Citation Codes

Equivalent Citations

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Case Number

Original Jurisdiction Case No. 720 of 1973

Judges

Hon'ble Mr. Justice Kunja Behari Panda
Hon'ble Mr. Justice Gati Krushna Misra

Acts

provisions of Chapter XX-A offend article 19(1)(f) of the Constitution
INCOME TAX ACT 1961
provisions of the Taxation Laws (Amendment) Act, 45 of 1972,
TAXATION LAWS AMENDMENT ACT
Amending Act of 1972,
LAND ACQUISITION ACT
INCOME TAX ACT

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Smart Summary

Structured Summary of the Opinion (R.N. Misra, J.; Panda, J. concurring)

Factual and Procedural Background

This is a writ petition under Article 226 of the Constitution challenging the vires of provisions added by the Taxation Laws (Amendment) Act, 45 of 1972, which inserted Chapter XX-A into the Income-tax Act, 1961 with effect from November 15, 1972. Chapter XX-A provides for acquisition of immovable properties in certain cases of transfer to counteract tax evasion.

The petitioner purchased land described as plot numbers 1515.A/1 and 1515.A/2 in holding No. 6, including a pucca building, from opposite party No. 6 by a registered sale deed dated 30 January 1973 for Rs. 55,000. On April 21, 1973 the Inspecting Assistant Commissioner of Income-tax, Acquisition Range, Bhubaneswar (opposite party No. 4), acting as the competent authority under section 269A(b) of the Income-tax Act, issued a notice to the petitioner under section 269D(1) proposing acquisition of the property.

The petitioner challenged the constitutional validity of Chapter XX-A in this Court. Opposite parties 1 to 5 filed a counter-affidavit providing historical background and disputing the petitioner's claim that the provisions were ultra vires. At the hearing the petitioner concentrated on certain principal contentions (see below). The High Court dismissed the writ application and made no order as to costs. Panda, J. concurred.

Legal Issues Presented

Whether the provisions of Chapter XX-A offend Article 19(1)(f) (the right to acquire, hold and dispose of property) and, if so, whether they are saved as reasonable restrictions under sub-article (5) of Article 19.
Whether the right to acquire, hold and dispose of property includes an unabridged right to fix consideration and bargain for the highest price, and whether Chapter XX-A impermissibly abridges that right.
Whether acquisition proceedings under section 269D of the Income-tax Act are in the interest of the general public (or for protection of any Scheduled Tribe) so as to fall within the reasonable restrictions permitted by Article 19(5).
Whether Chapter XX-A confers unguided, unrestricted power on authorities in a manner that violates Article 14 (equality before law).
Whether initiation of acquisition proceedings under Chapter XX-A is for a public purpose, given that the Land Acquisition Act is an existing special statute for acquisition and penalties already exist for tax evasion.
Whether Parliament had legislative competence to enact Chapter XX-A under Entry 82 of List I of the Seventh Schedule (taxation of income other than agricultural income).
Whether Chapter XX-A is essentially a taxing provision (or incidentally taxation) and thus cannot properly effect compulsory acquisition; specifically, whether it falls within Article 31(5)(b)(i) or is otherwise inconsistent with Article 31(2) and Article 31-C.

Arguments of the Parties

Petitioner's Arguments

Chapter XX-A offends Article 19(1)(f) by interfering with the fundamental right to acquire, hold and dispose of property.
The right to acquire, hold and dispose of property includes the right to fix the consideration and to bargain for the highest consideration; Chapter XX-A abridges that right.
The acquisition proceedings under section 269D are not in the interests of the general public nor for protection of any Scheduled Tribe and therefore are not saved by Article 19(5).
Chapter XX-A confers unrestricted, unguided and uncanalised power on authorities and therefore violates Article 14.
The initiation of acquisition is not for any public purpose; the Land Acquisition Act already exists for acquisitions and penalties exist for tax evasion, so this is an impermissible penal use of acquisition.
Parliament lacks competence under Entry 82, List I, Seventh Schedule to legislate for acquisition of property in this way.
Chapter XX-A is essentially a taxing provision and cannot be a law for compulsory acquisition; it is not within Article 31(5)(b)(i) nor covered by Article 31-C; thus the restriction is unreasonable and inconsistent with Article 31(2).

