Jagannatha Shetty, J.:—

In Writ Petitions Nos. 2535 and 2536 of 1975 and Writ Petition Nos. 13724 to 13727 of 1978, the Petitioners have challenged the constitutional validity of Section 271(1)(e) of the Income-tax Act, 1961, and in Writ Petition Nos. 3353 and 3354 of 1975, the Petitioner has challenged the validity of Section 18(1)(a) of the Wealth Tax Act, 1957.

2. The facts in each case are simple and as follows:

(i) W.P Nos. 2535 and 2536 of 1975:

K.S Muthukali Chettiar is the common Petitioner. For the assessment year 1970-1971 the Inspecting Assistant Commissioner of Income-Tax, Range-I, Bangalore, on May 1, 1974 passed an order under Section 271(1)(c) of the I.T Act, 1961 imposing a penalty of Rs. 40,140/- on the Petitioner for concealing the income of Rs. 40,134/-. Against the said order, an appeal was filed before the Income-Tax Appellate Tribunal and the Tribunal by order dated February 21, 1975 dismissed the appeal.

For the assessment year 1971-1972 the Income-Tax Officer, Assessment-1, Circle-1, Bangalore, passed an order dated May 28, 1974 under Section 271(1)(c) of the I.T Act, 1961 imposing a penalty of Rs. 15,000/- for concealing the income of Rs. 13,213/-. The appeal against the said order before the Appellate Assistant Commissioner is stated to be pending.

(ii) W.P Nos. 13724 to 13727 of 1978:

Punduranga Coffee Works, Chickmagalur, which is a partnership firm is the common Petitioner herein. It is an assessee under the Act. For the assessment years 1968-1969, 1969-1970, 1970-1971 and 1971-1972. The Income-tax Officer levied penalties of Rs. 44,670/-, Rs. 17,200/-, Rs. 14,002/- and Rs. 38,598/- respectively under Section 271(1)(c) of the I.T Act, 1961, being 200% of what I.T.O considered to be the concealed income. The Petitioner preferred appeals against that penalty orders before the Appellate Assistant Commissioner, who found that in respect of two of the four years the actual amount of concealed income was less than what was estimated by the I.T.O He determined the concealed income for the four years 1968-1969, 1969-1970, 1970-1971 and 1971-1972 as Rs. 11,320/-, Rs. 8,600/-, Rs. 7,001/- and Rs. 5,000/- respectively. The A.A.C also levied the maximum penalty being 200% of the concealed income as found by him.

In appeals against the orders of the A.A.C the Tribunal reduced the penalty to 100% of the concealed income. In other words, the Tribunal upheld the levy of the penalty to the extent of Rs. 11,320/-, Rs. 8,600/-, Rs. 7,001/- and Rs. 5000/- for the assessment years 1968-1969, 1969-1970, 1970-1971 and 1971-1972 respectively.

(iii) W.P Nos. 3353 and 3354 of 1975:

D.A Purushotham is the common Petitioner in these two Writ Petitions. His father D. Arasappa died in April 1969. On February 2, 1972 the Wealth Tax Officer completed the assessments for the assessment year 1970-1971 and also for the assessment year 1971-1972. Since the assessee did not file the returns within the time allowed, the Wealth Tax Officer initiated penalty proceedings under Section 18(1)(a) of the Wealth Tax Act, 1957. For the year 1970-1971 he found that there was a delay, of 13 months in filing the returns of wealth. So he levied a penalty of Rs. 44,382/-. For the assessment year 1971-1972 he found that there was a delay of 7 months in filing the returns and he imposed a penalty of Rs. 23,933/- under Section 18(1)(a) of the Wealth Tax Act, 1957.

3. Before we refer to the contentions urged for the parties, we may set out the relevant portions of the Sections as they stood during the relevant time.

