{"id":267065,"date":"1981-10-20T00:00:00","date_gmt":"1981-10-19T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/r-k-garg-etc-etc-vs-union-of-india-ors-etc-on-20-october-1981"},"modified":"2018-04-19T01:13:26","modified_gmt":"2018-04-18T19:43:26","slug":"r-k-garg-etc-etc-vs-union-of-india-ors-etc-on-20-october-1981","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/r-k-garg-etc-etc-vs-union-of-india-ors-etc-on-20-october-1981","title":{"rendered":"R.K. Garg Etc. Etc vs Union Of India & Ors. Etc on 20 October, 1981"},"content":{"rendered":"
Supreme Court of India<\/div>\n
R.K. Garg Etc. Etc vs Union Of India & Ors. Etc on 20 October, 1981<\/div>\n
Equivalent citations: 1981 AIR 2138, 1982 SCR (1) 947<\/div>\n
Author: A Gupta<\/div>\n
Bench: Chandrachud, Y.V. (Cj), Bhagwati, P.N., Gupta, A.C., Fazalali, Syed Murtaza, Sen, Amarendra Nath (J)<\/div>\n
           PETITIONER:\nR.K. GARG ETC. ETC.\n\n\tVs.\n\nRESPONDENT:\nUNION OF INDIA & ORS. ETC.\n\nDATE OF JUDGMENT20\/10\/1981\n\nBENCH:\nGUPTA, A.C.\nBENCH:\nGUPTA, A.C.\nCHANDRACHUD, Y.V. ((CJ)\nBHAGWATI, P.N.\nFAZALALI, SYED MURTAZA\nSEN, AMARENDRA NATH (J)\n\nCITATION:\n 1981 AIR 2138\t\t  1982 SCR  (1) 947\n 1981 SCALE  (3)1601\n CITATOR INFO :\n F\t    1982 SC 710\t (32)\n R\t    1983 SC 937\t (37)\n R\t    1984 SC1130\t (46)\n RF\t    1985 SC 551\t (32)\n RF\t    1985 SC 724\t (13)\n R\t    1987 SC 251\t (33)\n R\t    1990 SC 334\t (98)\n RF\t    1992 SC1033\t (39)\n\n\nACT:\n     Special  Rcarer   Bonds  (Immunities   and\t Exemptions)\nordinance, 1981\t and Special  Bearer Bonds  (Immunities\t and\nExemptions)  Act,   1981-Constitution  validity\t  of-Whether\ninfringes Art. 14-Act<\/a> whether puts a premium on dishonesty.\n     Constitution of India, 1950.\n     Art.   14-<\/a>Validity\t   of\tclassification-How   to\t  be\ndetermined.\n     Art. 32-<\/a>Judicial  review-Discharge of-Principles  to be\nfollowed.\n     Art. 123-<\/a>ordinance\t making power  of  President-Whether\ncan extend to tax laws.\n     Interpretation  of\t  statutes-Legislation\ton  economic\nmatters-Effect of crudities, inequities and possibilities of\nabuse-Whether renders legislation invalid.\n\n\n\nHEADNOTE:\n     The Special  Bearer Bonds\t(Immunities and\t Exemptions)\nordinance, 1981\t was promulgated  on January 12,1981. It was\nrepealed  and\treplaced  by   the  Special   Bearer   Bonds\n(Immunities and\t Exemptions) Act, 1981. The Act received the\nPresidential assent  on March  27,1981. Section\t 1(3) of the\nAct stated  that the  Act was deemed to have come into force\non January 12, 1981. The provisions of the ordinance and the\nAct were  similar except  section 4(2)\tof the Act which was\nworded slightly differently from the corresponding provision\nof The ordinance. The Act provided for certain immunities to\nholders of  Special Bearer  Bonds,  1981,  and\tfor  certain\nexemptions from\t direct taxes  in relation to such Bonds and\nfor matters  connected therewith. The object and purpose for\nwhich the  Act was  passed was\tto canalise  for  productive\npurposes black\tmoney, which  had become a serious threat to\nthe national  economy and  to provide for certain immunities\nand  exemptions\t  to  render  it  possible  for\t persons  in\npossession of  black money  to invest  the same\t in the said\nBonds.\n     Section 3 of the Act provided for certain immunities to\na person who had subscribed to or otherwise acquired Special\nBearer Bonds.  Clause (a) protected such a person from being\nrequired to disclose for any purpose whatsoever the I nature\nand source  of acquisition  of\tthe  Special  Bearer  Bonds.\nClause (b)  prohibited the  commencement of  any inquiry  or\ninvestigate on against a person on the\n948\nground of his having subscribed to or otherwise acquired the\nSpecial Bearer\tBonds. Clause  (c) provided that the fact of\nsubscription to or acquisition of Special Bearer Bonds shall\nnot be\ttaken into  account and\t shall\tbe  inadmissible  in\nevidence in  any proceedings  relating to any offence or the\nimposition of  any penalty.  Sub-section (2)  of section (3)\nprovided that  the immunity  granted under  sub-section\t (1)\nshall not  be available\t in relation  to prosecution for any\noffence punishable  under Chapter  9 or\t Chapter 17  of\t the\nIndian Penal  Code<\/a> or the Prevention of Corruption Act<\/a>, 1957\nor other similar law.\n     Section  4<\/a>\t provided  that\t without  prejudice  to\t the\nprovisions of  section 3<\/a>  subscription to, or acquisition of\nSpecial Bearer\tBonds by  any person shall not be taken into\naccount for the purpose of any proceedings under the Income-\ntax Act,  1961, the Wealth-tax Act<\/a> 1957 or the Gift-tax Act<\/a>,\n1958 and  that no  person  who\thas  subscribed\t to  or\t has\notherwise acquired  the said  Bonds shall be entitled to (a)\nclaim any  set-off under the Income-tax Act<\/a> or to reopen any\nassessment or reassessment made under that Act on the ground\nthat he has subscribed to or has otherwise acquired the said\nBonds; (b)  that any  asset which  is includible  in his net\nwealth for  any assessment year under the Wealth-tax Act<\/a> has\nbeen converted\tinto such bonds, and (c) that any asset held\nby  him\t  represents  the  consideration  received  for\t the\ntransfer of such Bonds.\n     In their  writ petitions  to this\tCourt assailing\t the\nconstitutional validity\t of the ordinance and the Act it was\ncontended on  behalf of\t the petitioners that: (I) since the\nordinance had  the effect  of amending\tthe tax\t laws it was\noutside the  competence of  the President under Article 123<\/a>,\nthat the  subject matter  of the ordinance was in the nature\nof a  Money Bill which could be introduced only in the House\nof the People and passed according to the procedure provided\nin Articles  109 and  110, the\tPresident had no power under\nArticle 123<\/a>  to issue  the ordinance  by passing the special\nprocedure provided  in Articles\t 109 and 110 for the passing\nof a  Money Bill and (2) that the provisions of the Act were\nviolative of Article 14<\/a> of the Constitution.\n     It was  also contended:  (a) that\tSpecial Bearer Bonds\nwould fetch  a much  higher value  in the  black market than\nthat originally\t subscribed and\t this would  enable a larger\namount of  black money\tto be legalised into white than what\nwas originally\tinvested in  subscription to  special bearer\nbonds, (b)  an abuse  which special  bearer bonds might lend\nthemselves to  was that if special bearer bonds are sold and\nthe sale  proceeds are\tutilised in meeting expenditure, the\nassessee would not be precluded by section 4<\/a> clause (c) from\nexplaining the\tsource of  the expenditure  to be  the\tsale\nconsideration of  special bearer  bonds and  by resorting to\nthis strategy,\twhite money  can be  accumulated as  capital\nwhile expenditure  is met out of black money received by way\nof consideration  for sale  of\tspecial\t bearer\t bonds,\t (c)\nSection 4<\/a>  clause (c)  operates only in relation to a period\nbefore the  date of  maturity of  special bearer  bonds\t and\nafter the  date of  maturity the  holder of  special  bearer\nbonds can  sell such  bonds, and,  without running  any risk\ndisclose the  consideration received  by him  as  his  white\nmoney, because section 4<\/a> clause (c) being out of the way, he\ncan account for the possession of such money by showing that\nhe has\treceived it  as consideration  for sale\t of  special\nbearer bonds and so far as the purchaser is concerned. if he\nhas Paid  the consideration  out of  his black money, he can\nclaim\n949\nthe immunity granted under section 3<\/a> sub-section (1) and his\nblack money  would be  converted into  white, (d) the Act is\nunconstitutional as it offends against morality by according\nto dishonest  assessees who  have  evaded  payment  of\ttax.\nimmunities and\texemptions which  are denied  to honest tax-\npayers. Those who have broken the law and deprived the State\nof its\tlegitimate dues\t are given  benefits and concessions\nplacing Them  at an  advantage over  those who have observed\nthe law and paid the taxes due from them and this is clearly\nimmoral and unwarranted by the Constitution.\n     Dismissing the petitions,\n^\n     HELD :\n     [Per majority Chandrachud, C. J., Bhagwati, Fazal Ali &\nAmarendra Nath Sen, J.J.]\n     [Gupta, J, dissenting]\n     None of  the provisions  of The  Special  Bearer  Bonds\n(Immunities and Exemption) Act, 1981 is violative of Article\n14<\/a> and its constitutional validity must be upheld. [989 B]\n     l(i). There  is no substance in The contention that the\nPresident has  no  power  under\t Article  123<\/a>  to  issue  an\nordinance amending  or altering\t the tax  laws and  that the\nordinance was outside the legislative power of the President\nunder that Article. [967 E]\n     l(ii). Under Article 123<\/a> legislative power is conferred\non the\tPresident exercisable when both Houses of Parliament\nare not\t in session.  It is possible that when neither House\nof Parliament  is in  session, a  situation may\t arise which\nneeds to be dealt with immediately and for which there is no\nadequate  provision   in  the\texisting  law  and  emergent\nlegislation may be necessary to enable the executive to cope\nwith the  situation. Article  123<\/a>, therefore, confers powers\non the President to promulgate a law by issuing an ordinance\nto enable  the executive to deal with the emergent situation\nwhich might  well include a situation created by a law being\ndeclared void  by a  Court of  law.  The  legislative  power\nconferred on  the President  under  the\t Article  is  not  a\nparallel power\tof legislation.\t This power  is the clearest\nindication  that   the\tPresident   is\tinvested  with\tthis\nlegislative power  only in  order to enable the executive to\ntide over  an emergent\tsituation which may arise whilst The\nHouses of  Parliament are  not in session. The conferment of\nsuch power  may appear\tto be undemocratic but it is not so,\nbecause\t The   executive  is   clearly\tanswerable   to\t the\nlegislature and\t if the\t President, on the aid and advice of\nthe executive,\tpromulgates an\tordinance in misuse or abuse\nof  this   power,  the\tlegislature  can  not  only  pass  a\nresolution disapproving\t the ordinance\tbut can\t also pass a\nvote of\t no confidence\tin the\texecutive There\t is  in\t the\ntheory\tof   Constitutional  Law  complete  control  of\t the\nlegislature over  the executive,  because if  the  executive\nmisbehaves or forfeits the confidence of the legislature, it\ncan be thrown out by the legislature. [954 E-G, 965 G-966 B]\n     1(iii). If parliament can by enacting legislation after\nor amend  tax laws,  equally can  the  President  do  so  by\nissuing an  ordinance under  Article 123.<\/a>  There  have\tbeen\nnumerous  instances   where  the  President  has  issued  an\nordinance replacing  with retrospective\t effect\t a  tax\t law\ndeclared void by the High Court or\n950\nthis Court.  Even offences  have been  created by  ordinance\nissued by  the President under Article 123<\/a> and such offences\ncommitted during the life of the ordinance have been held to\nbe punishable despite the expiry of the ordinance. [967 B-C]\n     State of  Punjab v.  Mohar\t Singh<\/a>\t[1955]\t1  SCR\t893,\nreferred to.\n     2(i). Certain  well established  principles  have\tbeen\nevolved by Courts as rules of guidance in discharge of their\nconstitutional function\t of judicial  review. The first rule\nis that\t there is  always a  presumption in  favour  of\t the\nconstitutionality of  a statute\t and the  burden is upon him\nwho  attacks  it  to  show  that  there\t has  been  a  clear\ntransgression  of   the\t  constitutional   principles.\t The\npresumption of constitutionality is indeed so strong that in\norder to  sustain it,  the Court may take into consideration\nmatters of  common knowledge,  matters of common report, the\nhistory of  the times  and may\tassume every  state of facts\nwhich can  be conceived existing at the time of Legislation.\nAnother rule  of equal\timportance is  that laws relating to\neconomic activities  should be\tviewed with greater latitude\nthan laws  touching civil  rights such as freedom of speech,\nreligion etc.  The court  should feel  more inclined to give\njudicial deference  to legislative  judgment in the field of\neconomic regulation  than in  other areas  where fundamental\nhuman rights are involved. [969 A-G]\n     Morey v. Dond, 354 US 457, referred to.\n     2(ii). The court must always remember that \"legislation\nis  directed   to  practical  problems,\t that  the  economic\nmechanism  is\thighly\tsensitive  and\tcomplex,  that\tmany\nproblems are  singular and  contingent, that  laws  are\t not\nabstract propositions  and do  not relate  to abstract units\nand are\t not to be measured by abstract symmetry\" that exact\nwisdom and  nice  adoption  of\tremedy\tare  not  f;  always\npossible and  that \"judgment  is largely a prophecy based on\nmeagre\tand  uninterpreted  experience\".  Every\t legislation\nparticularly in\t economic matters is essentially empiric and\nit is  based on\t experimentation or  what one may call trial\nand error  method and  therefore it  cannot provide  for all\npossible situations or anticipate all possible abuses. There\nmay be\tcrudities and inequities in complicated experimental\neconomic legislation  but on that account alone it cannot be\nstruck down as invalid. [970 C.D]\n     Secretary\tof  Agriculture\t v.  Central  Reig  Refining\nCompany, 94 Lawyers' Edition 381. referred to.\n     2(iii). The court must adjudge the constitutionality of\nlegislation by\tthe generality\tof its provisions and not by\nits crudities or inequities or by the possibilities of abuse\nof any\tof its\tprovision. If  any crudities,  inequities or\npossibilities of  abuse come  to light,\t the legislature can\nalways step  in and  enact suitable  amendatory legislation.\nThat is\t the essence  of pragmatic approach which must guide\nand inspire the legislature in dealing with complex economic\nissues. [970 G-H]\n     3(i). It  is clear\t that Article  14<\/a>  does\t not  forbid\nreasonable   classification    of   persons,   objects\t and\ntransactions by the legislature for the purpose of attaining\nspecific ends.\tWhat is\t necessary in order to pass the test\nof permissible\tclassification under  Article 14<\/a> is that the\nclassification must  not be arbitrary, artificial or evasive\nbut must  be based  on some real and substantial distinction\nbearing\n951\na just\tand reasonable\trelation to  the object sought to be\nachieved by the legislature.\n     3(ii). The\t validity of  a\t classification\t has  to  be\njudged with  reference to  the object of the legislation and\nif  that   is  done,   there  can   be\tno  doubt  that\t the\nclassification made  by the Act is rational and intelligible\nand the\t operation of  the provisions  of the Act is rightly\nconfined to persons in possession of black money.\n     4(i). The\tPreamble of  the Act makes it clear that the\nAct is\tintended to  canalise for  productive purposes black\nmoney which  has become\t a serious  threat to  the  national\neconomy. It is an undisputed fact that there is considerable\namount of black money in circulation which is unaccounted or\nconcealed  and\t therefore  outside  the  disclosed  trading\nchannels.  It\tis  largely  the  product  of  black  market\ntransactions and  evasion of  tax. The\tabundance  of  black\nmoney has in fact given rise to a parallel economy operating\nsimultaneously and competing with the official economy. This\nparallel economy  has over  the\t years\tgrown  in  size\t and\ndimension and even on a conservative estimate, the amount of\nblack money  in circulation  runs into some thousand crores.\nThe menace  of\tblack  money  has  reached  such  staggering\nproportions that  it is\t causing havoc to the economy of the\ncountry and  poses a serious challenge to the fulfillment of\nobjectives of  distributive justice  and setting  up  of  an\negalitarian society.\n     4(ii). The first casualty of the evil of black money is\nthe Revenue  because it loses the tax which should otherwise\nhave come  to the  exchequer. The  generation of black money\nthrough tax  evasion throws  a greater\tburden on the honest\ntax payer and leads to economic inequality and concentration\nof wealth  in the  hands of  the  unscrupulous\tfew  in\t the\ncountry. It  also leads\t to  leakage  of  foreign  exchange,\nmaking balance\tof payments  rather distorted and unreal and\ntends to  defeat the  economic policies of the Government by\nmaking their implementation ineffective, particularly in the\nfield  of   credit  and\t investment.  Urgent  measures\twere\nrequired to  be adopted for preventing further generation of\nblack money  as also  for unearthing existing black money so\nthat it can be canalised for productive purposes with a view\nto effective economic and social planning.\n     4(iii). The  Government introduced\t several changes  in\nthe administrative set up of the tax department from time to\ntime  with   a\tview  to  strengthening\t the  administrative\nmachinery for  checking tax  evasion.  The  Government\talso\namended section 37<\/a> of the Indian Income Tax Act, 1922 with a\nview to conferring power on the tax authorities to carry out\nsearches and seizures and this power was elaborated and made\nmore effectual under the Income Tax Act<\/a>, 1961. The Voluntary\nDisclosure  Scheme  of\t1951  was  made\t to  facilitate\t the\ndisclosure  of\t suppressed  income   by  affording  certain\nimmunities from penal provisions, Nearly a decade and a half\nlater a second scheme of voluntary disclosure was introduced\nby section  68<\/a> of  the Finance Act, 1965, popularly known as\nthe sixty  forty scheme\t which was a little more successful.