R.K. Garg And Others vs Union Of India And Others.

DATE OF JUDGMENT: 13 November, 1981

COURT: Supreme Court of India

JUDGES: Y Chandrachud, A Gupta, A Sen, P Bhagwati, S M Ali

REFERENCE: 1982 133 ITR 239 SC

PARTIES

Petitioner: R.K. Garg And Others

Respondent: Union of India & Others.

SUBJECT: In this case, the question is raised with regards to the constitutional validity of the Special Bearer Bonds Act (immunities and exceptions) 1981. This case is an attempt to analyze the strengths of “morality of law” as the basis for determining the constitutional validity as gathered from the letter and spirit of the Constitution of India.

FACTS:

• In 1981, the Indian parliament passed special laws on bonds for the use of unaccounted citizens’ money for useful purposes. In advancement of this, the Government, proposed to issue instruments called Special Bearer Bonds and gave motivation to individuals to put their resources into them.

●       The questionable Provisions of this enactment were section 3 and section 4, which gave that, any individual who buys in to these securities won’t be required to unveil the source of cash for his Investment in such bonds and he won’t be cross examined or exposed to any examination, or acceptable as evidence in any enquiries or procedures or exacted any punishment based on his speculation.

• The Act was tested inter alia on the ground that it made an unreasonable classification between people who wrongfully sidestepped payment of taxes as against the individuals who submitted to the law. It was contended that such an

arrangement in the law was against ethics or morality as it afforded tax dodgers, immunities and exclusions, and put them at a profitable situation in contrast with the individuals who abided by the law.

IMPORTANT PROVISIONS:

• The constitution of India:
• Article 14: Equality before law
• Article 109: Special procedure in respect of Money Bills
• Article 110: Definition of Money Bill
• Article 123: Power of President to promulgate Ordinances during recess of Parliament

●       The Special Bearer Bonds (Immunities and Exception) Act, 1981

1. Section 3: provided for certain immunities to a person who had subscribed to or otherwise acquired Special Bearer Bonds.
2. Section 4: provided that without prejudice to the provisions of section 3 subscription to, or acquisition of Special Bearer Bonds by any person shall not be taken into account for the purpose of any proceedings under the Income- tax Act, 1961, the Wealth-tax Act 1957 or the Gift-tax Act, 1958

ISSUES:

1) Whether the certain provisions of Special Bearer Bonds (Immunities and Exception) Act, 1981 violate the provisions of constitution of India?

ANALYSIS OF THE JUDGEMENT:

• There is no truth in The argument that the President has no authority under Article 123 to issue an order amending or modifying the tax laws, and that the order was beyond the president’s legislative power under that clause. If Parliament has the power to pass legislation after or amend tax laws, the President may do so similarly by issuing an order under Article 123.
• The validity of a classification must be judged with reference to the purpose of the legislation and, if that is done, there can be no doubt that the classification made by the Act is rational and intelligible, and that the operation of the provisions of the Act is rightly confined to persons with black money. The preamble to the Act makes it clear that the object of the Act is to canalize black money for productive purposes which has become a serious threat to the national economy.

• The court dismissed the petitions and held that none of the provisions of the 1981 Special Bearer Bonds (Immunities and Exemption) Act violated Article 14 and then had to upheld its constitutional validity.