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TMI Blog1992 (4) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... Inspection (Investigation), Madras-600 034, on April 23, 1986. As per section 269SS of the Income-tax Act, 1961, no person shall, after June 30, 1984, take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of loan is Rs. 10,000 or more. As the said loan received by the accused exceeded Rs. 10,000 and as it was taken otherwise than by an account payee cheque or bank draft, the accused has violated section 269SS of the Income-tax Act, 1961, and, therefore, she is liable to be punished under section 276DD and hence the complaint. Mr. N. C. Raghavachari, learned senior counsel appearing for the petitioner, submitted : (i) The transaction was not a borrowing made by the petitioner but it was the payment made against future performances and hence it will not fall within the ambit of section 269SS of the Income-tax Act, 1961 (which I shall hereafter refer to as the " Income-tax Act "). (ii) The sworn statement dated April 23, 1986, referred to in the complaint was a wrong statement and it was obtained by compulsion and it is violative of article 20(3) of the Constitution and hence it should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, is very unfair, harsh and ex facie discriminatory. Mr. K. Ramasamy, repelled this contention by stating that borrowers are a class by themselves and that no discrimination was shown amongst the borrowers. He would further submit that the object of section 269SS of the Income-tax Act, 1961, was to curb black money and there is a reasonable nexus between the purposes of legislation and classification. In order to appreciate the respective contentions, the relevant provisions of the Income-tax Act, 1961, need extraction and the law laid down by the apex court and the High Courts regarding the cases wherein violation of article 14 of the Constitution are complained of need be referred to. Section 269SS of the Income-tax Act, 1961, reads thus : "269SS. Mode of taking or accepting certain loans and deposits. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as 'the depositor'), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if, (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit ; or (b) on the date of taking or accepting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (P.) Ltd. v. Director of Enforcement, AIR 1970 SC 494, in a proceeding under section 561A of the Code of Criminal Procedure (old Code), it was contended that section 23(1)(b) of the Foreign Exchange Regulation Act is ultra vires article 14 of the Constitution on certain grounds. On merits, that the contention was not accepted. The point is that the vires of section 23(1)(b) of the said Act were questioned as offending article 14 of the Constitution in a proceeding under section 561A of the (old Code) Criminal Procedure Code and considered. Mr. K. Ramasamy, learned counsel appearing for the respondent, did not dispute the proposition that, in a proceeding under section 482, Criminal Procedure Code, this aspect can be considered. In ITO v. N. Takin Roy Rymbai [1976] 103 ITR 82, the apex court has held that a taxation law cannot claim immunity from the equality clause in article 14 of the Constitution, and has to pass, like any other law, the equality test of that article. The apex court has laid as follows (at page 88) : "While it is true that a taxation law cannot claim immunity from the equality clause in article 14 of the Constitution, and has to pass, like any other law, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the class of chartered accountants who have special qualifications and expertise to do the job of auditing more efficiently. On that finding of fact, it was held that there is no violation of article 14 of the Constitution. The learned judges had considered catena of cases and has deduced the proposition as follows (at page 104) : " 1. The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others, and (2) that that differentia must have a rational relation to the object sought to be achieved by the Act. 2. The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. In short, while article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout any substantial basis. In State of Andhra Pradesh v. Nalla Raja Reddy, AIR 1967 SC 1458, the apex court has laid down as follows (at page 1468): " A statutory provision may offend article 14 of the Constitution both by finding differences where there are none and by making no difference where there is one. Decided cases laid down two tests to ascertain whether a classification is permissible or not, viz., (i) the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group ; and (ii) that the differentia must have a rational relation to the object sought to be achieved by the statute in question. The said principles have been applied by this court to taxing statutes. " In Shashikant Laxman Kale v. Union of India [1990] 185 ITR 104, the apex court has held that there is a clear distinction between legislative intention and the purpose or object of the legislation. While the purpose or object of the legislation is to provide a remedy for the malady, the legislative intention relates to the meaning or exposition of the remedy as enacted. While dealing with the validity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney by the lender and as well the taking of money by the borrower. These two ingredients are to be necessarily present in a transaction of loan. In the absence of one ingredient, there cannot be any transaction of loan. While so, only the taker of a loan, viz., the borrower, is put under obligation by not taking the loan except by way of an account payee cheque or an account payee draft, if the loan was for Rs. 10,000 or more. No such obligation was cast on the lender who is an integral part of a loan transaction. This differentia looks all the more hostile, harsh and discriminatory when we take into account the normal circumstance that the borrower would be at the mercy of the lender. Ordinarily, he cannot dictate terms to the lender as to the manner in which he should advance the loan amount to him. While so, leaving the lender out of the purview of section 269SS and placing the borrower alone within the ambit of the same would amount to a classification which is not a rational one. It is not based on any intelligible differentia which distinguishes those that are grouped together from others, viz., the lenders. Furthermore, the differentia does not have a rational relation to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionary of the Income-tax Department under section 279 and there are sufficient safeguards and one cannot say that section 269SS is draconian in nature or arbitrary in character. Section 278AA provides that, notwithstanding anything contained in section 276DD, no person shall be punished for any failure referred to in the said provision if he proves that there was reasonable cause for such failure. Section 279 provides that a person can be proceeded against for an offence under section 276DD only at the instance of the Chief Commissioner or Commissioner. So, it was held that there was provision of reasonable cause and that there was a safeguard against unjustifiable prosecution and so the contention put forth for the petitioner does not hold good. The point now taken before me, viz., that section 269SS is violative of article 14, was not taken in those batch of writ petitions nor was that aspect touched upon. The petitioner herein was not a party in those writ proceedings. So the ruling rendered in that batch of writ petitions will not be a bar for consideration of the present contention put forth before me. Mr. K. Ramasamy made a faint plea that the lender also is covered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. Mr. K. Ramasamy further relied upon T. S. Nataraj v. Union of India (S. L. P. Civil Nos. 9828 and 9838 of 1985) in which the special leave petition against the judgment of the Karnataka High Court which was reported in [1985] 155 ITR 81 was dismissed by the apex court, holding that there was no discrimination against the petitioners. He further relied upon the judgment of the apex court. The apex court had dismissed several appeals by various assessees against judgments of High Courts holding that section 40A(3) of the Income-tax Act, 1961, and rule 6DD of the Income-tax Rules, 1962, had to be read together, and so read, the provisions (which provide that any payment made by an assessee in excess of Rs. 2,500, which was not by a crossed cheque or demand draft would not be allowed as a deduction in computing his income) were not ultra vires and did not curtail the freedom of trade or business of the assessee. This ruling does not have any relevancy to the facts of the case before me. The fourth plea put forth by Mr. N. C. Raghavachari, viz., that the punishment provided in section 276DD is draconian in nature is to be negatived in view of the finding in the batch of writ pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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