Bombay High Court
Serum Institute O India Private Limited vs Unon Of India Through Secretary ... on 4 December, 2023
Author: K.R. Shriram
Bench: K. R. Shriram, Neela Gokhale
Digitally
signed by
2023:BHC-AS:35952-DB
GAURI GAURI AMIT
GAEKWAD
AMIT Date: 1/68 WP-3735-2021.doc
GAEKWAD 2023.12.04
17:27:08
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.3735 OF 2021
Serum Institute of India Private Limited, )
212/2, Off Soli Poonawalla Road, )
Hadapsar, Pune - 411 028 ) ....Petitioner
V/s.
1. Union of India, through the Secretary, Ministry )
of Finance, Government of India, North Block, )
Raisina Hill, New Delhi - 110 001 )
2. Central Board of Direct Taxes, through its )
Chairman, 9th Floor, Lok Nayak Bhawan, Khan )
Market, New Delhi - 110 003 )
3. The Commissioner of Income Tax, Circle - 6, )
Pune, PMT Building, Shankar Sheth Road, Pune - )
411 037 )
4. The Assistant Commissioner of Income Tax, )
Circle - 6, Pune, PMT Building, Shankar Sheth )
Road, Pune - 411 037 ) ....Respondents
----
Mr. Arvind Datar, Senior Advocate a/w. Mr. Chinmoy Khadalkar,
Ms. Salonee Paranjape and Mr. P.C. Tripathi i/b. Mr. Atul K. Jasani for
petitioner.
Mr. Devang Vyas, ASG a/w. Mr. Suresh Kumar, Ms. Anusha P. Amin,
Mr. Sheelang Shah, Ms. Vaibhavi Choudhary and Ms. Mohini Choughule for
respondents.
----
CORAM : K. R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
RESERVED ON : 6th NOVEMBER 2023
PRONOUNCED ON : 4th DECEMBER 2023
JUDGMENT (PER K.R. SHRIRAM, J.) :
1 Considering the reliefs sought in the petition, it was decided to
hear the petition finally at the admission stage itself.
2 Therefore, rule. Rule made returnable forthwith.
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3 Petitioner is a biotechnology company manufacturing drugs
and vaccines. Petitioner has a manufacturing plant at Hadapsar, Pune.
Petitioner's units at Hadapsar area are eligible for deduction under Section
10AA of the Income Tax Act, 1961 (the Act). Petitioner also has
commissioned another manufacturing facility in the Special Economic Zone
(SEZ) located at Manjari, Pune, which commenced production during the
Financial Year 2019-2020.
4 The Government of Maharashtra had, from time to time, issued
several Industrial Policies and Schemes to promote industries in less
developed areas of the State of Maharashtra. The present writ petition is
concerned with one such scheme being, 'Package Scheme of Incentives,
2013', which came into effect from 1 st April 2013 for a period of five years
(hereinafter referred to as the said Scheme). The said Scheme provides for
various incentives to major industries depending on the type of project and
amount of investments they make. The benefits include stamp duty
concessions, exemption from electricity duty and VAT/CST/SGST subsidy.
5 The said Scheme covered various eligible industrial units as
specified from time to time which included biotechnology manufacturing
units. Petitioner would fall in this category. The said Scheme covered
various projects as defined in the Scheme including mega projects/ultra
mega projects. These are industrial units satisfying the minimum threshold
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limits of fixed capital investments or direct employment prescribed in the
said Scheme. Petitioner's project qualified as ultra mega project under the
said Scheme. The qualifying criteria for ultra mega project states was either
investment in eligible fixed assets of Rs.1500 Crores or direct employment
of 3000 employees. The admissible period for investment under the said
Scheme was from 1st April 2013 to 21st March 2020 and the operative
period for the said Scheme is 30 years from the date of effect of the
Entitlement Certificate. Petitioner's operative period is 1 st January 2015 to
31st March 2045.
6 Petitioner states it being an eligible unit under the ultra mega
project, made capital investment of more than Rs.1500 Crores. Petitioner
made its application for being eligible under the said Scheme on 27 th March
2018, i.e., after making an investment amounting to more than Rs.1500
Crores which has been approved by the State of Maharashtra on 12 th
October 2018 and further amended on 25th March 2019. In view of the
approval, the State of Maharashtra has issued to petitioner eligibility
certificate dated 25th January 2019 read with letter dated 17th December
2019. According to petitioner, in view of the above, petitioner is entitled to
receive the following benefits under the said Scheme :
Benefit Period
Electricity Duty (ED) 10 years from 1st April 2015 to 31st March
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Stamp Duty 50% exemption from the payment of stamp
duty on land acquired for the projects
VAT/CST From 1st April 2015 to 30th June 2017
SGST From 1st July 2017 to 31st March 2035
PF and ESIC 15 years - 1st April 2015 to March 2030
As per the approval letter, petitioner is entitled to total
incentive/benefit of 75% of the eligible investment.
7 The Income Tax Act was amended in 2015 and sub-clause
(xviii) to Section 2(24) of the Act was inserted by the Finance Act, 2015
with effect from 1st April 2016. The present petition is filed assailing the
constitutional validity of sub-clause (xviii) to Section 2(24) of the Act
(hereinafter referred to as impugned sub clause). Clause (24) to Section 2
defines the term "income. The relevant portion of sub-clause (xviii) is
reproduced herein below :
2(24) - Income includes :
(xviii) assistance in the form of a subsidy or grant or cash
incentive or duty drawback or waiver or concession or
reimbursement (by whatever name called) by the Central
Government or a State Government or any authority or body or
agency in cash or kind to the assessee other than, -
(a) the subsidy or grant or reimbursement which is taken
into account for determination of the actual cost of the
asset in accordance with the provisions of Explanation 10
to clause (1) of section 43 or
(b) the subsidy or grant by the Central Government for
the purpose of the corpus of a trust or institution
established by the Central Government or a State
Government, as the case may be.
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8 The effect of the impugned sub-clause is that subsidies, grants,
cash incentives, duty drawback, waivers, concessions or reimbursements
provided by the Central or State Governments either in cash or kind, will be
included within the meaning of term "income" and consequently, will be
taxable under the Act. The impugned sub-clause, however, excludes
subsidies, grants or reimbursements which are taken into account to
determine the actual cost of an asset in terms of Explanation 10 to clause
(1) to Section 43. This reduces the actual cost and thereby reduces the
quantum of depreciation. It is petitioner's case that waiver or concessions
are not excluded under Section 43 of the Act, that are granted either by the
Central Government or by the State Governments. Therefore, not only will
the refund of sales tax, i.e., SGST, be liable to tax as income, but even the
electricity duty exemption and the 50% exemption from payment of stamp
duty are also to be treated as income.
9 According to petitioner, prior to insertion of the impugned sub-
clause, subsidies, grants or incentives received by any person which were in
the nature of "capital receipts" were excluded from the definition of
"income" and consequently not taxable under the Act and that position has
also been accepted by the Supreme Court in the following decisions :
(i) CIT V/s. Ponni Sugars and Chemicals Ltd.1
(ii) Sahney Steel & Press Works Ltd. V/s. CIT2
1. 306 ITR 392 (SC): (2008) 9 SCC 337
2. 228 ITR 253 (SC)
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(iii) CIT V/s. Chaphalkar Brothers3
(iv) CIT V/s. Shree Balaji Alloys4
It is petitioner's case that by insertion of the impugned sub-
clause, all sorts of subsidies, whether capital or revenue in nature, have
been brought within the ambit of term income and made taxable, even
though capital subsidy has been held to be non-taxable by various Courts
and the Hon'ble Supreme Court in a catena of decisions.
10 Petitioner is challenging the constitutional validity of the
impugned sub-clause (xviii) of Section 2(24) of the Act whereby all
incentives given in whichever form by the Government and with whatever
purpose of objective are to be treated as income, irrespective of the fact as
to whether or not the same is in the nature of capital assistance and or
revenue assistance.
11 The following points are being contended by petitioner :
(a) The sub-clause also has unintended retrospective
application since at the time of introduction of the Scheme by the State
Government, the impugned sub- clause was not there in the Act and
example has been given of company ABC which has availed benefits from
2012 to 2022;
(b) The impugned sub-clause seeks to tax a capital receipt as
3. 400 ITR 279 (SC)
4. 7 ITR-OL 50 (SC)
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"income" which is constitutionally impermissible. It obliterates the clear,
well established and fundamental distinction between "income" and
"capital receipts" disregarding the constitutional scheme that tax can be
imposed only on "income'. Capital or revenue receipt has to be determined
on the basis of a "purpose test". These subsidies are not taxable under the
Act. The impugned sub-clause seeks to do away with the classification and
the purpose test;
(c) The amendment does not create any distinction between
taxability of a capital subsidy or revenue subsidy. Earlier it was held that the
subsidy received on capital account is not income under Sections 4 and 5 of
the Act or under Section 28 of the Act. However, by insertion of the
impugned sub-clause, the said distinction is sought to be done away with.
The amendment which removes the said distinction is contrary to the
principles of "real income" theory which is one of the foundations for levy
of income tax, and hence liable to be struck down as being unconstitutional
and violative of fundamental rights;
(d) The State Government provides incentives, in order to
promote industries and employment from its own coffers and the disbursal
of the incentives and benefits is through funds of the State. For the Central
Government to tax these incentives and benefits as income of recipient will
be an indirect mechanism to tax the revenue of the State which is
impermissible under the Constitution and violative of Article 289 of the
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Constitution;
(e) Impugned sub-clause is contrary to the scheme of the
Income Tax Act, which is to levy tax on "income". The expression "income"
defined under clause (24) of Section 2 of the Act read with Section 4
denotes that income is any monetary return coming in. In case of capital
subsidy, there is no monetary return coming in. Only "real income" is
taxable;
(f) The impugned sub-clause is in violation of Articles 12,14,
19, 246, 265 and 289 of the Constitution of India and is contrary to the
provisions of Section 4 and 5 of the Income Tax Act, 1961.
(g) As the impugned sub-clause does not differentiate between
a grant which is in the nature of "capital receipt" and "revenue account",
such unintended retrospective applicability of the provision needs to be
guarded as the same is unconstitutional/ invalid. Accrued rights cannot be
taken away otherwise than by retrospective amendments.
12 Mr. Datar submitted :
(a) The subsidy, exemptions and waivers are incentives in
order to attract industries to invest in the State of Maharashtra. These
incentives encourage capital investments which will indirectly create jobs
and nurture the economy. Though the true nature of such subsidy is to
support or supplement the capital invested by the industries, therefore, a
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capital receipt, the same is now sought to be treated as "income" under the
impugned sub-clause. Prior to the impugned sub-clause capital subsides
were not taxable under the Act. The Hon'ble Supreme Court has laid down
the "purpose test" to determine whether a subsidy is capital or revenue in
nature, irrespective of when it is received. The test is that the character of
the receipt in the hands of the assessee has to be determined with respect to
the purpose for which the subsidy is given. If the object of the subsidy
scheme was to enable the assessee to run the business more profitably then
the receipt is on revenue account. On the other hand, if the object of the
assistance under the subsidy scheme was to enable the assessee to set up a
new unit or to expand the existing unit then the receipt of the subsidy was
on capital account. Therefore, it is the object for which the
subsidy/assistance is given which determines the nature of the incentive
subsidy. As held in Sahney Steel & Press Works Ltd. (Supra) and Ponni
Sugars and Chemicals Ltd. (Supra), the test laid down was the "purpose
test". The point of time at which the subsidy is paid is not relevant; the
source of the subsidy is immaterial; the form of subsidy is equally
immaterial. It is the object for which the subsidy/assistance is given which
determines the nature of the incentive subsidy. In the case at hand, the
subsidy scheme was to enable petitioner to set up a new unit or expand the
existing unit and, therefore, the receipt of the subsidy was on capital
account;
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(b) The legislature has sought to artificially do away with the
distinction between a revenue receipt and a capital receipt, without
providing any legal or rationale for the same. If the object of the scheme is
only one, i.e., to promote industrial development and generation of
employment, which is the case under the said Scheme, the same can be
only on capital account. Any benefit provided by the Governments to
augment capital investment cannot by any means be treated as income. The
impugned sub-clause seeks to obliterate the clear, well established and
fundamental distinction between "income" and "capital receipts"
disregarding the constitutional scheme that tax can be imposed only on
income. In doing this, a "capital receipt" is being made liable to tax which is
in gross violation of fundamental principles of taxation of income since
"capital receipt" is really not in the nature of "income" to attract income
tax. The impugned sub-clause thus, should be held unconstitutional,
contrary to provisions of the Act and is liable to be struck down. In the
alternative, the impugned sub-clause should be read down to the extent it
purports to cover subsidies/grants/assistance received in "capital account"
within the taxation ambit. The same should be read down in such a way
that it would apply only to receipts on "revenue account" that are generally
given to supplement the profits and not on "capital account". The impugned
sub-clause is in violation of Articles 12, 14, 19, 246, 265 and 289 of the
Constitution of India and lacks legislative competence. The Central
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Government has the power to impose taxes on income under Entry 82 of
List I to Schedule VII. This power is restricted only to impose tax on
"income". Although, the term "income" has not been defined under the
Constitution of India, the same must be understood by its popular meaning
and not to include every receipt. In the present case, what is received by
petitioner in the form of subsidy, concessions or exemption is capital receipt
and, therefore, cannot be brought to tax as income by amending the
provisions of the Act. The impugned sub-clause seeks to expand the scope
of "income" beyond the meaning which could be capable of being ascribed
under Entry 82 of List 1 to Schedule VII. The definition of income under
Section 2(24) is an inclusive one, its ambit, should be the same as that of
the word income occurring under Entry 82 of List 1 to Schedule VII.
