Standards of Proportionality & Alternatives - Income Tax - Ready Reckoner - Income Tax

Standards of Proportionality Alternatives In the case of Association for Democratic Reforms Anr. v. Union of India Ors. - 2024 (2) TMI 812 - Supreme Court (LB), the concepts of standards of review, specifically proportionality and the alternative standard, have been examined in detail. Proportionality is a standard-based model. It allows factual and contextual flexibility to judges who encounter diverse factual scenarios to analyse and decide the outcome of factual clashes against the standards. Proportionality, particularly its balancing prong, has been criticized by jurists who contend that legal adjudication should be rule-based rather than principle-based. They argue that this provides legal certainty by virtue of rules being definitive in nature. In response, jurists in favour of balancing contend that neither rules nor principles are definitive but rather prima facie. Therefore, both rights and legislations/policies are required to be balanced and realized to the optimum possible extent. This jurisprudential clash is visible in the various forms and structures of adoptions of proportionality. Generally, two models can be differentiated from works of jurists. 1) Model I Firstly, the traditional two stages of the means end comparison is applied. After having ascertained the legitimate purpose of the law, the judge asks whether the imposed restriction is a suitable means of furthering this purpose (rational connection). Additionally in this model, the judge ascertains whether the restriction was necessary to achieve the desired end. The reasoning focuses on whether a less intrusive means existed to achieve the same ends (minimal impairment/necessity). 2) Model II This model adds a fourth step to the first model, namely the balancing stage, which weighs the seriousness of the infringement against the importance and urgency of the factors that justify it. In the table provided below, we have summarised the different models of proportionality and its alternatives, as propounded by jurists and adopted by courts internationally. We have also summarized other traditional standards of review like the means-ends test and Wednesbury unreasonableness for contextual clarity. In the last column we have captured the relevant criticisms, as propounded by jurists, to each such model. Test/Model Scope of Test/Model Jurisdictions Applied Criticism Four-stage Proportionality In this model, all the four prongs of proportionality test are employed, including the final balancing stage. According to Robert Alexy, values and interests (rights of citizens and objects of legislations/policies) are both principles and principles are optimization requirements. They are norms and hence their threshold of satisfaction is not strict, and can happen in varying degrees. They must be satisfied to the greatest extent possible in the legal and factual scenarios, as they exist. All stages of the proportionality test therefore seek to optimize relative to what is legally and factually possible. The rational connection and necessity prongs of the proportionality test are applicable to factual possibilities. T he balancing stage optimizes each principle within what is legally possible, by weighing the relevant competing principles. Alexy proposes the weight formula , which quantifies competing values (rights of individuals) and interests (objective of legislation/policy) by reducing them to numbers. It is a method of thinking about conflicting values/interests. W1.2 = (I1 . W1 . R1 ) / (I2 . W2 . R2 ) W1.2 represents the concrete weight of principle P1 relative to the colliding principle P2 . I1 stand for intensity of interference with P1 . I2 stands for importance of satisfying the colliding principle P2 . W1 and W2 stand for abstract weights of colliding principles ( P1 and P2 ).  When abstract weights are equal, as in case of collision of constitutional rights ( W1 and W2 ) they cancel each other out.  R1 and R2 stands for reliability of empirical and normative assumptions with regard to the question of how intensive the interpretation is. The weight formula is thereupon reduced to numbers on an exponential scale of 2. (i) The scale assigns following values to intensity of interference ( I ) and abstract weights ( W )- light ( l ), moderate ( m ), and serious ( s ) in numbers these are 20, 21, 22 i.e., 1, 2 and 4 respectively. (ii) To reliability ( R ), i.e., the epistemic side, the values assigned are reliable ( r ), plausible ( p ) and not evidently false (e) in numbers these are - 20, 2-1, 2-2 i.e., 1, 0.5 and 0.25 Germany Balancing was adopted by the German Constitutional Court in the 1950s as a new methodology for intensive judicial review of rights-restricting legislation. It stems from the belief that the German Constitution posits an original idea of values, and the government and courts, both have a duty to realise these values. The main premise of the criticisms of balancing is the wide discretion available to judges. To capture three contemporary criticisms in brief: (i) it leads to a comparison of incommensurable values; (ii) it fails to create predictability in the legal system and is potentially dangerous for human rights; and (iii) conversely, it is equally intrusive from the perspective of separation of powers. Three-stage Proportionality This model proposes limiting the proportionality enquiry to its first three prongs, i.e., minus the balancing stage. Von Bernstorff argues against ad hoc balancing based on two principal reasons: (i) ad hoc balancing fails to erect stable and predictable standards of human rights protection, allowing even the most intensive infringements of civil liberties to be conveniently balanced out of existence when the stakes are high enough; and (ii) the lack of predictability leads to a situation where every act of parliament is threatened, however well intentioned, in the judicial balancing exercise and thus ad hoc balancing is potentially overly intrusive from a separation of powers perspective. He, however, defends the use of judicially established bright-line rules for specific cases where intensive interferences are at stake. The bright line rule brings clarity to a law or regulation that could be interpreted in multiple ways. Bright line rules constitute the core , substance or essence of a particular right, making human rights categorical instead of open-ended in nature. Canada Canada prefers to resolve cases in the first three prongs. Only in limited instances, does the Canadian Supreme Court decide that a measure survives the first three prongs but nevertheless fails at the