JUDGMENT
Puttaswamy, J.
1. As the petitioners in all these cases have challenged certain provisions of the Income-tax Act of 1961 (Central Act 43 of 1961) (“the Act”), on grounds that are common, we propose to dispose of them by a common order.
2. The first petitioner in each of Writ Petitions Nos. 7399, 8785 of 1984, 1237, 1238, 1269 and 1623 of 1985, who are the principal petitioners, are either public or private limited companies incorporated under the Companies Act, engaged in carrying on one or the other businesses detailed in their respective writ petitions. The second petitioner in each of them are either directors or shareholders of the respective companies, who have joined to avoid technical objections based on the challenge to article 19 of the Constitution. We will, therefore, treat the first petitioner in each of them as the petitioner. The other petitioners in all other cases are partnership firms engaged in carrying on one or the other businesses detailed in their respective petitions. All the petitioners are assessees under the Act on the file of the concerned Income-tax Officer of the area.
3. The petitioners have challenged the validity of sections 37(3A), 40A(8), (9), (10) and 43B of the Act either separately or cumulatively on three substantial grounds and they are – (i) the provisions do not relate to entry No. 82 of List I of the Seventh Schedule to the Constitution and were beyond the legislative competence of the Union Parliament; (ii) that the provisions suffer from the vice of impermissible classification or were irrational, unconscionable, arbitrary and were violative of article 14 of the Constitution; and (iii) that the provisions unreasonably interfere with their freedom of trade and business guaranteed to them under article 19(1)(g) of the Constitution and were not saved by sub-article (6) of article 19 of the Constitution.
4. The respondents have resisted these writ petitions.
5. Sri G. Sarangan, the learned advocate, has appeared for the petitioners in all these cases. Sri K. Srinivasan, learned senior standing counsel for the Income-tax Department, assisted by Sri H. Raghavendra Rao, Junior standing counsel for the Income-tax Department, has appeared for the respondents in all these cases. Both sides in their elaborate arguments have relied on various rulings in support of their respective cases and we will refer to them at the appropriate stages.
6. Sri Sarangan has urged that the impugned provisions do not relate to “Taxes on income” of entry No. 82 of List I, Union List of the Seventh Schedule to the Constitution and were beyond the legislative competence of the Union Parliament.
7. Sri Srinivasan has urged that the impugned provisions relate to “with respect to taxes on income” of entry No. 82 or entry No. 97 of the Union List and were within the legislative competence of the Union Parliament.
8. The general rules of interpretation of entries found in the Seventh Schedule to the Constitution are now well settled by the Supreme Court.
9. The various entries in the three lists are not powers of legislation but fields of legislation. The power to legislate is given by articles 245 and 246 and other articles of the Constitution. The entries in the lists are merely legislative heads and are of an enabling character. The language of the entries should be given the widest scope of which their meaning is clearly capable, because they set up a machinery of Government. Each general word should, accordingly, be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. In interpreting an entry, it would not be reasonable to import any limitation by comparing or contrasting that entry with any other entry in the same list. The entries in the different lists should be read together without giving a narrow meaning to any of them.
10. The entries in the legislative lists have been divided into two groups, one relating to the power of taxation and the other relating to the power of general legislation relating to specified subjects. Taxation is considered as a distinct matter for purpose of legislative competence. The residuary entry No. 97 of the Union List enables Parliament to legislate on matters that are not covered by entries Nos. 1 to 96 as also impose taxes on those matters (vide Union of India v. Harbhajan Singh Dhillon . As pointed out by Hidayatullah J. (as his Lordship then was) in Hari Krishna Bhargav v. Union of India , we should not resort to the residuary entry without first ascertaining whether the provisions fall within a specific entry or not.
11. The distribution of legislative powers enumerated in the Seventh Schedule to the Constitution closely follows the pattern of distribution of legislative powers enumerated in the Seventh Schedule to the Government of India Act, 1935 (GI Act). Entry No. 54 of List I of the Government of India Act has been bodily lifted and enacted as entry No. 82 of List I of the Seventh Schedule to the Constitution and the same reads thus :
“Taxes on income other than agricultural income.”