Although, a legislative entry should be given widest possible meaning, but
one should not deviate from its natural and grammatical meaning;
(c) The impugned sub-clause seeking to tax a capital receipt is
in violation of Articles 246 and 265 read with Entry 82 to List 1 of Schedule
VII. The Parliament cannot choose to tax as "income", an item which in no
rational sense can be regarded as a citizen's income or even receipt. The
Supreme Court has repeatedly held time and again that a capital receipt is
not a taxable receipt, and consequently not an income, to introduce the
impugned sub-clause in the teeth of the Supreme Court's decision is ultra
vires the Constitution of India.
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(d) The impugned sub-clause is arbitrary and ultra vires to
Article 14 of the Constitution. The impugned sub-clause without any basis
and reasons overrules settled judicial precedents of the Supreme Court and
various High Courts which have held that the capital subsidy is not income
and cannot be subject matter of tax under the Act. To overrule these
decisions by a Parliamentary exercise and without removing the basis of
these decisions is arbitrary and in violation of Article 14 of the Constitution.
The impugned sub-clause is manifestly arbitrary as it seeks to tax all subsidy
without making any distinction between a revenue receipt or capital
receipt. Imposing tax on subsidies, irrespective of whether such subsidy is
received on revenue account or capital account results in violation of Article
14 of the Constitution. The impugned sub-clause makes no distinction
between capital subsidy and revenue subsidy. The failure to make a proper
classification is also violative of Article 14. The impugned sub-clause does
not have any rationale nor provides any reasons as to why a capital subsidy
is required to be taxed under the Act and thus arbitrary. In absence of any
rationale and reasons, that the impugned sub-clause seeks to impose tax on
capital subsidy, the same is liable to be struck down.
(e) The impugned sub-clause is violative of Article 19(1)(g) of
the Constitution. The State Government on one hand is inviting and
encouraging Petitioner to invest in its State by providing subsidies and
incentives, on the other hand the Central Government seeks to tax the very
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same subsidy thereby affecting the right to carry on business. Thus, the
impugned sub-clause is violative of Article 19(1)(g) of the Constitution as it
places unreasonable hardship on Petitioner which has invested huge
amounts of capital, and the same is sought to be taxed indirectly when it is
received as a subsidy, despite being reward for investment by the State to
augment and set up industry in a backward or designated region;
(f) It is the function and indeed the duty of every State
Government to ensure not only economic development but also balanced
development. The rights of a State to plan and lay down its own policy for
economic development is plenary provided the subject matter is within List-
II or within List-III of Schedule VII. Government grants are given under
Article 282 to be utilized for public purpose. Thus, if the State of
Maharashtra allocates Rs.10,000 Crores as capital subsidy in a fiscal year, it
would be a classic case of manifest arbitrariness and palpable arbitrariness,
if the Union of India takes away 35 to 40% of such subsidy as income tax.
There is no explanation how it is in public interest to take away more than
1/3rd of the subsidy which is earmarked for industrial development by way
of income tax, particularly to develop backward area and promote
employment. There is nothing in the SOR, Memorandum of Finance Bill or
even in the counter that has placed any material before this Court. In Saghir
Ahmed V/s. State of Uttar Pradesh 5, it was pointed out that the burden of
5. AIR 1954 SC 728,738
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proof is on the Union Government to justify law which prima facie involved
Article 19(1)(g). The same principle applies to Article 14.
(g) The impugned sub-clause does not make any distinction
between a capital receipt and a revenue receipt. The Supreme Court has, in
the Ponni Sugars and Chemicals Ltd. (Supra), Sahney Steel & Press Works
Ltd. (Supra), Chaphalkar Brothers (Supra) and CIT V/s. Shree Balaji
Alloys6, held that the subsidies received from the Central or the State
Government, whether capital or revenue receipt has to be determined on
the basis of "purpose test". Therefore, if the object of the assistance under
the Subsidy Scheme is to enable the assessee to set up a new unit or to
expand the existing unit, then the receipt of the subsidy was on capital
account. These subsidies are not taxable under the Act. However, the
impugned sub-clause seeks to do away with the classification and the
purpose test, and consequently, all subsidies are treated as income to be
taxable under the Act. In absence of any specific head, the income is to fall
under the residuary head "income from other sources". This classification,
however, may not be correct as these subsidies, if assumed to be subsidies,
will be treated as business income. Therefore, in absence of any
corresponding amendment to Section 28 of the Act, subsidies received on
capital account remains outside the scope of Section 28 and thereby not
taxable under the Act.
6. 7 ITR-OL 50 (SC)
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In the event if the Court is not inclined to strike down the
impugned clause in view of the grounds raised on the constitutional
validity, the same should read down to the extent that the same is not
applicable to capital receipts as per the tests laid down by the Supreme
Court.
(h) The impugned sub-clause is contrary to the scheme of the
Income Tax Act, which is to levy tax on "income". The expression "income"
defined under Section 2(24) of the Act read with Section 4, which is the
charging section, denotes that income is any monetary return coming in. In
case of capital subsidy, there is no monetary return coming in, the assessee
who invests capital does not invest the same in return of subsidy, he invests
to earn profit from running its business activity, which is income and not
the subsidy. The subsidy is benefit provided by the Government, who could
not invest capital or generate employment, but instead encourage private
sectors to develop industry in specific areas by providing capital incentives
to them, thereby reducing their capital cost. These incentives by any legal
connotations do not come within the meaning of income. The impugned
sub-clause is contrary to the well settled principles that under Act, only
"real income" is taxable. The subsidy received in nature of waiver,
concession or exemption cannot take character of income, thus not being
exigible to income tax under the Act. The Supreme Court in Poona Electric
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Supply Co. Ltd. V/s. CIT7 has held that income tax is a tax on the real
income, i.e., the profits arrived at on commercial principles subject to the
provisions of the Act. In view of these observations of the Supreme Court, a
subsidy is not real income and cannot be sought to be taxed under the Act.
The assistance in nature of "waiver or concession or reimbursement" cannot
be in the nature of income as there is no receipt in these cases. Such
assistance is not an income under any of the five heads of income. Thus,
such assistance is not an income, and merely by amending the definition or
artificially expanding the definition of word "income", any receipt will not
take the characteristics. The impugned sub-clause is only intended for those
subsidies which are revenue receipts, and the manner in which such
receipts are to be computed for the purpose of taxation under the Act.
However, since the impugned sub-clause does not make any distinction
between a capital receipt and revenue receipt, the same is contrary to the
very purpose for which it has been introduced, therefore, is liable to be
struck down;
(i) The importance of Sahney Steel & Press Works Ltd. (Supra)
lies in the fact that it has discussed and analysed the entire case law and it
has laid down the basic test to be applied in judging the character of a
subsidy. That test is that the character of the receipt in the hands of the
assessee has to be determined with respect to the purpose for which the
7. AIR 1966 SC 30
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subsidy is given. In such cases, one has to apply the purpose test. The point
of time at which the subsidy is paid is not relevant. The source is
immaterial. The form of subsidy is immaterial. If the object of the subsidy
scheme was to enable the assessee to run the business more profitably then
the receipt is on revenue account. On the other hand, if the object of the
assistance under the subsidy scheme was to enable the assessee to set up a
new unit or expand the existing unit then the receipt of the subsidy was on
capital account.
(j) The House of Lords in the case of Seaham Harbour Dock
Co. V/s. Crook 8 held that the financial assistance given to the company for
dock extension cannot be regarded as a trade receipt. The House of Lords
found that the assistance had nothing to do with the trading of the
company because the work undertaken was dock extension. The assistance
in the form of a grant was made by the Government with the object that by
its use men might be kept in employment and, therefore, its receipt was
capital in nature. Even though the payment was equivalent to half the
interest amount payable on the loan (interest subsidy), money received by
the company was not in the course of trade but was of capital nature. The
judgment of House of Lords shows that the source of payment or the form
in which the subsidy is paid or the mechanism through which it is paid is
immaterial and that what is relevant is the purpose for payment of
8. (1931) 16 TC 333 (HL)
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assistance. In the present case also the subsidy was for set up of new plants
or expansion of the existing unit and hence, should be capital in nature. In
Ponni Sugars and Chemicals Ltd. (Supra) also this position in law was
reiterated that it is the object for which the subsidy/assistance is given
which determines the nature of the incentive subsidy. The form of the
mechanism through which the subsidy is given is irrelevant. As held in CIT
V/s. P.J. Chemicals Ltd.9 and Sadichha Chitra V/s. CIT10, if the assistance is
given by the Government for completion of a project, then it must be of
capital nature;
(k) It is open to the legislature within certain limits to amend
the provisions of an Act retrospectively and to declare what the law shall be
deemed to have been, but it is not open to the legislature to say that a
judgment of a Court properly constituted and rendered in exercise of its
powers in a matter brought before it shall be deemed to be ineffective and
the interpretation of the law shall be otherwise than as declared by the
Court. The definition of income under Section 2(24) has always been
inclusive but was held to exclude subsidies which were capital receipts. The
impugned amendment to include capital subsidies amounts to legislative
overruling of several Supreme Court decisions which is impermissible as
held in Madras Bar Association V/s. Union of India and Anr 11. Recently in
9. 1994 Supp (3) SCC 535
10. 189 ITR 774
11. (2022) 12 SCC 455
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NHPC Ltd. V/s. State of Himachal Pradesh12 a Division Bench of the
Supreme Court summarised the entire case law and held that legislative
overruling is not permissible.
In Vodafone International Holdings BV V/s. Union of India 13 it
was held that rights of management or controlling interest are not separate
assets; they are incidental to the holding of shares. Similarly, controlling
interest in a company is not an identifiable or distinct capital asset. The
basis of this judgment was removed by inserting Explanation I to Section
2(14), which reads as under :
[Explanation-1.]- For the removal of doubts, it is hereby clarified
that "property" includes and shall be deemed to have always
included any rights in or in relation to an Indian company,
including rights of management or control or any other rights
whatsoever.
Similarly, in the same Vodafone case, it was held that a share of
a company incorporated outside India cannot be treated as an asset located
in India even if the company's value is derived from underlying assets
located in India. By another amendment, the basis of this decision was
removed under Section 9(1)(i). Explanation 5 was added whereby such
shares were deemed to be situated in India, i.e., foreign shares were
deemed to be an asset in India. Explanation reads as under :
Explanation 5.-For the removal of doubts, it is hereby clarified
that an asset or a capital asset being any share or interest in a
company or entity registered or incorporated outside India shall
be deemed to be and shall always be deemed to have been
12. 2023 SCC Online SC 1137
13. 341 ITR 1
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situated in India, if the share or interest derives, directly or
indirectly, its value substantially from the assets located in India.