\nClosely following  on the  heels of this scheme came another\nunder section  24<\/a> of  the Finance  (No. 2)  Act\t 1965-'Block\nScheme'\t according   to\t which\ttax  was  payable  at  rates\napplicable to  the block  of concealed\tincome disclosed and\nnot at\ta flat\trate as\t under the  sixty-forty scheme. Then\ncame  the   Taxation  Laws   (Amendment\t and   Miscellaneous\nProvisions) ordinance 1965 followed by an Act which provided\nfor exemption from\n952\ntax in\tcertain cases  of  undisclosed\tincome\tinvested  in\nNational Defence  Gold Bonds  1980. Later  on, the Voluntary\nDisclosure of  Income and  Wealth ordinance  1975 which\t was\nfollowed  by   an  Act\tintroduced  a  scheme  of  voluntary\ndisclosure  of\t income\t and  wealth  and  provided  certain\nimmunities   and    exemptions.\t  All\t these\t legal\t and\nadministrative measures\t were introduced  by the  Government\nand did\t not have  any appreciable effect with regard to the\nproblem of black money which continued unabated\n     4 (iv).  All efforts  to  detect  black  money  and  to\nuncover it  having failed  and the  problem of\tblack  money\nbeing  an   obstinate  economic\t  issue\t which\twas  defying\nsolution, the  impugned legislation  providing for  issue of\nSpecial Bearer\tBonds was  enacted with a view to mopping up\nblack money  and bringing  it out  in  the  open,  so  that,\ninstead\t of   remaining\t concealed  such  money\t may  become\navailable for  augmenting the  resources of  the  State\t and\nbeing utilised\tfor productive\tpurposes so  as\t to  promote\neffective social  and economic planning. This was the object\nfor which  the Act  was enacted\t and it is with reference to\nthis  object  that  it\tis  to\tbe  determined\twhether\t any\nimpermissible differentiation is made in the Act.\n     4 (v).  The whole\tobject of  the impugned\t Act  is  to\ninduce those  having black  money to  convert it  into white\nmoney by  making it  available to  the State  for productive\npurposes, without granting in return any immunity in respect\nof such\t black money  if it  could be  detected through\t the\nordinary processes  of taxation\t laws  without\ttaking\tinto\naccount the fact of purchase of Special Bearer Bonds.\n     4 (vi). The acquisition or possession of Special Bearer\nBonds would  not therefore afford any protection to a public\nservant against\t a charge  of  corruption  or  to  a  person\ncommitting  any\t  offence  against  property.  Equally\tthis\nimmunity would\tnot be\tavailable where what is sought to be\nenforced is a civil liability other than liability by way of\ntax. The  immunity granted  in respect of subscription to or\nacquisition of Special Bearer Bonds is a severely restricted\nimmunity and  this is the bare minimum immunity necessary in\norder to  induce holders  of black  money to bring it out in\nthe open and invest it in Special Bearer Bonds\n     5. Section\t 4(c)<\/a> is  calculated  to  act  as  a  strong\ndeterrent against  negotiability of Special Bearer Bonds for\ndisclosed or  'white' money.  The immunily granted under the\nprovisions of the Act, limited as it is, extends only to the\nperson who  is for  the time  being the\t holder\t of  Special\nBearer Bonds  and the person who has transferred the Special\nBearer Bonds  for black money has no immunity at all and all\nthe provisions\tof tax\tlaws are  available against  him for\ndetermining his\t true income  or wealth and therefore no one\nwho has\t purchased Special  Bearer  Bonds  with\t a  view  to\nearning security  against discovery  of unaccounted money in\nhis hands  would ordinarily  barter away  that\tsecurity  by\nagain receiving\t black money  for the  Special Bearer Bonds.\nEven if special bearer bonds are transferred against receipt\nof black  money it  will not  have the\teffect of legalising\nmore black  money into\twhite because the black money of the\nseller which  had become  white on  his\t subscribing  to  or\nacquiring special bearer bonds would again be converted into\nblack money and the black money paid by the\n953\npurchaser by  way of  consideration would  become  white  by\nreason of being converted into special bearer bonds.\n     6. No  assessee  would  ever  admit  that\the  incurred\nexpenditure out of black money received as consideration for\nsale of\t special bearer bonds because it would be impossible\nfor him\t to  establish\treceipt\t of  black  money  from\t the\npurchaser and  if he  is unable\t to do so, the amount of the\nexpenditure, would  by reason  of section 69C<\/a> of the Income-\ntax Act, 1961 be deemed to be his concealed income liable to\ntax. Even if it is assumed that in some rare and exceptional\ncases the  assessee may\t be able  to establish\tthat he sold\nspecial bearer\tbonds against  receipt of  black  money\t the\npurchaser would\t straight away run into difficulties because\nthe evidence  furnished by the assessee would in such a case\nclearly establish  that the purchaser had black money and he\npaid it to the assessee by way of consideration and he would\nin that\t event be  rendered liable  to tax  and\t penalty  in\nrespect of such black money. C\n     7. Howsoever  special bearer  bonds may  be transferred\nand for\t whatever consideration\t only a\t limited  amount  of\nblack money  namely The amount originally subscribed for the\nspecial bearer\tbonds or at the most the amount representing\nthe  face  value  of  the  special  bearer  bonds  would  be\nlegalised  into\t  white\t money\t and  the   supposedly\tfree\nnegotiability of  special bearer  bonds would  not have\t the\neffect\tof   legalising\t more  black  money  into  while  or\nencouraging further generation of black money.\n     8. When experience shows that the legislation as framed\nhas proved  inadequate to  achieve its purpose of mitigating\nan evil\t or there  are cracks  and loopholes in it which are\nbeing  taken   advantage  of   by  the\tresourcefulness\t and\ningenuity of  those minded to benefit themselves at the cost\nof the\tState or  the others,  the legislature\tcan and most\ncertainly would\t intervene and\tchange The  law. But the law\ncannot be  condemned as\t invalid on  the ground That after a\nperiod of  ten years  it may  lend itself  to some  possible\nabuse.\n     9. It  is obvious\tthat the  Act makes a classification\nbetween holders of black money and the rest and provides for\nissue of  special bearer  bonds\t with  a  view\tto  inducing\npersons belonging  to  the  former  class  to  invest  their\nunaccounted money  in purchase\tof special  bearer bonds, so\nthat such  money which\tis  today  Lying  idle\toutside\t the\nregular economy\t of the country is canalised into productive\npurposes. The object of the Act being to unearth black money\nfor being  utilised for\t productive purposes  with a view to\neffective  social   and\t  economic   planning,\t there\t has\nnecessarily  to\t  be  a\t  classification   between   persons\npossessing black  money and  others and\t such classification\ncannot be regarded as arbitrary or irrational.\n     10. The  validity of  a classification has to be judged\nwith reference\tto The object of the legislation and if that\nis done,  there can be no doubt that the classification made\nby the Act is rational and intelligible and the operation of\nthe provisions\tof the Act is rightly confined to persons in\npossession of black money.\n     11.   The\t  legislature\thad   obviously\t  only\t two\nalternatives: either to allow the black money to remain idle\nand unproductive or to induce those in possession\n954\nof it  to bring\t it out\t in the\t open for being utilised for\nproductive purposes.  The first\t alternative would have left\nno choice  to  the  government\tbut  to\t resort\t to  deficit\nfinancing or  lo impose a heavy dose of taxation. The former\nwould have  resulted in inflationary pressures affecting the\nvulnerable sections  of the  society while  the latter would\nhave increased\tthe burden  on\tthe  honest  tax  payer\t and\nperhaps\t led   to  greater   tax  evasion.  The\t legislature\ntherefore decided to adopt the second alternative of coaxing\npersons in possession of black money to disclose it and make\nit available  to the government for augmenting its resources\nfor productive\tpurposes and  with that\t end in view enacted\nthe Act providing for issue of special bearer bonds.\n     12. It  would be  outside the  province of the court to\nconsider  if   any  particular\t immunity  or  exemption  is\nnecessary or  not for  the purpose of inducing disclosure of\nblack money.  That would  depend  upon\tdiverse\t Fiscal\t and\neconomic considerations\t based on  practical  necessity\t and\nadministrative expediency  and would  also involve a certain\namount of  experimentation on which the Court would be least\nfitted to  pronounce. The Court would not have the necessary\ncompetence and expertise to adjudicate upon such an economic\nissue. The  Court cannot  possibly assess  or evaluate\twhat\nwould be  the impact  of a  particular immunity or exemption\nand whether it would serve the purpose in view or not. There\nare  so\t  many\timponderables  that  would  enter  into\t the\ndetermination that  it would  be wise  for the\tcourt not to\nhazard an opinion where even economists may differ.\n     13. The  court must  while examining the constitutional\nvalidity of  a legislation \"be resilient, not rigid, forward\nlooking, not static, liberal, not verbal\" and the court must\nalways bear  in mind  the constitutional  proposition  \"that\ncourts do  not substitute  their social and economic beliefs\nfor the judgment of legislative bodies\".\n     14. The  court must  defer to  legislative judgment  in\nmatters relating  to social  and economic  policies and must\nnot interfere,\tunless the  exercise of legislative judgment\nappears to be palpably arbitrary.\n[ Per A.C. Gupta, J. dissenting ]\n     1. The Special Bearer Bonds (Immunities and Exemptions)\nordinance, 1981 and the Special Bearer Bonds (Immunities and\nExemptions) Act,  1981 are  invalid on\tthe ground that they\ninfringe Article 14<\/a> of the Constitution. [1002 A]\n     2 The  Act<\/a> puts  a premium on dishonesty without even a\njustification of necessity-that the situation in the country\nleft no option. [1000 H-1001 A]\n     3. The  basis on  which the  holders of  Special Bearer\nBonds have  been classified to give certain advantage to one\nclass and deny them to the other, has no rational nexus with\nthe object of the Act. [996 A]\n     4 (i). Article 14<\/a> forbids class legislation but permits\nclassification-Permissible  classification,   it   is\twell\nestablished, must  satisfy two\tconditions viz.\t (i) li that\nThe  classification  must  be  founded\ton  an\tintelligible\ndifferential which  distinguishes  those  that\tare  grouped\ntogether from others and: (2) that the\n955\ndifferential must  have a  rational relation  to the  object\nsought to be achieved by A the Act<\/a>. [993 G-994 A]\n     4\t(ii).\tThe  differential   that  is  the  basis  of\nclassification and  the\t object\t of  the  Act  are  distinct\nthings, it is not enough that the differential should have a\nnexus with  the object,\t but it should also be intelligible.\nThe presence  of some characteristics in one class which are\nnot found  in another  is the  difference  between  the\t two\nclasses, but a further requirement is that this differential\nmust be\t intelligible. If  the basis of classification is on\nthe face  of it\t arbitrary in  the sense that it is palpably\nunreasonable it\t is not\t possible to  call the\tdifferential\nintelligible. [997 B-C]\n     The State\tof West\t Bengal v.  Anwar Ali Sarkar<\/a>, [1952]\nSCR 284;  E. P.\t Royappa v. State of Tamil Nadu and another<\/a>,\n[1974] 2 SCR 348 and Maneka Gandhi v. Union of India<\/a>, [1978]\n2 SCR 621, referred to.\n     5. The  preamble of the Act takes note of the fact that\nblack money  has become a serious threat to national economy\nand says that to make economic and social planning effective\nit is  necessary to canalise this black money for productive\npurposes. The  Act<\/a> however does not define black money. [990\nF]\n     6. The  immunities provided  by the  impugned  Act\t are\nclearly for the benefit of those who have acquired the Bonds\nwith black  money. Clauses  (a), (b) and (c) of section 3(1)<\/a>\nprovide\t for   these  immunities  \"notwithstanding  anything\ncontained in  any other\t law for  the time  being in force\".\nNone of\t These immunities  is required\tby a  person who has\npaid 'white'  money, that  is, money that has been accounted\nfor to\tacquire the Bonds. To a person who has disclosed the\nsource of  acquisition of the Bonds, These immunities are of\nno use.\t Section  4<\/a>  makes  it\tclear  that  the  immunities\nconferred by  the Act  are of  use only\t to those  who\thave\nacquired the Bonds with unaccounted money. [994 B-D]\n     7. The  impugned Act  denies to those who have acquired\nthe bonds  not with black money any relief under the Income-\ntax Act\t or the\t Wealth-tax Act<\/a>\t or any benefit in any other\nway claimed  on the  ground that they are holders of Special\nBearer Bonds,  and the relief and the benefit denied to them\nhave been  made available  to those  who have  acquired\t the\nBonds with black money by ignoring the source of acquisition\nin their case. [995 C-D]\n     8. The Act<\/a> distinguishes between two classes of holders\nof Special  Bearer Bonds; tax evaders and honest tax-payers.\nThe  object  is\t to  canalise  black  money  for  productive\npurposes to  make economic and social planning effective. If\nthe exemptions\tand immunities\tconferred  by  the  Act\t are\nsufficiently attractive\t to  induce  tax-evader\t to  acquire\nSpecial Bearer Bonds, they will remain as attractive even if\nall these  benefits were granted to those who will pay white\nmoney for  the Bonds.  Denial of these benefits to those who\nhave acquired  the Bonds with money which has been accounted\nfor does  not in  any way further the object of canalisation\nof black  money for  productive purposes. The discrimination\nin favour of black money therefore seems to be obvious. [995\nE-F]\n     9. Terms  like 'reasonable',  'just' or  'fair'  derive\ntheir significance  from  the  existing\t social\t conditions.\nExpressions like a 'reasonable and fair price' or 'fair\n956\nand  equitable\t restitution'  means   nothing,\t except\t  in\nconjunction with  the social  conditions of  the time.\tThat\naction\t is   called   'reasonable'   which   an   informed,\nintelligent, just  minded  civilised  Man  could  rationally\nfavour. [998 F-G]\n     Quaker City  Cab Co. v. Commonwealth of Pennsylvania 72\nLaw. Ed. 927, referred to.\n     10. What  is arbitrary and offends Article 14<\/a> cannot be\ncalled intelligible.  It is clear from the provisions of the\nAct that the advantage which the tax evaders derive from the\nimmunities provided  by the  Act are  not available to those\nwho have  acquired the\tBonds with  'white  money'  The\t Act<\/a>\npromises anonymity and security for tax-evaders. No question\ncan be\tasked as  to the nature and source of acquisition or\npossession of the Bonds. The Bonds can be transferred freely\nand passing  of the  Bonds from\t hand to  hand is  likely to\noperate as  parallel currency  and be  used for\t any kind of\ntransaction. [999 F-G]\n     11. The  Act<\/a> discloses  a\tscheme\twhich  enables\ttax-\nevaders to convert black money into white after 10 years and\nin  the\t  meantime  use\t  the  Bonds  as  parallel  currency\ninitiating a  chain of\tblack money investments. There is no\nprovision in the Act requiring that on maturity of the Bonds\ntheir holders  would have  to disclose their identity, which\nmeans that if after 10 years black money which had taken the\nshape of  Special Bearer  Bonds goes  underground again\t and\nretain its  colour, there is nothing to prevent it. There is\nnothing in  the scheme\tto halt\t generation of\tblack  money\nwhich  threatens   the\tnational  economy.  Some  people  by\nsuccessful evasion  manoeuvres are  able to throw the burden\nof taxation  off their\town shoulders  which means a greater\nburden on  the honest  tax payers and this leads to economic\nimbalance. [1000 B-D]\n     12. Any  law that\trewards law breakers and tax dodgers\nis bound to invite criticism. No law can be struck down only\non the ground that it is unethical. However, there cannot be\nand there  never has  been a  complete separation of law and\nmorality. Historical and ideological differences concern the\nextent to  which the  norms of the social order are absorbed\ninto the  legal order. The principle of reasonableness is an\nessential element of equality. The concept of reasonableness\ndoes not  exclude notions  of morality and ethics. It cannot\nbe disputed  that in  the  circumstances  of  a\t given\tcase\nconsiderations of  morality and ethics may have a bearing on\nthe reasonableness of the law in question. [1001 B-D]\n\n\n\nJUDGMENT:\n<\/pre>\n
     ORlGlNAL JURISDICTION:  Writ Petition  Nos.  355,\t360,
\n863, 994 & 3624 of 1981.\n<\/p>\n
     (Under article 32<\/a> of the Constitution of India)
\n     Petitioner in person in WP. No. 350\/81
\n     R.K Garg, A.R. Gupta, Brij Bhushan, Miss Renu Gupta and
\nS.K Jain for the Petitioner in W.P. 360\/81.\n<\/p>\n
957<\/span><\/p>\n
     Soli J.  Sorabjee, Harish\tSalve, S.K  Dholakia &\tMrs.
