TMI Blog1981 (11) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... to account in any proceeding relating to any offence or to the imposition of any penalty under any law. None of these immunities is required by a person who has paid "white" money, that is, money that has been accounted for, to acquire the bonds. To a person who has disclosed the source of acquisition of the bonds, these immunities are of no use. Section 4 makes it clear that the immunities conferred by the Act are of use only to those who have acquired the Bonds with unaccounted money. Having held that the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981, and the Special Bearer Bonds (Immunities and Exemptions) Act, 1981, are invalid on the ground that they infringe art. 14 of the Constitution, do not find it necessary to consider whether the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981, is outside the Ordinance making power of the President under art. 123 of the Constitution. - W.P.(C) 355 OF 1981 - - - Dated:- 13-11-1981 - Judge(s) : AMARENDRA NATH SEN., A. C. GUPTA., P. N. BHAGWATI., S. MURTAZA FAZAL ALI., Y. V. CHANDRACHUD JUDGMENT [The judgment of Chandrachud C.J., Bhagwati, Fazal Ali and A. N. Sen JJ. was delivered by Bhagwati J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s become a serious threat to the national economy ; And whereas with a view to such canalisation the Central Government has decided to issue at par certain bearer bonds to be known as the Special Bearer Bonds, 1991, of the face value of ten thousand rupees and redemption value, after ten years, of twelve thousand rupees; And whereas it is expedient to provide for certain immunities and exemptions to render it possible for persons in possession of black money to invest the same in the said Bonds." Sections 3 and 4 are extremely material since on their true interpretation depends to a large extent the determination of the question relating to the constitutional validity of the Act and they may be reproduced as follows: " 3. (1) Notwithstanding anything contained in any other law for the time being in force, (a) no person who has subscribed to or has otherwise acquired Special Bearer Bonds shall be required to disclose, for any purpose whatsoever, the nature and source of acquisition of such Bonds; (b) no inquiry or investigation shall be commenced against any person under any such law on the ground that such person has subscribed to or has otherwise acquired Special Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, but in the meanwhile we may proceed to summarise the remaining provisions of the Act. Section 5 amends the I.T. Act, 1961, by providing that the definition of " capital asset " in s. 2, cl. (14), shall not include the Special Bearer Bonds issued under the Act so that any profit arising on sale of the Special Bearer Bonds would not be liable to capital gains tax and it also excludes from the computation of the total income of the assessee, premium on redemption of the Special Bearer Bonds by introducing a new sub-clause in s. 10, cl. (15). Section 5, sub-s. (1). of the W.T. Act, 1957, is also amended by s. 6 so as to exclude the Special Bearer Bonds from the net wealth of the assessee liable to wealth-tax. Section 7, by amending s. 5, sub-s. (1) of the G.T. Act, 1958, exempts gifts of Special Bearer Bonds from the incidence of gift-tax. Section 8 confers powers on the Central Govt, to make order removing any difficulty which may arise in giving effect to the provisions of the Act and s. 9, sub-s. (1), repeals the Ordinance, but since the Act is brought into force with effect from the date of promulgation of the Ordinance, sub-s. (2) of s. 9 provides that notwithstanding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, but if any were needed, it may be found in the decision of this court in Gujarat Pottery Works P. Ltd. v. B. P. Sood, Controller of Mining Leases for India [1967] 1 SCR 695; AIR 1967 SC 964. There, the question was whether the Mining Leases (Modification of Terms) Rules, 1956 (hereinafter referred to as the 1956 Rules ") made under the Mines and Mineral (Regulations and Development) Act, 1948 (referred to shortly as " 1948 Act were void as being inconsistent with the provisions of the 1948 Act and if they were void, they could be said to be continued by reason of s. 29 of the Mines and Minerals (Regulation and Development) Act, 1957 (hereinafter called the " 1957 Act This court, sitting in a Constitution Bench, held that the 1956 Rules were not inconsistent with the provisions of the 1948 Act and were, therefore, valid, but proceeded to observe that even if the 1956 Rules were void as being inconsistent with the provisions of the 1948 Act, they must, by reason of s. 29 of the 1957 Act, be deemed to have been made under that Act and their validity and continuity must, therefore, be determined with reference to the provisions of the 1957 Act and not the provisions of the 1948 Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It does not merely provide that the orders passed under the Ordinance shall be deemed to be orders passed under the Act but it provides that the orders passed under the Ordinance shall be deemed to be orders under this Act as if this Act were in force on the