TMI Blog1997 (7) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... mal taxpayers during earlier years. This petition was filed on July 2, 1997, and it pertains to the finance scheme which is to operate up to December 31, 1997, as declared at present. If the matter is admitted and kept pending as submitted by learned counsel for the petitioners, it may affect its implementation, as the time schedule for disclosure thereunder is up to December 31, 1997. Because of the pendency of litigation, some persons may not like to avail of the benefit of the scheme as they may carry an impression that, if the petition is allowed, their disclosure would be in vain and they may be trapped ; they may also think that it is better to await the decision. Hence, the matter was heard expeditiously. The respondents were directed to file necessary affidavit. On behalf of the Union of India, an affidavit is filed by the Chief Commissioner of Income-tax. Learned counsel for the parties were heard extensively for more than two days, as it was repeatedly contended that first the matter be admitted and thereafter it be finally decided. Learned counsel have submitted their detailed written submissions, which are directed to be kept on record. They have referred to various d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some provisions of the Scheme could be abused by human ingenuity, but that cannot be helped. Admittedly, unearthing of unaccounted money is a complex economic problem faced by this country since years. Even experts would not be in a position to find out an easy solution to this complex problem. There would be divergent opinions of experts with regard to tackling of this problem and it cannot be easily solved even by experts. Hence, for solving this problem to some extent if Parliament decided to enact a law, the court cannot substitute its judgment in place of the legislative judgment in the field of economic regulations or in taxation matters. It is well settled that the function of the court is to see that lawful authority is not abused and with regard to legislation, the provisions are not against the Constitution. But, it would not be open to the court to substitute its decision on economic policy matters. It was repeatedly pointed out during the course of arguments that dishonest taxpayers are given undue benefits and much more immunities by the present enactment. As against this, it has to be borne in mind that even at present the taxation laws are admittedly very stringent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the petitioners to show the drawbacks of this type of Scheme are known to Parliament and to the executive. Various committees have also observed that this type of Schemes gives premium to the dishonest taxpayer. Despite the suggestions by the various committees, after taking into consideration the economic scene prevailing in the country, Parliament has enacted the aforesaid Scheme. The affidavit filed in support of this petition contains the contentions raised at the final hearing of the matter. It has been pointed out that, by a resolution dated March 2, 1970, the Government of India appointed a committee, inter alia, to examine and suggest all legal and administrative measures for countering evasion and avoidance of direct taxation and to recommend concrete and effective measures to unearth black money and to prevent proliferation through further evasion. That committee's report, which is known as the Wanchoo Committee Report, was published in December, 1971. The report concluded that the money value of the sum involved in unaccounted income was in excess of Rs. 7,000 crores in the financial year 1968-69. Learned counsel emphasised that in the said report, it has been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malady as has been pointed out by M. C. Setalvad in his autobiographical work, " My life, Law and other things " : " Standards of professional conduct have woefully fallen and tax evasion is freely practised by prominent seniors. " The same is the position with regard to the report known as " Aspects of the Black Money in India " by Shankar N. Acharya in the year 1985. One of the observations in the said report is as under : " Simultaneously with the announcement of one or both of these schemes or some other scheme which the Government may devise, it should be made clear to those liable to taxation that having brought down the tax rates to reasonable levels and having given an opportunity to those who have erred in the past to disclose their black wealth and to return to the straight path, Government would strongly come down on tax evaders in the future. In order to make people believe that the Government means serious business and that they would ignore the Government's warning at their own peril, it is necessary that the enforcement machinery and the penal provisions should be suitably strengthened." The committee has further observed as under : " To make prosecution an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial courts for, dealing with tax evaders by enacting special tax rules and suitable moral atmosphere in the society, but, at present, it is an impossibility or in any case a long-term measure. This would not mean that Parliament cannot take short-term measures to unearth unaccounted black money. It is known fact that, at present, the atmosphere is not so healthy wherein dishonest tax evaders would feel ashamed or would be reluctant to avoid legitimate payment of tax. In such an atmosphere, if Parliament decides to enact law giving certain immunities as inducement for declaration of income to such tax evaders, it cannot be said that it is palpably arbitrary. The other reasonable view also could be, stringent or deterrent laws alone may not be sufficient to deter such tax evaders. On behalf of the petitioners, it has been pointed out that the unaccounted money in circulation in India today may amount to at least Rs. 500,000 crores and the said figure would exceed by adding together the figures of unaccounted income for the financial years 1992-93 to 1996-97. If such is the magnitude of black money in circulation in the country, it would be difficult to find out any short cut meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e does not fall within the morality exception carved out in R. K. Garg's case [1982] 133 ITR 239 (SC). (c) The scheme is arbitrary and violative of article 14 of the Constitution as it is not based on intelligible differentia having rational relation to the object sought to be achieved. (d) Even amongst the so-called class of the dishonest taxpayers, there is discrimination. (e) The scheme is against the reports