TaxTMI 
TaxTMI 
2018 (4) TMI 207
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....d 22nd May, 1987, notices for penalty dated 4th August, 1987 and notices for launching of prosecution dated 31st July, 1987 all under the Wealth Tax Act, 1957 (Wealth Tax Act); and (d) Writ of certiorari to quash the notices for assessment dated 22nd May, 1987, notices for penalty dated 4th August, 1987 and notices for prosecution dated 31st July, 1987 issued by the respondents. 2. On 19th September, 1987, this petition was admitted. On 25th September, 1987, this Court had granted following interim reliefs. "The petitioners are directed to file their return on or before 31st December, 1987. The proceedings for assessment may go on and terminate in assessment order during the pendency of this petition. However, no notice of demand shall be issued without further orders. It is clarified that the valuation may also be completed. Prosecution proceedings are also stayed." Factual Matrix :­ 3. The petitioner is engaged in printing and publishing the newspapers including Indian Express, Finance Express, Loksatta etc. In the course of its business, the petitioner out of profits earned in its business of publication of newspapers acquired following three properties. (a) Multi­....
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....d" shall have the meaning assigned to it in clause (18) of section 2 of the Incometax Act. (2) For the purposes of sub­section (1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in sub­section (3), wherever located, belonging to the company on the valuation date is in excess of the aggregate value of all the debts owed by the company on the valuation date, which are secured on, or which have been incurred in relation to, the said assets: Provided that where any debt secured on any asset belonging to the assessee is incurred for, or ensures to, the benefit of any other person, or is not represented by any asset belonging to the assessee, the value of such debt shall not be taken into account in computing the net wealth of the assessee. (3) The assets referred to in sub­section (2) shall be the following namely : - (i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals; (ii) precious or semi­precious stones whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; (iii) ornaments made of gold,....
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....n shall be laid, as soon as may be after it is issued, before each House of Parliament. (7) Subject to the provisions of sub­section (5), this section shall be construed as one with the Wealth­tax Act." 6. Consequent to the enactment of Section 40 of the Act, the petitioners received notices dated 22nd May, 1987 under Section 16(4) of the Wealth Tax Act, directing the petitioners to file its returns of wealth for Assessment Years 1984­85, 1985­86 and 1986­87. Thereafter, notices of penalty were issued on 4th August, 1987 under Section 18(2) of the Wealth Tax Act and notices for prosecution dated 31st July, 1987 were also issued under Section 35B of the Wealth Tax Act. The receipt of the above notices resulted in the petitioners filing this petition on 4th September, 1987. 7. The petitioners have filed the petition challenging the constitutional validity of Section 40(3) of the Act. The primary challenge was to the legislative competence of the Parliament to enact Section 40(3) of the Act to the extent it seeks to bring to tax land and buildings. This on the ground that legislation on land and buildings would stand covered by the list­II of 7th Schedule to....
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....submissions made across the bar is far beyond the challenge in the petition. In the circumstances, the petitioners were asked to justify the widening of the challenge at the hearing of the petition in the absence of it being in the petition. 11. Dr. Chandrachud, responded to the Court query by making following submissions :­ (a) Attention was invited to Section 40(3) of the Act and it was pointed out that Section 40(3) of the Act makes a reference to Section 40(2) which in turn refers to Section 40(1) of the Act. Thus, the challenge to Section 40(3) of the Act would entitle the petitioners to challenge the entire Section 40 of the Act; (b) A challenge to constitutional validity could not be ignored merely on account of improper drafting. The court in such a case, should allow the petitioners to amend the petition or alternatively, allow the petitioners to make submissions in support of their challenge that the entire Section 40 of the Act is unconstitutional. In support, reliance was placed upon the Supreme Court decision in Prabodh Verma and Ors. Vs. State of Uttar Pradesh and Ors. (1984) 4 SCC 251; and (c) It was further submitted that the kernal of the petitioners' c....
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....allenge in the entire body of the petition is to Section 40(3) of the Act. In fact, primary challenge in the petition as filed was to the legislative competence of the Parliament to make legislation in respect of the land and buildings which according to the petitioners would properly fall in the State list. This of course, is not now being pressed. Therefore, it is not the case of mere improper drafting but a conscious decision to only challenge Section 40(3) of the Act and the body of the petition supports the prayer as made in the petition. The decision of the Apex Court in Pramod Verma (supra) would have no application to the facts in the present petition. For the reason that in that case the prayer clause was for writ of certiorari to quash the U.P. Ordinance 22/1978. The Apex Court observed that the writ of certiorari which is essentially for calling of records and proceedings pending before an Authority, can never be issued in respect of a challenge to declare a legislative provision as unconstitutional and void. Thus, the writ of certiorari as sought for is wholly inappropriate when seeking a declaration that a legislative measure is unconstitutional. The Apex Court in the ....
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....statutory provision. In case any party assails the validity of any provision on the ground that it is violative of Article 14 of the Constitution, it is for that party to make the necessary averments and adduce material to show discrimination violative of Article 14. ..... It is, in our opinion, extremely hazardous to decide the question of the constitutional validity of a provision on the basis of supposed existence of certain facts by raising a presumption. ....... A pronouncement about the constitutional validity of a statutory provision affects not only the parties before the Court, but all other parties who may be affected by the impugned provision. There wound, therefore, be inherent risk in striking down an impugned provision without having the complete factual data and full material before the Court. ...." 16. On the aforesaid position in law, we examined the ground in paragraph 26(B) of the petition. This paragraph according to the petitioners contains the seed of the challenge to the entire Section 40 of the Act. To better appreciate the submission on behalf of the petitioners, we reproduce that the portion of the ground being relied upon by the petitioners as containi....
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....e are, therefore, of the view that the petitioners have to be restricted only to the challenge urged in the petition i.e. constitutional validity of Section 40(3) of the Act. The other contention being sought to be raised across the bar for the first time, cannot be entertained. The rule was issued in 1987 with specific reference to the challenge made to Section 40(3) of the Act alone. 18. In the above view, we called upon Dr. Chandrachud, the learned Counsel for the petitioners to address us on the only challenge in the petition i.e. in respect of Section 40(3) of the Act. This was for the reason that we would only examine the constitutional challenge urged in the petition. 19. It is submitted that Section 40(3) of the Act is unconstitutional as it brings to tax all lands and buildings (to the extent not used for the purposes of the business) owned by a company in which public are not substantially interested, as it has no relation to the object of the Act. It is submitted that the object of the Act as evident from the speech of the Finance Minister while introducing the Bill was to bring to tax all lands and buildings which have been transferred by members of closely held compa....
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....d leaving out those land and buildings which are used for business purposes by companies in which public are not substantially interested from the charge of wealth tax under the Act is a reasonable classification. Therefore, the legislation bringing to tax land and buildings owned by the companies in which public are not substantially interested without any reference to the manner in which such companies came into ownership of the land and buildings is a decision taken by the legislature and cannot be faulted on the touchstone of Article 14 of the Constitution of India. The speech of the Finance Minister while introducing the bill points out the mischief which was existing namely persons transferring land and buildings owned by them to closely held companies i.e. companies in which the public are not substantially interested so as to evade payment of wealth tax. Therefore, the legislation to cure the mischief was to bring to tax all companies in which public are not substantially interested to the extent it held land and buildings which are not used for business purposes, without determining the source and manner of acquisition. In fact, the Finance Minister's speech itself ind....