day on which certain things were done or action was taken. Therefore, the object of this section is, as it were, to antedate this Act so as to bring it into force on the day on which a particular order was passed which is being challenged. In other words, the validity of an order is to be judged not with reference to the Ordinance under which it was passed, but with reference to the Act subsequently passed by Parliament.' The Rules have not been challenged to be ultra vires the 1957 Act in the instant case." The same process of reasoning which appealed to this court in upholding the validity of the 1956 Rules must apply equally in the present case and the validity of anything done or any action taken under the Ordinance must be judged with reference to the provisions of the Act and not of the Ordinance. It would, therefore, be academic for us to consider whether the Ordinance was within the Ordinance-making power of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent to promulgate law by issuing an Ordinance to enable the executive to deal with the emergent situation which might well include a situation created by a law being declared void by a court of law. "Grave public inconvenience would be caused ", points out Mr. Seervai in his famous book on Constitutional Law, if on a statute like the Sales Tax Act being declared void, " no machinery existed whereby a valid law could be promulgated to take the place of the law declared void ". The President is thus given a legislative power to issue an Ordinance and since under our constitutional scheme as authoritatively expounded by this court in Samsher Singh v. State of Punjab [1975] 1 SCR 814, the President cannot act except in accordance with the aid and advice of his Council of Ministers, it is really the executive which is invested with this legislative power. Now, at first blush it might appear rather unusual and that was the main thrust of the criticism of Mr. R. K. Garg on this point that the power to make laws should have been entrusted by the founding fathers of the Constitution to the executive, because according to the traditional outfit of a democratic political structure, the legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in the executive. There is in the theory of constitutional law complete control of the Legislature over the executive, because if the executive misbehaves or forfeits the confidence of the Legislature, it can be thrown out by the Legislature. Of course, this safeguard against misuse or abuse of power by the executive would dwindle in efficacy and value according as the legislative control over the executive diminishes and executive begins to dominate the Legislature. But none the less it is a safeguard which protects the vesting of the legislative power in the President from the charge of being an undemocratic provision. We might profitably quote here the words of one of us (Chandrachud J., as he then was) in the State of Rajasthan v. Union of India [1978] 1 SCR I ; AIR 1977 SC 1361, where, repelling the contention of the petitioner that the interpretation which the Union of India was inviting the court to place on art. 356 would impair the future of democracy by enabling the Central Govt. to supersede a duly elected State Govt. and to dissolve its Legislature without prior approval of Parliament, the learned judge said (p. 1398, Col. 2 of AIR 1977 SC): " ...there may be situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions, namely, whether the provisions of the Act are violative of art. 14 of the Constitution. The true scope and ambit of art. 14 as been the subject matter of discussion in numerous decisions of this court and the propositions applicable to cases arising under that article have been repeated so many times during the last thirty years that they now sound platitudinous. The latest and most complete exposition of the propositions relating to the applicability of art. 14 as emerging from " the avalanche of cases which have flooded this court " since the commencement of the Constitution is to be found in the judgment of one of us (Chandrachud J., as he then was) in In re Special Courts Bill, 1978 [1979] 2 SCR 476 ; AIR 1979 SC 478. It not only contains a lucid statement of the propositions arising under art. 14, but being a decision given by a Bench of seven judges of this court, it is binding upon us. That decision sets out several propositions delineating the true scope and ambit of art. 14 but not all of them are relevant for our purpose and, hence, we shall refer only to those which have a direct bearing on the issue before us. They clearly recognise that classification can be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 constituional principles. This rule is based on the assumption, judicially recognised and accepted, that the Legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the court may take into consideration matters of common knowledge, matters of Common report, the history of the time and may assume every state of facts which can be conceived existing at the time of legislation. 