1993 (7) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Constitutionality of the amendment to Section 37 of the Income-tax Act, 1961.
2. Violation of fundamental rights under Articles 14 and 19 of the Constitution of India.
3. Impact on commercial speech and freedom of the press.

Issue-wise Detailed Analysis:

1. Constitutionality of the Amendment to Section 37 of the Income-tax Act, 1961:
The petitioners sought a declaration that the amendment made to Section 37 by Section 17(b) of the Finance Act, 1983, which inserted sub-sections (3A) to (3D), is "bad in law, illegal, invalid and violative of the petitioners' fundamental rights." The amendment disallowed 20% of the expenditure incurred on advertisement, publicity, and sales promotion if the expenditure exceeded Rs. 1,00,000. The petitioners argued that this amendment was unreasonable and arbitrary, thus violating their fundamental rights.

2. Violation of Fundamental Rights under Articles 14 and 19 of the Constitution of India:
The petitioners initially challenged the amendment on the grounds of violation of Articles 14 and 19(1)(g) but did not press these challenges in light of the Karnataka High Court's decision in Mysore Kirloskar Ltd. v. Union of India, which was upheld by the Supreme Court. The primary argument then shifted to the violation of Article 19(1)(a), claiming that the amendment constituted an unreasonable restriction on their right to commercial speech.

3. Impact on Commercial Speech and Freedom of the Press:
The petitioners argued that the amendment restricted their right to advertise, publicize, and promote their products, which falls under "commercial speech" protected by Article 19(1)(a). They contended that the amendment would reduce advertisements, thereby affecting the revenue and circulation of newspapers, indirectly infringing on the freedom of the press.

The court examined whether the amendment directly or inevitably curtailed the right to commercial speech. It was noted that the amendment did not impose any restriction on the amount of expenditure an assessee could incur on advertisements but merely disallowed a portion of the deduction if the expenditure exceeded Rs. 1,00,000. The court referred to several Supreme Court judgments, including Indian Express Newspapers (Bombay) P. Ltd. v. Union of India and Bennett Coleman and Co. Ltd. v. Union of India, which established that commercial speech is protected under Article 19(1)(a). However, it was also noted that fiscal measures regulating such speech do not necessarily violate this protection unless they directly and inevitably curtail the freedom of speech.

The court concluded that the amendment did not have the direct or inevitable consequence of infringing upon the freedom of commercial speech. It was a fiscal measure aimed at regulating excessive expenditure on advertisements and other specified items, not a calculated device to limit the right of advertisers. The court found no merit in the petitioners' argument that the amendment sought to curtail the volume of advertising on the grounds of wastefulness and unproductiveness.

Conclusion:
The court held that the provisions of sub-sections (3A) to (3D) of Section 37 of the Income-tax Act, introduced by Section 17(b) of the Finance Act, 1983, did not violate the fundamental rights guaranteed under Article 19(1)(a) of the Constitution. The petition was dismissed, and the rule was discharged with costs.