12. In construing the scope and ambit of the corresponding entry of the Government of India Act, the Supreme Court in Navinchandra Mafatlal v. CIT [1954] 26 ITR 758 at pp. 763 and 764, expressed thus :
“It should be remembered that the question before us relates to the correct interpretation of a word appearing in a Constitution Act which, as has been said, must not be construed in any narrow and pedantic sense. Gwyer C.J. in In re The Central Provinces and Berar Act, XIV of 1938 [1939] FCR 18, observed at pages 36-37, that the rules which apply to the interpretation of other statutes apply equally to the interpretation of a constitutional enactment subject to this reservation that their application is of necessity conditioned by the subject-matter of the enactment itself. It should be remebered that the problem before us is to construe a word appearing in entry No. 54 which is a head of legislative power. As pointed out by Gwyer C.J. in United Provinces v. Atiqa Begum [1940] FCR 110, at page 134, none of the items in the items List is to be read in a nar row or restricted sense and that each general word should be held to ex tend to all ancillary or subsidiary matters which can fairly and reason ably be said to be comprehended in it. It is, therefore, clear – and i t is acknowledged by Chief Justice Chagla – that in construing an entr y in a List conferring legislative powers, the widest possible construc tion according to their ordinary meaning must be put upon the words us ed therein. Reference to legislative practice may be admissible for cut ting down the meaning of a word in order to reconcile two conflicting p rovisions in two legislative lists as was done in the C. P. and Berar Act case [1939] FCR 18 or to enlarge their ordinary meaning as in the State of Bombay v. F. N. Balsara . The cardinal rule o f interpretation, however, is that words should be read in their ordina ry, natural and grammatical meaning subject to this rider that in const ruing words in a constitutional enactment conferring legislative power, the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude.
What, then, is the ordinary, natural and grammatical meaning of the word ‘income’ ? According to the dictionary, it means ‘a thing that comes in’. (See Oxford Dictionary, Vol. V, page 162 : Stroud, Vol. II, pages 14-16). In the United States of America and in Australia, both of which also are English speaking countries, the word ‘income’ is understood in a wide sense so as to include a capital gain. Reference may be made to Eisner v. Macomber (252 USR 189; 64 L Ed 521), Merchants’ Loan & Trust Co. v. Smietanka (255 USR 509; 65 L Ed 751) and United States of America v. Stewart (311 USR 60; 85 L. Ed 40) and Resch v. Federal Commissioner of Taxation (66 CLR 198). In each of these cases, very wide meaning was ascribed to the word ‘income’ as its natural meaning. The relevant observations of the learned judges deciding those cases which have been quoted in the judgment of Tendokar J., quite clearly indicate that such wide meaning was put upon the word ‘income’ not because of any particular legislative practice either in the United States or in the Common wealth of Australia but because such was the normal concept and connotation of the ordinary English word ‘income’. Its natural meaning embraces any profit or gain which is actually received. This is in consonance with the observations of Lord Wright to which reference has already been made. Mr. Kolah concedes that the word ‘income’ is understood in the United States and Australia in the wide sense contended for by the learned Attorney-General but he maintains that the law in England is different and, therefore, entry No. 54 which occurs in a parliamentary statute should be construed according to the law of England. We are again brought back to the same argument as to the word having acquired a restricted meaning by reason of what has been called the legislative practice in England – all argument which we have already discarded. The argument founded on an assumed legislative practice being thus out of the way, there can be no difficulty in applying its natural and grammatical meaning to the ordinary English word ‘income’. As already observed, the word should be given its widest connotation in view of the fact that it occurs in a legislative head conferring legislative power.
For reasons stated above, we are of the opinion that Act XXII of 1947 which amended the Indian Income-tax Act, 1922, by enlarging the definition of the term ‘income’ in section 2(6C) and introducing a new head of income in section 6 and inserting the new section 12B is intra vires the powers of the Central Legislature acting under entry No. 54 in List I of the Seventh Schedule of the Government of India Act, 1935.”
13. In all the later cases, the Supreme Court has reiterated this exposition.
14. The terms “with respect to” occurring in article 246 of the Constitution which is one of the main sources of power to legislate qualifies every one of the entries in the distribution of legislative powers detailed in the Seventh Schedule to the Constitution. We must read entry No. 82 in that way only and not disjointly as suggested by Sri Sarangan. Every one of the provisions enacted by Parliament and impugned by the petitioners directly deal with the subject “taxes on income” or the subject referred to in entry No. 82 of the Union List. At any rate, they are incidental and ancillary to that subject only. We are clearly of the view that all of them fall within entry No. 82 of the Union List and are within the legislative competence of the Union Parliament.