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 strait jacket formula and this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not possible for any Legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation, which may be made by those subject to its provisions, and to provide 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 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. With these prefatory observations, we may now proceed to examine the constitutional validity of the Act. The preamble of the Act which " affords useful light as to what the statute intends to reach " or in other words It affords a clue to the scope of the statute " makes it clear that the Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... black money, unaccounted and concealed, in the hands of a few persons and it is causing incalculable damage to the economy of the country. The first casualty of this evil of black money is the revenue because it loses the tax which should otherwise have come to the exchequer. The generation of black money through tax evasion throws a greater burden on the honest taxpayer and leads to economic inequality and concentration of wealth in the hands of the unscrupulous few in the country. In addition, since black money is in a way " cheap " money because it has not suffered reduction by way of taxation, there is a natural tendency among those who possess it to use it for lavish expenditure and conspicuous consumption. The existence of black money is to a large extent responsible for inflationary pressures, shortages, rise in prices and economically unhealthy speculation in commodities. It also leads to leakage of foreign exchange, making our balance of payments rather distorted and unreal and tends to defeat the economic policies of the Government by making their implementation ineffective, particularly in the field of credit and investment. Moreover, since black money has necessaril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a second scheme of voluntary disclosure was introduced by s. 68 of the Finance Act, 1965. this scheme, popularly known as the sixty-forty scheme, enabled the tax evaders to disclose suppressed income by paying 60% of the concealed income as tax and bringing the balance of 40% into their books. This scheme was a little more successful than the earlier one, but it could help to net only about Rs. 52.11 crores of black money. Closely following on the heels of this scheme came another scheme under s. 24 of the Finance (No. 2) Act, 1965, popularly know as the " Block Scheme " according to which tax was payable at rates applicable to the block of concealed income disclosed and not at a flat rate as under the sixty-forty scheme. This scheme received a slightly better response and the income disclosed under it amounted to about Rs. 145 crores. Then came the Taxation Laws (Amendment and Miscellaneous Provisions) Ordinance, 1965, followed by an Act in identical terms, which provided for exemption from tax in certain cases of undisclosed income invested in National Defence Gold. Bonds, 1980. We shall have occasion to consider the broad scheme of this Act a little later, but for the time being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and being utilised for productive purposes so as to promote effective social and economic planning. This was the object for which the Act was enacted and it is with reference to this object that we have to determine whether any impermissible differentiation is made by the Act so as to involve a violation of art. 14. We may now turn to examine the provisions of the Act. Section 3, sub-s. .(1), provides certain immunities to a person who has subscribed to or otherwise acquired Special Bearer Bonds. Clause (a) protects such a person from being required to disclose, for any purpose whatsoever, the nature and source of acquisition of the Special Bearer Bonds. Clause (b) prohibits the commencement of any inquiry or investigation against person on the ground of his having subscribed to or otherwise acquired the Special Bearer Bonds. And cl. (c) provides that the fact of subscription to or acquisition of Special Bearer Bonds shall not be taken into account and shall be inadmissible in evidence in any proceedings relating to any offence or the imposition of any penalty. It will be seen that the immunities granted under s. 3, sub-s. (1), are very limited in scope. They do not protect th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as any person purchases Special Bearer Bonds, he is immunised against the processes of taxation laws. Here, there is no amnesty granted in respect of any part of the concealed income even though it be invested in Special Bearer Bonds. The whole object of the impugned Act is to induce those having black money to convert it into " white money " by making it available to the State for productive purposes, without granting in return any immunity in respect of such black money, if it could be detected through the ordinary processes of taxation laws without taking into account the fact of purchase of Special Bearer Bonds. Now, it is true-and this was one of the arguments advanced on behalf of the petitioner-that if black money were not invested in Special Bearer Bonds but were lying in cash, it could be seized by the tax authorities by carrying out search and seizure in accordance with the provisions of the tax laws and this opportunity to detect and