Thus, it was mandatory for Parliament to have removed the
basis of the Supreme Court rulings on subsidies by a suitable explanation
such as :
Explanation For the removal of doubts: it is hereby clarified
that the term "subsidy" will include and shall always been
deemed to have included all kinds of subsidies, whether for
setting up or establishing a business or for running a business,
whether capital or revenue in nature, and irrespective of the
purpose of the subsidy.
13 Mr. Vyas, ASG submitted :
(a) The Parliament has exclusive power to make laws with
respect to any of the matters enumerated in List I in the Seventh Schedule
to the Constitution of India. The authority of the legislature to tax income is
derived from Entry 82 of List I, which empowers Parliament to enact laws
taxing income other than agricultural income. Therefore, the Parliament has
power to legislate tax on income and define what is income. It is settled law
that the word "income" should be given its widest connotation in view of
the fact that it occurs in a head conferring legislative power. The impugned
sub-clause was inserted after due deliberation and it has been specified that
income shall include assistance in the form of a subsidy or grant or cash
incentive or duty drawback or waiver or concession or reimbursement. After
public consultations for Income Computation and Disclosure Standards
(ICDS), the stakeholders suggested that in order to avoid any future
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controversy in this matter, there should be specific provision in the Act for
treating these Government grants as income. The Accounting Standard
Committee, which drafted the ICDS, suggested that the definition of income
under clause (24) of Section 2 of the Act be amended so as to provide that
the income shall include assistance in the form of a subsidy or grant or cash
incentive or duty drawback or waiver or concession or reimbursement (by
whatever name called) by the Central Government or a State Government
or any authority or body or agency in cash or kind to the assessee other
than the subsidy or grant or reimbursement which is taken into account for
determination of the actual cost of the asset in accordance with the
provisions of Explanation 10 to clause (1) of Section 43 of the Act.
Assistance in the form of a subsidy or grant or cash incentive or duty
drawback or waiver or concession or reimbursement would support further
income generation and since income is to be understood in the widest
sense, these items have also been included in the scope of income. It is
settled law that income is a word of elastic import;
(b) With regards to the challenge of constitutional validity of
the impugned sub-clause, it is settled that the following parameters have to
be followed by Writ Courts for examining the constitutional validity of any
provision namely :
(i) Whether the law under challenge lacks legislative
competence?
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(ii) Whether it violates any Article of Part III of the
Constitution, particularly, Article 147?
(iii) Whether the prescribed criteria and classification resulting
there from is discriminatory, arbitrary and has no nexus with the object of
the Act?
(iv) Whether it is legislative exercise of power which is not in
consonance with constitutional guarantees and does not provide adequate
guidance to make the law just, fair and reasonable?
Provisions of sub-clause (xviii) to clause (24) of Section 2 of
the Act thus have to be tested on the anvil of the above set of parameters as
discussed below;
(c) Article 265 of the Constitution of India states that "No tax
shall be levied or collected except by authority of law." Sub-clause (xviii) to
clause (24) of Section 2 of the Act was introduced by the Finance Act, 2015
duly passed by the Parliament and is, therefore, not violative of Article 265
of the Constitution of India. Part III of the Constitution enumerates
Fundamental Rights. Article 14 lists the Right to Equality and bars the State
from creating unintelligible and irrational classifications. The impugned
sub-clause only expanded the scope of income and all are treated on equal
footing and unequals are not being treated as equals. The provisions are not
discriminatory or arbitrary or violative of Article 14 of the Constitution.
Constitution draws a distinction between taxation statute and other laws in
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a way that imposition of tax is not a ground for challenging it as a
restriction on one's right to Freedom under Article 19(1) of the
Constitution. The impugned sub-clause expanded the scope of income and
the conditions laid down there are not in violation of Article 19 of the
Constitution;
(d) The judicial precedents have set an extremely limited scope
of interference and on all occasions of major challenges it has upheld
legislative competence and expressed restraint when it comes to fiscal
statues. The judiciary must defer to legislative judgment in matters relating
to social and economic policies and must not interfere, unless the exercise
of legislative judgment appears to be palpably arbitrary. 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 pro-positions 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. As held in R. K. Garg V/s. Union of India and
Ors.14, 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. The Court also
14. (1981) 4 SCC 675
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held that laws relating to economic activities should be viewed with greater
latitude than laws touching civil rights such as freedom of speech, religion
etc. There, may be crudities and inequities in complicated experimental
economic legislation but on that account alone it cannot be struck down as
invalid. The Court must while examining the constitutional validity of a
legislation of this kind be resilient, not rigid, forward looking, not static,
liberal and not verbal. The Court must defer to legislative judgment in
matters relating to social and economic policies and must not interfere,
unless the exercise of legislative judgment appears to be palpably arbitrary.
It would be outside the province of the Court to consider if any particular
immunity or exemption is necessary. The trial and error method is inherent
in every legislative effort to deal with an obstinate social or economic issue;
(e) In Federation of Hotel and Restaurant V/s. Union of India 15
the Court held that the subject of a tax is different from the measure of the
levy. The measure of the tax is not determinative of its essential character or
of the competence of the legislature. There has to be flexibility in the modes
of effectuating a tax in view of innate complexities in the fiscal adjustment
of diverse economic factors inherent in the formulation of a policy of
taxation and the variety of policy options open to the State. As held in
Federation of Hotel and Restaurant (Supra), though taxing laws are not
outside Article 14, however, having regard to the wide variety of diverse
15. (1989) 3 SCC 634
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economic criteria that go into the formulation of a fiscal policy legislature
enjoys a wide latitude in the matter of selection of persons, subject matter,
events, etc., for taxation. The tests of the vice of discrimination in a taxing
law are less rigorous. If there is equality and uniformity, within each group,
the law would not be discriminatory. Decisions of the judiciary on the
matter have permitted the legislatures to exercise an extremely wide
discretion in classifying items for tax purposes, so long as it refrains from
clear and hostile discrimination against particular persons or classes;
(f) Every statute, including fiscal statutes, comes with a
presumption of constitutionality unless proven otherwise. The onus falls on
petitioner to demonstrate a clear transgression of constitutional principles.
In the realm of fiscal laws, the presumption of constitutionality is
particularly significant due to the complex nature of economic regulation.
Since these laws are instrumental in the financial governance of the State
and are often the outcome of detailed economic planning and
consideration, Courts are inclined to approach them with deference. Unless
a fiscal statute is manifestly arbitrary or discriminatory in its provisions or
its operation, it is typically upheld. This allows for a broad range of
discretion for the legislature in determining the classes of individuals or
entities that are subject to or exempt from taxation, as long as there is a
rational basis for such a classification. In the case of R. K. Garg (Supra) the
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views of Justice Frankfurter in the case of Morey V/s. Doud 16was relied
upon and the same is reproduced in paragraph 28 of State of Himachal
Pradesh and Ors. V/s. Goel Bus Service Kullu17.
The Revenue Department's approach towards taxation of
concessions or subsidies is nuanced and specific. The tax is levied on the
concession amount or the subsidy received, not the total transaction value.
This ensures that the taxation is limited to the extra benefit accrued due to
the state's incentive schemes, thereby upholding the principles of fairness
and equity in taxation. This methodology aligns with the canons of taxation
which advocate for fairness, equity, and simplicity, ensuring that the tax
burden is proportionate and not unduly onerous. Petitioner's claim of an
indirect rollback of incentives is unfounded as the incentives remain intact.
The only aspect subjected to taxation is the monetary benefit derived from
the subsidy or concession, which is a fair and justifiable tax base;
(g) The Constitution safeguards the right to trade under Article
19(1)(g) but does not extend this protection to the right to profit.
Petitioner's assertion that taxation of subsidies and concessions under the
impugned sub-clause effectively nullifies the distinction between capital and
revenue subsidies leading to the erosion of what they perceive as a benefit
or savings cannot be entertained. They are not, however, intended to serve
as permanent fixtures beyond the scope of taxation, especially when such
16. 354 US 457 (1957)
17. 2023 SCC Online 46
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benefits have fulfilled their economic purpose. The imposition of tax on
these subsidies under the amended provision does not constitute an "taking
away" of a benefit but rather represents a recalibration of fiscal advantages
in line with broader economic and policy considerations. Profits, by their
nature, are subject to fluctuations resulting from various factors, taxation
being but one. It is the duty of the legislature to ensure that taxation policy
reflects a balance between incentivizing economic activity and ensuring the
equitable distribution of fiscal resources. Section 2(24)(xviii) is a
manifestation of this balancing act, and its imposition is a reflection of a
subsidy's life cycle coming to its fiscal fruition. Thus, petitioner's argument,
is ostensibly rooted in concerns over profitability. However, this does not, in
substance, provide a tenable basis to impugn the constitutional validity of
the amended provision. Hence, petitioner's argument of eroded profitability
due to taxation lacks constitutional merit. An extension of this logic could
open floodgates of untenable demands from loss-incurring entities seeking
tax exemptions to improve profitability. This could potentially create a
taxing standard that is inconsistent and prone to manipulations.
Taxation is an economic reality that every business entity must
contend with. As held in Nazeria Motor Service etc. V/s. State of Andhra
Pradesh18, assumption that profits would be diminished or greatly reduced
does not mean that there in any infringement of the fundamental rights
18. (1969) 2 SCC 576
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under Part III of the Constitution of India. As held in Malva Bus Services
V/s. State of Punjab and Ors. 19, the mere fact that a tax falls more heavily
on certain goods or persons may not result in its invalidity.
As held in Federation of Hotel and Restaurant (Supra), mere
excessiveness of a tax or even the circumstance that its imposition might
tend towards diminution of the earnings or profits of the persons of
incidence does not, per se, and without more, constitute violation of the
rights under Part III - Constitution of India.
FINDINGS :
14 The petition challenges sub-clause (xviii) of Section 2(24) of
the Act, which petitioner believes infringes various provisions of the
Constitution of India and oversteps the legislative competence of the
Parliament. It is petitioner's case that by amending Section 2(24)(xviii), the
legislature has essentially overruled judicial precedents that distinguished
capital receipts from revenue receipts, subsuming both under "income" and
subjecting them to taxation, thereby overriding the established legal
principles. Petitioner's argument regarding the violation of Article 14 stems
from the assertion that the amendment to Section 2(24)(xviii) of the Act,
which brings various subsidies under the ambit of taxable income, is
discriminatory and arbitrary. Petitioner's argument is based on the premise
that such savings are not a gain or profit that accrues to the business but
19. (1983) 3 SCC 237
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rather a reduction in expenditure. Petitioner's argument is that such
amendment indiscriminately broadens the definition of income to include
subsidies, without distinguishing between various types of subsidies and the
purposes for which they are granted.
15 The facts, therefore, are very short. It is petitioner's case that it
expanded its business unit in Hadapsar, Pune, in view of the said Scheme
introduced by the Government of Maharashtra. The benefit that petitioner
was to get by setting up this ultra mega project has been enumerated
earlier. Can the Government of India by introducing the impugned sub-
clause take away a part of the benefit that petitioner was getting from the
State of Maharashtra?
Let us analyse the law as laid down in the judgments relied
upon by both counsels.
16 In Sahney Steel & Press Works Ltd. (Supra), the Court held
that what was relevant to decide the character of the incentive is the
purpose test and not the mechanism of payment which is also the case of
petitioner herein. As quoted in paragraph 14 of Ponni Sugars and Chemicals
Ltd. (Supra), the importance of the judgment in Sahney Steel (Supra) lies
in the fact that it has discussed and analysed the entire case law and it has
laid down the basic test to be applied in judging the character of a subsidy.
That test is that the character of the receipt in the hands of the assessee has
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to be determined with respect to the purpose for which the subsidy is given.