Section 271(1)(c) of the I.T Act, 1961:

“If the Income Tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act is satisfied that any person

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(c) has concealed the particulars of his income or furnished inaccurate particulars of such income he may direct that such person shall pay by way of penalty.

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(iii) in the cases referred to Clause (c) in addition to any tax payable by him a sum which shall not be less than but which shall not exceed twice the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.”

Section 18(1)(a) of the Wealth Tax Act, 1957:

“If the Wealth-tax Officer, Appellate Assistant Commissioner, Commissioner or Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person—

[a] has without reasonable cause failed to furnish under sub-section [1] of Section 14 or by notice given under sub-section [2] of Section 14 or Section 17, or has without reasonable cause failed to furnish within the time allowed and in the manner required by sub-section [1] of Section 14 or by such notice, as the case may be; or

[b] has without reasonable cause failed to comply with a notice under sub-section [2] or sub-section [4] of Section 16; or

[c] has concealed the particulars of any assets or furnished inaccurate particulars of any assets or debts;

he or it may, by order in writing, direct that such person shall pay by way of penalty—

[i] in the cases referred to in Clause (a), in addition to the amount of wealth tax, if any, payable by him, a sum, for every month during which the default continued, equal to one-half per cent of—

(A) the net wealth assessed under Section 16 as reduced by the amount of net wealth on which, in accordance with the rates of wealth-tax specified in Paragraph A of Part I of the Schedule or Part II of the schedule, the wealth tax chargeable, or

4. These provisions have been challenged on the ground that they are discriminatory and violative of Article 14 of the Constitution besides being unreasonable restriction to the fundamental rights guaranteed to the Petitioners under Article 19(1)(f) of the Constitution.

5. In order to appreciate the contentions, it is necessary to bear in mind the concept of Article 14.

Article 14 provides:

“The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.”

The two expressions ‘equality before the law’ and ‘equal protection of the law’ may mean different things, but the entire concept is, however, fundamentally the same; that is, ‘like should be treated alike’. This principle proceeds on the premise that men are unequal in many respects, but those who are similarly situated should be similarly treated. As different persons should be treated differently, the law has evolved a theory of reasonable classification but not class legislation. This has been well established by a string of decisions of the Supreme Court from Chiranjit Lal v. Union of India . A.I.R 1951 SC 41. to ‘Special Bearer Bonds’ case (R.K Garg v. Union of India . 1981 4 SCC 675).

6. In the ‘Special Bearer Bonds’ case, Bhagawati, J., speaking for the majority view while examining the Courts approach to economic legislation observed:

“Another rule of equal importance is that laws 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 straight jacket formula and this is particularly true in 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 diference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved, Nowhere has this admonition been more felicitously expressed than in Morey v. Doud (1957) 354 US 457 where Frankfurter, J. said in his inimitable style:

‘In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial diference to legislative judgment. The legislature after all has the affirmative responsibility. The Courts have only the power to destory, not to construct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been over-ruled by events self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.’

The Learned Judge went on to state:

“The Court must always remember that ‘legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry’ that exact wisdom and nice adaption of remedy are not always possible and that ‘judgment is largely a prophecy based on meagre and uninterpreted experience.’ Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuse. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid.”

The learned Judge summarised the principles:

“The Courts cannot, as pointed out by the United States Supreme Court in Secy. of Agriculture v. Central Roig. Refining Co. (1950) 94 Led 381, be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because, it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essense of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues.”

7. With these preparatory observations, we may now proceed to examine the validity of the impugned provisions. Mr. Prasad for the petitioners, did not challenge the validity of the Sections for want of legislative competence. Indeed he could not raise that contention since the law under Entry 82 of list I of VII schedule to the Constitution which corresponds to entry 54 of the Government of India Act, 1935, could provide for prevention of evasion of Income tax as an ancillary measure. Punjab Distillery Industries Ltd. v. Commissioner of Income Tax . AIR 1965 S.C 1612.. Mr. Prasad, however, urged that the penalty based on the concealed income prescribed under the impugned sections is arbitrary and unjust and it cannot be regarded as incidental to the levy of tax.