15. In interpreting the entries in the Seventh Schedule to the Constitution and the legislative competence on the subjects, the construction placed by courts on terms like “income” or “taxable income” or “net income” occurring in the Act or the predecessor Acts are hardly relevant. We are, therefore, of the view that the construction placed by the Privy Council in probhat Chandra Barua v. Emperor, AIR 1930 PC 209, on the term “income” occurring under the 1922 Act or the ruling of the Supreme Court in CIT v. S. C. Kothari , that interpreted that term under the same Act relied on by Sri Sarangan do not bear on the point.
16. We are also of the view that the passage at para 22-157 of Vol. II, IIIrd Edition of Seervai’s Constitutional Law strongly relied on by Sri Sarangan when read with all other passages on the same topic and in particular para 22-46 (pages 1257-1258) of the same treatise by the same author, IInd Edition, does not support the extreme contention urged by Sri Sarangan and positively reject the same. Assuming that it does so, then, we regret our inability to subscribe to the views of the learned author of the treatise.
17. Assuming that Sri Sarangan is right in his submission, then also as ruled by the Supreme Court in Harbhajan Singh Dhillon’s case [1972] 83 ITR 583 and reiterate in Khandelwal Metal and Engineering Works v. Union of India, , the impugned provisions would, in any event, fall within the purview of entry No. 97 of List I, Union List, and are within the legislative competence of Parliament.
18. On the foregoing discussion, we hold that the impugned provisions were within the legislative competence of Parliament.
19. Sri Sarangan has urged that every one of the impugned provisions, viz., sections 37(3A), 40A(8), (9), (10) and 43B of the Act suffer from the vice of impermissible classification and were unconscionable, irrational, arbitrary and are violative of article 14 of the Constitution.
20. Sri Srinivasan in refuting the contention of Sri Sarangan had urged that every one of the impugned provisions were made with the twin object of raising revenues and “social justice”, pass the twin requirements of permissible classification and was reasonable and was not violative of article 14 of the Constitution.
21. Section 37(3A) of the Act must be read with section 37(3B) and they read thus :
“(3A) Notwithstanding anything contained in sub-section (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub-section (3B) exceeds one hundred thousand rupees, twenty percent. of such excess shall not be allowed as deduction in computing the income chargeable under the head ‘Profits and gains of business or profession’.
(3B) The expenditure referred to in sub-section (3A) is that incurred on –
(i) advertisement, publicity and sales promotion; or
(ii) running and maintenance of aircraft and motor cars; or
(iii) payments made to hotels.
Explanation. – For the purposes of sub-sections (3A) and (3B) –
(a) the expenditure specified in clause (i) to clause (iii) of sub-section (3B) shall be the aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provision of this Act;
(b) expenditure on advertisement, publicity and sales promotion shall not include remuneration paid to employees of the assessee engaged in one or more of the said activities;
(c) expenditure on running and maintenance of aircraft and motor cars shall include, –
(i) expenditure incurred on chartering any aircraft and expenditure on hire charges for engaging cars plied for hire;
(ii) conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also.”
22. These sections were introduced by the Finance Act of 1983 with effect from April 1, 1984. Section 37(3A) has been omitted from April 1, 1986, by the Finance Act of 1985. This section was one of the provisions enacted to curb wasteful expenditure (vide Budget speech of the Finance Minister for 1983-84 – Part-B).
Section 37(3A) uniformly disallows 20 per cent. of expenditure incurred by an assessee over and above one lakh on advertisement, publicity and sales promotion, running and maintenance of aircraft and motor cars and payments made to hotels, in computing the income chargeable under the head “Profits and gains of business or profession”. The disallowance over the limit of one lakh is uniform.
Section 40A(8) of the Act enacted by the Finance Act of 1975 which also stands omitted by the Finance Act of 1985 from April 1, 1986, reads thus :
“40A(8). Where the assessee, being a company (other that a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent. of such expenditure shall not be allowed as a deduction.