\nRanjana Anand for the Petitioners in W.P. 863\/81.\n<\/p>\n
     Soli  J.\tSorabjee,  Harish  Salve,  P.H.\t Parekh,  R.
\nKaranjawala. K.K.  Lahiri &  R. Swamy  for the Petitioner in
\nW.P. 994\/81.\n<\/p>\n
     R.S. Sodhi for the Petitioner in WP 3624\/81.
\n     L.N. Sinha, Attorney General in WPs. 355 & 360\/81.
\n     K Parasaran, Sol. General in WPs. 863 & 994\/81.
\n     K.\t S.   Gurumoorthi  &  Miss  A.\tSubhashini  for\t the
\nRespondents.\n<\/p>\n
     U.N. Banerjee for the intervener-Mr. K.B. Kastia
\n     V.J.  Francis  for\t the  intervener-All  India  L.I.C.,
\nEmployees Federation.\n<\/p>\n
     The following Judgments were delivered
\n     BHAGWATI,\tJ.  These  writ\t petitions  raise  a  common
\nquestion of  law relating  to the constitutional validity of
\nthe  Special   Bearer  Bonds   (Immunities  and\t Exemptions)
\nordinance, 1981\t (hereinafter referred\tto as the ordinance)
\nand the Special Bearer Bonds (Immunities and Exemptions) Act
\n1981 (hereinafter  referred to\tas the\tAct). The  principal
\nground on which the constitutional validity of the ordinance
\nand the\t Act is challenged is that they are violative of the
\nequality clause contained in Article 14<\/a> of the Constitution.
\nThere is  also one  other ground  on which  the ordinance is
\nassailed as  constitutionally invalid  and it  is  that\t the
\nPresident had no power under Article 123<\/a> of the Constitution
\nto issue  the ordinance and the ordinance is therefore ultra
\nvires and  void. We  shall first deal with the latter ground
\nsince it can be disposed of briefly, but before we do so, it
\nwould be  convenient to\t refer to the relevant provisions of
\nthe Act.  It is not necessary to make any specific reference
\nto the\tprovisions of  the ordinance since the provisions of
\nthe Act\t are substantially  a reproduction of the provisions
\nof the ordinance.\n<\/p>\n
     On 12th  January 1981,  both Houses  of Parliament\t not
\nbeing in  session, the\tPresident issued  the  ordinance  in
\nexercise of  the power\tconferred upon him under Article 123<\/a>
\nof the Constitution. The ordinance was later replaced by the
\nAct which received the assent of the President on 27th March
\n1981, but which was brought
\n958<\/span>
\ninto force  with retrospective effect from 12th January 1981
\nbeing the  date of promulgation of the ordinance. The Act<\/a> is
\na brief\t piece of  legislation with  only a few sections but
\nthe ascertainment of their true meaning and legal effect has
\ngiven rise  to considerable  controversy between the parties
\nand hence  it is  necessary to examine the provisions of the
\nAct in\tsome detail.  The long title of the Act describes it
\nas an  Act “to\tprovide for certain immunities to holders of
\nSpecial Bearer\tBonds 1991  and for  certain exemptions from
\ndirect taxes  in relation  to such  Bonds  and\tfor  matters
\nconnected therewith”  and the  provisions enacted in the Act
\nare proceeded  by a  Preamble which indicates the object and
\npurpose of the Act in the following words:\n<\/p>\n
\t  Whereas for effective economic and social planning
\n     it is  necessary to  canalise for\tproductive  purposes
\n     black money  which has  become a  serious threat to the
\n     national economy;\n<\/p><\/blockquote>\n
\t  And whereas  with a  view to such canalisation the
\n     Central Government\t has decided to issue at par certain
\n     bearer bonds  to be  known as the Special Bearer Bonds,
\n     1991, of  the face\t value of  ten thousand\t rupees\t and
\n     redemption value,\tafter ten  years, of twelve thousand
\n     rupees;\n<\/p><\/blockquote>\n
\t  And whereas it is expedient to provide for certain
\n     immunities and  exemptions to  render it  possible\t for
\n     persons in possession of black money to invest the same
\n     in the said Bonds;\n<\/p><\/blockquote>\n
Sections 3<\/a>  and 4<\/a> are extremely material since on their true
\ninterpretation depends\tto a  large extent the determination
\nof the\tquestion relating  to the constitutional validity of
\nthe Act and they may be reproduced as follows:\n<\/p>\n
     3. (1)  Notwithstanding anything contained in any other
\nlaw for the time being in force:-\n<\/p>\n
     (a)  no person  who has  subscribed to or has otherwise
\n\t  acquired Special Bearer Bonds shall be required to
\n\t  disclose, for\t any purpose  whatsoever, the nature
\n\t  and source of acquisition of such Bonds;\n<\/p><\/blockquote>\n
     (b)  no inquiry  or investigation\tshall  be  commenced
\n\t  against any  person under  any  such\tlaw  on\t the
\n\t  ground that
\n959<\/span>
\n     such person has subscribed to or has otherwise acquired
\n     Special Bearer Bonds; and\n<\/p><\/blockquote>\n
     (c)  the fact  that a  person has\tsubscribed to or has
\n\t  other wise acquired Special Bearer Bonds shall not
\n\t  be taken into account and shall be inadmissible as
\n\t  evidence  in\t any  proceedings  relating  to\t any
\n\t  offence or the imposition of any penalty under any
\n\t  such law.<\/p><\/blockquote>\n
     (2) Nothing  in sub-section (1) shall apply in relation
\nto prosecution\tfor any\t offence punishable under Chapter IX
\nor Chapter  XVII of the Indian Penal Code<\/a>, the Prevention of
\nCorruption Act<\/a>,\t 1947 or  any offence  which  is  punishable
\nunder any  other law  and which\t is similar  to\t an  offence
\npunishable under  either of those Chapters or under that Act
\nor for the purpose of enforcement of any civil liability.
\nExplanation   : For  the purposes of this sub-section “civil
\n\t       liability” does\tnot include liability by way
\n\t       of tax  under any  law for  the time being in
\n\t       force.\n<\/p>\n
     4.\t Without   prejudice  to   the\tgenerality   of\t the
\nprovisions of section 3<\/a>, the subscription to, or acquisition
\nof, Special  Bearer Bonds  by any  person shall not be taken
\ninto account  for the  purpose of  any proceedings under the
\nIncome-tax Act<\/a>, 1961 (hereinafter referred to as the Income-
\ntax Act),  the Wealth-tax  Act<\/a> 1957 (hereinafter referred to
\nas  the\t  Wealth-tax  Act<\/a>),   or  the\tGift-tax  Act<\/a>,\t1958
\n(hereinafter referred  to  as  the  Gift-tax  Act<\/a>)  and,  in
\nparticular,  no\t  person  who  has  subscribed\tto,  or\t has
\notherwise acquired, the said Bonds shall be entitled-\n<\/p>\n
     (a)  to claim  any set-off or relief in any assessment,
\n\t  reassessment appeal, reference or other proceeding
\n\t  under\t the   Income-tax  Act<\/a>\t or  t\treopen\tany
\n\t  assessment or\t reassessment made under that Act on
\n\t  the ground  that  he\thas  subscribed\t to  or\t has
\n\t  otherwise acquired the said Bonds;\n<\/p><\/blockquote>\n
     (b)   to claim,  in relation  to any  period before the
\n\t  date of maturity of the said Bonds, that any asset
\n\t  which is  includible in  his net  wealth  for\t any
\n\t  assessment year  under the Wealth-tax Act<\/a> has been
\n\t  converted into the said Bonds: or
\n960<\/span>\n<\/p><\/blockquote>\n
     (c)  to claim,  in relation  to any  period before\t the
\n\t  date of maturity of the said Bonds, that any asset
\n\t  held by  him or  any sum  credited in his books of
\n\t  account or  other wise  held by him represents the
\n\t  consideration received  by him for the transfer of
\n\t  the said Bonds.\n<\/p><\/blockquote>\n
We shall  analyse the  provisions of these two sections when
\nwe deal with the arguments advanced on behalf of the parties
\nand that  will largely\tdecide the  fate  of  the  challenge
\nagainst the  constitutional validity  of the Act, but in the
\nmeanwhile  we\tmay  proceed   to  summarise  the  remaining
\nprovisions of  the Act.\t Section S amends the Income-tax Act<\/a>
\n1961 by\t providing that the definition of “capital asset” in
\nsection 2<\/a>  clause (14) shall not include that Special Bearer
\nBonds issued  under the\t Act so\t that any  profit arising on
\nsale of\t the Special  Bearer Bonds  would not  be liable  to
\ncapital gains  tax and it also excludes from the computation
\nof the\ttotal income  of the assessee, premium on redemption
\nof the\tSpecial Bearer Bonds by introducing a new sub-clause
\nin section  10<\/a> clause (15). Section 5<\/a> sub-section (I) of the
\nWealth Tax  Act 1957  is also  amended by section 6<\/a> so as to
\nexclude the  Special Bearer Bonds from the net wealth of the
\nassessee liable\t to  wealth  tax.  Section  7<\/a>,\tby  amending
\nsection S  sub-section (I)  of the Gift-tax Act 1958 exempts
\ngifts of  Special Bearer  Bonds from  the incidence  of gift
\ntax. Section  8<\/a> confers\t powers on the Central Government to
\nmake order removing any difficulty which may arise in giving
\neffect to  the provisions  of the  Act and  section  9<\/a>\tsub-
\nsection (1)  repeals the  ordinance, but  since the  Act  is
\nbrought into force with effect from the date of promulgation
\nof the ordinance, sub-section (2) of section 9<\/a> provides that
\nnotwithstanding the  repeal of\tthe ordinance, anything done
\nor any\taction taken  under the ordinance shall be deemed to
\nhave been  done or  taken under the corresponding provisions
\nof the Act.\n<\/p>\n
     Having set out the provision of the Act-and be it noted
\nagain  that   the   provisions\t of   the   ordinance\twere
\nsubstantially in  the same  terms as  the provisions  of the
\nAct-we may now proceed to consider the challenge against the
\nconstitutional validity\t of the ordinance on the ground that
\nthe President  had no  power to\t issue the  ordinance  under
\nArticle 123<\/a> of the Constitution. There were two limbs of the
\nargument under\tthis head  of challenge;  one was that since
\nthe ordinance  had the\teffect of  amending the tax laws, it
\nwas outside  the competence  of the  President under Article
\n123<\/a> and\t the other  was\t that  the  subject  matter  of\t the
\nordinance was in the nature
\n961<\/span>
\nof a  Money Bill which could be introduced only in the House
\nof the\tA People  and  passed  according  to  the  procedure
\nprovided in  Articles 109  and 110  and\t the  President\t had
\ntherefore no  power under Article 123<\/a> to issue the Ordinance
\nby-passing the\tspecial procedure provided in Art. 109<\/a> and 1
\n10<\/a> for\tthe passing  of a  Money Bill. There is, as we shall
\npresently point\t out,  no  force  in  either  of  these\t two
\ncontentions, but  we may  point out  straightaway that\tboth
\nthese contentions  are 1  academic, since  the Act  has been
\nbrought into force with effect from the date of promulgation
\nof the\tOrdinance and  sub-section (2) of section 9<\/a> provides
\nthat anything  done or\tany action taken under the Ordinance
\nshall be  deemed to  have  been\t done  or  taken  under\t the
\ncorresponding provisions  of the  Act and  the\tvalidity  of
\nanything done  or any  action taken  under the\tOrdinance is
\ntherefore required  to be  judged not  with reference to the
\nOrdinance under\t which\tit  was\t done  or  taken,  but\twith
\nreference  to\tthe  Act   which  was,\t by  reason  of\t its
\nretrospective enactment,  in force  right from\tthe date  of
\npromulgation of\t the Ordinance\tand under which the thing or
\naction was deemed to have been done or taken. It is in these
\ncircumstances\twholly\t  unnecessary\tto    consider\t the
\nconstitutional validity\t of the\t Ordinance, because  even if
\nthe Ordinance  be unconstitutional, the validity of anything
\ndone or any action taken under the Ordinance, could still be
\njustified with\treference to the provisions of the Act. This
\nwould seem  to be  clear on  first principle  as a matter of
\npure construction  and no  authority is needed in support of
\nit, but\t if any were needed, it may be found in the decision
\nof this\t Court\tin  Gujarat  Pottery  Works  v.\t B.P.  Sood,
\nController of  Mining Leases<\/a>  for India\t and Ors.  There the
\nquestion was  whether the  Mining  Leases  (Modification  of
\nTerms) Rules,  1956 (hereinafter  referred to  as  the\t1956
\nRules)\tmade   under  Mines  and  Minerals  (Regulation\t and
\nDevelopment) Act<\/a>,  1948 (referred  to shortly  as 1948\tAct)
\nwere void  as being  inconsistent with the provisions of the
\n1948 Act  and if  they were  void, they\t could be said to be
\ncontinued by  reason of section 29<\/a> of the Mines and Minerals
\n(Regulation and\t Development) Act<\/a>,  1957 (hereinafter called
\nthe 1957  Act). This  Court sitting  in a Constitution Bench
\nheld that  the 1956  Rules were\t not inconsistent  with\t the
\nprovisions of  the 1948\t Act and  were therefore  valid, but
\nproceeded to  observe that  even if the 1956 rules were void
\nas being  inconsistent with  the provisions of the 1949 Act,
\nthey must  by reason of section 29<\/a> of the 1957 Act be deemed
\nto have been made under that Act and
\n962<\/span>
\ntheir validity\tand continuity\tmust therefore be determined
\nwith reference to the provisions of the 1957 Act and not the
\nprovisions  of\t the  1948   Act  and  since  there  was  no
\ninconsistency between  the 1956\t Rules and the provisions of
\nthe ]957  Act, the  1956 Rules could not be faulted as being
\noutside the power of the Central Government. Raghubar Dayal,
\nJ. speaking  on behalf\tof the\tCourt articulated the reason
\nfor taking this view in the following words:\n<\/p>\n
\t  “Even if  the rules  were not\t consistent with the
\n     provisions of  the 1948 Act and were therefore void, we
\n     do not  agree that\t they could not have continued after
\n     the enforcement of the 1957 Act. Section 29<\/a> reads:\n<\/p><\/blockquote>\n
\t       ‘All rules  made or  purporting to  have been
\n\t  made under  the Mines and Minerals (Regulation and
\n\t  Development) Act<\/a>,  1948, shall,  in so far as they
\n\t  relate to  matters for  which provision is made in
\n\t  this Act  and are  not inconsistent  therewith, be
\n\t  deemed to have been made under this Act as if this
\n\t  Act had  been in  force on  the date on which such
\n\t  rules were made and shall continue in force unless
\n\t  and until  they are  superseded by  any rules made
\n\t  under this Act.’
\n     The effect of this section is that the rules which were
\nmade or\t purported to  have been  made under the 1948 Act in
\nrespect of  matters for\t which rules could be made under the
\n1957 Act  would be  deemed to  have been made under the 1957
\nAct as\tif that\t Act had  been in force on the date on which
\nsuch rules were made and would continue in force. The Act<\/a> of
\n1957 in\t a way\tis deemed  to have  been in  force when\t the
\nmodification rules were framed in 1956. The 1956 rules would
\nbe deemed  to be  framed under\tthe 1957  Act and  therefore
\ntheir validity\tand continuity\tdepends on the provisions of
\nthe 1957 Act and not of the 1948 Act.”\n<\/p><\/blockquote>\n
     In this connection we may refer to the case reported as
\nAbdul Majid v. P.R. Nayak<\/a>, A.I.R. 1951 Bom. 440.  In\tthat
\ncase section  58 of  Act XXXI of 1950 repealed Ordinance No.
\nXXVII of 1949 and provided as follows:\n<\/p><\/blockquote>\n
\t  ‘The repeal  by this\tAct by the Administration of
\n     Evacuee Property  Ordinance 1949  (XXVII of 1949) shall
\n     not affect\t the previous operation thereof, and subject
\n     thereto, anything\tdone or\t any  action  taken  in\t the
\n     exercise of any power conferred by or under that
\n963<\/span>
\n     Ordinance shall be deemed to have been done or taken in
\n     the exercise  of the  powers conferred by or under this
\n     Act, as  if this  Act were in force on the day on which
\n     such thing\t was done  or action  was taken.’ Section 58<\/a>
\n     was construed thus:\n<\/p><\/blockquote>\n
\t  ‘The language\t used in  s. 58<\/a> is both striking and
\n     significant. It does not merely provide that the orders
\n     passed under  the Ordinance shall be deemed to be order
\n     passed under  the Act,  but it provides that the orders
\n     passed under the Ordinance shall be deemed to be orders
\n     under this\t Act as if this Act were in force on the day
\n     on which  certain things  were done  or  action  taken.<\/p><\/blockquote>\n
     Therefore the object of this section is, as it were, to
\n     antedate this  Act so  as to bring it into force on the
\n     day on  which a  particular order\twas passed  which is
\n     being challenged.\tIn other  words, the  validity of an
\n     order is  to  be  judged  not  with  reference  to\t the
\n     Ordinance under which it was passed, but with reference
\n     to the Act subsequently passed by Parliament.’
