1965 (10) TMI 80 - SC - Indian Laws

Supreme Court validates Income-tax Act amendment, dismisses challenge on legislative competence.

The Supreme Court upheld the validity of Chapter XXII-A of the Income-tax Act, 1961, dismissing the petition challenging its enactment. The Court ruled ... - Issues Involved:1. Competence of Parliament to Enact Chapter XXII-A of the Income-tax Act, 19612. Colourable Legislation3. Violation of Fundamental Rights under Article 14 of the ConstitutionIssue-wise Detailed Analysis:1. Competence of Parliament to Enact Chapter XXII-A of the Income-tax Act, 1961The petitioner argued that the Parliament lacked the competence to incorporate Chapter XXII-A, which pertains to annuity deposits, into the Indian Income-tax Act, 1961. The petitioner contended that this chapter essentially related to borrowings by the Central Government from a class of taxpayers and should not have been included in the Income-tax Act.The Court held that the Parliament has the power to legislate on matters of income tax under Entry 82 of List I of the Seventh Schedule of the Constitution. Even if the annuity deposit scheme is considered a borrowing, the Parliament still has the competence under Entry 97 of List I. The Court found no constitutional prohibition against incorporating provisions related to borrowings within the Income-tax Act. The Court emphasized that the scheme of annuity deposits is closely related to the levy of income tax, and the machinery of the Income-tax Act is utilized for its implementation. Therefore, the Parliament had the competence to enact these provisions.2. Colourable LegislationThe petitioner claimed that Chapter XXII-A was a colourable exercise of legislative power, suggesting that the Parliament had disguised its true intent under the guise of a different legislative power.The Court dismissed this argument, stating that the doctrine of colourable legislation does not apply when the Parliament has the authority to legislate on a subject matter. The Court cited previous judgments, emphasizing that the doctrine concerns whether the legislature has transgressed its constitutional powers, either manifestly or covertly. Since the Parliament has the power to legislate on annuity deposits, there was no question of colourable legislation.3. Violation of Fundamental Rights under Article 14 of the ConstitutionThe petitioner argued that the provisions of Chapter XXII-A and the Second Schedule were discriminatory and violated the fundamental right to equality before the law under Article 14 of the Constitution.The Court held that Article 14 allows for reasonable classification of persons, objects, or transactions to achieve certain objectives. The classification must be based on substantial distinctions and must bear a reasonable relation to the object sought to be achieved. The Court found that the annuity deposit scheme aimed to mobilize private savings for public purposes and curb inflationary trends. The classification of taxpayers based on income levels and the progressively increasing rates of annuity deposits were deemed reasonable. The Court also noted that taxpayers had the option not to make the annuity deposit and instead pay additional income tax, which further supported the reasonableness of the scheme.The Court concluded that the scheme did not violate Article 14, as the distinctions made were reasonable and related to the objectives of the legislation.Separate Judgment by Hidayatullah, J.Justice Hidayatullah agreed with the dismissal of the petition but emphasized that he did not base his decision on Entry 97 of List I. He argued that the provisions related to annuity deposits could be covered under Entry 82, which deals with taxes on income. He clarified that the annuity deposit scheme was an alternative to paying full income tax and provided partial relief from taxation. Justice Hidayatullah stressed that the scheme's inclusion in the Income-tax Act was appropriate and did not constitute borrowing under Article 292 of the Constitution. He concluded that the provisions were neither colourable nor discriminatory and that the petition should be dismissed with costs.ConclusionThe Supreme Court dismissed the petition, upholding the validity of Chapter XXII-A of the Income-tax Act, 1961. The Court found that the Parliament had the competence to enact the provisions, that the legislation was not colourable, and that the scheme did not violate Article 14 of the Constitution.