final balancing stage. Despite this, past jurisprudence in Canada does affirm the significance of final balancing stage (i) In absence of the balancing stage, the courts must be mindful of certain analytical weaknesses of the necessity stage that can be dealt with at the balancing stage. (ii) The core of the necessity test is whether an alternate measure is as effective in achieving the purpose as the measure under challenge, while being less restrictive. But often, considerations of balancing may become disguised in the necessity prong, as the court must confront uncertainty in weighing the efficacy of the alternatives. (iii) Some jurists/courts have suggested a strict interpretation of necessity, where an alternate measure is only accepted as less restrictive when they prove to be as effective as the measure under challenge. David Bilchitz has also proposed that other alternatives must have both characteristics equal realization of the purpose and lesser invasion/restriction on the right in question. A stricter evaluation of evidence becomes crucial at the necessity stage for an objective standard of review, in contrast to ad hoc balancing. In Canada for instance, the onus of proof is on the person seeking to justify the limit, which is generally the government. The standard of proof is the civil standard or balance of probabilities. Where scientific or social science evidence is available, it will be required; However, where such evidence is inconclusive, or does not exist and cannot not be developed, reason and logic may suffice. David Blichitz s approach was followed in Aadhar (5J) (Privacy) (supra) case. This test was referenced in Anuradha Bhasin (supra) , which applied a moderate interpretation of the necessity test. To conclude the findings of the necessity stage this Court in Anuradha Bhasin (supra) suggests that an overall comparison be undertaken between the measure and its feasible alternatives. Means-ends Test The doctrine is similar to a reasonableness inquiry, albeit with some variation. In Australia, for instance, courts enquire w hether a law is reasonably appropriate and adapted to achieving a legitimate end in a manner compatible with the constitutionally prescribed system of representative and responsible government. Australia The test was followed in Australia before the development of proportionality and is not frequently used in contemporary times. The test is simplistic and gives limited judicial flexibility. It does not account for diverse factual scenarios. Calibrated Scrutiny (evolved means-ends test) The essential elements of the approach are as follows: First , a judge determines the nature and intensity of the burden on the right by the challenged law; Second , the judge calibrates the appropriate level of scrutiny to the risk posed to maintenance of the constitutionally prescribed system of representative and responsible government; Third , the judge isolates and assesses the importance of constitutionally permissible purpose of the prohibition; and Finally the judge applies the appropriate level of scrutiny so as to determine whether the challenged law is justified as reasonably appropriate and adapted to achieve that purpose in a manner compatible with the maintenance of the constitutionally prescribed system of government The test is similar to some prongs of the proportionality test. However, it is more rule oriented instead of being standard/principle oriented. Australia While proportionality is the predominant doctrine in Australia, this alternate test is applied by a few judges. These judges raise concerns about the application of a test of structured proportionality and suggest that it was best understood as a tool of analysis, or a means of setting out steps to a conclusion , not a constitutional doctrine . Critics of this approach have emphasized that it takes away from the flexibility that is required while considering factually diverse legal challenges. Therefore, the test cannot substitute a contextually guided judicial approach. Strict Scrutiny Test This is considered one of the heightened forms of judicial review that can be used to evaluate the constitutionality of laws, regulations, or other governmental policies under legal challenge. Strict scrutiny is employed in cases of violation of the most fundamental liberties guaranteed to citizens in the United States of America. For instance, it is employed in cases of infringements on free speech. The test places the burden on the government to show a compelling, or strong interest in the law, and that the law is either very narrowly tailored or is the least speechrestrictive means available to the government. The usual presumption of constitutionality is removed, and the law must also pass the threshold of both necessity/end and means United States of America The courts in the United States use a tiered approach of review with strict scrutiny, intermediate scrutiny and rational basis existing in decreasing degree of intensity. Only a limited number of laws survive under the strict scrutiny test. Its application is reserved for instances where the most intensely protected fundamental rights are affected. Unreasonablenes s / Wednesbury Principles A standard of unreasonableness is used for the judicial review of a public authority's decision. A reasoning or decision is unreasonable (or irrational) when no person acting reasonably could have arrived at it. This test has two limbs: (i) The court is entitled to investigate the action to check whether the authority has considered and decided on matters which they ought not to have considered, or conversely, have refused to consider or neglected to consider matters which they ought to have considered. (ii) If the above query is answered in favour of the local authority, it may be held that, although the local authority has ruled on matters which they ought to have considered, the conclusion they have arrived at is nonetheless so unreasonable that no reasonable authority could ever have arrived at it. Associated Provincial Picture Houses Ltd v. Wednesbury Corporation The test is simplistic and is traditionally only used for policies/administrative decisions/delegated legislation. Please note that:- (i) The above table briefly summarises the different standards of constitutional review and it does not elaborate on the said tests in detail; (ii) the theories propounded by the jurists are not followed in toto across the jurisdictions and this has been pointed out appropriately; and (iii) the table does not provide an exhaustive account of the full range of standards of review employed internationally and is restricted to the tests identified therein.