Case: Indian Express Newspapers (Bombay) Private Limited Vs. Inspecting Assistant Commissioner of Income Tax

2. On 19th September, 1987, this petition was admitted. On 25th September, 1987, this Court had granted following interim reliefs."The petitioners are directed to file their return on or before 31st December, 1987. The proceedings for assessment may go on and terminate in assessment order during the pendency of this petition. However, no notice of demand shall be issued without further orders. It is clarified that the valuation may also be completed. Prosecution proceedings are also stayed."Factual Matrix3. The petitioner is engaged in printing and publishing the newspapers including Indian Express, Finance Express, Loksatta etc. In the course of its business, the petitioner out of profits earned in its business of publication of newspapers acquired following three properties.(a) Multistoried building known as "Express Tower" at Nariman Point, Mumbai.(b) Land and building at 12528 to 591, Tank Bund Road, Domulguda, Hyderabad, leased to Andhra Prabha Pvt. Ltd. and used for its newspaper business; and(c) Vacant land at Talegaon.4. In 1983, the Finance Minister while introducing the Finance Bill in the Parliament, in its budget speech inter alia stated as under :" 101. It has come to my notice that some persons have been trying to avoid personalliability by formingcompanies to which they transfer many items of their wealth, particularly jewellery bullion and real estate. As companies are chargeable toand the value of the share of such companies does also reflect the real worth of the assets of the company, those who hold such unproductive assets in closely held companies are able to successfully reduce theirliability to a substantial extent. With a view to circumventing tax avoidance by such persons, I propose to revive the levy ofin a limited way in the case of closely held companies. Accordingly, I am proposing the levy of thein the case ofcompanies at the rate of 2 per cent on the net wealth represented by the value of specified assets, such as jewellery, gold, bullion, buildings and lands owned by such companies. Buildings used by the company as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its low paid employees will be excluded from the net wealth."5. The Finance Bill, 1983 was thereafter enacted into the Act and Section 40 therein reads as under :" 40. (1) Notwithstanding anything contained in section 13 of the Finance Act, 1960, relating to exemption of companies from levy oftax Act, 1957 (hereinafter referred to as theax shall be charged under theAct for every assessment year commencing on and from the 1st day of April, 1984 in respect of the net wealth on the corresponding valuation date of every company, being a company in which the public are substantially interested, at the rate of two per cent of such net wealth.ExplanationFor the purposes of this"company in which the public are substantially interested" shall have the meaning assigned to it in clause (18) of section 2 of theAct.(2) For the purposes of(1), the net wealth of a company shall be the amount by which the aggregate value of all the assets referred to in(3), wherever located, belonging to the company on the valuation date is in excess of the aggregate value of all the debts owed by the company on the valuation date, which are secured on, or which have been incurred in relation to, the said assets:Provided that where any debt secured on any asset belonging to the assessee is incurred for, or ensures to, the benefit of any other person, or is represented by any asset belonging to the assessee, the value of such debt shall be taken into account in computing the net wealth of the assessee.(3) The assets referred to in(2) shall be the following namelygold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals;(ii) precious or semiprecious stones whether set in any furniture, utensil or other article or worked or sewn into any wearing apparel;(iii) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether containing any precious or semiprecious stone, and whether worked or sewn into any wearing apparel;(iv) utensils made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals;(v) land other than agricultural land;(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees or as a hospital, creche, school, canteen, library, recreational centre, shelter, restroom or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part:Provided that each such employee is an employee whose income (exclusive of the value of all benefits or amenities provided for by way of monetary payment) chargeable under the head "Salaries" under theAct does exceed eighteen thousand rupees;(vii) motorcars; and(viii) any other asset which is acquired or represented by a debt secured on any one or more of the assets referred to in clause (I) to clause (vii).(4) The value of any asset specified in(3) shall, subject to the provisions of(3) of section 7 of theAct, be estimated to be the price which, in the opinion of theOfficer, it would fetch if sold in the open market on the valuation date.