In other words, in such cases, one has to apply the purpose test. The point
of time at which the subsidy is paid is not relevant. The source is
immaterial. The form of subsidy is immaterial. If the object of the subsidy
scheme was to enable the assessee to run the business more profitably then
the receipt is on revenue account. On the other hand, if the object of the
assistance under the subsidy scheme was to enable the assessee to set up a
new unit or to expand the existing unit then the receipt of the subsidy was
on capital account. Therefore, it is the object for which the
subsidy/assistance is given which determines the nature of the incentive
subsidy. The form of the mechanism through which the subsidy is given is
irrelevant;
17 In Ponni Sugars and Chemicals Ltd. (Supra) also the Apex
Court held that it is the object for which the subsidy/assistance is given
which determines the nature of the incentive subsidy. The form of the
mechanism through which the subsidy is given is irrelevant. Keeping in
mind the object behind the payment of the incentive subsidy, in that case
the Court held that payment received by the assessee under the Scheme
was not in the course of a trade but was of capital nature. In Ponni Sugars
and Chemicals Ltd. (Supra), while answering whether the incentive subsidy
received by the assessee was a capital receipt not includible in the total
income, the Apex Court in paragraphs 13 to 17 held as under :
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13. In our view, the controversy in hand can be resolved if we
apply the test laid down in the judgment of this Court in the
case of Sahney Steel and Press Works Ltd. (supra). In that case,
on behalf of the assessee, it was contended that the subsidy
given was up to 10% of the capital investment calculated on the
basis of the quantum of investment in capital and, therefore,
receipt of such subsidy was on capital account and not on
revenue account. It was also urged in that case that subsidy
granted on the basis of refund of sales tax on raw materials,
machinery and finished goods were also of capital nature as the
object of granting refund of sales tax was that the assessee could
set up new business or expand his existing business. The
contention of the assessee in that case was dismissed by the
Tribunal and, therefore, the assessee had come to this Court by
way of a special leave petition. It was held by this Court on the
facts of that case and on the basis of the analyses of the Scheme
therein that the subsidy given was on revenue account because
it was given by way of assistance in carrying on of trade or
business. On the facts of that case, it was held that the subsidy
given was to meet recurring expenses. It was not for acquiring
the capital asset. It was not to meet part of the cost. It was not
granted for production of or bringing into existence any new
asset. The subsidies in that case were granted year after year
only after setting up of the new industry and only after
commencement of production and, therefore, such a subsidy
could only be treated as assistance given for the purpose of
carrying on the business of the assessee. Consequently, the
contentions raised on behalf of the assessee on the facts of that
case stood rejected and it was held that the subsidy received by
Sahney Steel could not be regarded as anything but a revenue
receipt. Accordingly the matter was decided against the
assessee.
14. The importance of the judgment of this Court in Sahney
Steel case lies in the fact that it has discussed and analysed the
entire case law and it has laid down the basic test to be applied
in judging the character of a subsidy. That test is that the
character of the receipt in the hands of the assessee has to be
determined with respect to the purpose for which the subsidy is
given. In other words, in such cases, one has to apply the
purpose test. The point of time at which the subsidy is paid is
not relevant. The source is immaterial. The form of subsidy is
immaterial. The main eligibility condition in the scheme with
which we are concerned in this case is that the incentive must
be utilized for repayment of loans taken by the assessee to set
up new units or for substantial expansion of existing units. On
this aspect there is no dispute. If the object of the subsidy
scheme was to enable the assessee to run the business more
profitably then the receipt is on revenue account. On the other
hand, if the object of the assistance under the subsidy scheme
was to enable the assessee to set up a new unit or to expand the
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existing unit then the receipt of the subsidy was on capital
account. Therefore, it is the object for which the
subsidy/assistance is given which determines the nature of the
incentive subsidy. The form of the mechanism through which
the subsidy is given is irrelevant.
15. In the decision of House of Lords in the case of Seaham
Harbour Dock Co. v. Crook (1931) 16 TC 333 the Harbour Dock
Co. had applied for grants from the Unemployment Grants
Committee from funds appropriated by Parliament. The said
grants were paid as the work progressed the payments were
made several times for some years. The Dock Co. had
undertaken the work of extension of its docks. The extended
dock was for relieving the unemployment. The main purpose
was relief from unemployment. Therefore, the House of Lords
held that the financial assistance given to the company for dock
extension cannot be regarded as a trade receipt. It was found by
the House of Lords that the assistance had nothing to do with
the trading of the company because the work undertaken was
dock extension. According to the House of Lords, the assistance
in the form of a grant was made by the Government with the
object that by its use men might be kept in employment and,
therefore, its receipt was capital in nature. The importance of
the judgment lies in the fact that the company had applied for
financial assistance to the Unemployment Grants Committee.
The Committee gave financial assistance from time to time as
the work progressed and the payments were equivalent to half
the interest for two years on approved expenditure met out of
loans. Even though the payment was equivalent to half the
interest amount payable on the loan (interest subsidy) still the
House of Lords held that money received by the company was
not in the course of trade but was of capital nature. The
judgment of House of Lords shows that the source of payment
or the form in which the subsidy is paid or the mechanism
through which it is paid is immaterial and that what is relevant
is the purpose for payment of assistance. Ordinarily such
payments would have been on revenue account but since the
purpose of the payment was to curtail/obliterate unemployment
and since the purpose was dock extension, the House of Lords
held that the payment made was of capital nature.
16. One more aspect needs to be mentioned. In Sahney Steel
and Press Works Ltd. (supra) this Court found that the assessee
was free to use the money in its business entirely as it liked. It
was not obliged to spend the money for a particular purpose. In
the case of Seaham Harbour Dock Co. (supra) assessee was
obliged to spend the money for extension of its docks. This
aspect is very important. In the present case also, receipt of the
subsidy was capital in nature as the assessee was obliged to
utilize the subsidy only for repayment of term loans undertaken
by the assessee for setting up new units/expansion of existing
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business.
17. Applying the above tests to the facts of the present case and
keeping in mind the object behind the payment of the incentive
subsidy we are satisfied that such payment received by the assessee
under the Scheme was not in the course of a trade but was of
capital nature. Accordingly the first question is answered in favour
of the assessee and against the Department.
(emphasis supplied)
18 In Sadichha Chitra (Supra), the subsidies were granted as and
when the film was being completed which resulted in creation of a capital
asset. The Apex Court in Sahney Steel & Press Works Ltd. (Supra) confirmed
the view taken in Sadichha Chitra (Supra) to be correct and in accordance with
the principles laid down in Seaham Harbour Dock Co. case. In Seaham
Harbour Dock Co. (Supra), the Dock Company had applied for and obtained
grants from the Unemployment Grants Committee from funds appropriated by
Parliament. The said grants were paid as the work progressed and were
equivalent to half the interest on approved expenditure met out of loans. The
payment were made several times a year for some years. The Dock company
had undertaken an extension of its docks. The extended dock was also for
relieving unemployment problem. Because the work undertaken was extension
of the dock and the main purpose was relief of unemployment, the House of
Lords held that the financial assistance given to the company for extension of
the dock cannot be regarded as trade receipt. It was found that the assistance
had nothing to do with trading of the company because the work undertaken
was dock extension. Lord Buckmaster, in his judgment, wrote as under :
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Now I do not myself think that the matter can be put more
succinctly than it was put by Mr. Hills when he said : "Was this
a trade receipt?", and my answer is most unhesitatingly : No. It
appears to me that it was nothing whatever of the kind. It was a
grant which was made by a government department with the
idea that by its use men might be kept in employment, and it
was paid to and received by the Dock Company without any
special allocation to any particular part of their property, either
capital or revenue, and was simply to enable them to carry out
the work upon which they were engaged, with the idea that by
so doing people might be employed. I find myself quite unable
to see that it was a trade receipt, or that it bore any
resemblance to a trade receipt. It appears to me to have been
simply a grant made by the Government for the purposes which
I have mentioned, and in those circumstances cannot be
included in revenue for the purposes of tax.
19 In Poona Electric Supply Co. Ltd. V/s. CIT 20, relied upon by
Mr.Datar, the Apex Court held as under :
Income tax is a tax on the real income, i.e., the profits arrived at
on commercial principles subject to the provisions of the
Income-tax Act. The real profit can be ascertained only by
making the permissible deductions. There is a clear-cut
distinction between deductions made for ascertaining the
profits and distributions made out of profits. In a given case
whether the outgoings fall in one or the other of the heads is a
question of fact to be found on the relevant circumstances,
having regard to business principles.
20 Similarly in Godhra Electricity Co. Ltd. V/s. CIT 21 relied upon
by Mr. Datar, the Apex Court, in paragraph 13, held as under :
13. Under the Act income chargeable to tax is the income that is
received or is deemed to be received in India in the previous year
relevant to the year for which assessment is made or the income
that accrues or arises or is deemed to accrue or arise in India
during such year. The computation of such income is to be made
in accordance with the method or accounting regularly
employed by the assessee. It may be either the cash system
where entries are made on the basis of actual receipts and actual
outgoings or disbursements or it may be the mercantile system
where entries are made on accrual basis, i.e., accrual of the right
to receive payment and the accrual of the liability to disburse or
pay. In CIT vs. Shoorji Vallabhdas & Co. (supra), it has been laid
20. (1965) 56 ITR (Sh. N.) 29
21. (1997) 225 ITR 746 (SC)
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down :
Income tax is a levy on income. No doubt, the Income Tax
Act takes into account two points of time all which the
liability to tax is attracted, viz., the accrual of the income
or its receipt; but the substance of the matter is the
income. If income does not result at all, there cannot be a
tax, even though in book-keeping an entry is made about
a hypothetical income, which does not materialise.
21 Before the amendment through the Finance Act, 2015, the
Supreme Court applied the "purpose test" to determine whether a subsidy
was a capital or revenue receipt. In the landmark cases of Sahney Steel and
Press Works Ltd. (Supra) and Ponni Sugars and Chemicals Ltd. (Supra), the
Court held that if the subsidy's purpose was to help the assessee run the
business more profitably or meet daily business expenses, it was considered
a revenue receipt (and thus taxable). Conversely, if the subsidy aimed at
setting up a new unit or expanding an existing unit, it was deemed a capital
receipt (and not taxable). The Finance Act, 2015, significantly altered the
landscape by introducing sub-clause (xviii) to Section 2(24) of the Act. This
amendment defined any assistance in the form of subsidy, grant, cash
incentive, duty drawback, waiver, concession, or reimbursement provided
by the Central or State Government as income, hence taxable, unless used
to determine the actual cost of an asset. This amendment sought to end
disputes by making all subsidies taxable unless they fell under an exclusion
category;
22 There is very limited scope in challenge to constitutional
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validity. The fulcrum of the constitutional challenge is the question of
legislative competence. Every legislation is an experiment in achieving
certain desired ends and trial and error method is inherent in every such
experiment. The law is very clear 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 doctrine 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.
Every legislation particularly in economic matters cannot provide for all
possible situations or anticipate all possible abuses. As held in R. K. Garg
(Supra), every legislation particularly in economic matters is essentially
empiric and it is based on experimentation. There may be crudities,
inequities and even possibilities of abuse but on that account alone it
cannot be struck down as invalid. These can always be set right by the
legislature by passing amendments. The Court must therefore adjudge the
constitutionality of such legislation by the generality of its provisions. Laws
relating to economic activities should be viewed with greater latitude than
laws touching civil rights such as freedom of speech, religion etc. Moreover,
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. The legislature
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understands and correctly appreciates the needs of its own people, its laws
are directed to problems made manifest by experience and its
discrimination are based on adequate grounds. In adjudging
constitutionality the Court may take into consideration matters of common
knowledge, matters of common report, the history of the times and may
assume every state of facts which can be conceived existing at the time of
legislation. The Court must while examining the constitutional validity of a
legislation in economic matters "be resilient, not rigid, forward looking, not
static, liberal, not verbal". It must defer to legislative judgment in matters
relating to social and economic policies and must not interfere, unless the
exercise of legislative judgment appears to be palpably arbitrary. It would
be outside the province of the Court to consider if any particular immunity
or exemption is necessary or not for the purpose of inducing disclosure of
black money. The trial and error method is inherent in every legislative
effort to deal with an obstinate social or economic issue and if it is found
that any immunity or exemption granted under the Act is being utilised for
tax evasion or avoidance not intended by the legislature, the Act can always
be amended and the abuse terminated. Paragraphs 7, 8, 16 and 19 of R. K.
