|COURT:||Bombay High Court|
|CORAM:||M. S. Sanklecha J, Sandeep K. Shinde J|
|CATCH WORDS:||constitutional validity, wealth-tax|
|COUNSEL:||Dr. Abhinav Chandrachud|
|DATE:||April 2, 2018 (Date of pronouncement)|
|DATE:||April 16, 2018 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 40(3) Wealth-tax: Law on whether Parliament has legislative competence to tax land and buildings which are in List-II of the 7th Schedule and whether the classification of "companies in which the public are not substantially interested" is arbitrary and violative of Article 14 of the Constitution explained (Imp constitutional law principles laid down)|
14. The Apex Court has time and again reiterated the fact that the person who challenges the validity of any statute on the ground that the same contravenes Article 14 of the Constitution, must make specific, clear and unambiguous allegation so as to show that the impugned statute is based on discrimination or that classification made has no rationale nexus with the object sought to be achieved by the Act.
The Apex Court in Amrit Banaspati Co. Ltd. Vs. Union of India & Ors. (1995) 3 SCC 335 after referring to the earlier decision in V.S. Rice and Oil Mills Vs. State of A.P. AIR 1964 SC 1781, G.K. Krishnan Vs. State of T.N. (1995) 1 SCC 375 and R.K. Garg Vs. Union of India (1981) 4 SCC 675 has observed that:
“It is settled law that the allegations regarding the violation of constitutional provision should be specific, clear and unambiguous and should give relevant particulars, and the burden is on the person who impeaches the law as violative of constitutional guarantee to show that the particular provision is infirm for all or any of the reasons stated by him.”
15. In fact, the larger bench of the Supreme Court in The Anant Mills Co. Ltd. Vs. State of Gujarat and Ors. (1975) 2 SCC 175 in respect of the pleadings to challenge the constitutional validity of an Act has inter alia observed that:
“There is a presumption of the constitutional validity of a statutory provision. In case any party assails the validity of any provision on the ground that it is violative of Article 14 of the Constitution, it is for that party to make the necessary averments and adduce material to show discrimination violative of Article 14.
It is, in our opinion, extremely hazardous to decide the question of the constitutional validity of a provision on the basis of supposed existence of certain facts by raising a presumption.
A pronouncement about the constitutional validity of a statutory provision affects not only the parties before the Court, but all other parties who may be affected by the impugned provision. There wound, therefore, be inherent risk in striking down an impugned provision without having the complete factual data and full material before the Court. ….”
On a perusal of paragraph 26(B) of the petition, it is evident that the submissions were made in the context of challenge to Section 40(3) of the Act. The above averments do not meet the test laid down by the Apex Court, that a constitutional challenge must be specific, clear and unambiguous.
17. The above averments do not contain any allegation or material to support the submissions being made on behalf of the petitioners that by classifying of companies in which public are not substantially interested as closely held companies, leaves out closely held companies from the definition of companies, in which public are not substantially interested when they are closely held public limited companies which are listed.
The challenge in our view on the basis of the averments were only in the context of Section 40(3) of the Act and did not have any relation to Sections 40(1) and / or 40(2) of the Act.
We do not accept the contention on behalf of the petitioners that a pure legal issue which give rise to discrimination, need not be alleged in the petition with particulars in respect of allegations. Even a legal challenge must have foundation on facts i.e. specifically state as to how it is being discriminated against.
We are, therefore, of the view that the petitioners have to be restricted only to the challenge urged in the petition i.e. constitutional validity of Section 40(3) of the Act. The other contention being sought to be raised across the bar for the first time, cannot be entertained. The rule was issued in 1987 with specific reference to the challenge made to Section 40(3) of the Act alone.
21. It is a settled position in law that a fiscal legislation relating to tax is not immune to challenge, in case it does not satisfy the test of Article 14 of the Constitution of India.
However, in matters of tax legislation the Supreme Court in R.K. Garg Vs. Union of India, (1981) 4 SCC 675 has observed as under:
“law relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket formula and this is particularly true in the case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved.”
22. Therefore, Section 40(3) of the Act bringing to tax land and building which is not used for business purposes by companies in which public are not substantially interested to tax under the Wealth Tax Act and leaving out those land and buildings which are used for business purposes by companies in which public are not substantially interested from the charge of wealth tax under the Act is a reasonable classification.
Therefore, the legislation bringing to tax land and buildings owned by the companies in which public are not substantially interested without any reference to the manner in which such companies came into ownership of the land and buildings is a decision taken by the legislature and cannot be faulted on the touchstone of Article 14 of the Constitution of India. The speech of the Finance Minister while introducing the bill points out the mischief which was existing namely persons transferring land and buildings owned by them to closely held companies i.e. companies in which the public are not substantially interested so as to evade payment of wealth tax. Therefore, the legislation to cure the mischief was to bring to tax all companies in which public are not substantially interested to the extent it held land and buildings which are not used for business purposes, without determining the source and manner of acquisition.
In fact, the Finance Minister’s speech itself indicates that it is proposed to levy wealth tax in case of closely held companies inter alia in respect of land and buildings owned by such companies and not used for the business purposes. The object of introducing the bill was in terms of the Finance Minister’s speech not restricted only to bring to tax those companies in which public are not substantially interested to which the land and building has been transferred by its members. The Parliament has decided to bring to tax the land and buildings not used for the purposes of business and owned by the companies in which the public are not substantially interested.
The Parliament has thus made a reasonable classification between the companies in which public are substantially interested from the companies in which public are not substantially interested. This classification cannot be found fault with because the petitioners want further classification to have been done by the Parliament.
The remedy of the petitioners, if any, in matters such as this, is to have the Parliament to amend the law so as to meet what according to the petitioners would be the most just and appropriate classification, by adding further classification and restricting its applicability only where the assets have not been acquired by the company in which the public are not substantially interested out of its own profits.
The legislature has in its wisdom decided that the executive should not be burdened with finding out the manner in which the land and buildings has been acquired by the company, to bring it to tax. The mere fact that there is land and building owned by the company and it is not used for the purposes of business is sufficient to hold that these assets to be taken into account under Section 40(3) of the Act for the purposes of wealth tax under the Wealth Tax Act.
23. In the above view, the challenge to Section 40(3) of the Act is not sustainable. Therefore, the petition is dismissed. No order as to costs.