Opposite Parties' (Respondents') Position

The respondents provided historical background for the amending legislation and disputed the petitioner's claim that Chapter XX-A is ultra vires.
They asserted that Parliament had legislative competence to enact the new chapter and relied upon the objectives and background material (including recommendations of the Direct Taxes Enquiry Committee) to justify the measures.
The respondents identified three stated objects of the Taxation Laws (Amendment) Act, 1972: (i) to counter evasion of tax through understatement of immovable property values and curb black money by empowering acquisition at prices corresponding to deed values; (ii) to curb benami holding for tax evasion by limiting the real owner's ability to enforce claims unless income/property declared or notice given; and (iii) to improve valuation machinery and discipline of valuers for tax purposes. Sections 269A–269S correspond to the first objective and section 281A to the second.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Kesavananda Bharati v. State of Kerala (1973 4 SCC 225)	Principle that fundamental rights must be balanced with Directive Principles; State may implement Directive Principles even if that affects individual rights; majority view endorsing reconciliation between Parts III and IV.	The court relied on the reasoning in Kesavananda Bharati to support the proposition that legislation giving effect to Directive Principles (e.g., policies in Article 39 clauses (b) and (c)) can impose reasonable restrictions on fundamental rights such as Article 19(1)(f).
Mahavir Metal Works P. Ltd. v. Union of India (Delhi High Court)	Used as an authority where similar challenges to the amending statute were rejected (challenge based on like contentions).	The High Court's decision was cited as supporting authority; the present Court found support in the Delhi High Court's rejection of comparable challenges to the impugned provisions.

Court's Reasoning and Analysis

The Court examined the principally pressed contentions (Article 19(1)(f) and its sub-article (5); legislative competence under Entry 82; and compatibility with Article 31 provisions) and analysed them by reference to constitutional text, Directive Principles, and legislative history.

1. Article 19(1)(f) and Article 19(5): Article 19(1)(f) guarantees the right to acquire, hold and dispose of property while Article 19(5) permits reasonable restrictions in the interests of the general public. The Court emphasised that property rights must be balanced against the interests of society as expressed in the Directive Principles (Part IV). It held that legislation enacted to give effect to Directive Principles is a permissible reasonable restriction and applied that approach to Chapter XX-A.

2. Directive Principles and Article 31-C: The Court considered Article 31-C (which protects laws giving effect to clauses (b) and (c) of Article 39 from being invalidated on grounds of inconsistency with Articles 14, 19 or 31). Clauses (b) and (c) of Article 39 concern distribution of material resources to subserve the common good and prevention of concentration of wealth. The Court found that Chapter XX-A seeks to counter the concentration of land and to check evasion of tax and black money — evils that impede the objectives of Article 39(b) and (c). Consequently, the amending legislation falls within Article 31-C's protective scope; even if Article 19(1)(f) is affected, the petitioner cannot mount a successful challenge on that ground.

3. Legislative competence under Entry 82 (List I): Applying the pith-and-substance principle, the Court observed that Entry 82 authorises Parliament to legislate relating to income taxation (other than agricultural income) and that the Income-tax Act is valid legislation under that entry. The Court held that Chapter XX-A contains provisions supplementary to taxation (penalties, measures to check evasion and acquisition in cases of clandestine deals) which are appropriate adjuncts to effective administration of tax law. The legislative history (including the Wanchoo Committee report and the Parliament's satisfaction that penalties alone were insufficient) supports that the Amending Act of 1972 was within the legislative competence of Parliament.

4. Article 31 and Article 31(5)(b)(i): The petitioner contended that the Chapter was essentially a taxation measure and therefore could not be a law of compulsory acquisition under Article 31(2) or fall under Article 31(5)(b)(i). The Court rejected this contention in substance: it accepted that the impugned provisions serve taxation-related objectives (countering evasion), and that compulsory acquisition in the specified circumstances was a legitimate instrument connected with the taxation scheme, not an illegitimate use of taxation power to acquire property.

5. Other contentions (Article 14, public purpose, availability of Land Acquisition Act): The Court found that Chapter XX-A was enacted to meet a public purpose (curbing black money and tax evasion leading to concentration of land) and that the existence of the Land Acquisition Act or penalties did not preclude Parliament from making special provision within the Income-tax statute for that purpose.

6. Fact-specific challenges and remedial posture: The Court declined to adjudicate the factual merits of the proposed acquisition of the petitioner's property at that stage, noting that the petitioner was free to appear before the competent authority and to try to show that this was not a case for initiation of section 269D proceedings; an inquiry into those facts before the statutory authority would be premature in the writ proceedings.

Holding and Implications

HOLDING: The writ application fails and is dismissed. (Order: the writ is dismissed and no order as to costs.)