Explanation. – In this sub-section, –
(a) ‘banking company’ means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act;
(b) ‘deposit’ means any deposit of money with, and includes any money borrowed by, a company, but does not include any amount received by the company –
(i) from the Central Government or any State Government or any local authority, or from any other source where the repayment of the amount is guaranteed by the Central Government or a State Government;
(ii) from the Government of a foreign State, or from a citizen of a foreign State, or from any institution, association or body (whether incorporated or not) established outside India;
(iii) as a loan from a banking company or from a co-operative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a co-operative land development bank);
(iv) as a loan from any institution or body specified in the list in the Tenth Schedule or such other institution or body as the Central Government may, having regard to the nature and objects of the institution or body, by notification in the Official Gazette, specify in this behalf;
(v) from any other company;
(vi) from an employee of the company by way of security deposit;
(vii) by way of security or as an advance from any purchasing agent, selling agent, or other agent in the course of, or for the purpose of, the business of the company or as advance against orders for the supply of goods or for the rendering of any service;
(viii) by way of subscription to any share, stock, bond or debenture (such bond or debenture being secured by a charge or a lien on the assets of the company) pending the allotment of the said share, stock, bond or debenture, or by way of advance payment of any moneys uncalled and unpaid upon any shares in the company, if such moneys are not repayable in accordance with the articles of association of the company;
(ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, together with the amount of any other prior debt or loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent. of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan;
(c) ‘financial company’ means –
(i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, hire purchase transactions or the financing of such transactions; or
(ii) an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds debentures, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature; or
(iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of financing of acquisition or construction of houses, including acquisition or development of land in connection therewith;
(iv) a loan company, that is to say, a company not being a company referred to in sub-clauses (i) to (iii) which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise;
(v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 195, 6 (I of 1956), to be a Nidhi or Mutual Benefit Society;
(vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses.”
23. The object with which the provision was made is set out in the Budget speech of the Finance Minister and Notes on Clauses of the Finance Bill of that year in these words ([1975] 98 ITR (St.) 113, 168) :
“Some corrective by way of a disincentive to borrowings from the public by these companies seems to be indicated so that credit planning according to the priorities laid down by the Government is not defeated. I propose, therefore, that in computing the taxable income of non-banking non-financial companies, only 85 per cent. of the interest paid by them on public deposits will be allowed as expenditure for tax purposes.” (vide Extract from the Finance Minister’s Budget Speech for 1975-76 – Part-B).
“Sub-clause (b) seeks to insert new sub-section (8). Under the new sub-section (8), fifteen per cent. of the interest paid by non-banking non-financial companies on deposits received by them from the public will be disallowed in computing their total income.
This amendment will take effect from 1st April, 1976, and will accordingly apply in relation to the assessment year 1976-77 and subsequent years.” (vide Finance Bill, 1975 : Notes on Clauses).
24. This section stipulates that when a company other than a banking or financial company incurs any expenditure by way of interest in respect of any deposit received by such company, 15% of such expenditure shall not be allowed as a deduction. The terms “banking company”, “deposit” and “financial company” are elaborately defined in the Explanation appended to the section.
Section 40A(9) and (10) of the Act were introduced by the Finance Act of 1984 giving them retrospective effect from April 1, 1980. Section 10 of the Finance Act of 1984 read thus (See [1984] 147 ITR (Statutes) 42).
“(9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860) or other institution, for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) or clause (v) of sub-section (1) of section 36, or, as required by or under any other law for the time being in force.
(10) Notwithstanding anything contained in sub-section (9), where the Income-tax Officer is satisfied that the fund, trust, company, association of persons, body of individuals, society or other institution referred to in that sub-section has, before the 1st day of March, 1984, bona fide laid out or expended any expenditure (not being in the nature of capital expenditure) wholly and exclusively for the welfare of the employees of the assessee referred to in sub-section (9) out of the sum referred to in that sub-section, the amount of such expenditure shall, in case no deduction has been allowed to the assessee in respect of such sum and subject to the other provisions of this Act, be deducted in computing the income referred to in section 28 of the assessee of the previous year in which such expenditure is so laid out or expended, as if such expenditure had been laid out or expended by the assessee.”
