirements of section 52; whether that declaration results in concealment is not material for the purpose of that section. On the other hand, section 28(1)(c) is concerned with the effect of the " inaccurate particulars deliberately furnished ", that is, " concealment " and unless this result was achieved, no pen....
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.... slab and the greater the extent of the income concealed, the lesser will be the ratio of the penalty, maximum and minimum, to the tax actually evaded as a result of concealment of such income. But this result has been brought about by the higher rates of taxation in the upper brackets of income. It has again to be borne in mind that in any particular case the actual proportion between the penalty imposed and the tax evaded will depend upon the rate of tax applicable to the assessee concerned and again the penalty is to be levied on the basis of the concealed income and not on the basis of the entire income. Under these circumstances it is obvious that the impugned provisions of section 271(1)(c)(iii) cannot be said to violate article 14 of the, Constitution. As regards the challenge on the grounds of -article 190(1)(f), it cannot be said that the provisions are expropriatory. After all, all kinds of punishments and penalties can be said to expropriatory in the sense that some part of the property of the delinquent concerned goes to the State. But, it must be borne in mind, as pointed out by the High Court of Australia in Burton v. Honsen, that the power to impose punishment and p....
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.... is plainly discriminatory, or provides no procedural machinery for assessment and levy of the tax, or that it is confiscatory, courts would be justified in striking down the impugned statute as unconstitutional. In such cases, the character of the material provisions of the impugned statute is such that the court would feel justified in taking the view that, in substance, the taxing statute is a cloak adopted by the legislature for achieving its confiscatory purposes. " In the instant case no such question of a cloak can be said to arise: The object of the legislature in the impugned provision is not to provide for any confiscation but to provide a penalty for concealment of income and that too by providing a deterrent penalty. Deterrence is the main theme or object behind the imposition of penalty and we may reiterate that the whole object as shown by the history to this scheme of provisions is to provide gradually more and more deterrent penalties with a view to see that tax evasion does not take place and result in detriment to society as a whole. In our opinion, therefore, it is not possible to say that in the instant case the provisions of section 271(1)(c)(iii) infringe art....