1993 (4) TMI 14 - HC - Income Tax

A Partner, Article 14 Of The Constitution, Law Applicable, Legal Representative, Registered Firm, Search And Seizure, State Legislature, Unregistered Firm

Issues Involved:
1. Constitutionality of the Tamil Nadu Tax on Professions, Trades, Callings and Employments Act, 1992.
2. Validity of Article 276(2) of the Constitution of India as amended by the Constitution (Sixtieth Amendment) Act, 1988.
3. Violation of Articles 14 and 19 of the Constitution of India by specific provisions of the Act.
4. Legislative competence of the Tamil Nadu State Legislature to pass the Act.
5. Methodology of levy under the Act.
6. Validity of specific sections of the Act.
7. Validity of specific entries in the Schedule to the Act.

Issue-Wise Detailed Analysis:

1. Constitutionality of the Tamil Nadu Tax on Professions, Trades, Callings and Employments Act, 1992:
The petitioners argued that the Act was ultra vires the power of the Tamil Nadu State Legislature. The court upheld the Act's constitutionality, stating that it was passed pursuant to Entry 60 of List II (State List) of the Seventh Schedule to the Constitution of India read with Article 246(3). The court found no merit in the argument that the Act consolidated various local tax provisions, thereby infringing on local self-government.

2. Validity of Article 276(2) of the Constitution of India as amended by the Constitution (Sixtieth Amendment) Act, 1988:
The petitioners contended that the amendment required ratification by the legislatures of not less than one-half of the States, as per Article 368. The court rejected this argument, stating that the amendment did not amount to a substantial change in Entry 60 of List II. The court cited the Supreme Court's decision in Sajjan Singh v. State of Rajasthan, which emphasized the need to consider the pith and substance of the amendment.

3. Violation of Articles 14 and 19 of the Constitution of India by specific provisions of the Act:
The petitioners argued that certain provisions of the Act violated Articles 14 and 19. The court held that the Act did not violate Article 14 as it provided for a rational classification of persons and entities subject to tax. The court also found that the Act did not violate Article 19(1)(g) as it did not impose unreasonable restrictions on the right to practice any profession, trade, or business.

4. Legislative competence of the Tamil Nadu State Legislature to pass the Act:
The court upheld the legislative competence of the Tamil Nadu State Legislature to pass the Act, citing various decisions of the Supreme Court and High Courts, including Megha Singh and Co. v. State of Punjab and Bar Council of A.P. v. Govt. of Andhra Pradesh. The court noted that similar enactments had been upheld in other states, such as Karnataka and Andhra Pradesh.

5. Methodology of levy under the Act:
The court examined the methodology of levy under the Act, including sections 4, 5, 6, and 7, which provided for the employer's liability to deduct and pay tax on behalf of employees, registration and enrolment of persons liable to pay tax, and assessment of tax. The court found that the methodology was in accordance with the law and did not violate any constitutional provisions.

6. Validity of specific sections of the Act:
The court addressed the validity of specific sections, including sections 3(2)(a)(ii), 3(2)(b), 4, 5(6), 6(3), 11, 21, and 27. The court upheld most of these sections, finding that they did not violate constitutional provisions. However, the court read down sections 3(2)(a)(ii) and 3(2)(b) to ensure that the persons subject to tax had a sufficient territorial nexus with the State of Tamil Nadu. The court also read down section 11 to limit the liability of legal representatives to the value of the assets inherited.

7. Validity of specific entries in the Schedule to the Act:
The court examined the validity of specific entries in the Schedule, including entries 2(a), 2(b), 2(c), 2(d), 2(e), 5, 8, and 20. The court upheld most entries, finding that they were not discriminatory or arbitrary. However, the court struck down entries 2(d), 2(e), 5, and 20 as unconstitutional, finding that they violated Article 14 of the Constitution. The court noted that the classification of persons in these entries was arbitrary and lacked a rational basis.

Conclusion:
The court upheld the constitutionality of the Tamil Nadu Tax on Professions, Trades, Callings and Employments Act, 1992, and the validity of Article 276(2) as amended. It found that the Act did not violate Articles 14 and 19 of the Constitution. The court upheld the legislative competence of the Tamil Nadu State Legislature to pass the Act and found the methodology of levy under the Act to be in accordance with the law. The court upheld most sections of the Act but read down sections 3(2)(a)(ii), 3(2)(b), and 11. The court struck down entries 2(d), 2(e), 5, and 20 of the Schedule as unconstitutional.

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