8. Mr. Sarangan for the Department urged that the imposition of penalty under Section 271(1)(c) of the I.T Act or under Section 18(1)(a) of the Wealth Tax Act, 1957 by periodical amendments depends upon the wisdom of the legislature to meet the growing menace to avoid payment of legitimate tax. It was intended to be an effective deterrent against tax evasion and cannot be considered as arbitrary.

9. We do not think that there is any substance in the contentions urged for the petitioners. The legislation in question as to penalty may be prohibitive in nature, but there is no hostile discrimination against any particular tax payer. The tax evaders are classified into different categories. The persons grouped in each category are treated alike in the matter of imposition of penalty. History of this legislation indicates that the legislature has been trying the trial and error method to minimise the avoidance of tax, if not altogether eliminating it.

Under the Act of 1922, under Section 28, no minimum penalty was laid down but the maximum penalty that could be imposed was 150 per cent, of the tax evaded by the assessee. With effect from April 1, 1962, the Income tax Act, 1961 came into force and for the first time a minimum penalty was prescribed in Section 271. With effect from April 1, 1962, the minimum penalty prescribed was twenty per cent of the tax evaded and the maximum still continued as before at 150 per cent of the tax evaded. With effect from April 1, 1964, an Explanation to Section 271(1) was added and the statutory presumption as laid down therein was required to be raised against the assessee. Between March 1, 1965 and May 31, 1965 the first voluntary disclosure scheme was brought into force and under this scheme it was provided that if the assessee concerned paid 60 per cent of the concealed income as tax, then no other penalty would be levid against him.

Thereafter, on August 19, 1965, the second voluntary disclosure scheme was brought into force and this second voluntary disclosure scheme remained in force up to March 31, 1966.

With effect from April 1, 1968, in order to counter tax evasions, the impugned Section 271(1)(c)(iii) was brought on the Statute book by Act 19 of 1969. Under the impugned Section, if the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under the Act is satisfied that any person has concealed the particulars of such income, he may direct that such person shall pay by way of penalty, in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.

After April 1, 1968, the Government of India appointed a committee called the Direct Taxes Enquiry Committee, popularly known as Wanchoo Committee, since it was presided over by Sri K.N Wanchoo, Retired Chief Justice of the Supreme Court of India. The Committee submitted its report in the month of December 1971. As a result of the recommendations of this Committee a new provision was incorporated to correlate the penalty to the tax evaded and not to the income concealed.

These provisions made from time to time are directed to practical problems faced by the Government in a highly complex economic field. They are preventive in nature although penal in character. They are not directed against honest tax payers. They are directed only against the deliberate tax dodgers. As Bhagawathi, J. observed in Bearer Bonds' case economic legislation is based on experimentation' or what one may call trial and error method. There may be crudities and inequities and on that ground alone, the legislation cannot be struck down as invalid.

10. Mr. Prasad rested his case in the first place on what was said by the Supreme Court in Badri Prasad v. Collector of Central Excise, Sarvodayanagar, Kanpur . 1971 2 SCC 1 while examining the scope of Section 71 and 73 of the Gold (Control) Act, 1968, the Supreme Court observed at para 19, page-1179:

