1998 (8) TMI 4 - HC - Income Tax

Court upholds constitutionality of Finance Act's wealth tax on closely held companies. Petition dismissed for lack of discrimination.

The court upheld the constitutional validity of section 40 of the Finance Act, 1983, which levies wealth-tax on closely held companies. The petitioner ... Discrimination Provision is valid Issues:Challenge to the constitutional validity of section 40 of the Finance Act, 1983 regarding wealth-tax on closely held companies.Analysis:The petitioner, a closely held private company dealing in land, challenged the constitutional validity of section 40 of the Finance Act, 1983, which levies wealth-tax on closely held companies. The petitioner argued that the provision discriminates against closely held companies and that they are not the intended targets of the provision. However, the court held that provisions enacted by Parliament are presumed to be constitutional. The burden of proof lies on the party alleging unconstitutionality unless the statute clearly shows discrimination. In this case, the petitioner failed to provide any evidence to support its contentions, leading to the dismissal of the petition.The court emphasized that Parliament has the authority to select a specific class for taxation as long as all members of that class are treated equally. The levy of wealth-tax on closely held companies aims to prevent individuals from transferring assets to avoid tax, and the provision applies uniformly to all closely held companies. The court noted that closely held companies have been recognized as a distinct class for taxation purposes, and taxing them does not constitute discrimination as long as all companies within the class are treated the same. The court cited a similar view taken by the Madhya Pradesh High Court in a previous case.In conclusion, the court found no merit in the writ petition challenging the constitutional validity of section 40 of the Finance Act, 1983. The petition was dismissed, and no costs were awarded.