\n     The rules\thave not  been challenged  to be ultra vires
\nthe 1957 Act in the instant case.”\n<\/p><\/blockquote>\n
The same  process of  reasoning which appealed to this Court
\nin upholding  the validity  of the  1956  Rules\t must  apply
\nequally in  the present\t case and  the validity\t of anything
\ndone or\t any action taken under the Ordinance must be judged
\nwith reference\tto the\tprovisions of the Act and not of the
\nOrdinance. It would therefore be academic for us to consider
\nwhether the  Ordinance was within the Ordinance-making power
\nof the\tPresident under\t Article 123<\/a> and ordinarily we would
\nhave resisted  the temptation  of pronouncing  on this issue
\nbecause it is a self-restraining rule of prudence adopted by
\nthis Court  that “the  court will  not formulate  a rule  of
\nconstitutional law  broader than  is required by the precise
\nfacts to  which it is to be applied.” But since considerable
\nargument was  advanced before  us in regard to this issue we
\ndo not\tthink it  would be  right on  our part\tto refuse to
\nexpress our view upon it.\n<\/p>\n
     The Ordinance was issued by the President under Article
\n123<\/a> which  is the  solitary Article  in chapter\t III  headed
\n“Legislative Powers of the President.” This Article provides
\ninter-alia as follows:\n<\/p>\n
964<\/span><\/p>\n
123 (1)\t  If  at  any  time,  except  when  both  Houses  of
\n\t  Parliament  are   in\tsession,  the  President  is
\n\t  satisfied that circumstances exist which render it
\n\t  necessary for him to take immediate action, he may
\n\t  promulgate such  Ordinances as  the  circumstances
\n\t  appear to him to require.\n<\/p>\n
    (2)\t  An Ordinance\tpromulgated under this article shall
\n\t  have the  same force\tand  effect  as\t an  Act  of
\n\t  Parliament, but every such Ordinance:-\n<\/p>\n
\t  (a)  shall  be   laid\t before\t  both\t Houses\t  of
\n\t       Parliament and  shall cease to operate at the
\n\t       expiration of  six weeks\t from the reassembly
\n\t       of Parliament,  or, if  before the expiration
\n\t       of that\tperiod resolutions  disapproving  it
\n\t       are passed  by both  Houses, upon the passing
\n\t       of the second of those resolutions: and\n<\/p>\n
\t  (b)  may  be\t withdrawn  at\t any  time   by\t the
\n\t       President.\n<\/p>\n
    (3)\t  If and  so far  as an Ordinance under this article
\n\t  makes any  provision which  Parliament  would\t not
\n\t  under this  Constitution be competent to enact, it
\n\t  shall be void.\n<\/p>\n
It will be noticed that under this Article legislature power
\nis conferred  on the  President exercisable when both Houses
\nof Parliament  are not\tin session. It is possible that when
\nneither House  of Parliament  is in session, a situation may
\nbe arise  which needs  to be  dealt with immediately and for
\nwhich there is no adequate provision in the existing law and
\nemergent  legislation\tmay  be\t  necessary  to\t enable\t the
\nexecutive to cope with the situation. What is to be done and
\nhow is the problem to be solved in such a case ? Both Houses
\nof  Parliament\tbeing  in  recess,  no\tlegislation  can  be
\nimmediately undertaken\tand if\tthe legislation is postponed
\nuntil the  House of  Parliament meet damage may be caused to
\npublic weal.  Article 123<\/a>  therefore confers  powers on\t the
\nPresident to  promulgate a  law by  issuing an\tOrdinance to
\nenable the  executive to  deal with  the emergent  situation
\nwhich might  well include a situation created by a law being
\ndeclared void by a Court of law. “Grave public inconvenience
\nwould be  caused”, points out Mr. Seervai in his famous book
\non Constitutional  Law, if  on a  statute like the Sales-tax
\nAct<\/a> being  declared void,  “no machinery  existed whereby  a
\nvalid law could
\n965<\/span>
\nbe promulgated to take the place of the law declared void ‘.
\nThe President  is thus\tgiven legislative  power to issue an
\nOrdinance and  since  under  our  constitutional  scheme  as
\nauthoritatively expounded by this Court in Shamsher and Anr.
\nv. State  of Punjab<\/a>,  the President  cannot  act  except  in
\naccordance with\t the  aid  and\tadvice\tof  his\t Council  of
\nMinisters, it is really the executive which is invested with
\nthis legislative  power. Now  at first blush it might appear
\nrather unusual and that was the main thrust of the criticism
\nof Mr.\tR.K Garg  on this  point that the power to make laws
\nshould have  been entrusted  by the  founding fathers of the
\nConstitution to\t the executive,\t because  according  to\t the
\ntraditional outfit  of a democratic political structure, the
\nlegislative power  must belong\texclusively to\tthe  ejected
\nrepresentatives\t of   the  people  aud\tvesting\t it  in\t the
\nexecutive, though  responsible to  the legislature, would be
\nundemocratic, as it might enable the executive to abuse this
\npower by  securing the\tpassage of  an ordinary bill without
\nrisking a  debate in  the  legislature\tBut  if\t we  closely
\nanalyse this  provision and  consider it in all its aspects,
\nit does\t not appear  to be  so starting, though we may point
\nout even  if it\t were, the  Court would have to accept it as
\nthe expression\tof  the\t collective  will  of  the  founding
\nfathers. It  may be noted, and this was pointed out forcibly
\nby Dr.\tAmbedkar while replying to the criticism against the
\nintroduction of Article 123<\/a> in the Constituent Assembly-that
\nthe legislative\t power conferred on the President under this
\nArticle is  not a  parallel power  of legislation.  It is  a
\npower exercisable  only when  both Houses  of Parliament are
\nnot in\tsession and  it has been conferred ex-necessitate in
\norder to enable the executive to meet an emergent situation.
\nMoreover, the  law made\t by  the  President  by\t issuing  an
\nOrdinance is  of strictly  limited duration.  It  ceases  to
\noperate at  the expiration  of six weeks from the reassembly
\nof Parliament  or if  before the  expiration of this period,
\nresolutions disapproving  it are passed by both Houses, upon
\nthe passing  of the  second of\tthose resolutions. This also
\naffords\t the  clearest\tindication  that  the  President  is
\ninvested with this legislative power only in order to enable
\nthe executive  to tide\tover an emergent situation which may
\narise whilst  the Houses  of Parliament\t are not in session.
\nFurther\t more,\t this  power   to  promulgate  an  Ordinance
\nconferred on the President is co-extensive with the power of
\nParliament to  make laws  and the  President cannot issue an
\nOrdinance which\t Parliament cannot enact into a law. It will
\ntherefore be  seen that legislative power has been conferred
\non
\n966<\/span>
\nthe executive  by the  constitution makers  for a  necessary
\npurpose and  it is  hedged in by limitations and conditions.
\nThe conferment\tof such\t power may appear to be undemocratic
\nbut  it\t  is  not  so,\tbecause\t the  executive\t is  clearly
\nanswerable to  the legislature\tand if the President, on the
\naid and advice of the executive, promulgates an Ordinance in
\nmisuse or  abuse of  this power, the legislature cannot only
\npass a\tresolution disapproving\t the Ordinance\tbut can also
\npass a\tvote of\t no confidence in the executive. There is in
\nthe theory  of constitutional  law complete  control of\t the
\nlegislature over  the executive,  because if  the  executive
\nmisbehaves or forfeits the confidence of the legislature, it
\ncan be\tthrown\tout  by\t the  legislature.  Of\tcourse\tthis
\nsafeguard against  misuse or abuse of power by the executive
\nwould dwindle  in efficacy  and value  according as  if\t the
\nlegislative control  over the  executive diminishes  and the
\nexecutive  begins   to\t dominate   the\t  legislature.\t But
\nnonetheless it\tis a safeguard which protects the vesting of
\nthe legislative\t power in  the President  from the charge of
\nbeing an  undemocratic provision.  We might profitably quote
\nhere the words of one of us (Chandrachud, J, as he then was)
\nin the State of Rajasthan v. Union of India<\/a> where, repelling
\nthe contention\tof the\tpetitioner that\t the  interpretation
\nwhich the  Union of India was inviting the Court to place on
\nArticle 356<\/a> would impair the future of democracy by enabling
\nthe Central  Government to  supersede a\t duly elected  State
\nGovernment and\tto dissolve  its legislature  without  prior
\napproval of Parliament, the learned Judge said-\n<\/p>\n
\t  “…. there  may be  situations  in  which  it  is
\n     imperative to  act expeditiously  and recourse  to\t the
\n     parliamentary process  may,  by  reason  of  the  delay
\n     involved, impair rather than strengthen the functioning
\n     of democracy.  The constitution  has therefore provided
\n     safety-valves to  meet extraordinary  situations.\tThey
\n     have an  imperious garb  and a  repressive content\t but
\n     they are  designed to  save, not destroy democracy. The
\n     fault,  if\t  any,\tis   not  in   the  meeting  of\t the
\n     Constitution but in the working of it.”<\/p><\/blockquote>\n
     These words  provide a complete answer to the criticism
\nof Mr. R.K. Garg.\n<\/p>\n
     Now  once\t it  is\t accepted  that\t the  President\t has
\nlegislative  power   under  Article  123<\/a>  to  promulgate  an
\nOrdinance and this legis-\n<\/p>\n
967<\/span><\/p>\n
lative\tpower\tis  co-extensive   with\t the  power  of\t the
\nParliament to  make laws,  it is  difficult to\tsee how\t any
\nlimitation can\tbe read\t into this  legislative power of the
\nPresident so as to make it ineffective to alter or amend tax
\nlaws. If  Parliament can  by enacting  legislation alter  or
\namend tax  laws, equally  can the President do so by issuing
\nan Ordinance  under Article  123.<\/a> There\t have been, in fact,
\nnumerous  instances   where  the  President  has  issued  an
\nOrdinance replacing  with retrospective\t effect\t a  tax\t law
\ndeclared void by the High Court or this Court. Even offences
\nhave been created by Ordinance issued by the President under
\nArticle 123<\/a>  and such  offences committed during the life of
\nthe Ordinance  have been  held to  be punishable despite the
\nexpiry of  the Ordinance.  Vide: State\tof Punjab  v.  Mohar
\nSingh<\/a>. lt  may also  be noted that Clause (2) of Article 123<\/a>
\nprovides in  terms clear  and  explicit\t that  an  Ordinance
\npromulgated under that Article shall have the same force and
\neffect as an Act of Parliament. That there is no qualitative
\ndifference between  an Ordinance issued by the President and
\nan Act passed by Parliament is also emphasized by clause (2)
\nof Article  367<\/a> which  provides that  any reference  in\t the
\nConstitution to\t Acts or  laws made  by Parliament  shall be
\nconstrued as  including a  reference to an Ordinance made by
\nthe President.\tWe do  not  therefore  think  there  is\t any
\nsubstance in  the contention  of  the  petitioner  that\t the
\nPresident has  no  power  under\t Article  123<\/a>  to  issue  an
\nOrdinance amending  or altering\t the tax  laws and  that the
\nOrdinance was therefore outside the legislative power of the
\nPresident under that Article.\n<\/p>\n
     That takes\t us to the principal question arising in the
\nwrit petitions namely, whether the provisions of the Act are
\nviolative of  Article 14<\/a> of the Constitution. The true scope
\nand ambit  of Article  14<\/a> has  been the\t subject  matter  of
\ndiscussion in  numerous decisions  of  this  Court  and\t the
\npropositions applicable\t to cases arising under that Article
\nhave been  repeated so\tmany times  during the\tlast  thirty
\nyears that they now sound platitudinous. The latest and most
\ncomplete exposition  of the  propositions  relating  to\t the
\napplicability of  Article 14<\/a> as emerging from “the avalanche
\nof  cases   which  have\t  flooded  this\t  Court”  since\t the
\ncommencement of\t the Constitution  is to  be  found  in\t the
\nJudgment of  one of  us (Chandrachud,  J. as he then was) in
\nRe: Special  Courts Bill.  It  not  only  contains  a  lucid
\nstatement of  the propositions arising under Article 14<\/a>, but
\nbeing a decision given by a Bench of seven Judges of this
\n968<\/span>
\nCourt, it is binding upon us. That decision sets out several
\npropositions delineating the true scope and ambit of Article
\n14<\/a> but\tnot all\t of them  are relevant\tfor our\t purpose and
\nhence we  shall refer  only to\tthose which  have  a  direct
\nbearing on the issue before us.\n<\/p>\n
     They clearly  recognise that classification can be made
\nfor the purpose of legislation but lay down that:\n<\/p>\n
     1.\t  The classification  must not be arbitrary but must
\n\t  be rational,\tthat is\t to say, it must not only be
\n\t  based on  some qualities  or characteristics which
\n\t  are  to  be  found  in  all  the  persons  grouped
\n\t  together and\tnot in\tothers who  are left out but
\n\t  those qualities  or characteristics  must  have  a
\n\t  reasonable  relation\t to  the   object   of\t the
\n\t  legislation.\tIn  order  to  pass  the  test,\t two
\n\t  conditions must be fulfilled, namely, (1) that the
\n\t  classification must  be founded on an intelligible
\n\t  differentia which  distinguishes  those  that\t are
\n\t  grouped  together   from  others   and  (2)\tthat
\n\t  differentia must  have a  rational relation to the
\n\t  object sought to be achieved by the Act.\n<\/p><\/blockquote>\n
     2.\t  The  differentia   which  is\t the  basis  of\t the
\n\t  classification and  the  object  of  the  Act\t are
\n\t  distinct things  and what  is\t necessary  is\tthat
\n\t  there must  be a  nexus between  them.   In short,
\n\t  while Article\t 14<\/a> forbids  class discrimination by
\n\t  conferring privileges or imposing liabilities upon
\n\t  persons arbitrarily selected out of a large number
\n\t  of other persons similarly situated in relation to
\n\t  the privileges  sought  to  be  conferred  or\t the
\n\t  liabilities proposed\tto be  imposed, it  does not
\n\t  forbid   classification   for\t  the\tpurpose\t  of
\n\t  legislation, provided\t such classification  is not
\n\t  arbitrary in the sense above mentioned.\n<\/p><\/blockquote>\n
It is  clear that  Article 14<\/a>  does  not  forbid  reasonable
\nclassification of  persons, objects  and transactions by the
\nlegislature for the purpose of attaining specific ends. What
\nis necessary  in order\tto  pass  the  test  of\t permissible
\nclassification under  Article 14<\/a>  is that the classification
\nmust not  be “arbitrary,  artificial or evasive” but must be
\nbased on  some real  and substantial  distinction bearing  a
\njust and  reasonable relation  to the  object sought  to  be
\nachieved by  the legislature.  The question to which we must
\ntherefore address  ourselves is\t whether the  classification
\nmade by the Act in the present case
\n969<\/span>
\nsatisfies  the\t aforesaid  test  or  it  is  arbitrary\t and
\nirrational and\thence A\t violative of  the equal  protection
\nclause in Article 14.<\/a>\n<\/p>\n
     Now while\tconsidering the constitutional validity of a
\nstatute said  to be violative of Article 14<\/a>, it is necessary
\nto bear\t in mind  certain well\testablished principles which
\nhave been  evolved by  the courts  as rules  of guidance  in
\ndischarge of its constitutional function of judicial review.
\nThe first  rule is  that there\tis always  a presumption  in
\nfavour of  the constitutionality of a statute and the burden
\nis upon\t him who  attacks it  to show  that there has been a
\nclear transgression  of the  constitutional principles. This
\nrule is\t based on  the assumption, judicially recognised and
\naccepted, that\tthe legislature\t understands  and  correctly
\nappreciates the\t needs of  its\town  people,  its  laws\t are
\ndirected to  problems made  manifest by\t experience and\t its
\ndiscrimination\tare   based   on   adequate   grounds.\t The
\npresumption of constitutionality is indeed so strong that in
\norder to  sustain it,  the court may take into consideration
\nmatters of  common knowledge,  matters of common report, the
\nhistory of  the times  and may\tassume every  state of facts
\nwhich can be conceived existing at the time of legislation.\n<\/p>\n
     Another rule  of equal importance is that laws relating
\nto  economic   activities  should  be  viewed  with  greater
\nlatitude than  laws touching civil rights such as freedom of
\nspeech, religion  etc. It  has been said by no less a person
\nthan Holmes,  J. that the legislature should be allowed some
\nplay in\t the joints,  because it  has to  deal with  complex
\nproblems which do not admit of solution through any doctrine
\nor straight  jacket formula and this is particularly true in
\ncase of\t legislation dealing  with economic  matters, where,
\nhaving regard  to the  nature of the problems required to be
\ndealt with,  greater play in the joints has to be allowed to
\nthe legislature. The court should feel more inclined to give
\njudicial deference  to legislature judgement in the field of
\neconomic regulation  than in  other areas  where fundamental
\nhuman rights  are involved. Nowhere has this admonition been
\nmore felicitously  expressed than  in Morey  v.\t Dond  where
\nFrankfurter, J. said in his inimitable style:\n<\/p>\n
\t  “In the  utilities, tax  and\teconomic  regulation
\n     cases,  there  are\t good  reasons\tfor  judicial  self-
\n     restraint if  not\tjudicial  deference  to\t legislative
\n     judgment. The legislature after all has the affirmative
\n     responsibility. The courts
\n970<\/span>
\n     have only\tthe power  to destroy,\tnot to\treconstruct.
