TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 24
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....hat declaration under KVSS cannot be granted as scheme has expired. Expedited. Liberty to department to apply." Therefore the only issue for our consideration is issue (b) viz. Constitutionality of Section 95 of the KVSS, 1998. Factual Background: 3. The petitioner filed his return of income for the Assessment Year 1993-94 declaring a return of income of Rs. 2.30 lakhs. The Assessing Officer by an assessment order dated 28 March 1996 assessed the same at Rs. 43.89 lakhs. For the Assessment Year 1994-95, the petitioner filed a return of income declaring an income of Rs. 43.76 lakhs and the same was assessed to Rs. 3.46crores by an assessment order dated 31 March 1997. So also for the Assessment Year 1995-96, the petitioner filed a return of income declaring an income of Rs. 9.28lakhs and the same was assessed to Rs. 46.59lakhs by an assessment order dated 31 March 1998. Being aggrieved, the petitioner filed appeals against all the three aforesaid assessment orders dated 28 March 1996, 31March 1997 and 31 March 1998 for the Assessment years 1993-94, 1994-95 and 1995-96 respectively. As on 1Septemeber 1998, the appeal of the Petitioner for the Assessment Year 1993-94 was pending ....
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....o the designated authority that as prosecution for offence under Chapter XVII of the Indian Penal Code had been launched against the petitioner, he may not be entitled to the benefit of KVSS 1998. In the above view, the petitioner was called upon to show cause why the benefit of KVSS 1998 should not be declined. The Petitioner in response to the above, by a letter dated 1 February 1999 informed the designated authority that his declaration would not be hit by Section 95(iii) of the KVSS 1998. This on the ground that the disqualification therein would apply where proceedings as specified under Section 95(iii) of the KVSS 1998 are instituted and not initiated. It was submitted by the petitioner that as no chargesheet has yet been filed, the proceedings against him had not yet been instituted. 7. However the designated authority did not accept the petitioner's contention. Therefore by three separate orders all dated 12 February 1999, the designated authority did not accept the declarations of the petitioner for the Assessment years 1993-94, 1994-95 and 1995-96 holding that the petitioner's application was barred by Section 95(iii) of the KVSS 1998. 8. Being aggrieved, the Petiti....
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....nt. This leads to an innocent person being excluded from the benefit of KVSS 1998. Thus the petitioner is denied the equal protection of opportunity for availing the benefit of KVSS 1998 only on account of arbitrary exclusion. (c) The classification under Section 95(iii) of the KVSS 1998 seeking to exclude a class of assessees from it's benefits because prosecution under Chapter IX or XVII of the Indian Penal Code, Foreign Exchange Regulation Act, 1973, Terrorists And Disruptive Activities (Prevention) Act, 1987, Prevention of Corruption Act, 1988, Narcotic Drugs and Psychotropic Substance Act, 1985 has been initiated. This classification has no nexus to the object or purpose for which the KVSS 1998 was enacted. Undisputedly the KVSS 1998 has been enacted to collect revenue which is stuck up in disputes. Thus the classification is violative of Article 14 of the Constitution of India. (d) The classification under Section 95 (iii) of KVSS 1998 is arbitrary and violative of Article 14 of the Constitution of India as it deprives a person as benefit of KVSS 1998 for minor crimes falling under the Chapter XVII of the Indian Penal Code. At the same time, a person against whom prosec....
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.... by the assessee under the KVSS are being kept out irrespective of the result of the prosecution/litigation. The Parliament is entitled in its wisdom to have classified persons against whom proceedings have been initiated/ instituted, to be excluded from the benefit of the KVSS 1998. This cut off date provided by the Parliament cannot be said to be arbitrary so as to violate Article 14 of the Constitution of India; (d) The classification done by the Parliament cannot be declared unconstitutional merely because in the wisdom of the Petitioner or of the Court the classification could have been better. Statutory Provision: 12. For an appropriate consideration of the contesting submission it would be necessary to reproduce Section 95 of the KVSS 1998 which is the subject of challenge before us. Section 95 of KVSS 1998 reads as under: "95 - Scheme not to apply in certain cases - The provisions of this Scheme shall not apply (i) in respect of tax arrear under any direct tax enactment: (a) in a case where prosecution for concealment has been instituted on or before the date of filing of the declaration under section 88 under any direct tax enactment in respect of any assessment ye....
