1986 (4) TMI 2 - SC - Wealth-tax

Penalty imposed against the petitioner by the Wealth-tax Officer at the rate of I per cent. of the total wealth assessed for every month of default and out of seven months default, the penalty imposed was for four months equal to Rs. 6,784 - held that imposition of penalty does not violate fundamental rights - hence rate of penalty is constitutionally valid

Summary

Issues Involved:
1. Constitutional validity of Section 18(1)(a) of the Wealth-tax Act, 1957.
2. Alleged infringement of Articles 14 and 19(1)(f) of the Constitution.
3. Confiscatory nature of the penalty provision.
4. Reasonableness and proportionality of the penalty.
5. Discretionary power of the Wealth-tax Officer.
6. Discriminatory impact of the penalty provision.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 18(1)(a) of the Wealth-tax Act, 1957:
The petitioner challenged the constitutional validity of Section 18(1)(a) of the Wealth-tax Act, 1957, as amended by the Finance Act, 1969. The contention was that the provision infringes Articles 14 and 19(1)(f) of the Constitution. The court noted that the offending provision has since been amended and no such dispute is likely to arise in the future. The question involved was therefore only of academic interest.

2. Alleged Infringement of Articles 14 and 19(1)(f) of the Constitution:
The petitioner argued that the provision permits the levy of a minimum penalty of 1/2 per cent of the net wealth assessed per month for each month of delay in filing the return. This, according to the petitioner, was in contravention of Article 19(1)(f) as the penalty could potentially be equal to the total wealth assessed, making it confiscatory. The court found this argument to be hypothetical and purely academic since the penalty imposed on the petitioner was only for four months' delay, amounting to 2 per cent of the total wealth assessed.

3. Confiscatory Nature of the Penalty Provision:
The petitioner contended that the penalty provision was confiscatory in nature. The court clarified that the penalty at the rate of 1/2 per cent of the net assessed wealth per month for each month's delay could not be considered confiscatory. The court emphasized that the penalty imposed on the petitioner was only for four months' delay, which was not confiscatory.

4. Reasonableness and Proportionality of the Penalty:
The petitioner argued that the penalty should be related to the tax rather than to the wealth, and that the penalty levied at 1/2 per cent of the net wealth was unreasonable. The court rejected this argument, stating that the levy of penalty at 1/2 per cent of the total wealth assessed could not be considered unreasonable or in contravention of Article 19(1)(f). The court also found that the penalty was neither unreasonable nor discriminatory.

5. Discretionary Power of the Wealth-tax Officer:
The petitioner contended that the provision confers wide discretion on the Wealth-tax Officer without any guidelines, violating Article 14. The court dismissed this contention, stating that the penalty rate of 1/2 per cent of the total wealth assessed was consistent for both smaller and larger assessees and did not result in any unreasonable or discriminatory treatment.

6. Discriminatory Impact of the Penalty Provision:
The petitioner argued that the penalty was discriminatory because it imposed the same rate of 1/2 per cent on both smaller and larger assessees, which was harsher for smaller assessees. The court found this argument fallacious, explaining that the penalty, being a percentage of the total wealth assessed, would be proportionally smaller for smaller assessees and larger for substantial assessees. Thus, the penalty was neither unreasonable nor discriminatory.

Conclusion:
The court dismissed the petition, finding no substance in the contentions advanced by the petitioner. The court noted that the issues raised were of purely academic importance and would not affect a number of assessees due to the amendment of the law. The petition was dismissed with parties directed to bear their own costs, and any security amount deposited was ordered to be refunded to the petitioner.