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Issues Involved:
1. Legislative competence of Parliament to enact sections 12(1B) and 2(6A)(e) of the Indian Income-tax Act. 2. Violation of Article 14 of the Constitution (Right to Equality). 3. Violation of Article 19(1)(g) of the Constitution (Right to Practise any Profession or to Carry on any Occupation, Trade, or Business). 4. Allegation of the legislation being a colourable piece of legislation. Issue-wise Detailed Analysis: 1. Legislative Competence of Parliament: The petitioner contended that sections 12(1B) and 2(6A)(e) of the Indian Income-tax Act were beyond the legislative competence of Parliament. The argument was based on the assertion that Entry 82 in the first list of the Seventh Schedule of the Constitution empowers Parliament to enact laws relating to "Taxes on income other than agricultural income," but the provisions in question taxed loans, not income. The petitioner argued that the accumulated profits, when advanced as a loan, did not retain their character as profits and thus could not be considered income. The respondent countered that Entry 82 should be interpreted broadly, including provisions to prevent tax evasion. The court agreed, citing precedents that legislative topics should be interpreted in their widest amplitude, including subsidiary and ancillary matters. The court held that Parliament was competent to enact these provisions under Entry 82, as they aimed to prevent tax evasion by members of controlled companies using loans to avoid paying taxes on dividends. The court also noted that even if Parliament lacked competence under Entry 82, it could legislate under the residuary Entry 97, which includes any matter not enumerated in List II or List III, including taxes not mentioned in those lists. However, this alternative argument was not further explored as the primary contention was upheld. 2. Violation of Article 14 (Right to Equality): The petitioner argued that the legislation created an irrebuttable presumption that loans taken by members would not be repaid, resulting in discrimination. The provisions treated all borrowers equally, regardless of whether they repaid the loan, thus violating Article 14. The court rejected this contention, stating that the legislation operated equally on all members who borrowed money from a controlled company. The tax was attracted at the point of borrowing, and the provisions did not result in discrimination. The court emphasized that the legislation aimed to prevent tax evasion and applied uniformly to all members borrowing from controlled companies. 3. Violation of Article 19(1)(g) (Right to Practise any Profession or to Carry on any Occupation, Trade, or Business): The petitioner argued that the provisions violated his fundamental right to carry on any trade or business, as they imposed a tax on borrowings, which could adversely affect his ability to conduct business. The court found no merit in this argument, noting that the provisions did not prohibit borrowing or practising any trade or business. They merely deemed loans from controlled companies as dividends to prevent tax evasion. The court held that the provisions did not violate the petitioner's or any borrower's right to carry on any trade or business. 4. Allegation of Colourable Legislation: The petitioner contended that the provisions were a colourable piece of legislation, imposing a tax on loans under the guise of taxing income. The court dismissed this argument, reiterating that the tax was levied on income, not on loans. The provisions aimed to prevent tax evasion by treating loans from controlled companies as dividends, thus falling within Parliament's legislative competence. Conclusion: The court dismissed the petition, holding that sections 12(1B) and 2(6A)(e) of the Indian Income-tax Act were within the legislative competence of Parliament, did not violate Articles 14 or 19(1)(g) of the Constitution, and were not a colourable piece of legislation. The petitioner was ordered to pay the costs of the respondent, quantified at Rs. 250. The court also declined to accept the petitioner's affidavit in rejoinder as part of the case records.
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