\n     When these\t are added  to the  complexity\tof  economic
\n     regulation, the  uncertainty, the\tliability to  error,
\n     the bewildering conflict of the experts, and the number
\n     of times the judges have been overruled by events-self-
\n     limitation can  be seen  to be  the  path\tto  judicial
\n     wisdom and institutional prestige and stability.”\n<\/p><\/blockquote>\n
The court must always remember that “legislation is directed
\nto practical problems, that the economic mechanism is highly
\nsensitive and  complex, that  many problems are singular and
\ncontingent, that  laws are  not abstract propositions and do
\nnot relate  to abstract\t units and are not to be measured by
\nabstract symmetry”  that exact\twisdom and  nice adaption of
\nremedy are not always possible and that “judgment is largely
\na prophecy  based on  meagre and  uninterpreted experience”.
\nEvery  legislation   particularly  in  economic\t matters  is
\nessentially empiric  and it  is based  on experimentation or
\nwhat one  may call  trial and  error method and therefore it
\ncannot provide for all possible situations or anticipate all
\npossible abuses.  There may  be crudities  and inequities in
\ncomplicated experimental  economic legislation\tbut on\tthat
\naccount alone  it cannot  be struck  down  as  invalid.\t The
\ncourts cannot,\tas pointed  out by the United States Supreme
\nCourt in  Secretary of\tAgriculture v. Central Reig Refining
\nCompany, be  converted into  tribunals for  relief from such
\ncrudities and inequities. There may even be possibilities of
\nabuse, but  that too  cannot  of  itself  be  a\t ground\t for
\ninvalidating the legislation, because it is not possible for
\nany  legislature   to  anticipate   as\tif  by\tsome  divine
\nprescience, distortions\t and abuses of its legislation which
\nmay be\tmade by\t those subject\tto  its\t provisions  and  to
\nprovide\t against   such\t distortions   and  abuses.  Indeed,
\nhowsoever great\t may be the care bestowed on its framing, it
\nis difficult  to conceive  of a\t legislation  which  is\t not
\ncapable of  being abused  by perverted\thuman ingenuity. The
\nCourt must  therefore adjudge  the constitutionality of such
\nlegislation by\tthe generality\tof its provisions and not by
\nits crudities or inequities or by the possibilities of abuse
\nof any\tof its\tprovisions. If\tany crudities, inequities or
\npossibilities of  abuse come  to light,\t the legislature can
\nalways step  in and  enact suitable  amendatory legislation.
\nThat is\t the essence  of pragmatic approach which must guide
\nand inspire the legislature in dealing with complex economic
\nissues.\n<\/p>\n
971<\/span><\/p>\n
     With these\t prefatory observations,  we may now proceed
\nto examine  the constitutional\tvalidity  of  the  Act.\t The
\nPreamble of  the Act  which “affords useful light as to what
\nthe statute  intends to\t reach” or in other words “affords a
\nclue the  scope of  the statute” makes it clear that the Act
\nis intended  to canalise for productive purposes black money
\nwhich has  become a  serious threat to the national economy.
\nIt is  an undisputed  fact that there is considerable amount
\nof black  money\t in  circulation  which\t is  unaccounted  or
\nconcealed  and\t therefore  outside  the  disclosed  trading
\nchannels.  It\tis  largely  the  product  of  black  market
\ntransactions and  evasion of  tax. Indeed, as pointed out by
\nthe Direct  Taxes Enquiry  Committee headed  by Mr. Wanchoo,
\nretired Chief  Justice of India “tax evasion and black money
\nare closely  and inextricably interlinked.” The abundance of
\nblack money  has in  fact given\t rise to  a parallel economy
\noperating simultaneously  and competing\t with  the  official
\neconomy. This  parallel economy\t has over the years grown in
\nsize and  dimension and even on a conservative estimate, the
\namount of  black money\tcirculation runs  into some thousand
\ncrores. The  menace of\tblack money  has  now  reached\tsuch
\nstaggering proportions\tthat it\t is  causing  havoc  to\t the
\neconomy of  the country and poses a serious challenge to the
\nfulfilment of  our objectives  of distributive\tjustice\t and
\nsetting up  of an  egalitarian society.\t There\tare  several
\ncauses responsible  for the  generation of  black money\t and
\nthey have  been\t analysed  in  the  Report  of\tthe  Wanchoo
\nCommittee. Some of the principal causes may be summarised as
\nfollows: (1)  high rates  of taxation  under the  direct tax
\nlaws: they  breed tax  evasion and generate black money; (2)
\neconomy of  shortages and  consequent controls\tand licences
\nleading to  corruption for  issuing licences and permits and
\nturning\t blind\t eye  to  the  violation  of  controls;\t (3)
\ndonations of  black money encouraged by political parties to
\nmeet election  expenses and  for augmenting  party funds and
\nalso for  personal purposes;  (4) Corrupt business practices
\nsuch as payments of secret commission, bribes, money, pugree
\netc.  which  need  keeping  on\thand  money  in\t black;\t (5)
\nineffective administration  and enforcement  of tax  laws by
\nthe authorities\t and (6) deterioration in moral standards so
\nthat tax  evasion is  no  longer  regarded  as\timmoral\t and
\nunethical and does not carry any social stigma. These causes
\nneed to\t be eliminated\tif we  want to eradicate the evil of
\nblack money.  But whether  any steps  are taken\t or not\t for
\nremoving these\tcauses with  a\tview  to  preventing  future
\ngeneration of black money, the fact remains that today there
\nis considerable\t amount\t of  black  money,  unaccounted\t and
\nconcealed? in the hands of a few persons
\n972<\/span>
\nand it\tis causing incalculable damage to the economy of the
\ncountry.\n<\/p>\n
     The first\tcasualty cf  this evil of black money is the
\nrevenue because it loses the tax which should otherwise have
\ncome to the exchequer. The generation of black money through
\ntax evasion  throws a greater burden on the honest tax payer
\nand leads  to economic\tequality and concentration of wealth
\nin the\thands of  the unscrupulous  few in  the country.  In
\naddition, since\t black money  is  in  a\t way  ‘cheap’  money
\nbecause it  has not  suffered reduction\t by way of taxation,
\nthere is  a natural  tendency among  those who possess it to
\nuse it\tfor lavish  expenditure and conspicuous consumption.
\nThe  existence\t of  black   money  is\tto  a  large  extent
\nresponsible for\t inflationary pressures,  shortages, rise in
\nprices\t and\teconomically   unhealthy    speculation\t  in
\ncommodities. It\t also leads  to leakage of foreign exchange,
\nmaking our  balance of\tpayments rather distorted and unreal
\nand tends  to defeat the economic policies of the Government
\nby making  their implementation ineffective, particularly in
\nthe field  of credit  and investment.  Moreover, since black
\nmoney has  necessarily to  be suppressed  in order to escape
\ndetection, it  results in immobilisation of investible funds
\nwhich would  otherwise be  available to further the economic
\ngrowth of  the nation and in turn, foster the welfare of the
\ncommon man.  It is  therefore no  exaggeration to  say\tthat
\nblack money  is a  cancerous growth in the country’s economy
\nwhich if not checked in time is certain to lead to chaos and
\nruination. There  can be  no doubt  that urgent measures are
\ntherefore required  to be  adopted  for\t preventing  further
\ngeneration of  black money  as also  for unearthing existing
\nblack money  so that  it can  be  canalised  for  productive
\npurposes with  a  view\tto  effective  economic\t and  social
\nplanning.\n<\/p>\n
     Now this  problem of  black money corroding the economy
\nof the\tcountry is  not a new or recent problem. It has been
\nthere almost  since the\t Second World  War and\tit has\tbeen
\ncontinuously engaging  the attention  of the Government. The
\nGovernment has\tadopted various\t measures in the past with a
\nview to\t curbing the  generation of black money and bringing
\nit out\tin the\topen so\t that it  may become  available\t for
\nstrengthening the  economy.  For  instance,  the  Government
\nintroduced several  changes in\tthe administrative set up of
\nthe tax\t department  from  time\t to  time  with\t a  view  to
\nstrengthening the  administrative machinery for checking tax
\nevasion. The  Government also  amended\tsection\t 37<\/a>  of\t the
\nIndian Income  Tax Act\t1922 with a view to conferring power
\non the\ttax authorities\t to carry  out searches and seizures
\nand this power was elaborated and made more
\n973<\/span>
\neffectual when\tthe Income  Tax Act<\/a> 1961 came to be enacted.
\nQuite apart  from these\t legal and  administrative  measures
\ntaken for  the purpose\tof curbing  evasion of\ttax, certain
\nsteps were also taken to tackle the black money built up out
\nof past\t evasions. In  1946, just at the close of the Second
\nWorld War, high denomination notes were demonetised so as to
\nbring within  the net  of taxation black money earned during
\nthe War.  This was followed by the enactment of the Taxation
\nof Income  Investigation Commission  Act<\/a> 1947. Then came the
\nVoluntary Disclosure  Scheme of\t 1951,\tpopularly  known  as
\nTyagi Scheme,  to facilitate  the disclosure  of  suppressed
\nincome\tby  affording  certain\timmunities  from  the  penal
\nprovisions. This  scheme was  however not successful because
\nit helped  to unearth  only Rs. 70.20 crores of black money.
\nThereafter, nearly  a decade  and a  half  later,  a  second
\nscheme of  voluntary disclosure was introduced by section 68<\/a>
\nof the Finance Act 1965. This scheme, popularly known as the
\nsixty-forty scheme,  enabled the  tax  evaders\tto  disclose
\nsuppressed income  by paying  60% of the concealed income as
\ntax and\t bringing the  balance of 40% into their books. This
\nscheme was  a little  more successful  than the earlier one,
\nbut it\tcould help  to net  only about\tRs. 52.1 l crores of
\nblack money.  Closely following\t on the heels of this scheme
\ncame another  scheme under section 24<\/a> of the Finance (No. 2)
\n.Act 1965 popularly known as the ‘Block Scheme’ according to
\nwhich tax  was payable\tat rates  applicable to the block of
\nconcealed income  disclosed and\t not at a fiat rate as under
\nthe sixty-forty\t scheme. This  scheme  received\t a  slightly
\nbetter response\t and the  income disclosed under it amounted
\nto about  Rs.  145  crores.  Then  came\t the  Taxation\tLaws
\n(Amendment  and\t Miscellaneous\tProvisions)  Ordinance\t1965
\nfollowed by  an Act  in identical  terms, which provided for
\nexemption from\ttax in\tcertain cases  of undisclosed income
\ninvested in  National Defence Gold Bonds 1980. We shall have
\noccasion to  consider the  broad scheme of this Act a little
\nlater, but  for the  time being as we may point out that the
\nscheme as  envisaged in this Act was very closely similar to
\nthe scheme  under the  impugned Act.  Subsequent to this Act
\nfollowed the Report of the Wanchoo Committee and as a result
\nof the\trecommendations made  in this  Report certain  penal
\nprovisions contained  in the  Income Tax  Act<\/a> 1961 were made
\nmore severe and rigorous. Then came the Voluntary Disclosure
\nof Income and Wealth Ordinance 1975 which was followed by an
\nAct in\tthe same terms. This legislation introduced a scheme
\nof voluntary  disclosure of  income and\t wealth and provided
\ncertain immunities and exemptions. The record before us does
\nnot show  as to\t what was  the concealed  income and  wealth
\ndisclosed pursuant to this scheme. But it is an indisputable
\nfact
\n974<\/span>
\nthat   the   adoption\tof   these   stringent\t legal\t and
\nadministrative measures\t as also  the introduction  of these
\ndifferent voluntary  disclosure schemes\t did  not  have\t any
\nappreciable effect and despite all these efforts made by the
\nGovernment, the\t problem of  black money  continues unabated
\nand has\t assumed serious  dimensions. It  may be possible to
\nsay and\t that was  the criticism  of Mr.  R.K. Garg-that the
\nenforcement machinery  of  the\ttax  department\t is  not  as
\neffective as  it should\t be and\t no serious  effort has been
\nmade to\t eliminate the\tother causes  of generation of black
\nmoney, but whatever may be the failures of the political and
\nadministrative machinery  and we  are not  here concerned to
\ninquire into  that question  nor are we competent to express
\nany  opinion   upon  it-the   fact  remains  that  there  is
\nconsiderable amount  of black  money in the hands of persons
\nwhich is  causing havoc\t to the\t economy of  the country and
\nseriously prejudicing  mobilisation of\tresources for social
\nand economical reconstruction of the nation.\n<\/p>\n
     It was  to combat\tthis menacing problem of black money
\nand to\tunearth black  money lying  secreted and outside the
\nordinary  trade\t  channels  that  the  Act  was\t enacted  by
\nParliament. It was realised that all efforts to detect black
\nmoney and  to uncover it had failed and the problem of black
\nmoney was  an obstinate\t economic issue\t which\twas  defying
\nsolution and the impugned legislation providing for issue of
\nSpecial Bearer\tBonds was  therefore enacted  with a view to
\nmopping-up black  money and  bringing it out in the open, so
\nthat, instead  of remaining  concealed and  idle, such money
\nmay become  available for  augmenting the  resources of\t the
\nstate and  being utilised  for productive  purposes so as to
\npromote effective social and economic planning. This was the
\nobject for  which  the\tAct  was  enacted  and\tit  is\twith
\nreference to  this object  that we have to determine whether
\nany impermissible  differentiation is  made by the Act so as
\nto involve violation of Article 14.<\/a>\n<\/p>\n
     We may  now turn  to examine the provisions of the act.
\nSection 3<\/a>  sub-section (1)  provides certain immunities to a
\nperson who  subscribed\tto  or\totherwise  acquired  Special
\nBearer Bonds,  Clause (a)  protects such a person from being
\nrequired to disclose, for any purpose whatsoever, the nature
\nand source  of acquisition  of\tthe  Special  Bearer  Bonds.
\nClause (b)  prohibits the  commencement of  any\t inquiry  or
\ninvestigation against  a person\t on the ground of his having
\nsubscribed to  or  otherwise  acquired\tthe  Special  Bearer
\nBonds. And clause (c) provides that the fact of subscription
\nto or acquisition of Special Bearer Bonds shall not be taken
\ninto account
\n975<\/span>
\nand shall  be inadmissible  in evidence\t in any\t proceedings
\nrelating to any offence or the imposition of any penalty. It
\nwill be\t seen that  the immunities  granted under section 3<\/a>,
\nsub-section (1)\t are very  limited in  scope.  They  do\t not
\nprotect the  holder of Special Bearer Bonds from any inquiry
\nor investigation into concealed income which could have been
\nmade if\t he had not subscribed to or acquired Special Bearer
\nBonds. There is no immunity from taxation given to the black
\nmoney which  may be  invested in  Special Bearer Bonds. That
\nmoney  remains\t subject  to   tax  with  all  consequential
\npenalties, if it can be discovered independently of the fact
\nof subscription\t to or\tacquisition of Special Bearer Bonds.
