Annuity deposit scheme upheld as a valid income-tax measure with rational classification and no colourable legislation.

The Supreme Court upheld the annuity deposit scheme in Chapter XXII-A of the Income-tax Act as within Parliament's legislative competence under Article 246 read with Entry 82 of List I, finding it closely connected to taxation on income and not a colourable exercise of power. It also rejected the Article 14 challenge, holding that the income threshold, graduated rates, exemptions, and age-based relief had a rational nexus with the objectives of mobilising private savings and checking inflation. The Court further held that the scheme was not invalid merely because it was onerous or involved compulsory deposit with an option to pay additional tax.

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Issues: (i) Whether the annuity deposit scheme introduced in Chapter XXII-A of the Income-tax Act, 1961 was beyond the legislative competence of Parliament or amounted to colourable legislation; (ii) Whether the scheme was discriminatory and violated Article 14 of the Constitution of India.

Issue (i): Whether the annuity deposit scheme introduced in Chapter XXII-A of the Income-tax Act, 1961 was beyond the legislative competence of Parliament or amounted to colourable legislation.

Analysis: The scheme was held to be closely connected with taxation on income, since the deposits were computed with reference to total income, administered through the income-tax machinery, deductible in computing income, and repayable with interest in instalments. The Court held that Parliament had competence under Article 246 read with Entry 82 of List I, and that even if the scheme was viewed as involving borrowing from taxpayers, Parliament could validly enact it within the same statute. The doctrine of colourable legislation was held inapplicable because the law did not conceal any transgression of constitutional power.

Conclusion: The challenge to legislative competence and colourable legislation failed.

Issue (ii): Whether the scheme was discriminatory and violated Article 14 of the Constitution of India.

Analysis: The Court held that taxing statutes are subject to constitutional limitations but are not invalid merely because they are harsh or onerous. The classification of taxpayers with income above the prescribed threshold, the graduated rates, and the exemption of certain persons were held to bear a rational relation to the objectives of mobilising private savings and checking inflation. The age-based exemption from additional income-tax was also found to rest on a reasonable basis and the classification was not shown to be irrational or arbitrary.

Conclusion: The challenge under Article 14 failed.

Final Conclusion: The annuity deposit provisions in Chapter XXII-A were upheld as constitutionally valid, and the petition was dismissed with costs.

Ratio Decidendi: A taxing provision that is substantively referable to taxation on income, administered through the income-tax machinery, and supported by a rational classification will not fail for want of legislative competence, colourable exercise of power, or violation of Article 14 merely because it is onerous or requires compulsory deposit with an option to pay additional tax instead.

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