1972 (12) TMI 7 - HC - Income Tax

In these two writ petitions the constitutional validity of section 140A(3) of the Income-tax Act, 1961 is challenged - Whether the provisions of Income-tax Act provided for levy of penalty for non-payment of self assessment tax violate provisions of article 19(1)(f) of the Constitution

Summary

Issues Involved:
1. Constitutional validity of Section 140A(3) of the Income-tax Act, 1961.
2. Alleged violation of Article 19(1)(f) of the Constitution of India.
3. Alleged violation of Article 14 of the Constitution of India.
4. Legislative competence of Parliament to enact Section 140A(3).

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 140A(3) of the Income-tax Act, 1961:
The petitioners challenged the constitutional validity of Section 140A(3) of the Income-tax Act, which allows the Income-tax Officer to levy a penalty up to 50% of the tax payable if not paid within 30 days of furnishing the return. The court examined whether this provision was confiscatory and unreasonable, thereby offending Article 19(1)(f) of the Constitution.

2. Alleged Violation of Article 19(1)(f):
The petitioners argued that Section 140A(3) was confiscatory in nature and not compensatory for delayed payment or retention of tax. The court agreed, stating that the penalty under Section 140A(3) is not related to the duration of the delay or the nature of the violation. It was held that the provision authorizes the confiscation of property, which is an unreasonable restriction on the fundamental right to property. The court concluded that Section 140A(3) offends Article 19(1)(f) and is not saved by Article 19(5).

3. Alleged Violation of Article 14:
The petitioners contended that Section 140A(3) violated Article 14 by creating an invidious and hostile discrimination against assessees. The court rejected this argument, stating that the Government can be treated as a class by itself due to its unique position and responsibilities. The court found no hostile discrimination in Section 140A(3) against the petitioners.

4. Legislative Competence of Parliament:
The petitioners argued that the power to levy a penalty for non-payment of tax is not incidental or ancillary to the power to "tax income" and thus beyond the legislative competence of Parliament. The court dismissed this argument, referencing Supreme Court decisions that upheld the legislative competence of Parliament under entry 97 of List I and Article 248 of the Constitution. The court concluded that Section 140A(3) is within the legislative competence of Parliament.

Conclusion:
The court held that while Section 140A(3) of the Income-tax Act, 1961, is within the legislative competence of Parliament and does not infringe Article 14 of the Constitution, it offends Article 19(1)(f) and is not saved by Article 19(5). Consequently, the writ petitions were allowed, the orders levying the penalty were quashed, and the rule in each case was made absolute. There was no order as to costs.