(5) For the purposes of the levy oftax Act, in pursuance of the provisions of thisSection 5, clause (a) of(2) of section 7 and clause (d) of section 45 of that Act and Part II of Schedule I to that Act shall apply and shall have no effect,(b) the remaining provisions of that Act shall be construed so as to be in conformity with the provisions of this section.(6) Nothing in this section shall apply to any institution, association or body, whether incorporated and whether Indian or non Indian, which the Central Government may, having regard to the nature and object of such institution, association or body, specify by notification in the Official Gazette and every notification issued under thisshall be laid, as soon as may be after it is issued, before each House of Parliament.(7) Subject to the provisions of(5), this section shall be construed as one with theAct."6. Consequent to the enactment of Section 40 of the Act, the petitioners received notices dated 22nd May, 1987 under Section 16(4) of the Wealth Tax Act, directing the petitioners to file its returns of wealth for Assessment Yearsr, notices of penalty were issued on 4th August, 1987 under Section 18(2) of the Wealth Tax Act and notices for prosecution dated 31st July, 1987 were also issued under Section 35B of the Wealth Tax Act. The receipt of the above notices resulted in the petitioners filing this petition on 4th September, 1987.7. The petitioners have filed the petition challenging the constitutional validity of Section 40(3) of the Act. The primary challenge was to the legislative competence of the Parliament to enact Section 40(3) of the Act to the extent it seeks to bring to tax land and buildings. This on the ground that legislation on land and buildings would stand covered by the list II of 7th Schedule to the Constitution i.e. the State list. Therefore, beyond the legislative competence of the Parliament. The subsidiary challenge was to Section 40(3) of the Act on the ground that it is based/founded on any intelligible differentia or in any event the classification made in Section 40(3) of the Act has no rationale connection and/or nexus with the object of the Act.

Reasoning: 10. At this, we inquired of Dr. Chandrachud that the challenge in the petition is only to Section 40(3) of the Act i.e. inclusion of land and buildings as a part of the assets of the closely heldsubmissions made across the bar is far beyond the challenge in the petition. In the circumstances, the petitioners were asked to justify the widening of the challenge at the hearing of the petition in the absence of it being in the petition.Thereafter, with the aid of the Counsel for both sides we went through the entire petition and found that the challenge in the entire body of the petition is to Section 40(3) of the Act. In fact, primary challenge in the petition as filed was to the legislative competence of the Parliament to make legislation in respect of the land and buildings which according to the petitioners would properly fall in the State list. This of course, is now being pressed. Therefore, it is the case of mere improper drafting but a conscious decision to only challenge Section 40(3) of the Act and the body of the petition supports the prayer as made in the petition. The decision of the Apex Court in Pramod Verma (supra) would have no application to the facts in the present petition. For the reason that in that case the prayer clause was for writ of certiorari to quash the U.P. Ordinance 22/1978. The Apex Court observed that the writ of certiorari which is essentially for calling of records and proceedings pending before an Authority, can never be issued in respect of a challenge to declare a legislative provision as unconstitutional and void. Thus, the writ of certiorari as sought for is wholly inappropriate when seeking a declaration that a legislative measure is unconstitutional. The Apex Court in the above case has observed that the petition should be properly drafted particularly bearing in mind that there were advocates engaged to draft the petition and it was a petition from a prisoner languishing in jail or from a bonded labourer or by a public spirited citizen seeking to bring a gross injustice to the notice of the Court. It was in the aforesaid facts that the Court held that mere improper drafting of a prayer should result in the petition itself being dismissed and normally the Court should insist on an amendment to ensure that the petitions are properly drafted. In this case, the petition has been filed by people involved in the world of business and appropriate legal assistance was also obtained. Therefore, the challenge by the petitioners to only Section 40(3) of the Act was an informed decision taken by the petitioners with the aid of their advisors to file the petition. For over thirty years this petition has been pending and no attempt was ever made to amend the petition.On the aforesaid position in law, we examined the ground in paragraph 26(B) of the petition. This paragraph according to the petitioners contains the seed of the challenge to the entire Section 40 of thea perusal of paragraph 26(B) of the petition, it is evident that the submissions were made in the context of challenge to Section 