Case Note & Summary
The petitioner, a trader at Meerut, filed a writ petition under Article 32 of the Constitution challenging a demand of Rs. 1,800 as annuity deposit made by the Income-tax Officer, D-Ward, Meerut under Chapter XXII-A of the Income-tax Act, 1961. The chapter was introduced by the Finance Act, 1964 (Act 5 of 1964) and created an annuity deposit scheme applicable to certain high-income taxpayers from assessment year 1964-65. Under the scheme, specified categories of resident taxpayers with total income exceeding Rs. 15,000 were required to make deposits at prescribed percentages (5% to 12.5%) on adjusted total income. The deposit was repayable in ten annual equated instalments of principal and interest, allowed as deduction in computing total income in the year of deposit, and the instalment was taxable in the year of repayment. A taxpayer could opt not to make the deposit by written notice before June 30 of the assessment year, but then had to pay, in addition to normal income tax, an additional income tax equal to half of the amount saved by not depositing. Individuals above seventy years of age were exempt from this additional tax. The scheme exempted non-residents, companies, corporations, and cooperative societies, while covering individuals (citizens), Hindu undivided families, unregistered firms, associations of persons, and certain artificial juridical persons. The petitioner challenged the constitutional validity of Chapter XXII-A on three grounds: first, that Parliament lacked legislative competence because the provisions were substantially about borrowing by the Central Government from a class of taxpayers, not a tax on income; second, that the enactment was a colourable exercise of legislative power and the provisions were so harsh and unconscionable as to be expropriatory; and third, that Section 280 and the Second Schedule were discriminatory and violated Article 14 by exempting persons above seventy years from the additional tax. The Supreme Court dismissed the petition. The majority judgment by Shah J. (for Gajendragadkar C.J., Wanchoo, Shah, and Sikri JJ.) held that Parliament had power under Article 246 read with Entry 82 of List I to levy taxes on income, and even if the annuity deposit scheme was regarded as borrowing from high-income taxpayers, Parliament could legislate under residuary Entry 97 of List I. There was no constitutional prohibition against Parliament enacting in one statute matters falling under two or more entries. The court rejected the colourable legislation argument, holding that Parliament had not resorted to any pretence or subterfuge and that a taxing statute cannot be challenged merely because the tax is harsh or excessive, though it remains subject to Article 13. The exemption for persons above seventy years was held to be prima facie reasonable classification with rational nexus to the legislative object, hence not discriminatory under Article 14. Hidayatullah J. in a separate concurring opinion held that the annuity deposit provisions fell under Entry 82 of List I as a means of reducing income tax, not borrowing under Article 292, and that Entry 97 could not be invoked when another entry applied. The provisions were neither colourable nor discriminatory. Accordingly, the petition was dismissed and the constitutional validity of the annuity deposit scheme was upheld.
Headnote
A) Constitutional Law - Legislative Competence - Taxes on Income and Residuary Power - Indian Income-tax Act, 1961, Chapter XXII-A; Finance Act, 1964, Section 3(1), Section 44; Constitution of India, Article 246, Entry 82 and Entry 97 List I - The petitioner challenged Parliament's competence to enact annuity deposit provisions as a borrowing scheme; majority held that even if the scheme involved borrowing by Central Government, Parliament had power under Entry 97 List I, and there is no constitutional bar to combining legislative powers under multiple entries in one statute. Held that Parliament was competent to enact Chapter XXII-A (Paras 27 B-F). B) Constitutional Law - Colourable Legislation and Expropriatory Tax - Doctrine of Colourable Legislation - Indian Income-tax Act, 1961, Chapter XXII-A; Constitution of India, Article 13 - Petitioner argued that Chapter XXII-A was colourable and harsh/expropriatory; court held Parliament did not resort to any pretence or subterfuge, and a taxing statute cannot be challenged merely because the tax is harsh or excessive, though it remains subject to Article 13. Held that the annuity deposit scheme was not colourable legislation (Paras 29 C-D, 29 G). C) Constitutional Law - Equal Protection - Age-Based Exemption from Additional Tax - Indian Income-tax Act, 1961, Chapter XXII-A; Finance Act, 1964, Section 3(1), Second Schedule; Constitution of India, Article 14 - Petitioner challenged exemption of individuals above seventy years from additional tax as discriminatory; court held classification was prima facie reasonable with rational nexus to legislative object. Held that exemption did not infringe Article 14 (Para 31 D). D) Constitutional Law - Tax on Income vs Borrowing - Interpretation of Entry 82 and Article 292 - Indian Income-tax Act, 1961, Chapter XXII-A; Constitution of India, Entry 82 List I, Article 292 - Per Hidayatullah J., annuity deposit provisions fall under Entry 82 as alternative to income tax, not borrowing under Article 292, and Entry 97 cannot be invoked when another entry applies; provisions neither colourable nor discriminatory. Held concurring that Chapter XXII-A is valid (Paras 33 B-E, 33 E-F).
Issue of Consideration
Whether Parliament was competent to enact Chapter XXII-A of the Income-tax Act, 1961 as an annuity deposit scheme; whether the provisions were a colourable exercise of legislative power and expropriatory; whether Section 280 and the Second Schedule violated Article 14 of the Constitution by exempting persons above seventy years from additional tax.
Final Decision
Petition dismissed. Supreme Court upheld constitutional validity of Chapter XXII-A of Income-tax Act, 1961. Majority held Parliament competent under Entry 82 read with Entry 97 of List I; provisions were not colourable or expropriatory; exemption for persons above seventy years was not discriminatory under Article 14. Hidayatullah J. concurred holding annuity deposit fell under Entry 82, not borrowing under Article 292. Demand of Rs. 1,800 was upheld.
Law Points
- Parliament has legislative competence under Article 246 read with Entry 82 and Entry 97 of List I to enact annuity deposit provisions
- legislative power may be combined from multiple entries in one statute
- doctrine of colourable legislation does not apply when Parliament is vested with authority
- taxing statute cannot be challenged merely for being harsh or excessive
- age-based exemption from additional tax is reasonable classification under Article 14
- annuity deposit is an alternative to income tax
- not borrowing under Article 292.
