2002(2) Crimes 393 (SC)
Supreme Court of India
(From Chennai High Court)
R.P. Sethi and K.G. Balakrishnan, JJ.
Assistant Director of Inspection Investigation —Appellant
versus
Kum. A.B. Shanthi —Respondent
Criminal Appeal No. 601 of 1992
With
Civil Appeal No. 4478 of 2000
Decided on 3-5-2002

Very important point
Sections 269SS and 27/D of Income Tax Act, 1961 are neither violative of Article 14 of Constitution nor they were enacted without legislative competence nor they were draconian or expropriatory in nature.

Headnote:(i) Constitution of India, 1950 — Article 14—Discrimination in Taxation Law—Income Tax Act, 1961—Section 269SS (inserted by Finance Act of 1984)—No loan or deposit of 10000/- or more (later 20000/- or more) is valid except by account payee crossed cheque or draft—Object to check unaccounted money—Held by Madras High Court as violative of Article 14 of the Constitution—But High Court of Karnataka dismissing challenge to its Constitutional validity—Appeals against to Supreme Court—Contention that taxing and penalising only the borrower and not the lender is discriminatary—Whether correct? (No)—Case law referred—(I. Tax Act, Section 271D).

       Held : The contention of the appellant’s counsel has no force. The object of introducing Section 269SS is to ensure that a tax payer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the tax payer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the tax-payer. The main object of Section 269SS was to curb this menace. As regards the tax legislations, it is a policy matter, and it is for the Parliament to decide in which manner the legislation should be made. Of course, it should stand the test of constitutional validity. (Para 8)

       After referring to case law held : In view of the aforesaid circumstances, we do not think that Section 269SS is, in any way, violative of Article 14 of the Constitution and consequently quashing of the proceedings by the learned Single Judge of the Madras High Court for this reason is not legally sustainable. (Para 13)

       (ii) Constitution of India, 1950 — Article 246 and Entry 52 in List I of 7th Schedule “taxes on income other than agricultural income”—Meaning of income—Income Tax Act, 1961—Section 269SS (inserted by Finance Act, 1984)—Parliament alleged to have no legislative competence to enact Section 269SS as taxing of unaccounted loans or deposits is not “income”—Whether correct? (No)—Case law referred (I.T. Act, 1961 Section 271D).

       Held : The contention of the appellant’s counsel is that the amount which is received as loan or deposit need not necessarily be the “Income” of the tax payer and, therefore, any legislation made by treating the loan or deposit as “income” is not a valid constitutional legislation. It is settled law that the heads of legislation given in the list should not be constructed in a narrow or pedantic way. If any legislature makes any ancillary or subsidiary provision which incidentally transgresses over its jurisdiction for achieving the object of such legislation, it would be a valid piece of legislation. The entries in a legislative list should be given their fullest meaning and the widest amplitude and be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in them. It is only when a legislature which has no power to legislate, or the legislation is camouflaged in such a way as to appear to be within its competence when it knows it is not, then alone it can be said that the legislation so enacted is a colourable legislation and that there is no legislative competence. The law relating to taxation can very well be enacted under Entry 82 in List I of the 7th Schedule. If any legislation which intended to achieve the collection of income tax and to make it easier and systematic is enacted, such legislation would certainly be within the competence of the legislature. (Para 16)

       Held consequently : Therefore, we do not think that Section 269SS is either violative of Article 14 of the Constitution, or it was enacted without legislative competence. (Para 20)

       (iii) Income Tax Act, 1961—Sections 269SS, 271D and 276DD—Whether unconstitutional on ground that it was draconian or exproprietory in nature? (No).

       Held : The next contention urged by the counsel for the appellant is that original Section 276DD is draconian in nature as penalty imposed for violation of Section 269SS is imprisonment which may extend to two years and shall also be liable to fine equal to the amount of loan or deposit. This Section was subsequently omitted and a new Section 271D was enacted. The penalty of imprisonment was deleted in the new Section. The new Section 271D provides only for fine equal to the amount of loan or deposit taken or accepted. It is important to note that another provision, namely Section 273B was also incorporated which provides that notwithstanding anything contained in the provisions of Section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for such failure and if the assesee proves that there was reasonable cause for failure to take a loan otherwise than by account-payee cheque or account-payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of Section 273B in the Act. If there was a genuine and bona fide transaction and if for any reason the tax payer could not get a loan or deposit by account-payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power. In that view of the matter, we do not think that Section 269SS or 271D or the earlier Section 276DD is unconstitutional on the ground that it was draconian or exproprietory in nature. In view of the foregoing, Criminal Appeal No. 601 of 1992 is allowed and the impugned judgment is set aside. Civil Appeal No. 4478 of 2000 is without any merit and dismissed, however, without costs. (Paras 21 to 24)