25. The object of their enactment is explained by the Finance Minister in his Budget Speech and the Notes on Clauses of the Finance Bill in these words :
“Another undesirable practice noticed is the tendency of some corporate bodies to make large contributions to the so-called welfare funds. I further understand that utilisation of these funds is discretionary and subject to no discipline. I am, therefore, providing that deductions will be available only in respect of contributions to such funds as are established under statute or an approved provident fund, superannuation fund or gratuity fund. I am making this change with retrospective effect to avoid unnecessary litigation.” (vide Extract from the Budget Speech of Finance Minister, 1984-85 – Part B ([1984] 146 ITR (Statutes) 65, 68).
“Sub-clause (c) seeks to insert a new sub-section (9) in section 40A. The proposed sub-section provides that no deduction shall be allowed in the computation of taxable profits in respect of any sum paid by the assessee as an employer towards the setting up of, or as contribution to, any fund or trust for any purpose, except where such sum is paid or contributed (within the limits laid down under the relevant provisions) to a recognised provident fund or an approved gratuity fund or an approved superannuation fund or for the purposes and to the extent required by or under any other law.
The proposed provision will take effect retrospectively from 1st April, 1980, and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. (vide Finance Bill, 1984 : Notes on Clauses [1984] 146 ITR (Statutes 135, 139) :
This section stipulates that no deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860, or other institution for any other purpose, except where such sum is so paid for the purposes and to the extent provided by or under clause (iv) or clause (v) of sub-section (1) of section 36 or as required by or under any other law for the time being in force. The contributions made to funds authorised by section 36(1), clauses (iv) and (v) of the Act or by any other law in force alone are allowed as deduction and not all payments. Sub-section (10) is in the nature of a proviso to sub-section (9) of section 40A of the Act. Sub-section (10) provides for allowing contributions made before March 1, 1984, bona fide. Sub-section (10) has been enacted to relieve hardship to those who had made contributions bona fide to those provident funds other than those recognised by clauses (iv) and (v) of sub-section (1) of section 36 of the Act or funds recognised by other laws.
Section 43B of the Act inserted by the Finance Act of 1984 with effect from April 1, 1984, read thus :
“43B. Certain deductions to be only on actual payment. – Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of –
(a) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees,
shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.
Explanation. – For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or
clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.”
26. The object of introducing this provision has been explained by the Finance Minister in his Budget speech and the Notes on Clauses in these words :
“Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer’s contribution to provident fund, Employees’ State Insurance Scheme, for long periods of time. For the purpose of their income-tax assessments, they none the less claim the liability as deduction even as they take resort to legal action, thus depriving the Government of its dues while enjoying the benefit of non-payment. To curb such practices I propose to provide that irrespective of the method of accounting followed by the taxpayer, a statutory liability will be allowed as a deduction in computing the taxable profits only in the year and to the extent it is actually paid. This would result in a revenue gain of Rs. 100 crores in a full year and Rs. 80 crores in 1983-84.” (vide Extract from the Budget Speech of Finance Minister, 1983-84 – Part B [1983] 140 ITR (St.) 25, 31, 32).
“Clause 18 seeks to insert a new section 43B in the Income-tax Act, relating to certain deductions to be allowed only on actual payment.
Under the proposed new section, a deduction allowable under the Act in respect of any sum payable by the assessee by way of tax or duty under any law for the time being in force or any sum payable by him as an employer by way of contribution to any provident fund, superannuation fund, etc., shall be allowed to him only in computing the income chargeable under the head ‘Profits and gains of business or profession’ of that previous year in which such sum is actually paid by him irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him.
The provisions of the new section will take effect from 1st April, 1984, and will accordingly apply to assessment year 1984-85 and subsequent years.” (vide [1983] 140 ITR (St.) 112, 125).
27. This section provides for deductions of actual payments made by the assessee towards taxes and provident funds or superannuation funds or gratuity fund or any other fund for the welfare of the employees. Section 43B provides for recognising payments actually made and not to entries made in the books of account only.
28. The true scope and ambit of article 14 of the Constitution and in its application to taxation measures has been explained by the Supreme Court in a large number of cases and are now well settled. We will examine the challenge of the petitioners based on article 14 of the Constitution bearing these principles summarised in Ram Krishna Dalmia v. S. R. Tendolkar, , In re The Special Courts Bill, 1978, , majority opinion in Twyford Tea Company Limited v. State of Kerala, and R. K. Garg v. Union of India [1982] 133 ITR 239.