Garg (Supra) read as under :
7. Now while considering the constitutional validity of a statute
said to be violative of Article 14, it is necessary to bear in mind
certain well established principles which have been evolved by
the courts as rules of guidance in discharge of its constitutional
function of judicial review. The first rule is that there is always a
presumption in favour of the constitutionality of a statute and
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the burden is upon him who attacks it to show that there has
been a clear transgression of the constitutional principles. This
rule is based on the assumption, judicially recognised and
accepted, that the legislature understands and correctly
appreciates the needs of its own people, its laws are directed to
problems made manifest by experience and its discrimination
are based on adequate grounds. The presumption of
constitutionality is indeed so strong that in order to sustain it,
the court may take into consideration matters of common
knowledge, matters of common report, the history of the times
and may assume every state of facts which can be conceived
existing at the time of legislation.
8. 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 doctrine 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 deference to legislature 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. Dond 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
difference to legislative judgment. The legislature after all
has the affirmative responsibility. The courts have only the
power to destroy, not to reconstruct. 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 overruled by events-self-limitation can be seen to be
the path to judicial wisdom and institutional prestige and
stability.
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 adoption of remedy are
not always possible and that "judgment is largely a prophecy
based on meagre and un-interpreted experience". Every
legislation particularly in economic matters is essentially empiric
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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 abuses. There, may be
crudities and inequities in complicated experimental economic
legislation but on that account alone it cannot be struck down as
invalid. The courts cannot, as pointed out by the United States
Supreme Court in Secretary of Agriculture v. Central Reig
Refining Company 94 Lawyers Edition 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 essence of pragmatic approach which must guide
and inspire the legislature in dealing with complex economic
issues.
xxxxxxxxxxxxx
(16) xxxxxxxxxx. It must be remembered that every legislation
is an experiment in achieving certain desired ends and trial and
error method is inherent in every such experiment. Therefore,
when experience shows that the legislation as framed has
proved inadequate to achieve its purpose of mitigating an evil or
there are cracks and loopholes in it which are being taken
advantage of by the resourcefulness and ingenuity of those
minded to benefit themselves at the cost of the State or the
others, the legislature can and most certainly would intervene
and change the law. But the law cannot be condemned as
invalid on the ground that after a period of ten years it may lend
itself to some possible abuse.
xxxxxxxxxxxxx
(19) xxxxxxxxxx. It would be outside the province of the court
to consider if any particular immunity or exemption is necessary
or not for the purpose of inducing disclosure of black money.
That would depend upon diverse fiscal and economic
considerations based on practical necessity and administrative
expediency and would also involve a certain amount of
experimentation on which the Court would be least fitted to
pronounce. The court would not have the necessary competence
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and expertise to adjudicate upon such an economic issue. The
court cannot possibly assess or evaluate what would be the
impact of a particular immunity or exemption and whether it
would serve the purpose in view or not. There are so many
imponderables that would enter into the determination that it
would be wise for the court not to hazard an opinion where
even economists may differ. The court must while examining the
constitutional validity of a legislation of this kind, "be resilient,
not rigid, forward looking, not static, liberal, not verbal" and the
court must always bear in mind the constitutional proposition
enunciated by the Supreme Court of the United States in Munn
v. Illinois namely, "that courts do not substitute their social and
economic beliefs for the judgment of legislative bodies". The
court must defer to legislative judgment in matters relating to
social and economic policies and must not interfere, unless the
exercise of legislative judgment appears to be palpably arbitrary.
The court should constantly remind itself of what the Supreme
Court of the United States said in Metropolis Theater Co. v. City
of Chicago :
The problems of government are practical ones and may justify,
if they do not require, rough accommodations, illogical it may
be, and unscientific. But even such criticism should not be
hastily expressed. What is best is not always discernible, the
wisdom of any choice may be disputed or condemned. Mere
errors of government are not subject to our judicial review.
It is true that one or the other of the immunities or exemptions
granted under the provisions of the Act may be taken advantage
of by resourceful persons by adopting ingenious methods and
devices with a view to avoiding or saving tax. But that cannot be
helped because human ingenuity is so great when it comes to
tax avoidance that it would be almost impossible to frame tax
legislation which cannot be abused. Moreover, as already
pointed out above, the trial and error method is inherent in
every legislative effort to deal with an obstinate social or
economic issue and if it is found that any immunity or
exemption granted under the Act is being utilised for tax
evasion or avoidance not intended by the legislature, the Act
can always be amended and the abuse terminated. We are
accordingly of of the view that none of the provisions of the Act
is violative of Article 14 and its constitutional validity must be
upheld.
(emphasis supplied)
23 In Federation of Hotel and Restaurant (Supra), the Apex Court
held that the subject of a tax is different from the measure of the levy. The
measure of the tax is not determinative of its essential character or of the
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competence of the legislature. There has to be flexibility in the modes of
effectuating a tax in view of innate complexities in the fiscal adjustment of
diverse economic factors inherent in the formulation of a policy of taxation
and the variety of policy options open to the State. A fiscal statute or
provision, like any other statute, must not transgress the fundamental rights
enshrined in the Constitution. The doctrine of reasonableness and non-
arbitrariness encapsulated under Article 14 of the Constitution becomes a
touchstone for testing the validity of a fiscal statute. It is now well settled
that taxing laws are not outside Article 14. However, having regard to the
wide variety of diverse economic criteria that go into the formulation of a
fiscal policy, legislature enjoys a wide latitude in the matter of selection of
persons, subject matter, events, etc., for taxation. The tests of the vice of
discrimination in a taxing law are, accordingly, less rigorous. In examining
the allegations of a hostile, discriminatory treatment what is looked into is
not its phraseology, but the real effect of its provisions. If there is equality
and uniformity, within each group, the law would not be discriminatory.
Decisions of the judiciary on the matter have permitted the legislatures to
exercise an extremely wide discretion in classifying items for tax purposes,
so long as it refrains from clear and hostile discrimination against particular
persons or classes.
24 Therefore, though taxing laws are not outside Article 14,
however, having regard to the wide variety of diverse economic criteria that
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go into the formulation of a fiscal policy, legislature enjoys a wide latitude
in the matter of taxation. Legislative assumption cannot be condemned as
irrational. Judicial veto is to be exercised only in cases that leave no room
for reasonable doubt. Constitutionality is presumed. Every statute,
including fiscal statutes, comes with a presumption of constitutionality
unless proven otherwise. The onus falls on petitioner to demonstrate a
clear transgression of constitutional principles. In the realm of fiscal laws,
the presumption of constitutionality is particularly significant due to the
complex nature of economic regulation. Since these laws are instrumental
in the financial governance of the state and are often the outcome of
detailed economic planning and consideration, courts are inclined to
approach them with deference. Unless a fiscal statute is manifestly arbitrary
or discriminatory in its provisions or its operation, it is typically upheld.
This allows for a broad range of discretion for the legislature in determining
the classes of individuals or entities that are subject to or exempt from
taxation, as long as there is a rational basis for such a classification.
25 No precise or set formulae or doctrinaire tests or precise
scientific principles of exclusion or inclusion are to be applied. The test
could only be one of palpable arbitrariness applied in the context of the felt
needs of the times and societal exigencies informed by experience. The
Court has permitted the legislatures to exercise an extremely wide
discretion in classifying items for tax purposes, so long as it refrains from
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clear and hostile discrimination against particular persons or classes. In
examining the allegations of a hostile, discriminatory treatment what is
looked into is not its phraseology, but the real effect of its provisions. One
must look beyond the classification and to the purposes of the law.
Classifications based on differences in the value of articles or the economic
superiority of the persons of incidence are well recognised. A reasonable
classification is one which includes all who are similarly situated and none
who are not. Further, differentia must have a rational nexus with the object
sought to be achieved by the law. A taxing statute is not, per se, a restriction
of the freedom under Article 19(1)(g). The policy of a tax, in its
effectuation, might, of course, bring in some hardship in some individual
cases. But that is inevitable, so long as law represents a process of
abstraction from the generality of cases and reflects the highest common
factor. Then again, the mere excessiveness of a tax or even the circumstance
that its imposition might tend towards the diminution of the earnings or
profits of the persons of incidence does not, per se, and without more,
constitute violation of the rights under Article 19(1)(g).
26 The Apex Court, in Federation of Hotel and Restaurant
(Supra), in paragraphs 46 to 57, 62 and 77 held as under :
46. It is now well settled though taxing laws are not outside
Article 14, however, having regard to the wide variety of diverse
economic criteria that go into the formulation of a fiscal-policy
legislature enjoys a wide latitude in the matter of selection of
persons, subject-matter, events, etc., for taxation. The tests of
the vice of discrimination in a taxing law are, accordingly, less
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rigorous. In examining the allegations of a hostile,
discriminatory treatment what is looked into is not its
phraseology, but the real effect of its provisions. A legislature
does not as an old saying goes, have to tax everything in order
to be able to tax something. If there is equality and uniformity
within each group, the law would not be discriminatory.
Decisions of this Court on the matter have permitted the
legislatures to exercise an extremely wide discretion in
classifying items for tax purposes, so long as it refrains from
clear and hostile discrimination against particular persons or
classes.
47. But, with all this latitude certain irreducible desiderata of
equality shall govern classifications for differential treatment in
taxation laws as well. The classification must be rational and
based on some qualities and characteristics which are to be
found in all the persons grouped together and absent in the
others left out of the class. But this alone is not sufficient.
Differentia must have a rational nexus with the object sought to
be achieved by the law. The State, in the exercise of its
Governmental power, has, of necessity, to make laws operating
differently in relation to different groups or class of persons to
attain certain ends and must, therefore, possess the power to
distinguish and classify persons or things. It is also recognised
that no precise or set formulae or doctrinaire tests or precise
scientific principles of exclusion or inclusion are to be applied.
The test could only be one of palpable arbitrariness applied in
the context of the felt needs of the times and societal exigencies
informed by experience.
48. Classifications based on differences in the value of articles or
the economic superiority of the persons of incidence are well
recognised. A reasonable classification is one which includes all
who are similarly situated and none who are not. In order to
ascertain whether persons are similarly placed, one must look
beyond the classification and to the purposes of the law.
49. In Jaipur Hosiery Mills Ltd. v. State of Rajasthan, a
notification under the Rajasthan Sales-tax Act, 1950, exempting
from tax the sale of garments which did not exceed Rs.4 per
piece was assailed. This court found the classification
permissible. It was held :
"..... it has to be borne in mind that in matters of taxation
the Legislature possesses the large freedom in the matter
of classification. Thus wide discretion can be exercised in
selecting persons or objects which will be taxed and the
statute is not open to attack on the mere ground that it
takes some persons or objects and not others. It is only
when within the range of its selection the law operates
unequally and cannot be justified on the basis of a valid
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classification that there would be a violation of Article 14."
50. In Hira Lal Rattan Lal v. State of UP this Court said :
" .... it is open to the legislature to define the nature of the
goods, the sale or purchase of which should be brought to
tax. Legislature was not incompetent to separate the
processed or split pulses from the unsplit or unprocessed
pulses and treat the two as separate and independent
goods."
"..... But the legislature has wide powers of classification in
the case of taxing statutes."
"..... The classification between the processed or split
pulses and unprocessed or unsplit pulses is a reasonable
classification. It is based on the use to which those goods
can be put. Hence, in our opinion, the impugned
classification is not violative of Article 14."
51. In State of Gujarat v. Sri Ambika Mills Ltd., Mathew J. said :
"Statutes are directed to less than universal situations.
Law reflects distinction that exist in fact or at least appear
to exist in the judgment of legislators - those who have the
responsibility for making law fit fact. Legislation is
essentially empiric. It ad- dresses itself to the more or less
crude outside world and not to the neat, logical models of
the mind. Classification is inherent in legislation. To
recognize marked differences that exist in fact is living
law; to disregard practical differences and concentrate on
some abstract identities is lifeless logic."
and concluded
"In the utilities, tax and economic regulation cases, there
are good reasons for judicial self-restraint if not judicial
deference to legislative judgment. The legislature after all
has the affirmative responsibility. The Courts have only the
power to destroy, not to reconstruct. 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 overruled by events - self-limitation can be seen to be
the path to judicial wisdom and institutional prestige and
stability."