Implications:

The Court held that Chapter XX-A of the Income-tax Act, as inserted by the Taxation Laws (Amendment) Act, 1972, is within Parliament's legislative competence and is not invalid on the principal constitutional grounds advanced by the petitioner (Article 19(1)(f)/19(5), Entry 82 competence, and Article 31 issues).
The Court concluded that the amending provisions fall within the scope of reasonable restrictions under Article 19(5) and within the protection of Article 31-C insofar as they give effect to the State policy reflected in Article 39(b) and (c).
On the immediate dispute, the petitioner remains subject to the statutory process: the Court did not decide factual questions about the propriety of initiating section 269D proceedings and left the petitioner free to appear before the competent authority to contest initiation of acquisition proceedings.
No broader legal consequence (such as overruling or establishment of a novel precedent beyond application of established principles) is stated in the opinion; the decision resolves the petitioner's challenge by upholding the impugned provisions in the presented factual and legal context.

Judge's concurrence: Panda, J. agreed with the judgment of R.N. Misra, J.

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Basudev Sahu v. Union Of India And Others.

R.N Misra, J.:— This application under article 226 of the Constitution challenges the vires of the provisions of the Taxation Laws (Amendment) Act, 45 of 1972, by which with effect from November 15, 1972, a new Chapter being XX-A was added to the Income-tax Act of 1961 (hereinafter referred to as the “Act”) providing for acquisition of immovable properties in certain cases of transfer to counteract evasion of tax.

2. Petitioner purchased the land covered by plot numbers 1515.A/1 and 1515.A/2 in holding No. 6 including a pucca building standing thereon for a consideration of Rs. 55,000 under a registered sale deed dated 30th of January, 1973, from opposite party No. 6, the owner of the property. The Inspecting Assistant Commissioner of Income-tax, Acquisition Range, Bhubaneswar (opposite party No. 4) being the competent authority as provided under section 269A(b) of the Act issued a notice to the petitioner under section 269D(1) on April 21, 1973, for acquisition of the said property. At that stage the petitioner made this application to this court challenging the vires of the new Chapter on the following grounds:

(i) The provisions of Chapter XX-A offend Article 19(1)(f) of the Constitution as they interfere with the fundamental right of citizens to acquire, hold and dispose of property;

(ii) The right to acquire, hold and dispose of property would carry with it the right of fixing consideration and to bargain for the highest consideration in respect of one's property. That right cannot be abridged by a provision as contained in the impugned Chapter;

(iii) The acquisition proceeding taken under section 269D of the Act is not in the interest of general public or for the protection of the interest of any Scheduled Tribe and, therefore, is not within the purview of the reasonable restriction contemplated under Sub-article (5) of article 19;

(iv) The provisions of Chapter XX-A confer unrestricted, unguided uncanalised power on the authorities to acquire properties of a citizen. They are, therefore, hit by article 14 of the Constitution;

(v) The initiation of the proceeding for acquisition is not for any public purpose. The Land Acquisition Act is a special Act and an existing statute made for the said purpose. There having already been provision for checking evasion of tax by imposition of penalty in the event of evasion and there being already a pre-existing statute for acquisition of property for public purpose, making of special provision in the new Chapter for penalising tax evaders by the process of acquisition of property is illegal;

(vi) Entry 82 of List I of the Seventh Schedule of the Constitution authorises Parliament to make law for taxation on income other than agriculture. Parliament has, therefore, no authority to legislate for acquisition of property under this entry;

(vii) Chapter XX-A of the Act incorporates essentially a taxing provision and is not a law for compulsory acquisition of property. A legislative power of taxation cannot be used either primarily or even incidentally for the acquisition of property. Law for such acquisition would not be a law for the purpose of imposing or levying any tax or penalty within the meaning of article 31(5)(b)(i) of the Constitution nor for the purpose of “giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of article 39” within the ambit of article 31-C of the Constitution. Therefore, the restriction is unreasonable.

3. In the counter-affidavit filed on behalf of the opposite parties 1 to 5, the historical background of the statute has been provided and it is claimed that Parliament has legislative competence to enact the provisions of the new chapter and the claim of the petitioner that the provisions are ultra vires is disputed.

