1973 (12) TMI 5 - HC - Income Tax

Validity of Income-tax Act's Chapter XXA upheld under constitutional principles

The court upheld the constitutionality of Chapter XXA of the Income-tax Act, 1961, finding it valid under Articles 14, 19, and 31. It concluded that the ... Is Chapter XXA of the Income-tax Act, 1961, as inserted therein by the Taxation Laws (Amendment) Act, 1972, wholly or partly a law enacted 'for the purpose of imposing or levying any tax or penalty' within the meaning of article 31(5)(b)(i) and/or is it a 'law giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of article 39' within the meaning of the first part of article 31C of the Constitution - Whether provisions for acquisition of property in cases of certain transfers to counteract evasion of tax are valid - Whether they interfere article 14, 19 and 31 of Constitution of India Issues Involved:1. Constitutionality of Chapter XXA of the Income-tax Act, 1961.2. Whether Chapter XXA is a law enacted 'for the purpose of imposing or levying any tax or penalty' under Article 31(5)(b)(i) or a law 'giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of Article 39' under Article 31C of the Constitution.3. Whether Chapter XXA imposes an unreasonable restriction on the fundamental right to hold property under Article 19(1)(f).4. Whether Chapter XXA authorizes the State to acquire property otherwise than for a public purpose, thus contravening Article 31(2).5. Whether Chapter XXA discriminates between similarly situated persons contrary to Article 14.6. Jurisdiction of the Assistant Commissioner of Income-tax to initiate proceedings under Chapter XXA.7. Retrospective application of the Act of 1972.Issue-wise Detailed Analysis:1. Constitutionality of Chapter XXA of the Income-tax Act, 1961:The court examined whether Chapter XXA, inserted by the Taxation Laws (Amendment) Act, 1972, was constitutional. The Act aimed to address the issues of tax evasion and black money by scrutinizing transfers of immovable property where the fair market value exceeded the stated consideration by more than 15%. The court analyzed this in the context of Articles 14, 19, and 31 of the Constitution.2. Whether Chapter XXA is a law enacted 'for the purpose of imposing or levying any tax or penalty' under Article 31(5)(b)(i) or a law 'giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of Article 39' under Article 31C of the Constitution:The court concluded that Chapter XXA was enacted to implement the principles in Article 39(b) and (c) of the Constitution. These principles aim to ensure that the ownership and control of material resources are distributed to best subserve the common good and prevent the concentration of wealth to the common detriment. The court found that the Act had a reasonable nexus to these objectives, thereby placing it beyond constitutional challenge based on Articles 14, 19, and 31.3. Whether Chapter XXA imposes an unreasonable restriction on the fundamental right to hold property under Article 19(1)(f):The court held that after the Twenty-fifth Amendment, Article 31(2B) states that nothing in sub-clause (f) of Article 19(1) shall affect any law referred to in Article 31(2). Since the court found the Act valid under Article 31(2), the question of unreasonable restriction under Article 19(1)(f) did not arise.4. Whether Chapter XXA authorizes the State to acquire property otherwise than for a public purpose, thus contravening Article 31(2):The court held that the acquisition of property under Chapter XXA was for a public purpose as it aimed to unearth black money and penalize tax evasion. The court emphasized that the object of the legislation was public good, aligning with the broader interpretation of 'public purpose' as seen in previous judgments.5. Whether Chapter XXA discriminates between similarly situated persons contrary to Article 14:The court addressed the argument that innocent purchasers might be treated the same as those who deliberately understated the consideration. It found that the presumptions in Section 269C(2) were rebuttable, allowing parties to prove the actual consideration. The court justified the uniform rule to prevent the measure from being defeated and concluded that the Act did not violate Article 14.6. Jurisdiction of the Assistant Commissioner of Income-tax to initiate proceedings under Chapter XXA:The court found that the Assistant Commissioner had jurisdiction to initiate proceedings based on a valuer's report indicating that the fair market value of the property exceeded the stated consideration. This provided 'reason to believe' that the transaction was intended to evade tax liability and conceal income.7. Retrospective application of the Act of 1972:The court held that the Act applied to transactions where the instrument of transfer was registered after the Act came into force, regardless of when the transfer deed was executed. The court emphasized that the relevant event for the application of the Act was the registration of the transfer deed, which in this case occurred after the Act's commencement.Conclusion:The court dismissed the writ petition, finding Chapter XXA of the Income-tax Act, 1961, constitutional and valid under Articles 14, 19, and 31. The court granted a certificate of fitness for appeal to the Supreme Court, recognizing the substantial questions of law involved.