\nThe only  protection given  by section\t3<\/a>, sub-section\t1<\/a> is
\nthat the  fact of  subscription to or acquisition of Special
\nBearer Bonds  shall be\tignored altogether  and shall not be
\nrelied upon  as evidence  showing possession  of undisclosed
\nmoney. This  provision relegates the Revenue to the position
\nas if Special Bearer Bonds had not been purchased at all. If
\nwithout taking\tinto account  the fact of subscription to or
\nacquisition of\tSpecial Bearer Bonds and totally ignoring it
\nas if  it were\tnon-existent, any  inquiry or  investigation
\ninto concealed\tincome could  be carried out and such income
\ndetected and  unearthed, it  would be open to the Revenue to
\ndo so and it would be no answer for the assessee to say that
\nthis money  has been invested by him in Special Bearer Bonds
\nand it\tis therefore  exempt from  tax or that he is on that
\naccount\t not   liable  to   prosecution\t and   penalty\t for
\nconcealment of\tsuch income.  This is  the  main  difference
\nbetween the  impugned Act  and the  Taxation Laws (Amendment
\nand Miscellaneous  Provisions) Act<\/a>,  1965. Under  the latter
\nAct,  where  gold  is  acquired\t by  a\tperson\tout  of\t his
\nundisclosed income,  which is the same thing as black money,
\nand such  gold is  tendered by\thim as\tsubscription for the
\nNational Defence  Gold Bonds,  1980, the  income invested in
\nsuch gold  is exempted\tfrom tax,  but where  Special Bearer
\nBonds are  purchased out  of undisclosed  income  under\t the
\nimpugned Act,  the income  invested in\tthe  Special  Bearer
\nBonds is  not exempt  from tax\tand if\tindependently of the
\nfact of\t purchase of  the Special  Bearer Bonds and ignoring
\nthem altogether,  such income  can be  detected, it would be
\nsubject to  tax. The  entire machinery\tof the taxation Laws
\nfor inquiry  and investigation into concealed income is thus
\nleft untouched\tand no\tprotection is granted to a person in
\nrespect of  his\t concealed  income  merely  because  he\t has
\ninvested  such\t income\t in  Special  Bearer  Bonds.  It  is
\ntherefore incorrect  to say  that  as  soon  as\t any  person
\npurchases Special  Bearer Bonds, he is immunised against the
\nprocesses of taxation laws. Here there is no amnesty granted
\nin respect of any
\n976<\/span>
\npart of\t the concealed\tincome even though it be invested in
\nSpecial Bearer\tBonds. The  whole object of the impugned Act
\nis to  induce those  having black  money to  convert it into
\n‘white money’  by making  it  available\t to  the  State\t for
\nproductive purposes, without granting in return any immunity
\nin respect  of such  black money,  if it  could be  detected
\nthrough the  ordinary processes\t of  taxation  laws  without
\ntaking into  account the  fact of purchase of Special Bearer
\nBonds. Now  it is  true and  this was  one of  the arguments
\nadvanced on  behalf of\tthe petitioner-that  if black  money
\nwere not  invested in Special Bearer Bonds but were Lying in
\ncash, it  could be seized by the tax authorities by carrying
\nout search  and seizure in accordance with the provisions of
\nthe tax\t laws and  this opportunity  to detect\tand  unearth
\nblack money would be lost, if such black money were invested
\nin Special  Bearer Bonds,  because even\t if  Special  Bearer
\nBonds were seized, they cannot be relied upon as evidence of
\npossession  of\t black\tmoney.\tBut  this  argument  of\t the
\npetitioner that\t the detection\tand discovery of black money
\nwould thus  thwarted by\t the conversion\t of black money into
\nSpecial Bearer Bonds is highly theoretical and does not take
\ninto account the practical realities of the situation. If it
\nhad been  possible to detect and discover a substantial part
\nof the\tblack money  in circulation by carrying out searches
\nand seizures,  there would  have been  no need\tto enact the
\nimpugned  Act.\t It  is\t  precisely  because,\tinspite\t  of
\nconsiderable efforts  made by  the tax authorities including
\ncarrying out  of searches  and seizures,  the bulk  of black
\nmoney remained secreted and could not be unearthed, that the
\nimpugned Act  had to be enacted. Moreover, actual seizure of
\nblack money  by carrying out searches is not the only method
\navailable  to\ttax   administration   for   detecting\t and
\ndiscovering black  money. There\t are other  methods also  by
\nwhich concealment  of income  can be  detected and these are
\ncommonly  employed   by\t the   tax  authorities\t  in  making
\nassessment of income or wealth. Close and searching scrutiny
\nof the\tbooks of  account may  reveal that  accounts are not
\nproperly maintained,  unexplained cash\tcredits may  provide
\nevidence  of   concealment  and\t  so  too   unaccounted\t for
\ninvestments or\tlavish expenditure; information derived from
\nexternal sources may indicate that income has been concealed
\nby resorting  to stratagems  like suppression  of  sales  or
\nunderstatement of  consideration; and existence of assets in
\nthe  names  of\tnear  relatives\t may  give  a  lead  showing
\ninvestment of undisclosed income. All these methods and many
\nothers would  still remain  available to the tax authorities
\nfor detecting  undisclosed income  and bringing\t it  to\t tax
\ndespite investment  in Special\tBearer\tBonds.\tThe  taxable
\nincome of the holder of Special Bearer Bonds
\n977<\/span>
\nwould not  stand reduced  by  the  amount  invested  in\t the
\npurchase of Special Bearer Bonds and it would be open to the
\nRevenue to  assess such taxable income in the same manner in
\nwhich it  would do  in any  other case,\t employing the\tsame
\nmethods and  techniques of  inquiry  and  investigation\t for
\ndetermining the\t true taxable income. The only inhibition on
\nthe Revenue  would be  that it would not be entitled to call
\nupon the assessee to disclose for the purpose of assessment,
\nthe nature  and source\tof acquisition of the Special Bearer
\nBonds and  in making  the assessment,  the investment in the
\nSpecial Bearer\tBonds would  have to  be left  wholly out of
\naccount and  the Revenue  would not be entitled to rely upon
\nit as  evidence of  possession of undisclosed money. This is
\nthe only  limited immunity  granted  under  section  3<\/a>\tsub-
\nsection (1)  and even  this limited  immunity is cut down by
\nthe provision  enacted in  subsection (2) of section 3<\/a>. This
\nsub-section says that the immunity granted under sub-section
\n(1) shall  not be  available in\t relation to prosecution for
\nany offence  punishable under  Chapter IX or Chapter XVII of
\nthe Indian  Penal Code<\/a>\tor the\tPrevention of Corruption Act<\/a>
\n1947 or\t any other  similar law.  If therefore an inquiry or
\ninvestigation is  sought to be made against a public servant
\nin respect  of an  offence under  Chapter IX  of the  Indian
\nPenal Code<\/a>  or the Prevention of Corruption Act<\/a> 1947 alleged
\nto have been committed by him, the acquisition or possession
\nof Special  Bearer Bonds  could be a ground for instituting,
\nsuch inquiry  or investigation\tand  it\t could\talso  be  an
\nadmissible piece  of evidence in a prosecution in respect of
\nsuch offence.  The same would be the position in relation to
\nan inquiry,  investigation or  prosecution in  respect of an
\noffence under  Chapter XVlI  of the  Indian Penal  Code<\/a>. The
\nacquisition or\tpossession of Special Bearer Bonds would not
\ntherefore afford  any protection to a public servant against
\na charge of corruption or to a person committing any offence
\nagainst\t property.   Equally  this  immunity  would  not  be
\navailable where\t what is  sought to  be enforced  is a civil
\nliability other\t than liability\t by way of tax. It will thus
\nbe seen that the immunity granted in respect of subscription
\nto or  acquisition of  Special Bearer  Bonds is\t a  severely
\nrestricted immunity  and this  is the  bare minimum immunity
\nnecessary in order to induce holders of black money to bring
\nit out in the open and invest it in Special Bearer Bonds.\n<\/p>\n
     It is  also necessary  to note the further restrictions
\nprovided in  section 4<\/a>\twhich are calculated to pre-empt any
\npossible  abuse\t of  the  immunity  granted  in\t respect  of
\nsubscription to or acquisition of Special Bearer Bonds, This
\nsection in its opening part affirms in
\n978<\/span>
\nunmistakable terms  that subscription  to or  acquisition of
\nSpecial Bearer\tBonds shall not be taken into account in any
\nproceeding under  the Income-tax  Act<\/a> 1961 or the Wealth-tax
\nAct<\/a> 1957  or the  Gift-tax Act<\/a>\t1958. If  any investment  in
\nSpecial Bearer Bonds has been made by the assessee, it is to
\nbe ignored  in making  assessment on  him under\t any of\t the
\nabove-mentioned three tax laws, the assessment is to be made
\nas if  no Special Bearer Bonds had been purchased at all The
\nprocess of  computation of  taxable income and assessment of
\ntax on it remains unaffected and is not in any way deflected
\nor thwarted  by the  investment in Special Bearer Bonds. The
\nposition remains  the same  as it  would have  been if there
\nwere no\t investment in Special Bearer Bonds. We have already
\ndiscussed the  full implications  of this proposition in the
\npreceding paragraph  while dealing  with section 3<\/a> and it is
\nnot  necessary\t to  say   anything  more  about  it.  Then,
\nproceeding further,  after enacting  this provision  in\t the
\nopening part,  section 4<\/a>  branches off\tinto three different
\nclauses,  Clause   (a)\tprovides  that\tno  person  who\t has
\nsubscribed to  or otherwise  acquired Special  Bearer  Bonds
\nshall be  entitled to  claim any  set off  or relief  in any
\nproceeding under  the Income-tax  Act<\/a> 1961  or to reopen any
\nassessment or reassessment made under that Act on the ground
\nthat he\t has subscribed to or otherwise acquired such Bonds.
\nThe holder  of Special\tBearer Bonds  is thus precluded from
\nclaiming any  advantage by  way\t of  set-off  or  relief  or
\nreopening of  assessment on  the ground\t of having  invested
\nundisclosed money  in  purchase\t of  Special  Bearer  Bonds.
\nClause\t(b)  enacts  another  prohibition  with\t a  view  to
\npreventing abuse  of the  immunity  granted  in\t respect  of
\nSpecial Bearer\tBonds  and  says  that\tno  person  who\t has
\nsubscribed to  or otherwise  acquired Special  Bearer  Bonds
\nshall be entitled to claim, in relation to any period before
\nthe date  of maturity of such Bonds, that any asset which is
\nincludible in  his net\twealth for any assessment year under
\nthe Wealth-tax\tAct<\/a> has\t been converted into such Bonds. The
\nobject of  this provision  is to preclude an assessee who is
\nsought to  be taxed  on his  net wealth under the wealth-tax
\nAct from  escaping assessment  to tax  on any  asset forming
\npart of\t his net  wealth by claiming that he has invested it
\nin purchase  of Special\t Bearer\t Bonds.\t The  investment  in
\nSpecial\t Bearer\t  Bonds\t would\t not  grant   immunity\tfrom
\nassessment to  wealth lax to any asset which is found by the
\ntaxing authorities, otherwise than by relying on the fact of
\nacquisition of\tSpecial\t Bearer\t Bonds,\t to  belong  to\t the
\nassessee and  hence forming  part of  his net  wealth .\t The
\nasset  would   be  subjected   to  wealth  tax\tdespite\t the
\ninvestment in Special Bearer Bonds. Then follows clause (c)
\n979<\/span>
\nwhich is  extremely important and which effectively counters
\nthe possibility\t of serious  abuse to  which  the  issue  of
\nSpecial Bearer\tBonds might  otherwise have  lent itself. It
\nprovides that  no person  who has subscribed to or otherwise
\nacquired Special Bearer Bonds shall be entitled to claim, in
\nrelation to  any period\t before the date of maturity of such
\nBonds, that any asset held by him or any sum credited in his
\nbooks of  account or  otherwise held  by him  represents the
\nconsideration received\tby him\tfor  the  transfer  of\tsuch
\nBonds. This  provision precludes  a person  from  explaining
\naway the  existence of\tany asset  held by  him or  any\t sum
\ncredited in his books of account or otherwise held by him by
\nclaiming that  it represents  the sale\tproceeds of  Special
\nBearer Bonds  held by him. If at any time before the date of
\nmaturity of the Special Bearer Bonds held by an assessee, it
\nis found  that any  asset is  held by  him  or\tany  sum  is
\ncredited in  his books\tof accounts  or is otherwise held by
\nhim and\t he is\trequired to explain the nature and source of
\nacquisition of\tsuch asset  or sums  of money,\the cannot be
\nheard to say by way of explanation that such asset or sum of
\nmoney represents  the  consideration  received\tby  him\t for
\ntransfer of  the Special  Bearer  Bonds,  even\tif  that  be
\nfactually  correct.  This  explanation,\t though\t true  being
\nstatutorily  excluded,\t it  would  be\timpossible  for\t the
\nassessee to  offer any other explanation for the acquisition
\nof such\t asset or sum of money, because any such explanation
\nwhich might  be given  by him  would be\t untrue and  in\t the
\nabsence of  any satisfactory  explanation in  regard to\t the
\nnature and  source of  acquisition of  such asset  or sum of
\nmoney, the  Revenue would  be entitled\tto infer  that\tsuch
\nasset has  been acquired  out of  undisclosed income or that
\nsuch sum  of money represents concealed income and hence the
\nvalue of  such asset  or such  sum of money, as the case may
\nbe, should  be treated\tas undisclosed\tincome liable  to be
\nincluded  in  the  taxable  income  of\tthe  assessee.\tVide
\nsections 69<\/a>,  69A<\/a> and 69B<\/a> of the Income-tax Act, 1961. It is
\nobvious that this provision is calculated to act as a strong
\ndeterrent against  negotiability of Special Bearer Bonds for
\ndisclosed or  ‘white’ money.  No holder\t of  Special  Bearer
\nBonds would  dare to  transfer his  Bonds to  another person
\nagainst receipt\t of disclosed  or ‘white’  money, because he
\nwill not  be able  to account for the consideration received
\nby him,\t the true  explanation being statutorily unavailable
\nto him, and such consideration would inevitably be liable to
\nbe regarded  as his  concealed income and would be subjected
\nto tax\tand penalties.\tMoreover, it is difficult to see why
\nanyone should  want to\tinvest disclosed or ‘white’ money in
\nthe acquisition of Special Bearer Bonds. Ordinarily a person
\nwould
\n980<\/span>
\ngo in  for Special  Bearer Bonds  only for  the\t purpose  of
\nconverting his\tundisclosed money  into ‘white’ money and it
\nwould be  quite unusual bordering almost on freakishness for
\nanyone to  acquire Special  Bearer Bonds  with disclosed  or
\n‘white money’ when he can get only 2% simple interest on the
\ninvestment in  Special Bearer  Bonds, while  outside he\t can
\neasily get  anything between  15% to  40%  yield  by  openly
\ndealing\t with\this  disclosed\t or   ‘white’\tmoney.\t The
\ntransferability of Special Bearer Bonds against disclosed or
\n‘white’ money  is thus,\t from a\t practical  point  of  view,
\ncompletely excluded.  The question  may still  arise whether
\nSpecial Bearer\tBonds would  not  pass\tfrom  hand  to\thand
\nagainst undisclosed or black money. Would they not be freely
\nnegotiable against  payment of\tundisclosed or black money ?
\nNow it\tmay be\tconceded that  a purchaser of Special Bearer
\nBonds would  undoubtedly be  interested\t in  acquiring\tsuch
\nBonds by  making payment  of ‘black’ money, because he would
\nthereby\t convert  his  undisclosed  or\t‘black\tmoney’\tinto
\n‘white’ money.\tBut it\tis difficult  to  understand  why  a
\nholder of  Special Bearer Bonds should ever be interested in
\nselling\t such\tBonds  against\treceipt\t of  ‘black  money’.
\nObviously he  would have acquired such Bonds for the purpose
\nof converting  his ‘black  money’ into\t‘white’ in  order to
\navoid the risk of being found in possession of ‘black money’
\nand if\tthat be\t so, it\t is inexplicable as to why he should
\nagain want  to convert\this ‘white  money’ into\t ‘black’  by
\nselling such  Bonds against  receipt of\t ‘black money’.\t The
\nimmunity granted under the provisions of the Act, limited as
\nit is  extends only  to the person who is for the time being
\nthe holder  of Special\tBearer Bonds  and the person who has
\ntransferred the\t Special Bearer Bonds for black money has no
\nimmunity at  all and  all the  provisions of  tax  laws\t are
\navailable against  him for  determining his  true income  or
\nwealth and therefore no one who has purchased Special Bearer
\nBonds with  a view  to earning security against discovery of
\nunaccounted money  in his hands would ordinarily barter away
\nthat security by again receiving black money for the Special
\nBearer Bonds.  Furthermore, even if special bearer bonds are
\ntransferred against receipt of black money, it will not have
\nthe effect  of\tlegalising  more  black\t money\tinto  white,
\nbecause the black money of the seller which had become white
\non his\tsubscribing to\tor acquiring  special  bearer  bonds
\nwould again  be converted  into black  money and  the  black
\nmoney paid  by the  purchaser by  way of consideration would
\nbecome white  by reason\t of  being  converted  into  Special
\nBearer\tBonds.\t The  petitioners   however   expressed\t  an
\napprehension that  special bearer  bonds would\tfetch a much
\nhigher value  in  the  black  market  than  that  originally
\nsubscribed and this would
\n981<\/span>
\nenable a  larger amount\t of black money to be legalised into
\nwhite than  what was  originally invested in subscription to
\nspecial bearer\tbonds. We  do not think this apprehension is
\nwell founded.  It is  true that\t once the  date for original
\nsubscription to\t special bearer\t bonds has expired, the only
\nway in\twhich  special\tbearer\tbonds  could  thereafter  be
\nacquired would be by going in the open market and the number
\nof special  bearer bonds  in the  market  being\t necessarily
\nlimited, they may fetch a higher value in black money from a
\nperson who is anxious to convert his black money into white.
