1986 (3) TMI 69 - HC - Income Tax

Summary

Issues Involved:
1. Legislative competence of the Union Parliament regarding the impugned provisions.
2. Violation of Article 14 of the Constitution due to impermissible classification and arbitrariness.
3. Interference with freedom of trade and business under Article 19(1)(g) of the Constitution.

Summary:

1. Legislative Competence:
The petitioners challenged the validity of sections 37(3A), 40A(8), (9), (10), and 43B of the Income-tax Act, 1961, on the grounds that they do not relate to entry No. 82 of List I of the Seventh Schedule to the Constitution and were beyond the legislative competence of the Union Parliament. The court, referencing Supreme Court precedents, held that the impugned provisions directly deal with "taxes on income" and fall within entry No. 82 of the Union List. Even if they did not, they would fall under entry No. 97 of List I, thus within the legislative competence of Parliament.

2. Violation of Article 14:
The petitioners argued that the impugned provisions suffer from impermissible classification and are irrational, unconscionable, arbitrary, and violative of Article 14 of the Constitution. The court examined each provision:

- Section 37(3A): Disallows 20% of expenditure over Rs. 1,00,000 on specified items uniformly. The court found this provision not violative of Article 14.
- Section 40A(8): Disallows 15% of interest expenditure by non-banking, non-financial companies on public deposits. The court upheld the classification as rational, distinguishing banking and financial companies due to their dependence on public deposits.
- Sections 40A(9) and (10): Recognize only certain payments to funds for employee welfare. The court found no violation of Article 14, as the provisions uniformly apply to all employers.
- Section 43B: Allows deductions only on actual payments made towards taxes and employee welfare funds. Despite interfering with the mercantile system of accounting, the court held it does not violate Article 14, as it aims to curb tax evasion and treats all taxpayers equally.

3. Interference with Article 19(1)(g):
The petitioners faintly argued that the provisions interfere with their freedom of trade and business under Article 19(1)(g). The court found no substantial interference with this freedom. Even if there was any interference, it is justified in the general public interest and saved by Article 19(6) of the Constitution.

Conclusion:
The court dismissed the writ petitions, holding that the impugned provisions are within the legislative competence of Parliament, do not violate Article 14, and do not interfere with the freedom of trade and business under Article 19(1)(g). The parties were directed to bear their own costs.