unearth black money would be lost, if such black money were invested in Special Bearer Bonds, because even if Special Bearer Bonds were seized, they cannot be relied upon as evidence of possession of black money. But this argument of the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly out of account and the revenue would not be entitled to rely upon it as evidence of possession of undisclosed money. This is the only limited immunity granted under s. 3, sub-s. (1) and even this limited immunity is cut down by the provision enacted in sub-s. (2) of s. 3. This sub-section says that the immunity granted under sub-s. (1) shall not be available in relation to prosecution for any offence punishable under Chap. IX or Chap. XVII of the IPC or the Prevention of Corruption Act, 1947, or any other similar law. If, therefore, an inquiry or investigation is sought to be made against a public servant in respect of an offence under Chap. IX of the IPC or the Prevention of Corruption Act, 1947, alleged to have been committed by him, the acquisition or possession of Special Bearer Bonds could be a ground for instituting such inquiry or investigation and it could also be an admissible piece of evidence in a prosecution in respect of such offence. The same would be the position in relation to an inquiry, investigation or prosecution in respect of an offence under Chap. XVII of the IPC. The acquisition or possession of Special Bearer Bonds would not, therefore, afford any pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial Bearer Bonds. Clause (b) enacts another prohibition with a view to preventing abuse of the immunity granted in respect of Special Bearer Bonds and says that no person who has subscribed to or otherwise acquired Special Bearer Bonds shall be entitled to claim, in relation to any period before the date of maturity of such bonds, that any asset which is includible in his net wealth for any assessment year under the W.T. Act has been converted into such bonds. The object of this provision is to preclude an assessee who is sought to be taxed on his net wealth under the W.T. Act from escaping assessment to tax on any asset forming part of his net wealth by claiming that he has invested it in purchase of Special Bearer Bonds. The investment in Special Bearer Bonds would not grant immunity from assessment to wealth-tax to any asset which is found by the taxing authorities, otherwise than by relying on the fact of acquisition of Special Bearer Bonds, to belong to the assessee and, hence, forming part of his, net wealth. The asset would be subjected to wealth-tax despite the investment in Special Bearer Bonds. Then follows cl. (c) which is extremely important and which effectively coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutorily unavailable to him, and such consideration would inevitably be liable to be regarded as his concealed income and would be subjected to tax and penalties. Moreover, it is difficult to see why anyone should want to invest disclosed or " white " money in the acquisition of Special Bearer Bonds. Ordinarily, a person would go in for Special Bearer Bonds only for the purpose of converting his undisclosed money into it white " money and it would be quite unusual bordering almost on freakishness for any one to acquire Special Bearer Bonds with disclosed or "c white " money, when he can get only 2% simple interest on the investment in Special Bearer Bonds, while outside he can easily get anything between 15% to 40% yield by openly dealing with his disclosed or " white " money. The transferability of Special Bearer Bonds against "disclosed or " white " money is thus, from a practical point of view, completely excluded. The question may still arise whether Special Bearer Bonds would not pass from hand to hand against undisclosed or black money. Would they not be freely negotiable against payment of undisclosed or black money ? Now, it may be conceded that a purchaser of Special Beare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g necessarily limited, they may fetch a higher value in black money from a person who is anxious to convert his black money into white. If the demand outreaches the limited supply, the price of Special Bearer Bonds in the black market may exceed the amount originally invested in subscription to Special Bearer Bonds. But even so, the black money paid by the purchaser for acquisition of Special Bearer Bonds would not in its entirety be converted into white ; it would change its colour from black to white only to the extent of the amount originally subscribed for the Special Bearer Bonds or at the most, if we also take into, account interest on such amount, to the extent of the face value of the Special Bearer Bonds, because whatever be the amount he might have paid in black money for the acquisition of the Special Bearer Bonds, the holder of the special bearer bonds will get only the amount representing the face value on maturity of the Special bearer bonds. It will thus be seen that howsoever special bearer bonds may be transferred and for whatever consideration, only a limited amount of black money, namely, the amount originally subscribed for the special bearer bonds or at the mos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial