2002 (5) TMI 26 - HC - Wealth-tax

Wealth Tax, Validity Of Provisions - petitioner has challenged the legality, validity and the vires of rule 2 of the Wealth-tax Rules, 1957 - Citing a decision of the Supreme Court reported in State of Andhra Pradesh v. McDowell and Co., he says that the law enacted by the Legislature as opposed to Part III of the Constitution of India can be struck down. It can also be struck down for lack of legislative competence, but arbitrariness and unreasonableness are no ground to strike down legislative enactment.

Summary

Issues:
Challenge to the legality, validity, and vires of rule 2 of the Wealth-tax Rules, 1957.

Analysis:
The petitioner, a wealth-tax assessee and partner of a partnership firm, contested the assessment and imposition of wealth-tax for the years 1983-84, 1984-85, and 1985-86. The dispute arose from the valuation of the petitioner's interest in the firm, based on the difference between debit and credit balances in the capital and current accounts. The Wealth-tax Officer sought details of the firm's assets and a valuation report for the petitioner's interest, indicating a shift in valuation method. Rule 2 of the Wealth-tax Rules mandated determining the net wealth of the firm, allocating the capital among partners, and treating the sum as the value of each partner's interest.

The Additional Solicitor-General argued that the writ petition became irrelevant due to legislative changes introduced by the Direct Tax Laws (Amendment) Act, 1989. The amendment replaced old section 7 of the Wealth-tax Act with Schedule III, Part E, para. 16, for asset valuation and omitted rule 2 of the Wealth-tax Rules. The petitioner's failure to challenge the validity of the new provisions weakened the petition's merit. It was contended that the petitioner's challenge to rule 2 as arbitrary and unreasonable lacked legal basis, citing the principle that legislative enactments can only be struck down for lack of competence or violation of constitutional rights, not arbitrariness.

The judge concurred with the Additional Solicitor-General, deeming the petition moot following the repeal of rule 2 and section 7. The argument that rule 2 could be unconstitutional even if applied was dismissed, as it did not infringe constitutional rights. Referring to legal precedents, the judge emphasized that legislative acts can only be invalidated for specific constitutional violations, not perceived arbitrariness. The judgment emphasized that courts cannot question the wisdom of legislative decisions unless they violate constitutional provisions. Consequently, the writ petition challenging rule 2 was dismissed, finding no grounds for relief.

In conclusion, the court dismissed the writ petition, highlighting the absence of legal grounds to challenge rule 2 post-repeal. The judgment underscored the limited scope for striking down legislative enactments, emphasizing the need for specific constitutional violations to invalidate laws. The petitioner's failure to establish constitutional infringements led to the dismissal of the petition, with no costs imposed.