TMI Blog2018 (4) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... to ownership of the land and buildings is a decision taken by the legislature and cannot be faulted on the touchstone of Article 14 of the Constitution of India Parliament made a reasonable classification between the companies in which public are substantially interested from the companies in which public are not substantially interested. This classification cannot be found fault with because the petitioners want further classification to have been done by the Parliament. The legislature has in its wisdom decided that the executive should not be burdened with finding out the manner in which the land and buildings has been acquired by the company, to bring it to tax. The mere fact that there is land and building owned by the company and it is not used for the purposes of business is sufficient to hold that these assets to be taken into account under Section 40(3) of the Act for the purposes of wealth tax under the Wealth Tax Act. - Challenge to Section 40(3) of the Act is not sustainable. Therefore, the petition is dismissed. - Writ Petiton No. 2983 of 1987 - - - Dated:- 2-4-2018 - M.S. SANKLECHA SANDEEP K. SHINDE, JJ. Dr. Abhinav Chandrachud a/w Mr. Amol Joshi, Mr. Sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come to my notice that some persons have been trying to avoid personal wealth tax liability by forming closely-held companies to which they transfer many items of their wealth, particularly jewellery bullion and real estate. As companies are not chargeable to wealth tax, and the value of the share of such companies does not also reflect the real worth of the assets of the company, those who hold such unproductive assets in closely held companies are able to successfully reduce their wealth tax liability to a substantial extent. With a view to circumventing tax avoidance by such persons, I propose to revive the levy of wealth tax in a limited way in the case of closely held companies. Accordingly, I am proposing the levy of the wealth-tax in the case of closely held companies at the rate of 2 per cent on the net wealth represented by the value of specified assets, such as jewellery, gold, bullion, buildings and lands owned by such companies. Buildings used by the company as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its low paid employees will be excluded from the net wealth. 5. The Finance Bill, 1983 was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational centre, shelter, rest room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part: Provided that each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary payment) chargeable under the head Salaries under the Income tax Act does not exceed eighteen thousand rupees; (vii) motor cars; and (viii) any other asset which is acquired or represented by a debt secured on any one or more of the assets referred to in clause (I) to clause (vii). (4) The value of any asset specified in sub section (3) shall, subject to the provisions of sub section (3) of section 7 of the Wealth tax Act, be estimated to be the price which, in the opinion of the Wealth tax Officer, it would fetch if sold in the open market on the valuation date. (5) For the purposes of the levy of wealth tax under the We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions, that the petitioner is not pressing its challenge to the legislative competence of the parliament to enact Section 40(3) of the Act. Therefore, it is restricting its challenge in the petition to Section 40 of the Act and in particular on the ground that Section 40(3) of the Act is arbitrary and violates Article 14 of the Constitution of India. 9. In support of the petition, it was submitted as under : (a) Section 40 of the Act is arbitrary and violative of Article 14 of the Constitution of India. This for the reason that the classification of all companies in which the public are not substantially interested as defined in Section 2(18) of the Income Tax Act has no rationale nexus to the object of the Act viz. to bring to tax all closely held companies to which properties listed out in Section 40(3) of the Act have been transferred by its shareholders. This object of section 40 of the Act is manifest on reading the Finance Minister's speech introducing the bill leading to the enactment of Section 40 of the Act. (b) Section 40(1) and (2) of the Act it is submitted seeks to classify all companies in which public are not substantially interested to be included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners to our objection. It was pointed out by the respondent that a challenge to the constitutional provision is a serious issue and the onus is that much higher on the petitioners as there is always a presumption about the constitutionality of the provision enacted by the legislature. Therefore, it is not permissible to infer on the basis of the reference to some other sub section in the provision which has been challenged to contend that the other subsection is also a subject matter of challenge. It was also further pointed out that challenge to Section 40(1) and (2) of the Act as contended by the petitioners is not correct as the ground taken in paragraph 26(b) in the petition is with reference to Section 40(3) of the Act alone and cannot be stretched to include challenge to Section 40(1) and (2) of the Act. Besides, it was submitted that the decision of the Apex Court in Prabodh Verma (supra) would have no application to the facts of the present case as in that case, the prayer clause was vague and not restricted to any specific provision as in this case. It was also submitted that the petition was filed in 1987. No attempt to amend the petition was made for all these yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself being dismissed and normally the Court should insist on an amendment to ensure that the petitions are properly drafted. In this case, the petition has been filed by people involved in the world of business and appropriate legal assistance was also obtained. Therefore, the challenge by the petitioners to only Section 40(3) of the Act was an informed decision taken by the petitioners with the aid of their advisors to file the petition. For over thirty years this petition has been pending and no attempt was ever made to amend the petition. 14. The Apex Court has time and again reiterated the fact that the person who challenges the validity of any statute on the ground that the same contravenes Article 14 of the Constitution, must make specific, clear and unambiguous allegation so as to show that the impugned statute is based on discrimination or that classification made has no rationale nexus with the object sought to be achieved by the Act. The Apex Court in Amrit Banaspati Co. Ltd. Vs. Union of India Ors. (1995) 3 SCC 335 after referring to the earlier decision in V.S. Rice and Oil Mills Vs. State of A.P. AIR 1964 SC 1781, G.K. Krishnan Vs. State of T.N. (1995) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 40(3) has been enacted, is not founded on any intelligible differentia which separate and distinguish those companies and assets which are included within the purview of the said Section 40(3), from those companies and assets which are excluded from the scope of the said section 40(3). It is further submitted that even in the event of this Hon'ble Court coming to the conclusion that there are differentia which distinguish those companies and assets which are included within the classification contained in section 40(3), as compared to those persons and assets which are excluded from the said classification, then, the said differentia have no rational connection or nexus with the object of the classification. On a perusal of paragraph 26(B) of the petition, it is evident that the submissions were made in the context of challenge to Section 40(3) of the Act. The above averments do not meet the test laid down by the Apex Court, that a constitutional challenge must be specific, clear and unambiguous. 17. The above averments do not contain any allegation or material to support the submissions being made on behalf of the petitioners that by classifying of companies in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act is arbitrary and violative of Article 14 of the Constitution of India to the above extent. 20. In response, the learned ASG submitted that the Finance Minister's speech itself seeks to bring to tax all companies in which public are not substantially interested holding land and buildings, not for the purposes of its business, to tax under the Act. It is further submitted that the entire issue stands concluded by the decision of Madhya Pradesh High Court in Chunnilal Onkarmal (P) Ltd. and Anr. Vs. Union of India Anr. 1994 SCC Online MP 326 . Therefore, there is no basis for the aforesaid challenge. 21. It is a settled position in law that a fiscal legislation relating to tax is not immune to challenge, in case it does not satisfy the test of Article 14 of the Constitution of India. However, in matters of tax legislation the Supreme Court in R.K. Garg Vs. Union of India, (1981) 4 SCC 675 has observed as under: law 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by its members. The Parliament has decided to bring to tax the land and buildings not used for the purposes of business and owned by the companies in which the public are not substantially interested. The Parliament has thus made a reasonable classification between the companies in which public are substantially interested from the companies in which public are not substantially interested. This classification cannot be found fault with because the petitioners want further classification to have been done by the Parliament. The remedy of the petitioners, if any, in matters such as this, is to have the Parliament to amend the law so as to meet what according to the petitioners would be the most just and appropriate classification, by adding further classification and restricting its applicability only where the assets have not been acquired by the company in which the public are not substantially interested out of its own profits. The legislature has in its wisdom decided that the executive should not be burdened with finding out the manner in which the land and buildings has been acquired by the company, to bring it to tax. The mere fact that there is land and building owned by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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