\nIf the\tdemand outreaches  the limited\tsupply, the price of
\nspecial bearer\tbonds in  the black  market may\t exceed\t the
\namount originally invested in subscription to special bearer
\nbonds. But  even so,  the black\t money paid by the purchaser
\nfor acquisition\t of special  bearer bonds  would not  in its
\nentirety be converted into white, it would change its colour
\nfrom black  to white  only  to\tthe  extent  of\t the  amount
\noriginally subscribed for the special bearer bonds or at the
\nmost, if  we also take into account interest on such amount,
\nto the extent of the face value of the special bearer bonds,
\nbecause whatever  be the  amount he might have paid in black
\nmoney for  acquisition of  the\tspecial\t bearer\t bonds,\t the
\nholder of  the special bearer bonds will get only the amount
\nrepresenting the  face value  on  maturity  of\tthe  special
\nbearer bonds.  It will\tthus be\t seen that howsoever special
\nbearer\tbonds\tmay  be\t  transferred\tand   for   whatever
\nconsideration, only a limited amount of black money, namely,
\nthe amount  originally subscribed  for\tthe  special  bearer
\nbonds or  at the most the amount representing the face value
\nof the\tspecial bearer\tbonds would  be legalised into white
\nmoney and  the\tsupposedly  free  negotiability\t of  special
\nbearer bonds  would not\t have the  effect of legalising more
\nblack money  into white or encouraging further generation of
\nblack money.\n<\/p>\n
     There was\talso one  other abuse, said the petitioners,
\nto which  special bearer  bonds might lend themselves and it
\nwas that  if Special  Bearer Bonds  are sold  and  the\tsale
\nproceeds are  utilised in  meeting expenditure, the assessee
\nwould  not  be\tprecluded  by  section\t4<\/a>  clause  (c)\tfrom
\nexplaining the\tsource of  the expenditure  to be  the\tsale
\nconsideration of  the special  bearer  bonds  and  hence  by
\nresorting to  this strategy,  white money can be accumulated
\nas capital  while expenditure  is met  out  of\tblack  money
\nreceived by  way of consideration for sale of special bearer
\nbonds. We  do not  think there\tis any scope for such abuse;
\nthe  apprehension  expressed  by  the  petitioners  is\tmore
\nimaginary than\treal. It  may be  noted\t that  in  order  to
\nsustain his explanation, the assessee would have to prove to
\n982<\/span>
\nthe satisfaction  of the  tax department that he had special
\nbearer bonds and that he sold them for a certain amount. Now
\nif he  has received  black money by way of consideration, it
\nis difficult  to see  how he would ever be able to establish
\nthat he sold special bearer bonds for that particular amount
\nof black  money. Would\the be so fool-hardy as to admit that
\nhe received  the consideration in black money and even if he
\ndoes, would  he ever  be able to prove it? Who would believe
\nhim even  if he\t makes such  an admission  ? And when he has
\nbought special\tbearer bonds  for the  purpose of converting
\nhis black money into white, why should he again reconvert it
\ninto black by selling special bearer bonds for black money ?
\nThe entire  postulate of  the argument of the petitioners is
\ntheoretical and\t has no\t basis in reality. No assessee would
\never admit  that he  incurred expenditure out of black money
\nreceived as  consideration for\tsale of special bearer bonds
\nbecause it  would be impossible for him to establish receipt
\nof black  money from  the purchase and if he is unable to do
\nso, the\t amount of  the\t expenditure  would,  by  reason  of
\nsection 69C<\/a> of the Income-tax Act, 1961, be deemed to be his
\nconcealed income  liable to  tax. Even\tif we assume that in
\nsome rare  and exceptional  case the assessee may be able to
\nestablish that\the sold special bearer bonds against receipt
\nof black  money, the  purchaser would  straightaway run into
\ndifficulties because  the evidence furnished by the assessee
\nwould, in  such a case, clearly establish that the purchaser
\nhad black  money and  he paid  it to  the assessee by way of
\nconsideration and  he would in that event be rendered liable
\nto tax\tand penalty  in respect\t of such  black money.\tThis
\nwould show  the\t utter\timprobability  bordering  almost  on
\nimpossibility, of  special bearer  bonds being\tsubjected to
\nany such abuse as is apprehended by the petitioners.\n<\/p>\n
     It was  then urged\t on behalf  of the  petitioners that
\nsection clause\t(c) operates  only in  relation to  a period
\nbefore the  date of  maturity of  special bearer  bonds\t and
\nafter the  date of  maturity, the  holder of  special bearer
\nbonds can  sell such  bonds, and,  without running any risk,
\ndisclose the  consideration received  by him  as  his  white
\nmoney, because section 4<\/a> clause (c) being out of the way, he
\ncan account for the possession of such money by showing that
\nhe has\treceived it  as consideration  for sale\t of  special
\nbearer bonds and so far as the purchaser is concerned, if he
\nhas paid  the consideration  out of  his black money, he can
\nclaim the  immunity granted  under section 3<\/a> sub-section (1)
\nand his\t black money would be converted into white. Thus the
\nblack money  Of the  seller which  had been  converted\tinto
\nwhite on his subscribing
\n983<\/span>
\nto or  otherwise acquiring special bearer bonds would remain
\nwhite and  in addition,\t the black  money of  the  purchaser
\nwould also be converted into white by reason of his purchase
\nof special  bearer bonds.  This argument plausible though it
\nmay seem.  is in  our  opinion,\t fallacious  and  cannot  be
\nsustained. It is a highly debatable issue whether, under the
\nprovisions of  the Act,\t special bearer\t bonds\tare  at\t all
\nintended to  be transferable after the date of maturity, for
\nthe postulate of the legislation clearly seems to be that on
\nthe date of maturity, special bearer bonds will be encashed.
\nIt is  indeed  difficult  to  believe  that  anyone  holding
\nspecial\t bearer\t bonds\twould  keep  them  uncashed  without
\nearning any  interest from  and after  the date of maturity,
\nwhen  they  can\t be  immediately  encashed  and\t the  amount
\nreceived can  be invested  yielding interest ranging between
\n18 per\tcent to\t 40 per cent. Moreover, special bearer bonds
\nwould cease  to be exempt from wealth tax from and after the
\ndate of\t maturity and  they would therefore be includible in
\nthe net\t wealth of  the holder for the purpose of wealth tax
\nand if\tthat be\t so, how would it benefit the holder to keep
\nthem as\t part of  his net  wealth and pay wealth tax upon it
\nwithout earning\t any interest  ? It  is therefore  extremely
\nunlikely that  Special Bearer  Bonds would  remain  uncashed
\nafter  the   date  of  maturity\t and  it  would\t be  equally
\nimprobable that\t anyone\t should\t want  to  purchase  Special
\nBearer Bonds  after the\t date of  maturity when\t they do not
\nyield any  interest but\t are still  includible\tin  the\t net
\nwealth for  the purpose\t of liability to wealth tax. But let
\nus assume  for the  purpose of argument that in a given case
\nspecial bearer\tbonds  are  not\t encashed  on  the  date  of
\nmaturity and they are lawfully transferred after the date of
\nmaturity for  a consideration  paid by\tthe purchaser. There
\nare two\t alternatives: the  consideration may be paid by the
\npurchaser in white money or in black money. If the purchaser
\npays the  consideration\t in  white  money,  no\tquestion  of
\nconversion of  further black  money into  white\t arises.  rt
\nwould be  a straight  open transaction to which no exception
\ncan be\ttaken. But  let us  consider what consequences would
\nensue if  he pays in black money. The seller would obviously
\nbe interested  in showing  the consideration  as  his  white
\nmoney and  there may  be no  difficulty\t so  far  as  he  ii
\nconcerned,  because   he  would\t  be  able  to\texplain\t the
\npossession of such money by claiming that he has received it
\nby way\tof consideration  for sale  of special bearer bonds.
\nSection 4<\/a>  clause (c)  will not\t stand in  the\tway  of\t his
\noffering that  explanation. But\t so far\t as the purchaser is
\nconcerned, he  will run\t into serious  difficulties. Even if
\nthe immunity  under section 3<\/a> sub-section (l) were available
\nto him\tafter the  date of  maturity, he  will still  be  in
\ntrouble, because the disclosure made by
\n984<\/span>
\nthe seller  would be  the clearest evidence showing that the
\npurchaser  had\t black\tmoney\twhich  he  paid\t by  way  of
\nconsideration  to  the\tseller,\t and  this  evidence,  being
\nindependent of\tthe fact  of acquisition  of special  bearer
\nbonds  by   the\t purchaser,  would  be\tadmissible  and\t the
\npurchaser would\t be liable  to tax and penalty on the amount
\nof black  money paid by him as consideration. We fail to see
\nhow transfer  of special  bearer bonds\tafter  the  date  of
\nmaturity, even\tif legally  permissible, can be utilised for
\nthe purpose of legalising black money into white. But we may
\npoint out  that if at any time after the date of maturity or
\neven before,  it is found that there is some loophole in the
\nprovisions of  the Act\tor that\t special  bearer  bonds\t are
\nutilised for any dishonest or nefarious purpose or are being
\nperverted to  any improper  use, the  legislature can always
\nstep  in  and  amend  the  Act\tor  pass  other\t appropriate
\nlegislation with a view to preventing such abuse. It must be
\nremembered  that  every\t legislation  is  an  experiment  in
\nachieving certain desired ends and trial and error method is
\ninherent  in   every  such   experiment.   Therefore,\twhen
\nexperience shows  that the  legislation as framed has proved
\ninadequate to  achieve its  purpose of mitigating an evil or
\nthere are  cracks and  loopholes in it which are being taken
\nadvantage of  by the  resourcefulness and ingenuity of those
\nminded to benefit themselves at the cost of the State or the
\nothers,\t the   legislature  can\t and  most  certainly  would
\nintervene  and\tchange\tthe  law.  But\tthe  law  cannot  be
\ncondemned as  invalid on  the ground  that after a period of
\nten years it may lend itself to some possible abuse.\n<\/p>\n
     We may  now  proceed  to  consider\t the  constitutional
\nvalidity of  the Act in the light of the above discussion as
\nregards the  scope and\teffect of its various provisions. It
\nis obvious  that the  Act  makes  a  classification  between
\nholders of  black money\t and the rest and provides for issue
\nof special  bearer bonds  with a  view to  inducing  persons
\nbelonging to  the former  class to  invest their unaccounted
\nmoney in  purchase of  special bearer  bonds, so  that\tsuch
\nmoney which  is today Lying idle outside the regular economy
\nof the\tcountry is  canalised into  productive purposes. The
\nobject of  the Act  being to  unearth black  money for being
\nutilised for  productive purposes  with a  view to effective
\nsocial and  economic planning, there has necessarily to be a
\nclassification between\tpersons possessing  black money\t and
\nothers\tand   such  classification  cannot  be\tregarded  as
\narbitrary or  irrational. It is of course true-and this must
\nbe pointed out here since it was faintly touched upon in the
\ncourse of  the arguments-that  there is no legal bar enacted
\nin the Act against
\n985<\/span>
\ninvestment of  white money in subscription to or acquisition
\nof special  bearer bonds.  But the  provisions\tof  the\t Act
\nproperly construed  are such that no one would even think of
\ninvesting white\t money in  special bearer  bonds and  from a
\npractical point\t of view,  they do  operate as a bar against
\nacquisition,  whether\tby  original   subscription  or\t  by
\npurchase, of  special bearer  bonds with  white money. We do
\nnot see\t why anyone should want to invest his white money in
\nsubscribing to or acquiring special bearer bonds which yield
\nonly 2\tper cent simple interest per annum and which are not
\nencashable for\ta period  of not  less than ten years. It is
\ntrue that  special bearer  bonds can be sold before the date
\nof maturity  but who would pay white money for them and even
\nif in  some rare  and exceptional case, a purchaser could be
\nfound who would pay the consideration in white money, no one
\nwill dare  to sell  special bearer  bonds for  white  money,
\nbecause of  the disincentive  provided in section 4<\/a> cl. (c).
\nThe investment\tof white  money in  special bearer  bonds is
\naccordingly, as\t a practical  measure, completely  ruled out
\nand the\t provisions of\tthe Act are intended to operate only
\nqua persons  in\t possession  of\t black\tmoney.\tThere  is  a
\npractical  and\treal  classification  made  between  persons
\nhaving black  money and\t persons not  having such  money and
\nthis  de   facto  classification   is\tclearly\t  based\t  on
\nintelligible differentia  having rational  relation with the
\nobject of  the Act. The petitioners disputed the validity of
\nthis proposition  and contended that the classification made
\nby the\tAct is\tdiscriminatory in  that it  excludes persons
\nwith white  money from taking advantage of the provisions of
\nthe Act by subscribing to or acquiring special bearer bonds.
\nBut this  contention is\t totally  unfounded  and  we  cannot
\naccept the  same. The validity of a classification has to be
\njudged with  reference to  the object of the legislation and
\nif  that   is  done,   there  can   be\tno  doubt  that\t the
\nclassification made  by the Act is rational and intelligible
\nand the\t operation of  the provisions  of the Act is rightly
\nconfined to persons in possession of black money.\n<\/p>\n
     It was  then contended that the Act is unconstitutional
\nas it  offends against\tmorality by  according to  dishonest
\nassesses who  have evaded  payment of  tax,  immunities\t and
\nexemptions which  are denied to honest tax payers. Those who
\nhave broken the law and deprived the State of its legitimate
\ndues are  given benefits  and concessions placing them at an
\nadvantage over\tthose who have observed the law and paid the
\ntaxes due  from them  and this, according to the petitioners
\nis clearly  immoral and\t unwarranted by the Constitution. We
\ndo not\tthink  this  contention\t can  be  sustained.  It  is
\nnecessary
\n986<\/span>
\nto remember  that  we  are  concerned  here  only  with\t the
\nconstitutional\tvalidity   of  the  Act\t and  not  with\t its
\nmorality. Of  course, when  we say  this we  do not  wish to
\nsuggest that  morality can  in no case have relevance to the
\nconstitutional validity of a legislation. There may be cases
\nwhere the  provisions of  a statute  may be  so reeking with
\nimmorality that\t the legislation can be readily condemned as
\narbitrary or  irrational and  hence violative of Article 14.<\/a>
\nBut the\t test in  every such  case would  be not whether the
\nprovisions  of\tthe  statute  offend  against  morality\t but
\nwhether they  are arbitrary  and irrational having regard to
\nall the\t facts and  circumstances of the case. Immorality by
\nitself is  not a  ground of  constitutional challenge and it
\nobviously cannot  be,  because\tmorality  is  essentially  a
\nsubjective value, except in so far as it may be reflected in
\nany provision  of the  Constitution or\tmay have crystalised
\ninto some well-accepted norm of special behaviour. Now there
\ncan be no doubt that under the provisions of the Act certain
\nimmunities  and\t exemptions  are  granted  with\t a  view  to
\ninducing tax  evaders to  invest their\tundisclosed money in
\nspecial bearer\tbonds and  to that  extent  they  are  given
\nbenefits and  concessions which\t are  denied  to  those\t who
\nhonestly pay  their taxes.  Those who  are  honest  and\t who
\nobserve the law are mulcted in paying the taxes legitimately
\ndue from them while those who have broken the law and evaded
\npayment of taxes are allowed by the provisions of the Act to
\nconvert their  black money  into ‘white’  without payment of
\nany tax\t or penalty. The provisions of the Act may thus seem
\nto be  putting premium\ton dishonesty  and  they  may,\tnot,
\nwithout some  justification, be accused of being tinged with
\nsome immorality, but howsoever regrettable or unfortunate it
\nmay be,\t they had  to be enacted by the legislature in order
\nto bring  out black  money in  the open\t and canalise it for
\nproductive purposes. Notwithstanding stringent laws imposing
\nsevere\tpenalties  and\tvigorous  steps\t taken\tby  the\t tax
\nadministration to  detect black\t money and  despite  various
\nvoluntary disclosure  schemes introduced  by the  government
\nfrom time to time, it had not been possible to unearth black
\nmoney and  the menace  of black\t money had  over  the  years
\nassumed alarming proportions causing havoc to the economy of
\nthe country and the legislature was therefore constrained to
\nenact the  Act with a view to mopping up black money so that
\ninstead of  remaining idle, such money could be utilised for
\nproductive purposes  The  problem  of  black  money  was  an
\nobstinate  economic  problem  which  had  been\tdefying\t the
\nGovernment for\tquite some  time and  it  was  in  order  to
\nresolve this  problem that, other efforts having failed. the
\nlegislature decided to enact the Act, even though the
\n987<\/span>
\neffect\tof   its  provisions  might  be\t to  confer  certain
\nundeserved advantages  on tax evaders in possession of black
\nmoney. The  legislature had obviously only two alternatives;
\neither\tto   allow  the\t black\tmoney  to  remain  idle\t and
\nunproductive or to induce those in possession of it to bring
\nit out\tin  the\t open  for  being  utilised  for  productive
\npurposes. The first alternative would have left no choice to
\nthe government\tbut to\tresort to  deficit financing  or  to
\nimpose a  heavy dose  of taxation.  The\t former\t would\thave
\nresulted in  inflationary pressures affecting the vulnerable
\nsections  of   the  society  while  the\t latter\t would\thave
\nincreased the burden on the honest tax payer and perhaps led
\nto greater tax evasion. The legislature therefore decided to
\nadopt  the   second  alternative   of  coaxing\t persons  in
\npossession of  black  money  to\t disclose  it  and  make  it
\navailable to  the government  for augment  in, its resources
\nfor productive\tpurposes and  with that end in view, enacted
\nthe Act\t providing for issue of special bearer bonds. It may
\nbe pointed out that the idea of issuing special bearer bonds
\nfor the\t purpose of  unearthing black  money was not a brain
\nwave which  originated for the first time in the mind of the
\nlegislature in\tthe year  1981. The  suggestion for issue of
\nspecial bearer bonds was made as far back as 1950 by some of
\nthe members  of the  provisional Parliament,  notably  those
\nbelonging  to\tthe  opposition\t  and  the   government\t was
\nrepeatedly asked why it was not issuing special bearer bonds
\nin order  to absorb  the liquidity  and thereby\t control the
\ninflationary pressures\tin the\tcountry. Though the majority
\nof the members of the Wanchoo Committee expressed themselves
\nagainst the  issue of  special bearer  bonds, Shri Chitale a
\nmember of that Committee wrote a dissenting note in which he
\nsuggested that special bearer bonds should be issued. We may
\npoint out that the majority members of the Wanchoo Committee
\nwere against  issue of\tspecial bearer bonds for the purpose
\nof mopping  up black money, because they apprehended certain
\nabuses to which special bearer bonds might be subjected, but
\nas we  have already  pointed out  while discussing  the true
\nmeaning and legal effect of the provisions of the Act, we do
\nnot think  that there  is any scope for such abuses, for the
\nlegislature has,  while enacting  the provisions of the Act,
\ntaken care  to see  that such  abuses  are  reduced  to\t the
\nminimum, if not eliminated altogether.\n<\/p>\n
     It is  true that  certain immunities and exemptions are
\ngranted to  persons investing  their  unaccounted  money  in
\npurchase of  special bearer  bonds but that is an inducement
\nwhich has  to be  offered for  unearthing black money. Those
\nwho have  successfully evaded  taxation and  concealed their
\nincome or wealth despite the stringent tax
\n988<\/span>
\nlaws and  the efforts  of the  tax department  are likely to
\ndisclose their\tunaccounted money without some inducement by
\nway of\timmunities and exceptions and it must necessarily be
\nleft to\t the  legislature  to  decide  what  immunities\t and
\nexemptions would  be sufficient for the purpose. It would be
\noutside the  province  of  the\tcourt  to  consider  if\t any
\nparticular immunity or exemption is necessary or not for the
\npurpose of  inducing disclosure\t of black  money. That would
\ndepend upon diverse fiscal and economic considerations based
\non practical  necessity and  administrative  expediency\t and
\nwould also  involve a  certain amount  of experimentation on
\nwhich the  Court would\tbe least  fitted to  pronounce.\t The
\ncourt would  not have the necessary competence and expertise
\nto adjudicate  upon such an economic issue. The court cannot
\npossibly assess\t or evaluate  what would  be the impact of a
\nparticular immunity  or exemption and whether it would serve
\nthe purpose  in view or not. There are so many imponderables
\nthat would  enter into\tthe determination  that it  would be
\nwise for  the court  not to  hazard an\topinion\t where\teven
\neconomists may\tdiffer. The  court must\t while examining the
\nconstitutional validity\t of a  legislation of this kind, “be
\nresilient, not\trigid, forward looking, not static, liberal,
\nnot verbal”  and the  court must  always bear  in  mind\t the
\nconstitutional proposition  enunciated by  the Supreme Court
\nof the\tUnited States  in Munn\tv. Illinois(l) namely, “that
\ncourts do  not substitute  their social and economic beliefs
\nfor the\t judgment of  legislative bodies”.  The\t court\tmust
\ndefer to  legislative judgment in matters relating to social
\nand economic  policies and  must not  interfere, unless\t the
\nexercise of  legislative judgment  appears  to\tbe  palpably
\narbitrary. The court should constantly remind itself of what
\nthe Supreme  Court of  the United  States said in Metropolis
\nTheater\t Co.   v.  City\t  of  Chicago,(2)”The\tproblems  of
\ngovernment are\tpractical ones\tand may\t justify, if they do
\nnot require,  rough accommodations, illogical it may be, and
\nunscientific. But  even such criticism should not be hastily
\nexpressed. What\t is best  is  not  always  discernible,\t the
\nwisdom of  any choice  may be  disputed or  condemned.\tMere
\nerrors\tof  government\tare  not  subject  to  our  judicial
\nreview.” It  is true that one or the other of the immunities
\nor exemptions granted under the provisions of the Act may be
\ntaken  advantage  of  by  resourceful  persons\tby  adopting
\ningenious methods  and devices\twith a\tview to\t avoiding or
\nsaving tax. But that cannot be helped because
\n989<\/span>
\nhuman ingenuity\t is so\tgreat when it comes to tax avoidance
\nthat it\t would be almost impossible to frame tax legislation
\nwhich cannot  be abused.  Moreover, as\talready pointed\t out
\nabove, the  trial and  error method  is\t inherent  in  every
\nlegislative effort  to deal  with  an  obstinate  social  or
\neconomic issue\tand if\tit is  found that  any\timmunity  or
\nexemption granted  under the  Act is  being utilised for tax
\nevasion or  avoidance not  intended by\tthe legislature, the
\nAct can\t always be  amended and the abuse terminated. We are
\naccordingly of\tthe view  that none of the provisions of the
\nAct is\tviolative  of  Article\t14<\/a>  and\t its  constitutional
\nvalidity must be upheld.\n<\/p>\n
     These were\t the reasons  for which\t we passed our order
\ndated 2nd  September, 1981  rejecting the  challenge against
\nthe constitutional validity of the ordinance and the Act and
\ndismissing the\twrit petitions.\t Since these  writ petitions
\nare in the nature of public interest litigation, we directed
\nthat there should be no order as to costs.\n<\/p>\n
      GUPTA,  J. I was unable to share the view taken by the
\nmajority in  disposing of  these writ petitions on September
\n2, 1981\t that “neither\tthe Special Bearer Bonds (Immunities
\nand Exemptions) ordinance, 1981 nor the Special Bearer Bonds
\n(Immunities and\t Exemptions) Act,  1981 is violative of Art.