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....he report of the Advisory Board under section 8 of the said Act or before the receipt of the report of the Advisory Board; or (b) such order of detention, being an order to which the provisions of section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under subsection (3) of section 9, or on the report of the Advisory Board under section 8, read with subsection (2) of section 9 of the said Act; or (c) such order of detention, being an order to which the provisions of section 12A of the said Act, apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under subsection (3) of that section, or on the basis of the report of the Advisory Board under section 8, read with subsection (6) of section 12A, of the said Act; or (d) such order of detention has not been set aside by a court of competent jurisdiction; (v) to any person notified under subsection (2) of section 3 of the Special Court (Trial of Offences Relating to Transaction in Securities) Act, 1992. Legal Position: 13. A challenge to a legislation on the touch stone of Article 14 of the Constitution of India ....
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.... class by himself; (b) that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles; (c) that it must be presumed that the legislature understands and correctly appreciate the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds; (d) that the legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest; (e) that in order to sustain the presumption of constitutionality the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation; and (f) that while good faith and knowledge of the existing conditions on the part of the legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the court on which the classification may reasonab....
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....tion can be seen to be the path to judicial wisdom and institutional prestige and stability. The Court must always remember that "legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry"; that exact wisdom and nice adaption of remedy are not always possible and that "judgment is largely a prophecy based on meagre and uninterpreted experience". Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v/s. Central Roig Refining Company, be converted into tribunals for relief from such crudities and inequities. There may even be pos....
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....Chapter IX and XVII of the Indian Penal Code. This in view of the fact that the complaint in the Criminal Court is filed on mere suspension and if ultimately the person so excluded is discharged even then a benefit of KVSS 1998 would not be applicable. Thus this is arbitrary; (ii) The various categories listed out in Section 95 (iii) being excluded from the benefit of KVSS 1998 are person who are being prosecuted under Indian Penal Code, TADA, FERA, Prevention of Corruption Act, 1995, Narcotic Drugs and Psychotropic Substance Act, 1985 when the same has no nexus to the object of collecting more revenue; (iii) A person against whom prosecution has been lodged for minor crime as provided under Chapter XVII of the Indian Penal Code is excluded by virtue of Section 95 (iii) of the KVSS 1998 from its benefit while a person against whom prosecution is lodged for serious crimes like murder etc., is not deprived benefit of KVSS 1998. This itself is evidence of the arbitrary nature of the exclusion having no nexus to the objection of the Act to collect Revenue; and (iv) Section 95 (iii) of the KVSS 1998 also excludes the class of persons against whom proceedings for enforcements of Civil....
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....nalty and immunity from prosecution on payment of arrears of direct tax at the current rates. In respect of indirect tax, where in recent years the adjustment of rates has been very sharp, an abatement of 50% of the duty would be available along with waiver of interest, penalty and immunity from prosecution." 18:-The Finance Minister, whilst replying to the Debate after incorporating amendments to the Finance (No.2) Bill, 1998 made a speech dated 1771998 (1998) 232 ITR (St) 11. The relevant portion of the Speech, which highlights the object or purpose of the Scheme, is extracted below: "The Kar Vivad Samadhan Scheme has evoked a positive response from a large number of organizations and tax professionals. The Hon'ble Members of Parliament have also taken a keen interest in the Scheme. The lack of clarity in regard to waiver of interest and penalty in relation to settlement of tax arrears under the indirect tax enactments is being taken care of by rewording the relevant clauses of the Finance Bill. I have also carefully considered the suggestions emanating from various quarters including the Standing Committee on Finance to extend the scope of this Scheme so as to include t....