bearer bonds against receipt of black money, the purchaser would straightaway run into difficulties because the evidence furnished by the assessee would, in such a case, clearly establish that the purchaser had black money and he paid it to the assessee by way of consideration and he would in that event be rendered liable to tax and penalty in respect of such black money. This would show the utter improbability bordering almost on impossibility, of special bearer bonds being subjected to any such abuse as is apprehended by the petitioners. It was then urged on behalf of the petitioners that s. 4, cl. (c), operates only in relation to a period before the date of maturity of special bearer bonds and after the date of maturity, the holder of special bearer bonds can sell such bonds, and, without running any risk, disclose the consideration received by him as his white money, because s. 4, cl. (e), being out of the way, he can account for the possession of such money by showing that he has received it as consideration for sale of special bearer bonds and so, far as the purchaser is concerned, if he has paid the consideration out of his black money, he can claim the immunity gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey. The seller would obviously be interested in showing the consideration as his white money and there may be no difficulty so far as he is concerned, because he would be able to explain the possession of such money by claiming that he has received it by way of consideration for the sale of special bearer bonds. Section 4, cl. (c), will not stand in the way of his offering that explanation. But so far as the purchaser is concerned, he will run into serious difficulties. Even if the immunity under s. 3, sub.s. (1), were available to him after the date of maturity, he will still be in trouble, because the disclosure made by the seller would be the clearest evidence showing that the purchaser had black money which he paid by way of consideration to the seller, and this evidence, being independent of the fact of acquisition of special bearer bonds by the purchaser, would be admissible and the purchaser would be liable to tax and penalty on the amount of black money paid by him as consideration. We fail to see how a transfer of special bearer bonds after the date of maturity, even if legally-permissible, can be utilised for the purpose of legalising more black money into white. But we m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view, they do operate as a bar against acquisition, whether by original subscription or by purchase, of special bearer bonds with white money. We do not see why any one should want to invest his white money in subscribing to or acquiring special bearer bonds which yield only 2 per cent. simple interest per annum and which are not encashable for a period of not less than ten years. It is true that special bearer bonds can be sold before the date of maturity but who would pay white money for them and even if in some rare and exceptional case, a purchaser could be found who would pay the consideration in white money, no one will dare to sell special bearer bonds for white money, because of the disincentive provided in s. 4, cl. (c). The investment of white money in special bearer bonds is accordingly, as a practical measure, completely ruled out and the provisions of the Act are intended to operate only qua persons in possession of black money. There is a practical and real classification made between persons having black money and persons not having such money and this de facto classification is clearly based on intelligible differentia having a rational relation with the object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed money in special bearer bonds and to that extent they are given benefits and concessions which are denied to those who honestly pay their taxes. Those who are honest and who observe the law are mulcted in paying the taxes legitimately due from them while those who have broken the law and evaded payment of taxes are allowed by the provisions of the Act to convert their black money into " white " without payment of any tax or penalty. The provisions of the Act may thus seem to be putting a premium on dishonesty and they may not, without some justification, be accused of being tinged with some immorality, but howsoever regrettable or unfortunate it may be, they had to be enacted by the Legislature in order to bring out black money in the open and canalise it for productive purposes. Notwithstanding stringent laws imposing severe penalties and vigorous steps taken by the tax administration to detect black money and despite various voluntary disclosure schemes introduced by the Government from time to time, it had not been possible to unearth black money and the menace of black money had, over the years, assumed alarming proportions causing havoc to the economy of the count ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rer bonds for the purpose of mopping up black money, because they apprehended certain abuses to which special bearer bonds might be subjected, but as we have already pointed out, while discussing the true meaning and legal effect of the provisions of the Act, we do not think that