The Hindu Business Line : The unnecessary writs

TAX laws are often challenged through writ petitions. This often happens when a new provision is introduced. The contention usually is that they violate the Constitutional provisions, especially with regard to fundamental rights.

Despite the legal position in this regard being fairly settled through Supreme Court and High Courts decisions, time and again the issue crops up in courts.

A case in point is the R. K. Garg vs UOI (1982 133 ITR 239 SC) case, where the Government's order regarding the issue of special bearer bonds was challenged as being unconstitutional.

The court opined that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles.

This observation is, of course, of a general nature, not specifically relateable to tax laws and applies to all situations where the constitutional validity of any Act is challenged. However, stringent tests are required to be satisfied to declare these as violative of the Constitution.

The Supreme Court, in Malwa Bus Service (P) Ltd vs State of Punjab (AIR 1983 SC 634), held that the legislature in order to tax some, need not tax all. It can adopt a reasonable classification of persons and things in imposing tax liabilities.

A law relating to taxes cannot be termed as being discriminatory merely because different rates of tax are prescribed in respect of different items, provided it is possible to hold that the said items belong to distinct and separate groups and that there is a reasonable nexus between the classification and the object sought to be achieved by the imposition of different rates of taxation.

The mere fact that a tax falls more heavily on certain goods or persons may not result in its invalidity. The courts lean more readily in favour of upholding the constitutionality of a taxing law in view of the complexities involved in the social and economic life of the community.

Unless the fiscal law in question is manifestly discriminatory, the courts refrain from striking it down on the ground of discrimination. This position is now well settled.

In fiscal legislation, the rate of tax varies from year-to-year. Exemptions, which were not there, are introduced and exemptions, which were there, are deleted. Nothing can be static in tax laws. When new exemptions and concessions are granted by the Finance Acts, similarly situated persons are bound to face a differential treatment, inasmuch as for pending assessments for earlier years one is not entitled to get such concessions and deductions, but in later years, they are entitled.

This sort of treatment is a peculiar feature under the I-T Act and this is dependent on the economic wisdom, which is within the exclusive province of the legislature (DOT vs Central Concrete & Allied Products Ltd — 1999 236 ITR 595 Calcutta).

Taxation law cannot claim immunity from the equality clause of the Constitution. These cannot be arbitrary and oppressive, but, at the same time, the court cannot, for obvious reasons, meticulously scrutinise the impact of its burden on different persons or interests. Where there is more than one method of assessing tax and the legislature selects one of them, the court will not be justified in striking down the law on the ground that the legislature should have adopted another method, which, in the opinion of the court, is more reasonable, unless it is convinced that the method adopted is capricious, arbitrary or clearly unjust (Khandige Sharn Bhat vs Agri. ITO — 1963 48 ITR SC 2 11).

In the matter of retrospective operation of laws, the Supreme Court's view has rather been hard. The view taken has been that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation, otherwise than as regards matter of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language, which is fairly capable of either interpretation, it ought to be construed as prospective only. However, the courts have been upholding the validity of validating tax laws, imposing tax retrospectively.

On the issue of validity of taxing statutes in general, very important observations have been made in the Raja Jagannath Baksh Singh vs State of UP (1962 46 ITR 169 SC) case. On this subject, the court has said that:

The validity of legislation, imposing a tax, can be challenged not only on the ground of lack or absence of legislative competence but also on the ground that the impugned legislation violates the fundamental rights guaranteed by Part III of the Constitution.

A taxing statute can be held to contravene Article 14 if it purports to impose on the same class of property similarly situated, an incidence of taxation, which leads to obvious inequality. It is for the legislature to decide on what objects to levy tax and at what rates and it is not for the courts to consider whether some other objects should have been taxed or whether a different rate should have been prescribed for the tax.

The legislature is also competent to classify persons or properties into different categories and tax them differently, and if the classification thus made is rational, the taxing statute cannot be challenged merely because different rates of taxation are prescribed for different categories of persons or objects. But if, in its operation, any taxing statute is found to contravene Article 14, it would be open to courts to strike it down as denying to the citizens the equality before the law guaranteed by Article 14.

If a taxing statute makes no specific provision about the machinery to recover tax and the procedure to make the assessment of the tax and leaves it entirely to the executive to devise such machinery as it dunks fit and to prescribe such procedure as appears to it to be fair, an occasion may arise for the courts to consider whether the failure to provide for a machinery and to prescribe a procedure does not tend to make the imposition of tax an unreasonable restriction within the meaning of Article 19(5).

An imposition of tax, which, in the absence of a prescribed machinery and the prescribed procedure, would partake of the character of purely administrative affair can, in a proper case, be challenged as contravening Article 19(l)(f).

Therefore, whenever the validity of a taxing statute is challenged on the ground that it contravenes Article 14 or Article 19, the challenge cannot be thrown out on the preliminary ground that a tax law is beyond such challenge, but its merits must be carefully examined.

The position, however, is different when the challenge is made on the ground that the Act is inconsistent with Article 31. So far as Article 31(l) is concerned, all that it requires is that no person can be deprived of his property save by authority of law, and the authority of law postulated by Article 31(l) is obviously the authority of a valid law. If the law is not valid because it offends against Article 14 or Article 19 or some other fundamental right guaranteed by Part-IU, then the imposition of tax levied by it cannot be said to meet the requirements of Article 31(l). But if the Act in question is otherwise valid, then Article 3 l(l) is complied with.

Article 31(2) would be inapplicable to a taxing statute because the taxing statute does not purport to acquire or requisition any property. The imposition of the tax levied by the statute may be excessive and may ultimately lead to the loss of the assessee's property, but even then, it cannot be said that by virtue of the Act, the property has been acquired or requisitioned.

Though the validity of a taxing statute cannot be challenged merely on the ground that it imposes an unreasonably high burden, it does not follow that a taxing statute cannot be challenged on the ground that it is a colourable piece of legislation and, as such, is a fraud on the legislative power conferred on the legislature in question.

But such a challenge cannot succeed by merely showing that the tax levied is unreasonably high or excessive, other relevant circumstances, which justify the conclusion that the statute is colourable, and as such, amounts to a fraud, must also be proved.

Law reports show that there is tendency on the part of the taxpayers to resort to writ petitions on the slightest pretexts. In many cases, the underlying idea is to delay the proceedings before the tax department. Also, challenges under the Constitution are made without availing of the avenues available under the respective Acts. Such litigation serves no purpose and merely add to the volume of the work of the courts.

Tendencies of this nature can be checked if courts take a hard view of prima facie futile petitions and penalise the petitioners heavily, so as to save the time of the courts and use the same for clearing huge volume of pending cases.

(The author is a former chairman of the CBDT.)

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