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....hom proceedings have been instituted under the Indian Penal Code, Prevention of Corruption Act, 1988, TADA, FERA and Narcotic Drugs and Psychotropic Substances Act, 1985. It would therefore be noticed that the class of people who have been left out of the benefit of KVSS 1998 by virtue of section 95 (iii) thereof are those against whom proceedings/ prosecutions have been initiated for various social economic crimes as listed out therein. The objective of the Act is to provide a mutual benefit i.e. not only to collect revenue which is locked in litigation which will augment the State's resources but also benefit the tax payer who on settling the dispute pays tax only at 30% of the declared income along with immunity from penalty and prosecution. Once a classification as pointed out by the Revenue is found to be based on reasons, the mere fact that the Petitioner or the Court is of the view that the classification could be better, would not entitle the Court to interfere with the classification as done by the legislature. The role of the Court is limited only to ensure that the classification is not arbitrary i.e. absence of intelligible differentia having a nexus to the object of th....
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....erwise stuck up in disputes in respect of persons who are not being prosecuted for offences which are likely to be illegal/illicit income at the cost of the society. This benefit of KVSS 1998 would also grant immunity to such persons from penalty and prosecution which in the view of Parliament is not justified/warranted. Further, one must not loose sight of the fact that the benefit under the KVSS 1998 is a deviation from the strict application of tax laws. Thus the challenge on the above ground is also not sustainable. 20. The next contention urged by the Petitioner was that a person against whom prosecution has been launched for a minor crime as provided under Chapter XVII of the Indian Penal Code is excluded by virtue of Section 95 (iii) of the KVSS 1998 from its benefit while a person against whom prosecution is lodged for serious crimes like murder etc., is not deprived benefit of KVSS 1998. This itself is evidence of the arbitrary nature of the exclusion having no nexus to the objective of the Act which is undisputedly to collect Revenue. As pointed out above, the policy of the Act as set out in the affidavit in reply filed by the State was to exclude those classes of person....
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....y decision of Government dependent on pragmatic wisdom playing on imponderable forces at work. Our jurisdiction halts where the constitutional touchstone of a rational differentia having a just relation to the legislative end to revenue raising is satisfied. Gratuitous judicial advice on the socialist direction of fiscal policy is de trop. We desist from that enterprise and leave the Petitioners and men of his ilk to seek other democratic remedies in that behalf, it being beyond our area normally to demolish the tax structure because micro classification among a large group has not been done by the State. Absolute justice to every producer is selfdefeating adventure for any administration and general direction, not minute classification, is all that can be attempted. For these reasons we find ourselves in agreement with the High Court in its refusal to strike down the notification under Section 3 of the Central Excise and Salt Act, 1944. 22:-It is sound law that refusal to make rational classification where grossly dissimilar subjects are treated by the law violates the mandate of Article 14. Even so, where the limited classification adopted in the present case is based upon a r....
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....ction 95(iii) of the KVSS 1998 will not render the classification done by the parliament as arbitrary or violative of Article 14 of the Constitution of India. 22. It was next contended by the Petitioner that in terms of Section 95 (iii) of the KVSS 1998, a person who has any civil dispute in a Court of law is excluded from the benefit of KVSS 1998. This on account of the fact that Section 95(iii) of the KVSS 1998 inter alia excludes a class of persons against whom proceedings for enforcement of civil liabilities has been instituted. The Petitioner has completely misunderstood Section 95(iii) of the KVSS 1998 which after excluding a class of person who are being prosecuted for offences under the special chapter of Indian Penal Code, FERA, TADA, Narcotic Drugs and Psychotropic Substances Act, 1985 and Prevention of Corruption Act, 1998 further excludes persons against whom proceedings has been launched for the enforcement of any civil liabilities on or before the filing of the declaration under the KVSS 1998. This exclusion is in respect of persons who have not honouerd the verdict of a civil court against them leading to filing of prosecution for the enforcement of the civil liabil....