1973 (11) TMI 17 - HC - Income Tax

Petitioner has challenged the constitutional validity of section 271(1)(c) and section 274(2) of the Income-tax Act 1961 on the ground that these provisions of the Income-tax Act contravene the provisions of articles 14 19(1)(f) 19(1)(g) 31(1) 245 and 265 of the Constitution of India - challange on the ground of article 14 cannot succeed because it has not been established that there exists any hostile discremination against a particular type of taxpayer - both the challenges to the constitutional validity of the impugned provisions fail. We may point out that the other grounds of challenge to the constitutional validity have not been pressed before us and we therefore have not dealt with those challenges on the grounds of articles 31(1) 245 and 265 of the Constitution. We have confined our judgment only to the challenges under articles 14 and 19(1)(f) since they were pressed before us - applications fails and is dismissed

Issues Involved:
1. Constitutional validity of section 271(1)(c) and section 274(2) of the Income-tax Act, 1961.
2. Alleged violation of Article 14 of the Constitution of India.
3. Alleged violation of Article 19(1)(f) of the Constitution of India.

Issue-Wise Detailed Analysis:

1. Constitutional Validity of Section 271(1)(c) and Section 274(2) of the Income-tax Act, 1961:
The petitioner challenged the constitutional validity of sections 271(1)(c) and 274(2) of the Income-tax Act, 1961, on the grounds that they contravene Articles 14, 19(1)(f), 19(1)(g), 31(1), 245, and 265 of the Constitution of India. The court noted that the challenge was confined to Articles 14 and 19(1)(f) during the hearing.

2. Alleged Violation of Article 14 of the Constitution of India:
The petitioner argued that section 271(1)(c)(iii) is violative of Article 14 because it does not classify different types of tax evasions and imposes penalties uniformly, leading to hostile discrimination. The court analyzed the legislative history and the rationale behind the penalty provisions, noting that the classification in taxation statutes must fulfill two conditions: (i) an intelligible differentia, and (ii) a rational relation to the object sought to be achieved.

The court referred to several Supreme Court decisions to establish that while Article 14 forbids class legislation, it allows reasonable classification for legislative purposes. The court emphasized that the legislature has wide discretion in selecting objects and persons for taxation, and it is the petitioner's burden to prove hostile discrimination.

The court concluded that the petitioner failed to establish any hostile discrimination. The penalty provisions were seen as a deterrent against tax evasion, correlating penalties to the income concealed rather than the tax evaded. The court noted that the apparent harshness of the provision for small evaders arises from the progressive nature of tax rates and does not amount to hostile discrimination.

3. Alleged Violation of Article 19(1)(f) of the Constitution of India:
The petitioner contended that the penalty provisions are a colorable exercise of legislative power, amounting to expropriation of property. The court rejected this argument, stating that penalties are incidental to the power of taxation and are meant to vindicate the main purpose of the statute. The court referred to the Supreme Court's stance that the power of taxation is an essential attribute of sovereignty and that penalties serve as a deterrent against tax evasion.

The court also noted that similar penalty provisions in other tax statutes, such as the Wealth-tax Act, have been upheld as reasonable restrictions under Article 19(5) in the interest of the general public.

Conclusion:
The court dismissed the challenges to the constitutional validity of sections 271(1)(c) and 274(2) of the Income-tax Act, 1961, under Articles 14 and 19(1)(f). The court found no hostile discrimination or unreasonable restriction on property rights. Consequently, each special civil application was dismissed, and the rule in each matter was discharged with costs.

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