1998 (11) TMI 113 - HC - Income Tax

Summary

Issues Involved:

1. Constitutional validity of the Kar Vivad Samadhan Scheme, 1998.
2. Discrimination among assessees under the Scheme.
3. Classification of litigating assessees in arrears.
4. Applicability of the Scheme to assessees from whom recovery was effected.

Summary:

1. Constitutional Validity of the Kar Vivad Samadhan Scheme, 1998:
The petitioners challenged the constitutional validity of the Kar Vivad Samadhan Scheme, 1998, contained in sections 86 to 98 of the Finance (No. 2) Act, 1998, on the grounds that it violates Article 14 and Entry 82 in List I of the Seventh Schedule to the Constitution. The Scheme aims to reduce tax arrears and litigation by offering partial waiver of tax dues and immunity against prosecution and penalties.

2. Discrimination Among Assessees Under the Scheme:
The petitioners argued that the Scheme treats different assessees within the same class unequally, violating Article 14. They provided illustrations showing that assessees with identical tax liabilities are treated differently based on whether they have paid the tax or not by a specific date, which they claimed is discriminatory and arbitrary.

3. Classification of Litigating Assessees in Arrears:
The court examined whether the classification of assessees into those litigating as appellants and those litigating as respondents is arbitrary or irrational. The court found that this classification creates an artificial and arbitrary distinction, as both categories of assessees are similarly situated in terms of their tax disputes and arrears. The court held that this classification violates Article 14.

4. Applicability of the Scheme to Assessees from Whom Recovery was Effected:
The court addressed the issue of whether the Scheme should apply to assessees from whom tax recovery was effected through coercive methods or adjustments. The court concluded that allowing such assessees to benefit from the Scheme would defeat its objective of incentivizing the payment of tax arrears. Therefore, the classification excluding these assessees was held to be reasonable and not arbitrary.

Conclusion:
The court struck down the proviso to section 92 of the Finance (No. 2) Act, 1998, as violative of Article 14 of the Constitution. The rest of the Scheme was held to be intra vires the Constitution, subject to reading down the definition of "tax arrears" in clause (m) of section 87 to include amounts determined as tax, penalty, or interest on or before March 31, 1998, even if such determination was later set aside but remains under challenge. The petition was allowed in part with no order as to costs.