1996 (11) TMI 12 - HC - Income Tax

Summary

Issues Involved:
1. Constitutional validity of section 269SS of the Income-tax Act, 1961.
2. Constitutional validity of section 271D of the Income-tax Act, 1961.

Summary:

1. Constitutional Validity of Section 269SS:
The petitioner challenged the constitutional validity of section 269SS of the Income-tax Act, 1961, which mandates that no person shall take or accept any loan or deposit of Rs. 20,000 or more otherwise than by an account-payee cheque or bank draft. The petitioner argued that this provision is discriminatory and violates Article 14 of the Constitution, as it imposes obligations only on the borrower and not on the lender. The petitioner cited the Madras High Court's decision in Kumari A.B. Shanthi v. Assistant Director of Inspection, Investigation [1992] 197 ITR 330, which held section 269SS to be unconstitutional. However, the court disagreed with this view, drawing support from the earlier Division Bench decision of the Madras High Court in K.R.M.V. Ponnuswamy Nadar Sons (Firm) v. Union of India [1992] 196 ITR 431, and the Gujarat High Court in Sukhdev Rathi v. Union of India [1995] 211 ITR 157, both of which upheld the constitutionality of section 269SS. The court concluded that section 269SS is rational, non-discriminatory, and serves the legitimate objective of curbing the circulation of black money.

2. Constitutional Validity of Section 271D:
The petitioner also challenged the constitutional validity of section 271D, which imposes a penalty for contravention of section 269SS. The court noted that if section 269SS is held to be valid, the question of the validity of section 271D would not arise, except for the reasonableness of the penalty. The court found that the penalty provision under section 271D is a necessary deterrent to ensure compliance with section 269SS and is not arbitrary or unreasonable. The court emphasized that the provision helps the assessee by ensuring that loans or deposits are genuine and not treated as income from undisclosed sources.

Conclusion:
The court held that both sections 269SS and 271D of the Income-tax Act, 1961, are constitutionally valid. The writ application was dismissed, and the parties were directed to bear their own costs.