Section 37(3A) uniformly provides for disallowing 20% of the expenditure over and above a sum of Rs. 1,00,000 incurred on advertisements, publicity and sales promotion, or running and maintenance of aircraft and motor cars, or payments made to hotels. The Legislature in its wisdom after allowing a sum of Rs. 1,00,000 as expenditure on the aforesaid items, uniformly disallows 20% over and above the same. Such a provision can hardly be condemned as violative of article 14 of the Constitution. Even assuming that the same had not attempted to classify persons, then also it is difficult to hold that the same contravenes article 14 of the Constitution. We cannot on principle or authority condemn this provision as violative of article 14 of the Constitution.
29. What is true of section 37(3A) is also true of section 40A(8) of the Act. But, still we propose to examine the special grounds urged by Sri Sarangan on this provision also.
30. Sri Sarangan mounted a vehement attack on treating companies other than banking and financial companies differently though they were all companies incorporated under the Companies Act and are all similarly situated.
31. The fact that all companies are incorporated under the Companies Act does not mean that they are all similarly situated. The banking and financial institutions with their special and peculiar business characteristics of their own, which very much depend for their successful operations on deposits by others, cannot be compared with other companies, whose manufacturing and business activities are varied and manifold and do not primarily depend on deposits for their successful operations and functioning. The treatment meted out to the two classes of companies is not a case of irrational or artificial classification unrelated to the object of the Act.
32. We are of the view that the classification is not violative of article 14 of the Constitution.
Section 40A(9) and (10) of the Act recognising only certain payments in the circumstances detailed therein and section 36(1)(iv) and (v) of the Act operate uniformly against all employers. The payments made to superannuation, provident and gratuity funds of employees to the extent allowed by section 36(1)(iv) and (v) of the Act or other laws stand on a footing entirely different from those that are not recognised by law. We cannot on principle or authority condemn these provisions as violative of article 14 of the Constitution.
33. Sri Sarangan has urged that section 43B destroying the mercantile system of accounting recognised in business and law was arbitrary and violative of article 14 of the Constitution.
Section 43B does not disallow the payments made towards taxes and contributions made to superannuation fund or gratuity fund or any other fund for the welfare of the employees but allows them as deductions only when actually made or for the very accounting year in which they are so paid and not otherwise.
34. That the provision to some extent interferes with the mercantile system of accounting normally adopted by business organisations can hardly be doubted. But, that practice can hardly be treated as a constitutional or legal right to hold that Parliament was bound to accept the claims made in the accounts but not actually paid as deductions under the Act. When the section recognises the payments actually made, we fail to see as to how the same contravenes article 14 of the Constitution.
35. When Government and Parliament found that the system had led to large scale abuse by many taxpayers, we cannot say that Parliament was not competent or unjustified in intervening and recognising only the actual payments. If the Parliament decides that an evil should be curbed without in any way affecting the rights of the parties, then the court cannot condemn the same as violative of article 14 of the Constitution.
36. Even othewise, Parliament had treated all alike and has not made any invidious distinction or discrimination and has not picked up anybody for a hostile and discriminatory treatment. When that is so, it is difficult to hold that section 43B of the Act contravenes article 14 of the Constitution.
37. We have carefully examined the impugned provisions from the standpoint of the new dimension of article 14 of the Constitution, namely, that arbitrariness was the very antithesis of the rule of law enshrined in article 14 of the Constitution. We are of the view that every one of them do not smack of arbitrariness. We are also of the view that the Act though
primarily a tax measure, is also a measure intended to achieve social justice enshrined in our Constitution and so examined also, we cannot condemn them as violative of article 14 of the Constitution.
38. In their petitions, the petitioners have faintly urged that the impugned provisions were violative of article 19(1)(g) of the Constitution. Sri Sarangan, in our opinion, did not rightly pursue this ground before us. We are of the view that the provisions made do not in any way interfere with the freedom of trade and business guaranteed to the petitioners under article 19(1)(g) of the Constitution and do not contravene the same. Even if they remotely interfere with their rights guaranteed by article 19(1)(g) of the Constitution, they are all in the general public interest and are saved by article 19(6) of the Constitution.
39. As all the contentions urged for the petitioners fail, these writ petitions are liable to be dismissed. We, therefore, dismiss these writ petitions and discharge the rule issued in all these cases. But, in the circumstances of the cases, we direct the parties to bear their own costs.