52. In G.K. Krishnan v. Tamil Nadu, Mathew J. referred to the
following observations of the Supreme Court of U.S.A. in San
Antonio School District v. Rodrigues :
"Thus we stand on familiar ground when we continue to
acknowledge that the Justices of this Court lack both the
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expertise and the familiarity with local problems so
necessary to the making of wise decisions with respect to
the raising and disposition of public revenues. Yet, we are
urged to direct the States either to alter, drastically the
present system or to throw out the property tax altogether
in favour of some other form of taxation. No scheme of
taxation, whether the tax is imposed on property, income,
or purchases of goods and services, has yet been devised
which is free of all discriminatory impact. In such a
complex arena in which no perfect alternatives exist, the
Court does well not to impose too rigorous a standard of
scrutiny lest all local fiscal schemes become subjects of
criticism under the Equal Protection Clause."
53. In I.T.O. v. N. Takim Roy Rymbai it was held :
"..... Given legislative competence, the legislature has
ample freedom to select and classify persons, districts,
goods, properties, incomes and objects which it would tax,
and which it would not tax. So long as the classification
made within this wide and flexible range by a taxing
statute does not transgress the fundamental principles
underlying the doctrine of equality, it is not vulnerable on
the ground of discrimination merely because it taxes or
exempts from tax some incomes or objects and not others.
Nor the mere fact that tax falls more heavily on some in
the same category, is by itself a ground to render the law
invalid. It is only when within the range of its selection,
the law operates unequally and cannot be justified on the
basis of a valid classification, that there would be a
violation of Article 14."
54. In the present case, the bases of classification cannot be said
to be arbitrary or unintelligible nor as being without a rational
nexus with the object of the law. A hotel where a unit of
residential accommodation is priced at over Rs.400 per day per
individual is, in the legislative wisdom, considered a class apart
by virtue of the economic superiority of those who might enjoy
its custom, comforts and services. This legislative assumption
cannot be condemned as irrational. It is equally well recognised
that judicial veto is to be exercised only in cases that leave no
room for reasonable doubt. Constitutionally is presumed. These
words of James Bradley Thayer may be recalled :
"This rule recognizes that, having regard to the great,
complex ever-unfolding exigencies of government, much
which will seem unconstitutional to one man, or body of
men, may reasonably not seem so to another; that the
constitution often admits of different interpretations; that
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there is often a range of choice and judgment; that in such
cases the constitution does not impose upon the
legislature any one specific opinion, but leaves open this
range of choice; and that whatever choice is rational is
constitutional."
55. Thayer also referred to the words of a Chief Justice of
Pennsylvania way back in 1811 which are also worth recalling :
"For weighty reasons, it has been assumed as a principle in
constitutional construction by the Supreme Court of the
United States, by this court, and every other court of
reputation in the United States, that an Act of the
legislature is not be declared void unless the violation of
the constitutional is so manifest as to leave no room for
reasonable doubt."
56. In Secretary of Agriculture v. Central Roig Refining Co., the
Supreme Court of USA said :
"..... This court is not a tribunal for relief for crudities and
inequities of complicated experimental economic
legislation."
57. In Hoechst Pharmaceuticals Ltd. v. State of Bihar it was
observed :
"..... On questions of economic regulations and related
matters, the court must defer to the legislative-judgment.
When the power to tax exists, the extent of burden is a
matter for the discretion of the law-makers. It is not the
function of the Court to consider the propriety or justness
of the tax or enter upon the reality of Legislative policy. If
the evident intent and general operations of the tax
legislation is to adjust the burden with a fair reasonable
degree of equality, the constitutional requirement is
satisfied ....."
xxxxxxxxxxxxxx
62. A taxing statute is not, per se, a restriction of the freedom
under Article 19(1)(g). The policy of a tax, in its effectuation,
might, of course, bring in some hardship in some individual
cases. But that is inevitable, so long as law represents a process
of abstraction from the generality of cases and reflects the
highest common-factor. Every cause, it is said, has its martyrs.
Then again, the mere excessiveness of a tax or even the
circumstances that its imposition might tend towards the
diminution of the earnings or profits of the persons of incidence
does not, per se, and without more, constitute violation of the
rights under Article 19(1)(g). Fazal Ali J., though in a different
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con- text, in Sonia Bhatia v. State of U.P. & Ors., observed :
"..... The Act seems to implement one of the most
important constitutional directives contained in Part IV of
the Constitution of India. If in this process a few
individuals suffer severe hardship that cannot be helped,
for individual interests must yield to the larger interests of
the community or the country as indeed every noble cause
claims its martyr."
xxxxxxxxxxxxxx
77. There is also no established legislative practice which would
enable one to limit the concept of an expenditure tax in the
manner suggested. So far as expenditure tax is concerned, the
only legislation earlier in force was the 1957 Act which was in
force for a period of eight years. Such short lived legislation can
hardly furnish the foundation of an argument to limit the scope
of legislative power to the manner in which it was exercised
under that enactment. If, after withdrawing this legislation,
Parliament considered that it was not worthwhile or possible to
impose a tax on all expenditure and that it would be sufficient,
expedient or necessary to impose such a levy only on lavish
spending in certain directions, that cannot certainly be
precluded on any theory of established legislative practice, as
was done in State of Madras v. Gannon Dunkerley Co., in
respect of sales tax. In that case the legislative trend prevalent
over decades was relied upon in interpreting the expression
"sale of goods" used in the Constitution. But there the Court was
concerned with a legal term, "sale", which had acquired a
definite connotation in law and in legislative instruments and
that analogy cannot be availed of to interpret the scope of Entry
97. On the other hand, even a fairly long-established legislative
practice under which income tax levy by the Centre was
restricted to items of income stricto sensu (as contrasted with
capital gains) was not considered sufficient to place that type of
restriction on the interpretation of the expression "taxes on
income" used in the Central Legislative List: vide, Navinchanda
Mafat Lal v. CIT. Not only that, the validity of later definitions of
"income" under the Income-tax Act which have a much wider
ambit has been upheld as covered by the above legislative entry.
See, in this context, the decisions in Naynit Lal v. AAC, Bhargava
v. Union, and Bhagwandas v. Union. There is not even that much
of legislative practice, so far as expenditure tax is concerned,
which would justify our importing any limitation on the concept
of a "tax on expenditure" under Entry 97 of List I. A perusal of
the decision of this Court upholding the validity of the 1957 Act
Azam Jha's case, does not also justify the reading in of any such
limitation. The wider coverage of the tax made it easier for the
Court to pin point its subject matter as "expenditure" and to
treat it as a matter falling under the residuary entry, but it does
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not justify the inference sought to be drawn that a tax cannot be
said to be a tax with reference to "expenditure" because it does
not tax expenditure in general but confines itself to certain types
or categories of expenditure. Once it is granted that the tax need
not exhaust the entire universe of the subject-matter, the extent
of the subject matter that should be covered or selected for
imposing tax should be entirely left to Parliament. subject only
to any criteria of discrimination or unreasonableness that may
attract the provisions of Part III of the Constitution.
(emphasis supplied)
27 The domain of economic and fiscal policy formulation is
primarily vested in the legislature and the executive. The judiciary's role is
limited to ensuring conformity with the Constitution without delving into
the policy merits. Furthermore, this presumption ensures stability and
predictability in fiscal policies, which are essential for economic growth and
development. Overturning fiscal statutes could lead to economic chaos and
undermine the authority of the legislative body. Therefore, Courts must
balance the necessity to uphold constitutional mandates with the practical
implications of interfering with legislative judgments in fiscal matters. In
the utilities, tax and economic regulation cases, there are good reasons for
judicial self restraint if not judicial deference to legislative judgment. The
legislature after all has the affirmative responsibility. The courts have only
the power to destroy, not to reconstruct. 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 overruled by events - self-limitation can be seen to be the path to
judicial wisdom and institutional prestige and stability.
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The Apex Court, in State of Himachal Pradesh (Supra) in
paragraphs 27 to 30, held as under :
27. It is by now well settled that any tax legislation may not be
easily interfered with. The Courts must show judicial restraint to
interfere with tax legislation unless it is shown and proved that
such taxing statute is manifestly unjust or glaringly
unconstitutional. Taxing statutes cannot be placed or tested or
viewed on the same principles as laws affecting civil rights such
as freedom of speech, religion, etc. The test of taxing statutes
would be viewed on more stringent tests and the law makers
should be given greater latitude. It would be useful to refer to a
couple of judgments on the above proposition.
28. In the case of R.K. Garg etc. vs. Union of India and others,
(1981) 4 SCC 675, the Constitution Bench was judging the
constitutionality of economic legislation wherein challenge was
to the validity of the provisions of Special Bearer Bonds
(Immunities and Exemption Act, 1981) on the grounds of
discrimination and violation of Article 14. P.N. Bhagwati J.,
speaking for himself, Chief Justice Chandrachud, A.C. Gupta, S.
Murtaza Fazal Ali and A.N. Sen, J.J., observed in paragraph 7
regarding the presumption in favour of constitutionality of the
statute and that the burden is on the person who attacks it, to
establish that there has been clear transgression of the
constitutional principles. In paragraph 8, it was laid down that
laws relating to economic activities should be viewed with
greater latitude than laws touching civil rights such as freedom
of speech, religion, etc. The views of Justice Frankfurter in the
case of Morey vs. Doud, 354 US 457 was relied upon. The same
is reproduced hereunder :
"In the utilities, tax and economic regulation cases, there
are good reasons for judicial self-restraint if not judicial
deference to legislative judgment. The legislature after all
has the affirmative responsibility. The courts have only the
power to destroy, not to reconstruct. 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 overruled by events - self-limitation can be seen to be
the path to judicial wisdom and institutional prestige and
stability."
29. In case of Bhavesh D. Parish and others vs. Union of India
and another, (2000) 5 SCC 471, the challenge was to the validity
of section 9 of Reserve Bank of India Act as amended by the
Amendment Act 1997 on the ground that it was violative of
Article 14 and Article 19(1)(g) of the Constitution. This Court
dismissed the challenge to the said provision in paragraph 26 of
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the report. It observed that matters of economic policy should be
best left to the wisdom of the legislature. Further, it went on to
state that in the context of a changed economic scenario the
expertise of the people dealing with the subject should not be
lightly interfered with. It was also observed that while dealing
with economic legislation, this court would interfere only in
those few cases where the view reflected in the legislation is not
possible to be taken at all.
30. In the case of Indian Oil Corporation Limited vs. State of
Bihar and another, (2018) 1 SCC 242, provisions of the Bihar Tax
on Entry of Goods into Local Areas for Consumption, Use or Sale
therein Act 1993, was under challenge. Justice Nariman
speaking for the Bench observed in paragraph 25 that when it
comes to taxing statute, the law laid down by this Court is clear
that it can be said to be breach only when there is perversity or
gross disparity resulting in clear and hostile discrimination
without any rational justification for the same.
(emphasis supplied)
28 It was submitted on behalf of petitioner that the test of
manifest arbitrariness was a ground to invalidate even the primary
legislation and Mr. Datar relied upon Shayara Bano V/s. Union of India22
and In Re Natural Resources Allocation23. According to petitioner, the
impugned Section is liable to be struck down as manifestly arbitrary. There
is nothing to indicate that there was anything arbitrary in introduction of
the impugned sub-clause. We do not find that the sub-clause suffered from
the vice of discrimination. All have been treated with equality and
uniformity. There is no discrimination against any particular persons or
classes.
29 As held by the Apex Court in Union of India V/s. Exide
Industries Limited and Anr.24 relied upon by the ASG, the approach of the
22. 1981 (4) SCC 675
23. 1989 (3) SCC 634
24. 2020 (5) SCC 274
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Court in testing the constitutional validity of a provision is well settled and
the fundamental concern of the Court is to inspect the existence of enacting
power and once such power is found to be present, the next examination is
to ascertain whether the enacted provision impinges upon any right
enshrined in Part III of the Constitution. In the present case, the legislative
power of the Parliament to enact sub-clause in the light of Article 245 of the
Constitution is not doubted at all.
Now to the next step of examination, i.e., whether the said
clause contravenes any right enshrined in Part III of the Constitution, either
in its form, substance or effect. It is no more res integra that the
examination of the Court begins with a presumption in favour of
constitutionality. This presumption is not just borne out of judicial discipline
and prudence, but also out of the basic scheme of the Constitution wherein
the power to legislate is the exclusive domain of the legislature/Parliament.
