Madras H.C : The petitioner, which is a closely-held private company and which deals in land has challenged the constitutional validity of s. 40 of the Finance Act, 1983, which provides for levy of wealth-tax on closely-held companies.

High Court Of Madras

V.G.P. Housing (P) Ltd. vs. Union Of India & Ors.

Sections 1983FA 40

R. Jayasimha Babu, J.

Writ Petn. No. 18848 of 1992

7th August, 1998

Counsel Appeared

P.P.S. Janarthana Raja, for the Petitioner : S.V. Subramaniam, for the Respondents

JUDGMENT

R. JAYASIMHA BABU, J.:

The petitioner, which is a closely-held private company and which deals in land has challenged the constitutional validity of s. 40 of the Finance Act, 1983, which provides for levy of wealth-tax on closely-held companies.

Counsel submits that the statutory provision is unconstitutional on the ground that it makes hostile discrimination against closely-held companies and the petitioner does not belong to that class of persons or activities intended to be covered by the provision, but has in fact been covered by reason of the language used in the provision. Reliance was placed on the speech of the Finance Minister, while introducing the Bill in Parliament. The Minister had stated that one of the objects of the Bill was to prevent the escapement from tax on lands transferred by individuals to closely-held companies with a view to avoid the liability for tax. Neither of the two grounds urged by learned counsel for the petitioner can be regarded neither sufficient to hold that s. 40 of the Finance Act, 1983, is unconstitutional. The presumption is that the provision duly enacted by Parliament are constitutional. The provisions of the Amending Act do not violate any of the provisions of the Constitution. It is for the person, who alleges the violation to demonstrate the same, unless ex facie the statute discloses hostile discrimination and unequal treatment of equals. There is no material whatsoever placed by the petitioner to substantiate its contentions. The presumption of constitutionality is, therefore, sufficient to warrant the dismissal of the petition. Even otherwise, it is always open to the Parliament to choose a class in respect of which the law will operate, so long as the treatment meted out to all the members of that class is on the same footing. It is not the case of the petitioner that some closely-held companies are exempted from tax, while others are not. The provision operates equally on all closely-held companies. The mere fact that the levy of such tax on closely-held companies was also to be a disincentive for individuals to transfer their asset to such companies with a view to avoid tax does not imply that the provision can be made applicable to only to the companies to which the asset had been transferred by the individuals. The intention of the Parliament has been made abundantly clear in the statute, which is to apply the provision uniformly to all closely-held companies.

The choice of the closely-held companies to the exclusion of other kinds of companies also does not render the section unconstitutional. It is not a principle of taxation that in order to tax one particular class all the other classes should also be taxed. The choice of the subject is a choice which it is open to the legislature to make, and the tax levied on one class of companies cannot be held to be unconstitutional because similar tax has not been levied on all other classes of companies. The closely-held companies constitute a special class and has been recognised as such for purposes of taxation for long. Though the form of the company might have been adopted, if in reality the affairs of the company are managed by or for the benefit of “small group” of person who closely hold the shares, the benefit of the business carried on is ultimately for that small group. The levy of wealth-tax on the assets owned by such companies, therefore, does not result in any hostile discrimination. As noticed earlier, all the closely-held companies are to be treated in the same manner, as indicated in the statutory provisions. A Division Bench of Madhya Pradesh High Court in Chunnilal Onkarmal (P) Ltd. vs. Union of India (1994) 121 CTR (MP) 116 : (1996) 221 ITR 459 (MP) : TC 65R.616 has taken a similar view.

There is no merit in this writ petition and the same is dismissed. No costs.

[Citation : 252 ITR 207]

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