1997 (11) TMI 87 - HC - Income Tax

Court upholds constitutionality of Finance Act provision, validates CBDT Circulars, emphasizes non-interference in taxation policy

Micro Labs Ltd. And Others Versus Deputy Commissioner Of Income-Tax (Assessment) And Others

Micro Labs Ltd. And Others Versus Deputy Commissioner Of Income-Tax (Assessment) And Others - [1998] 231 ITR 934 Issues Involved:1. Constitutionality of Clause (ii) of Sub-section (2) of Section 64 of the Finance Act, 1997.2. Validity of Circulars No. 754 and 755 issued by the CBDT.3. Alleged Discriminatory Treatment under Sections 132, 132A, and 133A of the IT Act.Detailed Analysis:1. Constitutionality of Clause (ii) of Sub-section (2) of Section 64 of the Finance Act, 1997:The petitioners argued that Clause (ii) of Sub-section (2) of Section 64 of the Finance Act, 1997, is unconstitutional. They contended that this clause discriminates against those who have been subject to searches under Section 132 or requisitions under Section 132A of the IT Act by denying them the benefits of the Voluntary Disclosure of Income Scheme (the Scheme) for the income of the previous year in which the search or requisition was made, as well as for any earlier years.The court, however, held that the words 'in respect of any earlier previous year' apply uniformly to cases falling under Sections 132, 132A, and 133A of the IT Act. The court found no merit in the argument that the clause should be interpreted to allow benefits for years prior to the year of the search for those falling under Sections 132 and 132A. The court concluded that the clause disentitles benefits of the Scheme for all previous years for cases falling under Sections 132, 132A, and 133A.2. Validity of Circulars No. 754 and 755 issued by the CBDT:The petitioners also challenged Circulars No. 754 and 755 issued by the CBDT, arguing that these circulars preclude them from availing the benefits of the Scheme for the year of the search and any earlier years, which they claimed was discriminatory and arbitrary.The court noted that the constitutional validity of the impugned provisions cannot be decided based on the contents of the circulars. The circulars were issued to clarify the application of the Scheme and did not alter the statutory provisions. The court held that the circulars were consistent with the plain reading of Clause (ii) of Sub-section (2) of Section 64 of the Act, which uniformly applies to Sections 132, 132A, and 133A.3. Alleged Discriminatory Treatment under Sections 132, 132A, and 133A of the IT Act:The petitioners argued that the classification of persons who were searched under Section 132 and forbidding them from availing the benefits of the Scheme was not based on any intelligible differentia and had no rational nexus to the objectives sought to be achieved. They claimed that this classification was discriminatory and violated Article 14 of the Constitution of India.The court disagreed, stating that the provisions of Sections 132, 132A, and 133A serve different purposes and have distinct consequences. The court emphasized that the Scheme is an enabling provision aimed at allowing tax evaders to declare their undisclosed income by paying the tax. The court found that the classification made by Clause (ii) of Sub-section (2) of Section 64 was reasonable and had a rational nexus to the objective of the Scheme. The court held that the classification was intended to compel more tax evaders to avail of the Scheme early and thereby generate more revenue for the state.The court concluded that the classification was reasonable and did not violate Article 14 of the Constitution. The court emphasized that it is not the role of the judiciary to interfere with legislative policy decisions, especially in matters of taxation.Conclusion:The court dismissed the petitions, upholding the constitutionality of Clause (ii) of Sub-section (2) of Section 64 of the Finance Act, 1997, and the validity of the CBDT Circulars No. 754 and 755. The court found no merit in the arguments that the provisions were discriminatory or arbitrary and held that the classification made by the impugned provision was reasonable and had a rational nexus to the objectives sought to be achieved.