4. The Direct Taxes Enquiry Committee under the Chairmanship of Mr. Justice Wanchoo submitted an interim report in December, 1970, suggesting ways and means to deal with black money and tax evasion. With a view to giving effect to some of the recommendations of the Committee and to meet the appalling challenge of evasion of tax, Parliament brought in the Taxation Laws (Amendment) Act, 45 of 1972. The objects of this legislation were claimed to be:

(i) To counter evasion of tax through understatement of the value of the immovable property in sale deeds and also to check the circulation of black money by empowering the Central Government to acquire immovable properties including agricultural land at prices which correspond to those recorded in the deeds of conveyance;

(ii) To curb the practice said to be widespread of benami holding of property for the purpose of tax evasion by debarring the real owner from enforcing his claim on such property in a court of law unless he has declared the income from the property or the property itself for the purposes of income-tax and wealth-tax, or has given notice of his claim to the property to the income-tax authorities; and

(iii) To improve the existing arrangements for valuation for purposes of income-tax, wealth-tax and gift-tax laws, of buildings, lands and other assets by augmenting the existing set up of official machinery and enhancing its powers on one hand and by bringing about better discipline over non-official valuers on the other.

5. Sections 269A to 269S have been provided with a view to achieving the first object while section 281A is intended to serve the second problem. The remaining provisions of the Amending Act were intended to deal with the third objective.

6. Though in the writ application several contentions had been raised, at the time of its hearing Mr. Mohanty for the petitioner mainly pressed the contentions in relation to (1) the impugned provisions being hit by Article 19(1)(f) of the Constitution; (2) the statute being beyond legislative competence in view of entry 82 of List I of the Seventh Schedule of the Constitution; and (3) the amending provisions being not within the purview of article 31(5)(b)(i), the statute would be affected being contrary to article 31(2) of the Constitution. These contentions of Mr. Mohanty may now be dealt with.

Contentions Nos. 1 & 3:

7. It is convenient to deal with the first and last contentions together. Article 19(1)(f) of the Constitution provides that all citizens shall have the right to acquire, hold and dispose of property. Sub-article (5) provides:

“Nothing in sub-clauses (d), (e) and (f) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevent the State from making any law imposing, reasonable restrictions on the exercise of any of the rights conferred by the said sub-clauses either in the interests of the general public or for the protection of the interests of any Scheduled Tribe.”

8. Sub-articles (2) and (5) of article 31 which have relevance in this connection may now be extracted:

“(2) No property shall be compulsorily acquired or requisitioned save for a public purpose and save by authority of a law which provides for acquisition or requisitioning of the property for an amount which may be fixed by such law or which may be determined in accordance with such principles and given in such manner as may be specified in such law; and no such law shall be called in question in any court on the ground that the amount so fixed or determined is not adequate or that the whole or any part of such amount is to be given otherwise than in cash:

Provided……

(5) Nothing in clause (2) shall affect—…

(b) the provisions of any law which the State may hereafter make—

(i) for the purpose of imposing or levying any tax or penalty, or……”

9. While the right to property has been protected by articles 19(1)(f) and 31, reasonable restrictions over the said right in the interests of the general public have been built into the right from the commencement of the Constitution. Property rights of the individual citizen have to be balanced by the interests of the society embodied in the Directive Principles of State Policy contained and enumerated in Part IV of the Constitution. Since article 37 holds out a mandate to the State to apply the Directive Principles of State Policy into the process of legislation, a law enacted to implement one or more of the directive principles so enumerated cannot be considered as introducing an unreasonable restriction. A harmonious construction of the two articles has to be adopted to give effect to the constitutional provisions. Legislation giving effect to a directive principle has got to be regarded as a reasonable restriction on the corresponding fundamental right, otherwise the provisions in Part III and Part IV cannot co-exist.

10. In the case of Kesavananda Bharati v. State of Kerala 1973 4 SCC 225, Ray J. (as the learned Chief Justice then was) observed:

“… Every citizen asserts enjoyment of fundamental rights under the Constitution. It becomes the corresponding duty of every citizen to give effect to fundamental rights of all citizens, dignity of all citizens, by allowing the State to achieve the Directive Principles. The duty of the State is not limited to the protection of individual interest but extends to acts for the achievement of the general welfare in all cases where it can safely act…… Popular sovereignty means that the interest which prevails must be the interest of the mass of men. If rights are built upon property those who have no property will have no rights. That is why the State has to balance interest of the individual with the interest of the society ……”

11. Sub-article (5) of article 19 authorises reasonable restrictions on the exercise of the right to acquire, hold and dispose of property in the interests of the general public. As already indicated, the menace of black money and evasion of tax which had been ruining the economy of the country had to be tackled and it is for the said purpose that the provision of Chapter XX-A of the Act was incorporated by amendment. It is difficult to accept Mr. Mohanty's contention that Chapter XX-A does not introduce a scheme which is in the interest of the general public. We are, therefore, of the view that the amending provision is covered by Sub-article (5) of article 19.