submitted by expert committees. (f) The Income-tax Act is subject to this scheme and immunities are given to dishonest taxpayer. With regard to the contention that there is violation of article 14 of the Constitution, we refer to the observations of the Supreme Court in the case of R. K. Garg v. Union of India [1982] 133 ITR 239. In the said case, the court held that, while dealing with such a question, the first test is that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. The presumption of constitutionality is so strong that in order to sustain it, the court may take into consideration matters of common knowl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the Legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the Legislature in dealing with complex economic issues." (emphasis supplied) The court further held that the validity of a classification of those persons having black money and unaccounted income has to be judged with reference to the object of the legislation and, if that was done, there can be no doubt that the classification made by the Act was rational and intelligible and the operation of the provisions of the Act was rightly confined to the persons in possession of black money. The court held that the contention of the petitioner that the classification made by the Act was discriminatory as it excluded persons with white money from taking advantage of the provisions of the Act by subscribing to or acquiring special bearer bonds, was totally unfounded. In the present case also, the same is the position. The classification between persons who are having unaccounted money and honest taxpayers cannot be said to be in any way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is bound to affect the honest taxpayer. We agree that honest taxpayer in the society is at a discount. However, considering the present social and economic scenario in the country, it cannot be said that the Government was having other alternative, efficacious remedy and yet it has selected this method to unearth unaccounted money. Admittedly, there is manifold increase in unaccounted money and wealth. Despite stringent taxation laws, as stated earlier, for various reasons, it appears that it is not possible for the executive to unearth unaccounted money. In such a situation, if Parliament decided to give some inducement to holders of black money and allow them to join the mainstream by disclosing their unaccounted income, it cannot be said that the impugned legislation is so reeking with immorality that it could be condemned as arbitrary or irrational. Dealing with the immunities given and exemptions granted to persons having unaccounted money who have evaded taxation and concealed their income despite stringent tax laws, the court held that it would be outside the province of the court to consider if any particular immunity or exemption is necessary or not for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are likely to deter dishonest persons. In our view, these submissions on the part of the petitioners and the respondents are required only to be narrated, because it will be difficult for us to decide how much unaccounted money would be unearthed by this type of scheme. It would also be difficult for us to imagine and find out whether the respondents herein have sufficient administrative set up to prosecute and punish dishonest persons evading payment of tax, but that would hardly be a ground for holding that this scheme is bound to fail and, therefore, it should be held to be ultra vires article 14 of the Constitution or that the said scheme is arbitrary or irrational. Further, it cannot be said that because expert committees have opined against such type of schemes, the Government or Parliament is bound by such recommendations and should not frame such schemes. After all, the committee's report is to be considered as an opinion of an expert body. Parliament has a duty to decide how to implement such reports by considering all practical problems faced by the society. If two or more methods of adjustment of economic measures are available, it is the discretion of the Legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is stage, it would be worthwhile to quote some observations in the decision rendered by the Supreme Court in the case of Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97, where the court was dealing with the constitutional validity of the Expenditure-tax Act, 1987. Referring to the flexibility in the modes of effectuating a tax in view of innate complexities in the fiscal adjustment of diverse economic factors inherent in the formulation of a policy of taxation and the variety of policy options open to the State, the court referred to the following observations by J. Rauls in " Modern Trends in Analytical and Normative Jurisprudence " (Introduction to Jurisprudence by Lord Lloyd of Hampstead and Freeman, 5th edn.) : " . . . . In practice, we must usually choose between several unjust, or second best, arrangements ; and then we look to non-ideal theory to find the least unjust scheme. Sometimes this scheme will include measures and policies that a perfectly just system would reject. Two wrongs can make a right in the sense that the best available arrangement may contain a balance of imperfections, an adjustment of compensating injustices. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is tax not because of inducement, but because he believes that it is his duty to the State to pay tax for better living in a civilised society. Some parties in person intervened and submitted that they are honest taxpayers ; they are paying tax since years. If dishonest taxpayers, who have not paid tax since years, are given this advantage, the tax which they have paid be refunded or such benefit should not be given to dishonest tax-evaders. In our view, these are all arguments against such type of voluntary disclosure scheme. In our view, all these contentions are known to the Legislature and, after knowing them, it has decided to introduce the scheme. Apart from this aspect, in our view, the court's platform cannot be used for having a debate whether such scheme would yield results. In no set of circumstances, this court has jurisdiction to legislate and direct the refund of taxes paid by the honest taxpayers. It is true that honest taxpayers have to pay some premium, but that cannot be helped. As against this, Mr. Daga, learned counsel, who appeared on behalf of the interveners, submitted that such type of schemes are required to be introduced so as to unearth unaccounted or b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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