TaxTMI 
TaxTMI 
2002 (5) TMI 4
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....rned single judge granted certificate article 134A of the Constitution and the present appeal has been filed by the Department. In Civil Appeal No. 4478 of 2000, the appellant had challenged the constitutional validity of sections 269SS and 271D of the Act before the High Court. The learned single judge (see [1999] 239 ITR 694 (Kar)) dismissed the writ petition. Thereupon the appellant filed an appeal before the Division Bench. The Division Bench in Writ Appeal No. 5447 of 1999 (see [2000] 245 ITR 661) affirmed the order of the learned single judge. The judgment of the Division Bench is now challenged before us in this appeal. Section 269SS was inserted in the Income-tax Act by the Finance Act, 1984, with effect from April 1, 1984, but the same was made operative from July 1, 1984. The Income-tax Department, in the course of searches carried out by them from time to time recovered large amounts of unaccounted cash from certain taxpayers and often the taxpayers gave explanation for their unaccounted cash to the effect that they had borrowed loans or received deposits made by other persons. Sometimes, it was noticed, that the unaccounted income was also brought into the books of ac....
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....n or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act. Explanation.--For the purposes of this section,-- (i) 'banking company' means a company to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act; (ii) 'co-operative bank' shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); (iii) 'loan or deposit' means loan or deposit of money." Section 276DD was inserted in the Act by the Finance Act, 1984, which came into effect from April 1, 1984, and which reads as under: "276DD. Failure to comply with the provisions of section 269SS.--If a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine equal to the amount of such loan or deposit". Subsequently, section 271D, which is the penal clause in the Act which provides for imposition of penalty for f....
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....ed deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace. As regards the tax legislations, it is a policy matter, and it is for Parliament to decide in which manner the legislation should be made. Of course, it should stand the test of constitutional validity. A Constitution Bench of this court in S.K. Dutta, ITO v. Lawrence Singh Ingty [1968] 68 ITR 272 held: "It is not in dispute that taxation laws must also pass the test of article 14. That has been laid down by this court in Moopil Nair v. State of Kerala [1961] 3 SCR 77. But as observed by this court in East India Tobacco Co. v. State Of Andhra Pradesh [1963] 1 SCR 404, 409 in deciding whether the taxation law is discriminatory or not it is necessary to bear in mind that the State has a wide discretion in selecting persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others; it is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of....
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....269SS and other sections." In view of the aforesaid circumstances, we do not think that section 269SS is, in any way, violative of article 14 of the Constitution and consequently quashing of the proceedings by the learned single judge of the Madras High Court (see [1992] 197 ITR 330) for this reason is not legally sustainable. Another contention urged by the appellant's counsel in Civil Appeal No. 4478 of 2000 is that Parliament had no legislative competence to enact section 269SS. The source of power for enactment of section 269SS is traceable to entry 82 in List I of the Seventh Schedule and this according to the appellant's counsel can relate only to tax on income other than agricultural income and the expression "income" in that entry has to be interpreted according to its natural and grammatical meaning and if that be so, the Union has no legislative power to enact section 269SS. Entry 82 in List I of the Seventh Schedule reads as follows: "Taxes on income other than agricultural income." The contention of the appellant s counsel is that the amount which is received as loan or deposit need not necessarily be the "income" of the taxpayer and, therefore, any legislation mad....
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....s outside the scope of the Income-tax Act or that this section relates to a topic not within the competence of the Legislature. This court in P.N. Krishna Lal v. Govt. of Kerala [1995] Suppl. 2 SCC 187 held: "An entry in the Seventh Schedule to the Constitution is not a power given to the Legislature but is a field of its legislation. The Legislature derives its power under article 246 and other related articles in the Constitution. The language of an entry should be given the widest meaning fairly capable to meet the need of the Government envisaged by the Constitution. Each general word should extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended within it. When the vires of an enactment is impugned, there is an initial presumption of its constitutionality. If there exists any difficulty in ascertaining the limits of the Legislative power, it must be resolved, as far as possible, in favour of the legislature, putting the most liberal construction on the legislative entry so that it is intra vires. Narrow interpretation should be avoided and the construction to be adopted must be beneficial and cover the amplitude of the power. The broad li....