“There does not however seem any justification for an order of confiscation of gold under Section 71 of the Act merely because of a failure to comply with Section 16 relating to declaration. It is no doubt true that the owner is to be given a hearing in terms of Section 79 and he has a right of appeal under Section 80 but the provision of Section 73 which allows the levy of a fine in lieu of confiscation not exceeding twice the value of the thing in respect of which confiscation is authorised appears to be unduly harsh. In this connection, a reference may be made to Section 18 of the Wealth Tax Act and the penal provisions contained therein. Under the Wealth Tax Act the penalty in case of failure to furnish the return without reasonable cause is a sum equal to two per cent of the tax for every month during which the default continues but not exceeding in the aggregate 50 per cent of the tax. It will be noticed that the fine there is imposed only on failure to pay the tax but in case of gold in respect of which no declaration has been made under Section 16 or the factum of pawn which has not been communicated in writing to the Administrator, the owner ipso facto becomes liable to “pay an unconscionably high penally, Section 71 therefore appears to place an unreasonable restriction on the right of a person to acquire, hold and dispose of gold articles or gold ornaments. It may be applied indiscriminately and cannot therefore, be upheld as saved by Clauses (5) and (6) of Article 19 of the Constitution.”

The above observation made in the context of Sections 71 and 73 of the Gold (Control) Act cannot be of any application to the present case since the purpose and terms of the said Sections are quite different from those of the penalty provisions with which we are concerned in these cases.

In Rahimbbai Karimbhai Nagriwala v. B.B Patel . 97 I.T.R 660. the Gujarat High Court, while upholding the validity of Section 271(1)(c) of the I.T Act, has observed at page 675:

“The object of the legislature in the impugned provision is not to provide for any confiscation but to provide a penalty for concealment of income and that too by providing a deterrent penalty. Deterrence is the main theme or object behind the imposition of penalty and we may reiterate that the whole object as shown by the history to this scheme of provisions is to provide gradually more and more deterrent penalties with a view to see that tax evasion does not take place and result in detriment to society as a whole. In our opinion, therefore, it is not possible to say that in the instant case the provisions of Section 271(1)(c)(iii) infringe Article 19(1)(f) of the Constitution.”

In Janab M.M Sultan Ibrahim Adhum v. Wealth-Tax Officer 1(1), Karaikudi. . 91 I.T.R 417. the Madras High Court has held that the provisions of Section 18(1)(a) of the Wealth Tax Act are not violative of Articles 14 and 19(1)(f) of the Constitution. While dealing with the contention as to discrimination contrary to Article 14 of the Constitution, it was observed:

“It is also not correct to state that the burden is discriminatively cast by adopting the penalty at one-half per cent uniformly on the net wealth assessed. Definitely, a person who is having larger net wealth pays higher penalty than the person with a smaller net wealth. The penalty also is dependent on the period of the delay as it has to be calculated at half per cent, for every month during which the default continued. It is not a uniform imposition of penalty in the sense that every defaulter, irrespective of his net wealth and the duration of the delay, is made to pay a fixed sum of money. The penalty is linked with the quantum of net wealth and the period of the delay. We do not find anything irrational in this method of levying penalty.”

While repelling the contention relating to Article 19(1)(f) of the Constitution, this is what the Madras High Court observed:

“It should be borne in mind that any concealment of the wealth and evasion of tax is a loss to the exchequer, and consequently, a loss to the public, that is, the community in general. Any provision intended against such evasion is, therefore, eminently a provision in the interest of the general public. Section 18(1)(a) being a penal provision intended to prevent evasion of tax and concealment of wealth, it is saved under Article 19(5) as a reasoneable restriction on the fundamental right of the Petitioner under Article 19(1)(f) of the Constitution, in the interest of the general public. Therefore, the contention of the Petitioner that Section 18(1)(a) offends Article 19(1)(f) is untenable.”

We respectfully share the view taken by the Gujarat and Madras High Courts. It must be borne in mind that the purpose of the impugned provisions have no other basis than to prevent the evasion of tax by tax payers. The penalties prescribed under the said two Sections were meant for the specified acts of ommission or commission. They were intended to be an effective deterrent to prevent the evil practices which are against the public interest. There is, therefore, no substance in the contention that the said Sections are violative of Article 14 or unreasonable restriction on the then existing right guaranteed under Article 19(1)(f) of the Constitution.

In the result, these Petitions fail and the rule is discharged. In the circumstances, no order as to costs.