1972 (12) TMI 11 - HC - Wealth-tax

Petitioner has filed the petitions on the ground that section 18(1)(a) of the Act is ultra vires illegal and invalid - The learned counsel for the petitioner submitted that section 18(1)(a) in so far as it levies penalty at the uniform rate of one-half per cent. on the net wealth assessed is violative of article 14 ; secondly the penalty imposed under that section is confiscatory in nature and therefore infringes article 19(1)(f) of the Constitution ; thirdly any penalty for non-submission of a return should have relation to the tax payable and not to the wealth and the penalty under section 18 being not related to the tax evaded is beyond the legislative competence of Parliament

Summary

Issues Involved:
1. Constitutionality of Section 18(1)(a) of the Wealth-tax Act under Article 14.
2. Confiscatory nature of the penalty under Article 19(1)(f).
3. Legislative competence of Parliament to enact Section 18(1)(a) of the Wealth-tax Act.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 18(1)(a) under Article 14:
The petitioner argued that Section 18(1)(a) of the Wealth-tax Act, which levies a uniform penalty rate of one-half percent on the net wealth assessed, violates Article 14 of the Constitution by treating unequal persons equally. The court noted that Article 14 requires the State to ensure equality before the law but allows for reasonable classification based on intelligible differentia with a rational relation to the statute's objective. The court referenced the Supreme Court's rulings in Budhan Choudhry v. State of Bihar and Ramkrishna Dalmia v. Justice Tendolkar, which upheld reasonable classification in legislation. The court found that the classification of defaulters under Section 18(1)(a) was based on an intelligible differentia related to the objective of preventing wealth concealment. The court also cited Tea Co. v. State of Kerala and V. Venugopala Ravi Varma Rajah v. Union of India, which upheld uniform tax rates despite disparities in wealth or income, emphasizing that tax laws allow for broader legislative discretion in classification. Consequently, the court held that Section 18(1)(a) does not infringe Article 14.

2. Confiscatory Nature of the Penalty under Article 19(1)(f):
The petitioner contended that the penalty under Section 18(1)(a) is confiscatory and violates Article 19(1)(f) of the Constitution. The court observed that Section 18 aims to prevent tax evasion and concealment of wealth, which are quasi-criminal in nature. The penalty is intended to make evasion unprofitable and to compensate the State for damages caused by attempted evasion. The court referenced the Supreme Court's decisions in Balaji v. Income-tax Officer and Navnit Lal C. Javeri v. K. K. Sen, which upheld provisions designed to prevent tax evasion. The court concluded that Section 18(1)(a) is a reasonable restriction under Article 19(5) in the interest of the general public and does not offend Article 19(1)(f).

3. Legislative Competence of Parliament to Enact Section 18(1)(a):
The petitioner argued that Parliament lacked the legislative competence to enact Section 18(1)(a) of the Wealth-tax Act. The court rejected this contention, stating that the power to levy penalties is incidental or ancillary to the power to legislate on taxes on the capital value of assets under Entry 86, List I, of the Seventh Schedule to the Constitution. The court cited its own ruling in Sivagaminatha Moopanar & Sons v. Income-tax Officer, which upheld the power to levy penalties for tax evasion. The court also referenced the Supreme Court's decision in Union of India v. Harbhajan Singh Dhillon, which affirmed Parliament's competence to legislate on matters not covered by List II or List III of the Seventh Schedule. The court held that Parliament is competent to enact Section 18(1)(a) of the Wealth-tax Act.

Conclusion:
The writ petitions were dismissed. The court upheld the constitutionality of Section 18(1)(a) of the Wealth-tax Act, finding it consistent with Articles 14 and 19(1)(f) of the Constitution and within the legislative competence of Parliament. The respondent was awarded costs in W.P. No. 3191/70, fixed at Rs. 250, with no order as to costs in W.P. No. 3192/70.