THE HIGH COURT OF MADRAS
the provision impugned is validly enacted and not hit by legislative incompetence of Central Legislature.
K. R. Palanisamy
Union of India
Writ Petition No. 4387 of 2003
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17. Let us consider the legislative competence of the Parliament in inserting the provision Section 50C in the Income-tax Act. It is obvious from the reading of the above provision and rather it is not disputed that the same is inserted to prevent large scale undervaluation of the real value of the property in the sale deed so as to defraud revenue the Government legitimately entitled to by pumping in black money. The impugned provision has been incorporated to check such evasion of tax by undervaluing the real properties. Article 246 of the Constitution of India gives exclusive power to the Parliament to make law in respect of the matters enumerated in List I of VII Schedule (Union List). Entry 82 List I of VII Schedule empowers the Parliament to levy tax on income other than agricultural income. The legislative competence of the Parliament in enacting statute or inserting provision for arresting leakage of income has been considered by the Apex Court in several cases. The uniform opinion in all those cases is that the entries in the legislative list should be construed more liberally and in their widest amplitude and not in a narrow or restricted sense. Each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended by it. The expression "income" as defined in the Income-tax Act under Section 2(24) cannot be read back into Entry 82 of List 1 of the VII Schedule to the Constitution. Even the said definition is an inclusive one and has been expanding from time to time. Several items have been brought within the definition from time to time by various amending acts. The said definition cannot therefore be read as exhaustive of the meaning of the expression "income" occurring in Entry 82 of List I of the VII Schedule. The said Entry should be widely and liberally construed so as to enable a Legislature to provide by law for the prevention of evasion of Income Tax. Tax could be evaded by breaking the law or could be avoided in terms of the law. When there is a factual avoidance of tax in terms of law, the Legislature steps into amend the income tax law to catch such an income within the net of taxation. (See Punjab Distilling Industries Vs. C.I.T., AIR 1965 SC 1862, (Constitution Bench), Balaji Vs. C.I.T., AIR 1962 SC 123 (Constitution Bench), Bhagavandoss Jain VS. Union of India, AIR 1981 SC 908 = (1981) 128 ITR 315, Asst. Director of Inspector, Investigation Vs. A.BShanthi, AIR 2002 SC 2188 and Union of India Vs. A.Sanyasi Rao, AIR 1996 SC 1219 = 219 ITR 330). (bold supplied)
18. The Constitution Bench of the Apex Court in R.K.GARG VS. UNION OF INDIA, (1981) 4 SCC 675 observed as follows:
"Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud where Frankfurter, J. said in his inimitable style:
'In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events # self-limitation 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 adaptation of remedy are not always possible" and that "judgment is largely a prophecy based on meagre and uninterrupted experience". Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what may one 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. Central Reig Refining Company, be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues".
19. Even the special provision, which provides for collection of income-tax on profits and gains from trading in goods specified under Section 44-AC and 206-C of the Income Tax Act on a presumptive basis have been upheld by the Supreme Court in the case of UNION OF INDIA AND ANOTHER VS. A.SANYASI RAO AND OTHERS, (1996) 3 SCC 465.
20. Even in the case of K.P.VARGHESE VS. INCOME-TAX OFFICER, (1981) 131 ITR 597, Section 52(2) of the Income-tax Act has not been struck down on this ground. But it was only directed to be read down by giving certain direction.
21. In the case of STATE OF RAJASTHAN VS. RAJASTHAN CHEMISTS ASSOCIATION, reported in (2006) 6 SCC 773 relied on by the learned counsel to contend that the impugned provision is hit by legislative competence, the question with reference to Section 4A of the Rajasthan Sales Tax Act as to whether the Maximum Retail Price (MRP) which would be chargeable by a retailer when he sells the goods to consumer can provide a basis for the wholesaler to levy tax, was considered. While considering the issue with reference to the definition to the terms "turnover", "taxable turnover" and "taxable event", the Supreme Court has held that the MRP which a wholesaler could charge in respect of scheduled formulations is fixed by Control Order. In respect of scheduled formulations wholesaler is required to leave at least 16% margin in the MRP for the retailers and he is entitled to retain not more than 8% profit on the purchase price. There being statutory interdiction against the wholesalers to charge MRP from its buyer, the maximum retail price fixed on the packet has no rational connection with the taxable sale effected by the wholesalers and which becomes subject matter of charge as a first point tax. In such event, there exists no nexus between the measure of levy and subject of levy. We are of the view that the above Judgment no way advance the case of the petitioner as to the legislative competence of the Central Legislature to frame the provision impugned.
22. For the foregoing reasons, and in the light of the judgments of the Apex Court referred to above, we are of the considered view that the provision impugned is validly enacted and not hit by legislative incompetence of Central Legislature.
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