1971 (4) TMI 24 - HC - Income Tax

Whether provision of sections 64(i) and 64(ii) violate the fundamental right guaranteed under art. 14 OR art. 19(1)(f) and 19(1)(g)of the Constitution since these sections are constitutionally valid, assessments and the notices of demand are not liable to be quashed as urged on behalf of the petitioners

Issues Involved:

1. Legislative competence to enact Section 64(ii) of the Income-tax Act, 1961.
2. Constitutional validity of Section 64(ii) concerning Articles 14 and 19(1)(f) and (g) of the Constitution.
3. Reasonableness and clarity of the classification under Section 64(ii) and its Explanation.

Issue-wise Detailed Analysis:

1. Legislative Competence to Enact Section 64(ii) of the Income-tax Act, 1961:

The petitioners challenged the legislative competence to enact Section 64(ii) of the Income-tax Act, 1961, arguing that the legislature under Entry No. 82 of List I of the Seventh Schedule to the Constitution, which reads "Taxes on income other than agricultural income," is competent to make a law for levying a tax on the income of a person and not on the income of another person, even if that other person is his or her child. This argument was considered to have a good deal of force. However, the court referred to the Supreme Court's decision in Sardar Baldev Singh v. Commissioner of Income-tax, which upheld the legislative competence to enact similar provisions under the Government of India Act, and concluded that the same reasoning would apply to Section 64(ii). Thus, the court held that the Central legislature had the competence to enact Section 64(ii) of the 1961 Act.

2. Constitutional Validity of Section 64(ii) Concerning Articles 14 and 19(1)(f) and (g) of the Constitution:

The petitioners contended that Section 64(ii) is constitutionally invalid as it violated the fundamental rights guaranteed under Articles 14 and 19(1)(f) and (g) of the Constitution. The court referred to the Supreme Court's decision in Balaji v. Income-tax Officer, which upheld the validity of similar provisions under the 1922 Act. The court noted that there is no fundamental right in a citizen not to pay tax or to pay the tax at a particular rate. The court emphasized that taxing statutes are not wholly immune from attack on the ground of violation of Article 14 or 19 of the Constitution. However, if there is an authority of law and the law does not violate any of the guarantees given by Part III of the Constitution, then it is within the authority of the legislature to levy the tax. The court concluded that Section 64(ii) does not impose unreasonable restrictions on the fundamental rights of the assessees under Article 19(1)(f) and (g) and is constitutionally valid.

3. Reasonableness and Clarity of the Classification Under Section 64(ii) and its Explanation:

The petitioners argued that the provisions of Section 64(ii) read with the Explanation are vague and that the classification made is not reasonable and has no nexus with the object sought to be achieved. The court acknowledged that the argument had considerable force but emphasized that it is not always easy to find out whether the funds of the minor children invested in the partnership belong exclusively to the minors independently of their parents. The court noted that minors are invariably under the control of their parents, who manage the affairs and earn for their minor children. The court concluded that the classification made in Section 64(ii) is reasonable and has a rational relation to the object sought to be achieved, which is the prevention of tax evasion. The court held that the provisions of Section 64(ii) do not violate Article 14 of the Constitution.

Conclusion:

The court upheld the constitutional validity of Section 64(ii) of the Income-tax Act, 1961, stating that it is within the legislative competence of the central legislature and does not infringe any of the fundamental rights guaranteed under Articles 14 and 19(1)(f) and (g) of the Constitution. The court dismissed both the Special Civil Applications with costs, concluding that the assessments and the notices of demand were not liable to be quashed.

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