40(3) of the Act. The above averments do meet the test laid down by the Apex Court, that a constitutional challenge must be specific, clear and unambiguous.17. The above averments do contain any allegation or material to support the submissions being made on behalf of the petitioners that by classifying of companies in which public are substantially interested as closely held companies, leaves out closely held companies, leaves out closely held companies from the definition of companies, in which public are substantially interested when they are closely held public limited companies which are listed. The challenge in our view on the basis of the averments were only in the context of Section 40(3) of the Act and did have any relation to Sections 40(1) and/or 40(2) of the Act. We do accept the contention on behalf of the petitioners that a pure legal issue which give rise to discrimination, need be alleged in the petition with particulars in respect of allegations. Even a legal challenge must have foundation on facts i.e. specifically state as to how it is being discriminated against. We are, therefore, of the view that the petitioners have to be restricted only to the challenge urged in the petition i.e. constitutional validity of Section 40(3) of the Act. The other contention being sought to be raised across the bar for the first time, cannot be entertained. The rule was issued in 1987 with specific reference to the challenge made to Section 40(3) of the Act alone.18. In the above view, we called upon Dr. Chandrachud, the learned Counsel for the petitioners to address us on the only challenge in the petition i.e. in respect of Section 40(3) of the Act. This was for the reason that we would only examine the constitutional challenge urged in the petition.It is a settled position in law that a fiscal legislation relating to tax is immune to challenge, in case it does satisfy the test of Article 14 of the Constitution of India.Therefore, Section 40(3) of the Act bringing to tax land and building which is not used for business purposes by companies in which public are not substantially interested to tax under the Wealth Tax Act and leaving out those land and buildings which are used for business purposes by companies in which public are not substantially interested from the charge of wealth tax under the Act is a reasonable classification. Therefore, the legislation bringing to tax land and buildings owned by the companies in which public are not substantially interested without any reference to the manner in which such companies came into ownership of the land and buildings is a decision taken by the legislature and cannot be faulted on the touchstone of Article 14 of the Constitution of India. The speech of the Finance Minister while introducing the bill points out the mischief which was existing namely persons transferring land and buildings owned by them to closely held companies i.e. companies in which the public are not substantially interested so as to evade payment of wealth tax. Therefore, the legislation to cure the mischief was to bring to tax all companies in which public are not substantially interested to the extent it held land and buildings which are not used for business purposes, without determining the source and manner of acquisition. In fact, the Finance Ministers speech itself indicates that it is proposed to levy wealth tax in case of closely held companies inter alia in respect of land and buildings owned by such companies and not used for the business purposes. The object of introducing the bill was in terms of the Finance Ministers speech not restricted only to bring to tax those companies in which public are not substantially interested to which the land and building has been transferred by its members. The Parliament has decided to bring to tax the land and buildings not used for the purposes of business and owned by the companies in which the public are not substantially interested. The Parliament has thus made a reasonable classification between the companies in which public are substantially interested from the companies in which public are not substantially interested. This classification cannot be found fault with because the petitioners want further classification to have been done by the Parliament. The remedy of the petitioners, if any, in matters such as this, is to have the Parliament to amend the law so as to meet what according to the petitioners would be the most just and appropriate classification, by adding further classification and restricting its applicability only where the assets have not been acquired by the company in which the public are not substantially interested out of its own profits. The legislature has in its wisdom decided that the executive should not be burdened with finding out the manner in which the land and buildings has been acquired by the company, to bring it to tax. The mere fact that there is land and building owned by the company and it is not used for the purposes of business is sufficient to hold that these assets to be taken into account under Section 40(3) of the Act for the purposes of wealth tax under the Wealth Tax Act.