Compulsory deposit scheme upheld: legislative competence and rational classification saved the economic measure from constitutional challenge.

Parliament's competence to enact the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 was upheld as traceable to Entry 97 of List I, even if the scheme was viewed as a form of borrowing from taxpayers, so the challenge on legislative competence failed. The Act also survived Article 14 scrutiny because the classification was confined to higher-income taxpayers, which was held to be intelligible, based on a real and substantial distinction, and rationally connected to the public purpose of mobilising savings and curbing inflationary pressures. The constitutional challenge to the scheme therefore failed in full.

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Issues: (i) Whether the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 was beyond the legislative competence of Parliament; (ii) Whether the Act offended Article 14 of the Constitution of India.

Issue (i): Whether the Act was beyond the legislative competence of Parliament.

Analysis: The Act was treated as a measure requiring compulsory deposits from a specified class of higher-income taxpayers for national economic development. Even on the assumption that the scheme partakes of borrowing by the Central Government from taxpayers, the power of Parliament to enact such a law was held to be traceable to Entry 97 of List I of the Seventh Schedule to the Constitution of India. The absence of an option to avoid deposit did not alter the constitutional position, because the earlier statutory scheme considered by the Supreme Court was found to be within legislative competence on the same broad principle.

Conclusion: The Act was within the legislative competence of Parliament and the challenge on that ground failed.

Issue (ii): Whether the Act offended Article 14 of the Constitution of India.

Analysis: The challenge under Article 14 was tested on the settled principles governing economic legislation, including the presumption of constitutionality and the greater latitude allowed to laws dealing with economic activity. The classification was confined to taxpayers whose current income exceeded the prescribed threshold, i.e., persons in a comparatively higher income group. That classification was held to be intelligible and based on a real and substantial distinction, with a rational nexus to the object of mobilising private savings for public purposes and curbing inflationary trends. The provisions were therefore not treated as arbitrary or discriminatory.

Conclusion: The Act did not violate Article 14 of the Constitution of India.

Final Conclusion: The constitutional challenge to the compulsory deposit scheme failed in its entirety, and the writ petition was dismissed.

Ratio Decidendi: A compulsory deposit scheme imposed on a defined class of higher-income taxpayers is constitutionally valid when Parliament has legislative competence to enact it and the classification bears a rational nexus to the economic object sought to be achieved.

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