This power is clothed with power to decide when to legislate, what to
legislate and how much to legislate. Thus, to decide the timing, content and
extent of legislation is a function primarily entrusted to the legislature and
in exercise of judicial review, the Court starts with a basic presumption in
favour of the proper exercise of such power. The process of testing validity
is not to sneak into the prudence or proprieties of the legislature in enacting
the impugned provision. Nor, is it to examine the culpable conduct of the
legislature as an appellate authority. The only examination of the Court is
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restricted to the finding of a constitutional infirmity in the provision, as is
placed before the Court. In the absence of any finding of any constitutional
infirmity in a provision, the Court is not empowered to invalidate a
provision. The raison d'être behind this self-imposed restriction is because
of the fundamental reason that different organs of the State do not
scrutinise each other's wisdom in the exercise of their duties. The time-
tested principle of checks and balances does not empower the Court to
question the motives or wisdom of the legislature, except in circumstances
when the same is demonstrated from the enacted law. The approach of
constitutional Courts ought to be different while dealing with fiscal statutes.
It is trite that the legislature is the best forum to weigh different problems
in the fiscal domain and form policies to address the same including to
create a new liability, exempt an existing liability, create a deduction or
subject an existing deduction to new regulatory measures. In the very
nature of taxing statutes, the legislature holds the power to frame laws to
plug in specific leakages. "Such laws are always pin-pointed in nature and
are only meant to target a specific avenue of taxability depending upon the
experiences of tax evasion and tax avoidance at the ground level". The
general principles of exclusion and inclusion does not apply to taxing
statutes with the same vigour unless the law reeks of constitutional
infirmities. No doubt, fiscal statutes must comply with the tenets of the
Constitution. However, a larger discretion is given to the legislature in
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statutes than in other spheres. Paragraphs 15 to 17, 36, 37 and 44 of Exide
Industries Limited and Anr. (Supra) read as under :
15. The approach of the Court in testing the constitutional
validity of a provision is well settled and the fundamental
concern of the Court is to inspect the existence of enacting
power and once such power is found to be present, the next
examination is to ascertain whether the enacted provision
impinges upon any right enshrined in Part III of the
Constitution. Broadly speaking, the process of examining
validity of a duly enacted provision, as envisaged under Article
13 of the Constitution, is premised on these two steps. No
doubt, the second test of infringement of Part III is a deeper test
undertaken in light of settled constitutional principles. In State
of Madhya Pradesh vs. Rakesh Kohli & Anr., this Court observed
thus :
"17. This Court has repeatedly stated that legislative
enactment can be struck down by Court only on two
grounds, namely (i) that the appropriate legislature does
not have competence to make the law, and (ii) that it does
not take away or abridge any of the fundamental rights
enumerated in Part III of the Constitution or any other
constitutional provisions....".
The above exposition has been quoted by this Court with
approval in a catena of other cases including Bhanumati & Ors.
vs. State of Uttar Pradesh & Ors., State of Andhra Pradesh &
Ors. vs. Mcdowell & Co. & Ors. and Kuldip Nayar & Ors. vs.
Union of India & Ors., to state a few.
16. In furtherance of the twofold approach stated above, the
Court, in Rakesh Kohli (supra) also called for a prudent
approach to the following principles while examining the
validity of statutes on taxability :
"32. While dealing with constitutional validity of a
taxation law enacted by Parliament or State Legislature,
the court must have regard to the following principles :
(i) there is always presumption in favour of
constitutionality of a law made by Parliament or a State
Legislature,
(ii) no enactment can be struck down by just saying that it
is arbitrary or unreasonable or irrational but some
constitutional infirmity has to be found,
(iii) the court is not concerned with the wisdom or
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unwisdom, the justice or injustice of the law as Parliament
and State Legislatures are supposed to be alive to the
needs of the people whom they represent and they are the
best judge of the 5 (2010) 12 SCC 1 6 (1996) 3 SCC 709 7
(2006) 7 SCC 1 community by whose suffrage they come
into existence,
(iv) hardship is not relevant in pronouncing on the
constitutional validity of a fiscal statute or economic law,
and
(v) in the field of taxation, the legislature enjoys greater
latitude for classification....."
17. In the present case, the legislative power of the Parliament
to enact clause (f) in the light of Article 245 is not doubted at
all. That brings us to the next step of examination i.e. whether
the said clause contravenes any right enshrined in Part III of the
Constitution, either in its form, substance or effect. It is no more
res integra that the examination of the Court begins with a
presumption in favour of constitutionality. This presumption is
not just borne out of judicial discipline and prudence, but also
out of the basic scheme of the Constitution wherein the power
to legislate is the exclusive domain of the Legislature/
Parliament. This power is clothed with power to decide when to
legislate, what to legislate and how much to legislate. Thus, to
decide the timing, content and extent of legislation is a function
primarily entrusted to the legislature and in exercise of judicial
review, the Court starts with a basic presumption in favour of
the proper exercise of such power.
xxxxxxxxxx
36. The process of testing validity is not to sneak into the
prudence or proprieties of the legislature in enacting the
impugned provision. Nor, is it to examine the culpable conduct
of the legislature as an appellate authority over the legislature.
The only examination of the Court is restricted to the finding of
a constitutional infirmity in the provision, as is placed before the
Court. Thus, the nondisclosure of objects and reasons per se
would not impinge upon the constitutionality of a provision
unless the provision is ambiguous and the possible
interpretation violate Part III of the Constitution. In the absence
of any finding of any constitutional infirmity in a provision, the
Court is not empowered to invalidate a provision.
37. To hold a provision as violative of the Constitution on
account of failure of the legislature to state the objects and
reasons would amount to an indirect scrutiny of the motives of
the legislature behind the enactment. Such a course of action, in
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our view, is unwarranted. The raison d'etre behind this self
imposed restriction is because of the fundamental reason that
different organs of the State do not scrutinise each other's
wisdom in the exercise of their duties. In other words, the time
tested principle of checks and balances does not empower the
Court to question the motives or wisdom of the legislature,
except in circumstances when the same is demonstrated from
the enacted law.
xxxxxxxxxx
44. Before stepping into the next ground, we are inclined to
observe that the approach of constitutional courts ought to be
different while dealing with fiscal statutes. It is trite that the
legislature is the best forum to weigh different problems in the
fiscal domain and form policies to address the same including to
create a new liability, exempt an existing liability, create a
deduction or subject an existing deduction to new regulatory
measures. In the very nature of taxing statutes, legislature holds
the power to frame laws to plug in specific leakages. Such laws
are always pinpointed in nature and are only meant to target a
specific avenue of taxability depending upon the experiences of
tax evasion and tax avoidance at the ground level. The general
principles of exclusion and inclusion do not apply to taxing
statutes with the same vigour unless the law reeks of
constitutional infirmities. No doubt, fiscal statutes must comply
with the tenets of Article 14. However, a larger discretion is
given to the legislature in taxing statutes than in other spheres.
In Anant Mills Co. Ltd. vs. State of Gujarat & Ors. 16, this Court
noted thus :
"25. ...But, in the application of the principles, the courts,
in view of the inherent complexity of fiscal adjustment of
diverse elements, permit a larger discretion to the
legislature in the matter of classification so long as it
adheres to the fundamental principles underlying the said
doctrine. The power of the Legislature to classify is of
wide range and flexibility so that it can adjust its system of
taxation in all proper and reasonable ways..."
Viewed thus, the reason weighed with the Division Bench of the
High Court in the impugned judgment is untenable.
(emphasis supplied)
30 In Malwa Bus Service (Private) Limited and Ors. V/s. State of
Punjab and Ors.25, the Court held in paragraph 21 as under :
25. (1983) 3 SCC 237
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21. xxxxxxxxxxxxxx even a fiscal legislation is subject to Article
14 of the Constitution. But it is well settled that a 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 of taxation cannot be termed as being discriminatory
because different rates of taxation are prescribed in respect of
different items provided it is impossible 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 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. xxxxxxxxxxxx
(emphasis supplied)
31 The Constitution safeguards the right to trade under Article
19(1)(g) but does not extend this protection to the right to profit.
Petitioners have stated that there is no pleaded case of hardship but are
only aggrieved by the impugned amendment order which destroys the
distinction between capital and revenue subsidies. In addressing the
contention raised by petitioner, it is imperative to decipher the essence of
the argument concerning the taxation of subsidies and concessions under
Section 2(24)(xviii) of the Act. Petitioner assert that such taxation
effectively nullifies the distinction between capital and revenue subsidies,
leading to the erosion of what they perceive as a benefit or savings.
However, this line of reasoning appears to combine the concept of fiscal
incentive with absolute fiscal immunity. Subsidies and concessions are
inherently designed to stimulate certain economic activities or to steer the
economy in a desired direction. They are not, however, intended to serve as
permanent fixtures beyond the scope of taxation, especially when such
benefits have fulfilled their economic purpose. The imposition of tax on
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these subsidies under the amended provision does not constitute "taking
away" of a benefit but rather represents a recalibration of fiscal advantages
in line with broader economic and policy considerations. Profits, by their
nature, are subject to fluctuations resulting from various factors, taxation
being but one. It is the duty of the legislature to ensure that taxation policy
reflects a balance between incentivizing economic activity and ensuring the
equitable distribution of fiscal resources. Section 2(24)(xviii) of the Act is
an example of this balancing act, and its imposition is a reflection of a
subsidy's life cycle coming to its fiscal fruition. Petitioner's argument,
is ostensibly rooted in concerns over profitability. This does not, in
substance, however, provide a tenable basis to impugn the constitutional
validity of the amended provision. Hence, petitioner's argument of eroded
profitability due to taxation lacks constitutional merit. An extension of this
logic could open floodgates of untenable demands from loss-incurring
entities seeking tax exemptions to improve profitability. This could
potentially create a taxing standard that is inconsistent and prone to
manipulations;
In Nazeria Motor Service etc. (Supra), the Apex Court held that
even on the assumption that the profits would be diminished or greatly
reduced, it cannot be held that there is any infringement of Article 19(1)(g)
under Part III of the Constitution of India. Paragraphs 7 and 8 of the said
judgment read as under :
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7. It has not been contended on behalf of the State that the
impugned Validating Act imposes a tax which is by way of a
regulatory or compensatory measure. It has, therefore, to be
seen whether the restrictions imposed are reasonable and in
public interest within the meaning of Article 304(b). Before the
High Court an attempt was made on behalf of the appellants to
show that by raising the rate of tax the burden had been
increased to such an extent that the business of the appellants
had been virtually annihilated. According to some of the
affidavits filed on behalf of the writ petitioners, profits derived
in recent years did not exceed an average of Rs.2,000/- per
stage carriage even without the additional burden which had
been imposed and the transporters would suffer heavy losses if
the tax as increased by the impugned legislation were to be
realized. The High Court referred to the computation of the
income by the Income tax department of some of the
transporters in whose assessments the income in regard to each
bus had been calculated at a figure of Rs.7,000/- annually,
which showed that the profits were much higher than
Rs.2,000/-. It was not disputed before the High Court that the
transporters had been permitted to enhance the fares. If the
fares could be enhanced it was obvious that the burden would
not fail on the transporters. It was urged that owing to
competition from the railways and from operators whose
vehicles had been registered in the Madras State and who could
charge lower rates the appellants were not in a position to
collect extra fares which they had been permitted to do. This
argument also cannot hold and was rightly repelled by the High
Court on the ground that if the operators were not prepared to
charge higher rates as a matter of policy or for the purpose of
business competition that could not impinge on the
reasonableness of the restriction. Apart from a faint attempt to
repeat some of the arguments which were addressed before the
High Court on this point nothing new has been brought to our
notice which would justify the view that the tax which has been
imposed exceeds the limits of permissible reasonableness. As
regards public interest we are unable to find nor has any
attempt been made to satisfy us that the provisions of the
impugned Validating Act with regard to imposition of tax are
not in public interest.
8. This is sufficient to dispose of the challenge under Article
19(1)(g), as well. We may in this connection refer briefly to the
conclusion of the High Court which was reached on a
consideration of the affidavits filed before it. It has been found
that there is no material which would warrant the conclusion
that the increase in the surcharge of the fares and freight
contemplated by the impugned Validating Act would constitute
an impediment to the trade. The utmost that could be said was
that it would result in the diminution of profits. Even on the
assumption that the profits would be diminished or greatly
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reduced it cannot be held that there is any infringement of
Article 19(1)(g).