12. Again, article 31-C inserted by the 25th amendment of the Constitution is a pertinent provision which must be taken note of at this stage. It provides:

“Notwithstanding anything contained in article 13, no law giving effect to the policy of the State towards securing the principles specified in clause (b) or clause (c) of article 39 shall be deemed to be void on the ground that it is inconsistent with, or takes away or abridges any of the rights conferred by article 14, article 19 or article 31; and no law containing a declaration that it is for giving effect to such policy shall be called in question in any court on the ground that it does not give effect to such policy.

Provided …….”

13. The named clauses of article 39 are as follows:

“39. The State shall, in particular, direct its policy towards securing—…

(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;

(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment …”

14. Can it be said that the legislation introducing Chapter XX-A of the Act is in furtherance of these principles? Undoubtedly, land is a scarce goods and is an important factor in the process of production. There can be little doubt that it is a material resource of the community. It does not require much of argument to appreciate the position that the mischief which the Amending Act of 1972, seeks to hit and eradicate is concentration of land in the hands of a few. Parliament realised that ownership of lands was being concentrated in the hands of a few and while on the one hand there was avoidance of tax and other public dues, on the other by the surreptitious process acquisition of lands resulting in concentration of the economic power in the hands of few citizens was going on. One of the principal objectives of the impugned law is to check that evil. The impugned provisions, therefore, squarely come within the ambit of article 31-C of the Constitution and even if we accept the petitioner's contention that the right to acquire, hold and dispose of property conferred under clause (f) of sub-article (1) of article 19 is affected, he is not entitled to raise any challenge. These two contentions of Mr. Mohanty must, therefore, fail.

Contention No. 2:

15. We shall now deal with the residuary contention of the petitioner. Entry 82 of List I of the Seventh Schedule of the Constitution authorises legislation relating to taxes on income other than agricultural income. Mr. Mohanty's contention is that it is under this entry that the impugned provisions have been enacted, the true purpose of Chapter XX-A of the Act is beyond the purview of the entry and, therefore, Parliament had no legislative competence to enact the Amending Act of 1972. Legislative power has been distributed between the Union and the States and some heads of legislation had been kept in the concurrent list under Schedule VII. The ambit of each entry is of the widest amplitude and law is settled beyond doubt that if by the pith and substance test the legislative entry supports legislation, a statute is not open to attack on the ground of want of competence. Undoubtedly, the Income-tax Act is a legislation in exercise of legislative powers under entry 82. So is the provision now impugned before us. The impugned Chapter makes provision for imposition of penalty and for checking evasion of tax, because such a position is concomitant to the power to raise taxes. Such supplementary provisions are necessary for administering the statute effectively and for meeting the purpose for which the law is made. The scheme under the impugned provision for compulsory buying of the property at the stated consideration together with fifteen per cent. thereof in the event of a clandestine deal to evade tax is not foreign to the law of income-tax. Parliament was initially satisfied with levy of penalty. By experience it appeared that that was not sufficient to meet the growing evil. The background of the legislation clearly indicates that as evasion of tax and black money became a growing menace, a high-power commission had to be appointed and, after probing into the matter, some of its recommendations were laid before Parliament and emerged in the shape of the amending Act of 1972. The amending Act in these circumstances cannot be held to be beyond the range of legislative competence. The second contention of Mr. Mohanty must, therefore, be repelled.

16. We find support for the view we have taken from a decision of the Delhi High Court in the case of Mahavir Metal Works P. Ltd. v. Union of India, where a challenge on the basis of the present contentions and some others was rejected.

17. The factual aspects of the dispute need not be examined by us because the petitioner is free to appear before the competent authority and satisfy him that it is not a fit case where a proceeding under section 269D of the Act need be initiated. An examination of that aspect of the claim of the petitioner by us is premature. We, therefore, do not go into that question.

18. The writ application fails and is accordingly dismissed. We make no order as to costs.

Panda, J.:— I agree.

Basudev Sahu v. Union Of India And Others.

Structured Summary of the Opinion (R.N. Misra, J.; Panda, J. concurring)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Opposite Parties' (Respondents') Position

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Basudev Sahu v. Union Of India And Others.

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