there is any scope for such abuses, for, the Legislature has, while enacting the provisions of the Act, taken care to see that such abuses are reduced to the minimum, if not eliminated altogether. It is true that certain immunities and exemptions are granted to persons investing their unaccounted money in the purchase of Special Bearer Bonds but that is an inducement which has to be offered for unearthing black money. These who have successfully evaded taxation and concealed their income or wealth despite the stringent tax laws and the efforts of the tax department are not likely to disclose their unaccounted money without some inducement by way of immunities and exemptions and it must necessarily be left to the Legislature to decide what immunities and exemptions would be sufficient for the purpose it would be outside the province of the court to consider if any particular immunity or exemption is nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or method is inherent in every legislative effort to deal with an obstinate social or economic issue and if it is found that any immunity or exemption granted under the Act is being utilised for tax evasion or avoidance not intended by the Legislature, the Act can always be amended and the abuse terminated. We are, accordingly, of the view that none of the provisions of the Act is violative of art. 14 and its constitutional validity must be upheld. These were the reasons for which we passed our order dated 2nd September, 1981, rejecting the challenge against the constitutions validity 0 the Ordinance and the Act and dismissing the writ petitions. Since, these writ petitions are in the nature of public interest litigation, we directed that there should be no order as to costs. GUPTA J. (November 13, 1981)-I was unable to share the view taken by the majority in disposing of these writ petitions on September 2, 1981, that " neither the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981, nor the Special Bearer Bonds (Immunities and Exemptions) Act, 1981, is violative of art. 14 of the Constitution ", and I made the following order on the same day: "I have come to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Shri K. N. Wanchoo, retired Chief justice of the Supreme Court of India, as Chairman, explains what the term black money means in its final report submitted in December, 1971: " It [black money] is, as its name suggests, 'tainted' money-money which is not clean or which has a stigma attached to it............ black is colour which is generally associated with evil. While it symbolises something which violates moral, social or legal norms, it also suggests a veil of secrecy shrouding it. The term 'black money' consequently has both these implications. It not only stands for money earned by violating legal provisions-even social conscience-but also suggests that such money is kept secret and not accounted for ...... Today the term 'black money' is generally used to denote unaccounted money or concealed income and/or undisclosed wealth as well as money involved in transactions wholly or partly suppressed. The Act contains nine sections. The sections that are relevant for the present purpose are set out below. "3. Immunities.-(1) Notwithstanding anything contained in any other law for the time-being in force, (a) no person who has subscribed to or has otherwise acquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Bearer Bonds 1991.'. 6. Amendment of Act 27 of 1957.-In section 5 of the Wealth-tax Act, in sub-section (1), after clause (xvia), the following clause shall be inserted, namely:- (xvib) Special Bearer Bonds, 1991. 7. Amendment of Act 18 of 1958.-In section 5 of the Gift-tax Act in subsection (1), after clause (iiia), the following clause shall be inserted, namely: ` (iiib) of property in the form of Special Bearer Bonds, 1991'" The marginal notes against ss. 5, 6 and 7 indicate that these sections are amendments, respectively, of the I.T. Act of 1961, the W.T. Act of 1957, and the G.T. Act of 1958. Section 5 excludes Special Bearer Bonds, 1991, from the capital asset of an assessee and exempts the premium, payable on the redemption of the bonds from income-tax. Section. 6 exempts the bonds from wealth-tax. Section 7 exempts from gift-tax property in the form of these bonds The Act has been: challenged mainly on the ground that it infringes art. 14 of the Constitution. Article 14 forbids class legislation but permits classification. Permissible classification, it is well established, must satisfy two conditions which Das J. enunciated in State of West Bengal v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions Nos. 863 and 994 of 1981, contended that s. 4(c) did not constitute an absolute bar to the assessee seeking to prove that the said sum or asset represents the sale, price of the Special Bearer Bonds; on behalf of the Union of India it was asserted that this was an absolute bar. In view of the conclusion .1 have reached, I do not propose to decide the point and I shall proceed on the basis that it is an absolute bar. It is apparent from cls. (a) to (c) of s 4 that the rights they deny affect only those who have disclosed their source of acquisition of the Bonds. Those in whose case the source of acquisition