(emphasis supplied)
32 Taxation is an economic reality that every business entity must
contend with. The interplay between taxation and profitability is a complex
one, subject to numerous variables beyond merely the taxation of subsidies.
The mere fact that a tax falls more heavily on certain goods or persons may
not result in its invalidity. The policy of a tax, in its effectuation, might, of
course, bring in some hardship in some individual cases. But that is
inevitable, so long as law represents a process of abstraction from the
generality of cases and reflects the highest common factor. Every cause, it is
said, has its martyrs. Then again, the mere excessiveness of a tax or even
the circumstance that its imposition might tend towards diminution of the
earnings or profits of the persons of incidence, like in the case at hand -
savings get reduced resulting in lower profitability, does not, per se, and
without more, constitute violation of the rights under Part III of
Constitution of India.
33 The chronology of events is pivotal in assessing the merits of
petitioner's arguments against the constitutional validity of Section 2(24)
(xviii) of the Act. When petitioner applied for the subsidy, the amendment
to the Act specifically the inclusion of sub-clause (xviii) to Section 2(24),
had been in effect for more than two years. This timeline is not merely
incidental but is of substantive significance for several reasons. Firstly,
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petitioner, being engaged in business activities, is presumed to have
conducted due diligence and engaged in careful planning, which would
undoubtedly include an assessment of tax implications on all fiscal benefits,
including subsidies. The amendment was public knowledge, and the
implications of the inclusion of subsidies within the ambit of taxable income
were clear and unambiguous. Therefore, petitioner, at the time of
application, was having full knowledge or ought to have had full knowledge
of the tax treatment of such subsidies post-amendment. Secondly, the act of
applying for a subsidy after the amendment came into force indicates an
acceptance of the prevailing tax regime. It is reasonable to infer that by
choosing to partake in the subsidy scheme, petitioner implicitly
acknowledged and consented to the accompanying tax obligations as
legislated by the amendment. Thirdly and furthermore, it is a well-settled
principle that ignorance of the law is no excuse. Petitioner cannot claim
ignorance of the amendment or its implications. The legislative change was
not done surreptitiously but was the result of a transparent legal process,
providing ample opportunity for all stakeholders to acquaint themselves
with the new provisions.
34 As regards Mr. Datar's submissions that the parliament to
remove the basis of the Hon'ble Supreme Court rulings on subsidies should
have done it by a suitable explanation and not by the impugned sub clause,
it is settled law as held in Hindustan Gum and Chemicals Ltd. vs. State of
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Haryana and Ors.26 that it is permissible for a competent Legislature to
overcome the effect of a decision of a Court setting aside imposition of tax
by passing a suitable legislation, by amending the relevant provisions of the
statute concerned with retrospective effect, thus taking away the basis on
which the decision of the Court had been rendered and by enacting an
appropriate provision validating the levy and collection of tax made before
the decision in question was rendered.
35 As stated earlier, it should be left to the wisdom of the
Legislature to decide whether there should be an amendment or
explanation.
36 We are unable to find or even assume that what the legislature
has done for inserting the impugned sub-clause is irrational. There is no
room for any doubt. There is nothing to even question the constitutionality
and in our view petitioner has not been able to demonstrate a clear
transgression of constitutional principles. The nature of economic
regulation is complex. The fiscal laws are instrumental in the financial
governance of the state and are outcome of detailed economic planning and
consideration.
37 Undoubtedly, the power to tax exists and the extent of burden
is a matter for the discretion for the law makers. It is not the function of
the court to consider the propriety or justness of the tax or enter upon the
26. (1985) 4 SCC 124
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reality of legislative policy. If the evident intent and general operations of
the tax legislation is to adjust the burden with a fair reasonable degree of
equality, the constitutional requirement is satisfied.
38 The policy of tax in its effectuation, might, of course, bring in
some hardship in some individual cases. That is, inevitable. Every cause, it is
said, has its martyrs. Mere excessiveness of a tax or even the circumstances
that its imposition might tend towards the diminution of the earnings or
profits of petitioner, per se and cannot constitute violation of constitutional
rights. If in the process a few individuals suffer severe hardship that cannot
be helped, for individual interests must yield to the larger interests of the
community or the country as indeed every noble cause claims its martyr.
39 As submitted correctly by the ASG, the judicial invalidation of
this provision would precipitate not merely a legal conundrum but a fiscal
catastrophe with far-reaching consequences. A retrospective annulment of
this provision would cause a state of chaotic disarray. Individuals and
entities that have availed of subsidies and concessions and complied with
the tax obligations thereof stand to face an untenable situation. They have
acted in good faith under the existing legislative policy, and to dismantle
this retrospectively would be to penalize compliance and create an
environment of uncertainty and unpredictability in tax matters. Moreover,
such a judicial step would likely instigate a flood of claims and litigations
for refund of taxes paid under the provision, straining the administrative
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machinery and judicial resources. This would not only disrupt the revenue
stream but also place an undue burden on the exchequer. Hence we are not
inclined to strike down Section 2(24)(xviii).
40 In Bhagwan Dass Jain V/s. Union of India and Ors. 27, relied
upon by ASG, the short question that arose for consideration was whether it
was open to the Revenue to include in the income of the assessee any
amount calculated in accordance with Section 23(2) of the Act in respect of
a house in the occupation of the assessee for the purposes of his own
residence. The assessee contended that inclusion of any amount under
Section 23(2) of the Act in his income was unconstitutional as there could
be no income at all in such a case accruing to him in the true sense of that
term. The liability that was sought to be imposed under the Act in respect
of his residential house was, therefore, in its pith and substance a tax on
building falling under Entry 49 of List II of the Seventh Schedule to the
Constitution and hence, Parliament could not impose the said liability under
a law made in exercise of its legislative power under Entry 82 of List I of the
Seventh Schedule to the Constitution which authorised it only to levy taxes
on income other than agricultural income. The argument made by the
assessee was that as assessee is not deriving any monetary benefit by
residing in his own house, no tax can be levied on him on the ground that
he is deriving income from that house. It was contended that the word
27. (1981) 2 SCC 135
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"income" only means realisation of monetary benefit and that in the
absence of any such realisation by the assessee, the inclusion of any amount
by way of notional income under Section 23(2) of the Act in the chargeable
income was impermissible as it was outside the scope of Entry 82 of List I of
the Seventh Schedule to the Constitution. The court held, words in the
Constitution conferring legislative power should receive a liberal
construction and should be interpreted in their widest amplitude. The word
"income" in Entry 82 is capable of a wider meaning than what was given to
it in the Indian Income Tax Act, 1922 or the English Act of 1918 and
includes all items which were taxable under the contemporaneous law
relating to tax on incomes which was in force at the time when the
Constitution was enacted. The Court held that even in its ordinary
economic sense, the expression "income" include not merely what is
received or what comes in by exploiting the use of a property but also what
one saves by using it oneself. That which can be converted into income can
be reasonably regarded as giving rise to income. Paragraphs 5, 6, 13 and 14
of the said judgment read as under :
5. Entry 82 of List I of the Seventh Schedule to the Constitution
empowers Parliament to levy 'taxes on income other than
agricultural income'. Now it is well-settled that the entries in the
list in the Seventh Schedule to the Constitution should not be
read in a narrow or restricted sense and each and every subject
mentioned in the entries should be read as including within its
scope all ancillary and subsidiary matters which can fairly and
reasonably be comprehended in it. Words in the Constitution
conferring legislative power should receive a liberal construction
and should be interpreted in their widest amplitude.
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6. The expression 'income' according to Oxford Dictionary
means 'a thing that comes in'. Income may also be defined as the
gain derived from land, capital or labour or any two or more of
them.
xxxxxxxxxx
13. There is one other circumstance which persuades us to take
the view that computation of income for purposes of levy of
income tax in accordance with section 23(2) of the Act is
justifiable under Entry 82 of List I of the Seventh Schedule to
the Constitution. It is to be borne in mind that the Government
of India Act, 1935 was enacted when the Indian Income-tax Act,
1922 was in force. Section 9 of the Indian Income-tax Act, 1922
provided for levy of income tax on the basis of the bona fide
annual value of the property even when it was in the occupation
of the assessee for the purposes of his own residence. While
enacting entry 54 of list I of the Seventh Schedule to the
Government of India Act, 1935, the British Parliament must
have had in its view the Indian Income-tax Act, 1922 which was
probably the only law relating to tax on incomes in force in
British India then. Similarly the Constituent Assembly while
enacting Entry 82 of List I of the Seventh Schedule to the
Constitution must have understood that the word 'income' used
in that Entry would in any event include within its scope all
items which came within the definition of income and were
subjected to charge in the Indian Income-tax Act, 1922 which
was in force at the time the Constitution was adopted. That the
Constitution makers had the Indian Income- tax Act, 1922 in
their view is borne out from Article 270(1) of the Constitution
which provides for collection of taxes on income by the
Government of India and distribution thereof between the
Union and the States, Article 366(1) which defines 'agricultural
income' as agricultural income as defined for the purposes of the
enactments relating to Indian Income-tax and Article 366(29)
which defines 'tax on income' as including a tax in the nature of
an excess profits tax. In the circumstances it would not be
wrong to construe the word 'income' in Entry 82 as including all
items which were taxable under the contemporaneous law
relating to tax on incomes which was in force at the time when
the Constitution was enacted when as observed by this Court in
the case of Navinchandra Mafatlal (supra) the word 'income' in
Entry 82 is capable of a wider meaning than what was given to
it in the Indian Income-tax Act, 1922 or the English Act of 1918.
14. Even in its ordinary economic sense, the expression 'income'
includes not merely what is received or what comes in by
exploiting the use of a property but also what one saves by using
it oneself. That which can be converted into income can be
reasonably regarded as giving rise to income. The tax levied
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under the Act is on the income (though computed in an artificial
way) from house property in the above sense and not on house
property. Entry 49 of List II of the Seventh Schedule to the
Constitution is not, therefore, attracted. The levy in question
squarely falls under Entry 82 of List I of the Seventh Schedule to
the Constitution.
(emphasis supplied)
41 Matters of economic policy should be best left to the wisdom of
the legislature. In the context of a changed economic scenario the expertise
of the people dealing with the subject should not be lightly interfered with.
While dealing with economic legislation, this court would interfere only in
those few cases where the view reflected in the legislation is not possible to
be taken at all. The case of petitioner certainly does not fall within this
exception. We also do not find that by inserting the impugned sub clause
there is any perversity or gross disparity resulting in clear or hostile
discrimination.
42 As noted earlier it is trite that the legislature is the best forum
to weigh different problems in the fiscal domain and form policies to
address the same including to create a new liability, exempt an existing
liability, create a deduction or subject an existing deduction to new
regulatory measures. In the very nature of taxing statutes, legislature holds
the power to frame laws to plug in specific leakages.
The mere fact that the institution of tax by virtue of the
impugned sub clause falls more heavily on petitioner cannot result in its
invalidity.
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43 In light of the above, in our view, the amendment to Section
2(24) by the insertion of sub-cause (xviii) of the Finance Act, 2015, is a
perfect example of a legislative endeavour to align the definition of
"income" with the evolving economic landscapes and judicial precedent of it
being an inclusive and elastic term. The submissions of petitioner though
appear to be of fiscal concern were, in our view, more an argument of
diminished profits and a narrow interpretation of income which the Apex
Court has time and again expanded. The submissions of petitioner fall short
of appreciating the overarching legislative intent to foster a comprehensive
and equitable taxation regime. The amendment to Section 2(24) by
insertion of the impugned sub-clause that includes various subsidies and
concessions only indicates the well established jurisprudential path
ensuring that the income tax laws remain attuned to the economic realities
and continue to serve as a vital cog in the nation's fiscal machinery. As
submitted by ASG, it is the duty of the legislature to ensure that taxation
policy reflects a balance between incentivizing economic activity and
ensuring the equitable distribution of fiscal resources.
44 In our view, there is no merit in the petition. Petition
dismissed.
(DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
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