has not been detected are not affected by the prohibition contained in s. 4. The impugned Act denies to those who have acquired the Bonds not with black money any relief under the I.T. Act or the W.T. Act or any benefit in any other way claimed on the ground that they are holders of Special Bearer Bonds, and the relief and the benefit denied to them have been made available to those who have acquired the Bonds with black money by ignoring the source of acquisition in their case. The Act thus distinguishes between two classes of holders of Special Bearer Bonds : tax-evader ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there must be a nexus between them. In short, while the article [art. 14] forbids class legislation in the sense of making improper discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of large number of other persons similarly situated in relation to the privileges sought to be conferred or the liability proposed to be imposed, it does not forbid classification for the purpose of legislation..." In Anwar. Ali Sarkar's case the constitutional validity of the West Bengal Special Courts Act (X of 1950) constituting special courts and empowering the State Government to refer " cases " or " offences " or " classes of cases " or " classes of offences " to such courts was in question. The object of the West Bengal Act was to provide for the speedier trial of certain offences. Das J. observes further (p. 341 of [1952] SCR): " To achieve this object, offences or cases have to be classified upon the basis of some differentia which will distinguish those offences or cases from others and which will have a reasonable relation to the recited object of the Act. The differentia and the object being, as I have said, different elements, it fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dynamic concept with many aspects and dimensions and it cannot be 'cribbed, cabined and confined' within traditional and doctrinaire limits. From a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of art. 14...." Bhagwati J. reiterates in Maneka Gandhi v. Union of India [1978] 2 SCR 621 ; AIR 1978 SC 597, 624 (col. 2), what he had said in Royappa's case and adds: " The principle of reasonableness, which legally as well as philosophically, is an essential element of equality or non-arbitrariness pervades art. 14 like a brooding omnipresence..." To pass the test of reasonableness if it was enough that there should be a differentia which should have some connection with the object of the Act, then these observations made in Maneka Gandhi and Royappa, AIR 1974 SC 554, would be so much wasted eloquence. The decisions of this court insist that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ? What is arbitrary and offends art. 14, cannot be called intelligible. It is clear from the provisions of the Act set out earlier that the advantages which the tax-evaders derive from the immunities provided by the Act are not available to those who have acquired the Bonds with "white" money. The Act promises anonymity and security for tax-evaders. No question can be asked as to the nature and source of acquisition or possession of the Bonds. The Bonds can be transferred freely, and the apprehension expressed by the petitioners cannot be said to be baseless that passing from hand to hand the Bonds are likely to operate as parallel currency and be used for any kind of transaction. From a reading of the preamble of the Act it does not seem that the object of the Act was only to enable the Central Govt. to have some use for 10 years of the black money which is said to have become a serious threat to the national economy ". As I read the preamble, the purpose of the Act is to unearth black money and use it for productive purposes for effective economic and social planning. If that be the object of the Act, it is difficult to see how its provisions help to achieve the intended purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reakers and tax-dodgers is bound to invite such criticism. Should the court concern itself with questions of morality and ethics in considering the constitutional validity of an Act ? Of course no law can be struck down only on the ground that it is unethical. However, as Friedmann in his Legal Theory (p. 43) says: "There cannot be and there never has been a complete separation of law and morality. Historical and ideological differences concern the extent to which the norms of the social order are absorbed into the legal order." It has been held by this court in Royappa, AIR 1974 SC 555 and Maneka Gandhi, AIR 1978 SC 597, that the principle of reasonableness is an essential element of equality. The concept of reasonableness does not exclude notions of morality and ethics. I do not see how it can be disputed that in the circumstances of a given case considerations of morality and ethics may have a bearing on the reasonableness of the law in question. Having regard to the provisions of the impugned Act which I have discussed above and the object of the Act to which I have referred, is it possible to say that it is reasonable to classify the holders of Special Bearer Bonds in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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