\n14<\/a> of  the Constitution”,  and I made the following order on
\nthe same day:-\n<\/p>\n
\t  “I have  come to  the conclusion  that the Special
\n     Bearer Bonds  (Immunities\tand  Exemptions)  ordinance,
\n     1981 and  the  Special  Bearer  Bonds  (Immunities\t and
\n     Exemptions)  Act,\t 1981  violate\t Art.  14<\/a>   of\t the
\n     Constitution and are there- fore invalid. I would allow
\n     the writ petitions with costs.\n<\/p><\/blockquote>\n
\t  I shall give my reasons later.”\n<\/p><\/blockquote>\n
     Here briefly are my reasons.<\/p><\/blockquote>\n
     These five\t writ petitions\t question the constitutional
\nvalidity  of   the  Special  Bearer  Bonds  (Immunities\t and
\nExemptions)  ordinance,\t  1981\tand   Special  Bearer  Bonds
\n(Immunities and\t Exemptions) Act,  1981. The ordinance which
\nwas promulgated\t by the\t President on  January 1 2, 1981 was
\nrepealed and  replaced by  the Act.  The  Act<\/a>  received\t the
\nPresident’s assent on March 27. 1981. Section I
\n990<\/span>
\n(3) of\tthe Act\t says that  it shall  be deemed to have come
\ninto force  on January\t12,  1981.  The\t Provisions  of\t the
\nordinance and  the Act are similar except that section 4<\/a> (c)
\nof  the\t  Act  is   worded  slightly  differently  from\t the
\ncorresponding provision\t of the ordinance but the difference
\nis not\tmaterial  and  I  shall\t hereinafter  refer  to\t the
\nprovisions of the Act only.\n<\/p>\n
     As the  long title\t of the\t Act shows, it is “An Act<\/a> to
\nprovide for  certain immunities to holders of Special Bearer
\nBonds, 1991 and for certain exemptions from the direct taxes
\nin  relation   to  such\t Bonds\tand  for  matters  connected
\ntherewith.” The\t purpose for  which the\t Act was  passed  as
\nappearing from the preamble is:-\n<\/p>\n
\t  “Whereas  for\t  effective  economic\tand   social
\n     planning it  is necessary\tto canalise  for  productive
\n     purposes black  money which has become a serious threat
\n     to the national economy:\n<\/p><\/blockquote>\n
\t  And whereas  with a  view to such canalisation the
\n     Central Government\t has decided to issue at par certain
\n     bearer bonds  to be  known as the Special Bearer Bonds,
\n     1991 of  the face\tvalue of  ten  thousand\t rupees\t and
\n     redemption value,\tafter ten  years, of twelve thousand
\n     rupees;\n<\/p><\/blockquote>\n
\t  And whereas it is expedient to provide for certain
\n     immunities and exemptions to render it possible for per
\n     sons in possession of black money to invest the same in
\n     the said Bonds ;”<\/p><\/blockquote>\n
     The preamble  thus takes  note of\tthe fact  that black
\nmoney has  become a  serious threat  to national economy and
\nsays that  to make economic and social planning effective it
\nis necessary  to canalise  this black  money for  productive
\npurposes. The  Act<\/a> does\t not attempt  to define black money.
\nThe Direct  Taxes Enquiry Committee set up by the Government
\nof India  in 1970  with Shri  K.N.  Wanchoo,  retired  Chief
\nJustice of  the Supreme Court of India, as Chairman explains
\nwhat  the  term\t black\tmoney  means  in  its  final  report
\nsubmitted in December, 1971:\n<\/p>\n
\t  “It  [black  money]  is,  as\tits  name  suggests,
\n     ‘tainted’ money-money which is not clean or which has a
\n     stigma attached  to it..  Black is\t a colour  which  is
\n     generally associated  with evil.  While  it  symbolises
\n     something which
\n991<\/span>
\n     violates moral, social or legal norms, it also suggests
\n     a veil  of secrecy shrouding it. The term ‘black money’
\n     consequently has  both these  implications. It not only
\n     stands for\t money earned by violating legal provisions-
\n     even social  conscience-but  also\tsuggests  that\tsuch
\n     money is kept secret and not accounted for.
\n\t  Today the  term ‘black money’ is generally used to
\n     denote unaccounted\t money or  concealed  income  and\/or
\n     undisclosed  wealth,  as  well  as\t money\tinvolved  in
\n     transactions wholly or partly suppressed.”<\/p><\/blockquote>\n
     The Act<\/a>  contains nine  sections. The sections that are
\nrelevant for the present purpose are set out below.
\nImmuni-\t  3.   (1)\t Notwithstanding anything contained
\nties\t\t\t other law for the time being in
\n\t\t\t force,-<\/p>\n
\t\t    (a)\t no person  who has subscribed to or
\n\t\t\t has  otherwise\t  acquired   special
\n\t\t\t Bearer Bonds  shall be\t required to
\n\t\t\t disclose,    for     any    purpose
\n\t\t\t whatsoever, the  nature and  source
\n\t\t\t of acquisition of such Bonds;\n<\/p>\n
\t\t    (b)\t  no inquiry  or investigation shall
\n\t\t\t be  commenced\tagainst\t any  person
\n\t\t\t under any  such law  on the  ground
\n\t\t\t that such  person has subscribed to
\n\t\t\t or has\t other wise acquired Special
\n\t\t\t Bearer Bonds; and\n<\/p>\n
\t\t    (c)\t    the\t fact\tthat  a\t person\t has
\n\t\t\t subscribed  to\t  or  has  otherwise
\n\t\t\t acquired Special Bearer Bonds shall
\n\t\t\t not be taken into account and shall
\n\t\t\t be inadmissible  as evidence in any
\n\t\t\t proceedings relating to any offence
\n\t\t\t or the\t imposition of\tany  penalty
\n\t\t\t under any such law.\n<\/p>\n
\t       (2)\t x\t   x\t      x\t       x
\n992<\/span>
\nAcquisition.4.\t    Without prejudice  to the generality  of
\netc., of\t    the\t provisions   of  section   3<\/a>,\t the
\nBonds not to\t    subscription  to,\tor  acquisition\t of,
\nbe taken into\t    Special  Bearer   Bonds  by\t any  person
\naccount for\t    shall not  be taken into account for the
\ncertain proc-\t    purpose  of\t any  proceeding  under\t the
\needings.\t    Income-tax\t Act<\/a>,\t 1961\t(hereinafter
\n\t\t    referred to\t as the Income-tax Act<\/a>), the
\n\t\t    Wealth-tax\t Act<\/a>,\t 1957\t(hereinafter
\n\t\t    referred to\t as the\t Wealth-tax Act<\/a>)  or
\n\t\t    the\t Gift  tax  Act,  1958\t(hereinafter
\n\t\t    referred to as the Gift-tax Act<\/a>) and, in
\n\t\t    particular, no person who has subscribed
\n\t\t    to, or  has otherwise acquired, the said
\n\t\t    Bonds shall be entitled-<\/p>\n
\t\t    (a)\t to claim  any set-off\tor relief in
\n\t\t\t any   assessment,    re-assessment,
\n\t\t\t appeal,    reference\t or    other
\n\t\t\t proceeding under the Income-tax Act<\/a>
\n\t\t\t or to reopen any, assessment or re-\n<\/p>\n
\t\t\t assessment made  under that  Act on
\n\t\t\t the ground  that he  has subscribed
\n\t\t\t to or\thas otherwise  acquired\t the
\n\t\t\t said Bonds:\n<\/p>\n
\t\t    (b)\t to claim, in relation to any period
\n\t\t\t before the  date of maturity of the
\n\t\t\t said Bonds, that any asset which is
\n\t\t\t includible in\this net\t wealth\t for
\n\t\t\t any  assessment   year\t under\t the
\n\t\t\t Wealth-tax Act<\/a>\t has been  converted
\n\t\t\t into the said Bonds; or\n<\/p>\n
\t\t    (c)\t to claim, in relation to any period
\n\t\t\t before the  date or maturity of the
\n\t\t\t said Bonds,  that any asset held by
\n\t\t\t him or\t any  sum  credited  in\t his
\n\t\t\t books of  account or otherwise held
\n\t\t\t by him represents the consideration
\n\t\t\t received by him for the transfer of
\n\t\t\t the said Bonds.\n<\/p>\n
Amendment      5.   In the  Income-tax Act<\/a>,-  (a) in section
\nof Act 43\t    2, in  clause (14), after sub clause Act
\nof 1961\t\t    (iv), the  following sub-clause shall be
\n\t\t    inserted, namely:-\t“(v) Special  Bearer
\n\t\t    Bonds,  1991   issued  by\tthe  Central
\n\t\t    Government,”\n<\/p>\n
993<\/span><\/p>\n
\t       (b)  in section\t10<\/a>, in\tclause\t(15),  after
\n\t\t    sub-cluase\t (ia),\tthe  following\tsub-\n<\/p>\n
\t\t    clause shall be inserted, namely:-\n<\/p>\n
\t\t    (ib)  premium   on\tthe   redemption  of
\n\t\t\t Special Bearer Bonds, 1991 :” .\n<\/p>\n
Amendment      6.   In section\tof 5  of the Wealth-tax Act<\/a>,
\nof Act 27\t    in sub-section (1), after clause (xvia),
\nof 1957.\t    the following  clause shall be inserted,
\n\t\t    namely :-\n<\/p>\n
\t\t    (xvib) Special Bearer Bonds, 1991 ;” .\n<\/p>\n
Amendment      7.   In section\t5<\/a> of  the Gift-tax  Act,  in
\nof Act 18\t    sub-section\t  (1), after  clause (iiia),
\nof 1958\t\t    the following  clause shall be inserted,
\n\t\t    namely:-\n<\/p>\n
\t\t  (iiib) “of property in the form of Special
\n\t\t\t Bearer Bonds, 1991.”.”\n<\/p>\n
     The  marginal  notes  against  sections  5<\/a>,  6<\/a>,  and  7<\/a>
\nindicate that  these sections are amendments respectively of
\nthe Income-tax Act<\/a> of 1961, Wealth-tax Act<\/a> of 1957 and Gift-
\ntax Act\t of 1958.  Section 5<\/a>  excludes Special Bearer Bonds,
\n1991 from  the capital\tasset of an assessee and exempts the
\npremium payable\t on the redemption of the Bonds from income-
\ntax. Section  6<\/a> exempts the Bonds from wealth-tax. Section 7<\/a>
\nexempts from gift-tax property in the form of these Bonds.\n<\/p>\n
     The Act<\/a>  has been\tchallenged mainly on the ground that
\nit infringes  Art. 14<\/a>  of the  Constitution. Art. 14<\/a> forbids
\nclass legislation  but permits\tclassification.\t Permissible
\nclassification, it  is well  established, must\tsatisfy\t two
\nconditions which  Das J.  enunciated in\t the State  of\tWest
\nBengal v. Anwar Ali Sarkar<\/a>(l) as follows:-\n<\/p>\n
     “(1) that\tthe classification  must be  founded  on  an
\n\t  intelligible differentia which distinguishes those
\n\t  that are grouped together from others and,
\n994<\/span>
\n      (2)  that the differentia must have rational relation.
\n\t  to the object sought to be achieved by the Act.”\n<\/p><\/blockquote>\n
The immunities\tprovided by the impugned Act are clearly for
\nthe benefit  of those who have acquired the Bonds with black
\nmoney. Clauses (a), (b) and (c) of Section 3<\/a> (1) provide for
\nthese immunities  “notwithstanding anything contained in any
\nother law  for the  time being\tin force.” Clause (a) states
\nthat no\t holder of Special Bearer Bonds shall be required to
\ndisclose  for\tany  purpose   the  nature   and  source  of
\nacquisition of the Bonds. Clause (b) forbids commencement of
\nany enquiry  or investigation under any law against a person
\non the\tground\tthat  he  has  subscribed  to  or  otherwise
\nacquired the  Bonds. Under clause (c) the fact that a person
\nhas subscribed to or otherwise acquired Special Bearer Bonds
\nshall be  inadmissible in  evidence and cannot be taken into
\naccount in  any proceeding  relating to\t any offence  or the
\nimposition of  any penalty  under any  law.  None  of  these
\nimmunities is  required by  a person  who has  paid  ‘white’
\nmoney, that  is, money\tthat  has  been\t accounted  for,  to
\nacquire Bonds.\tTo a  person who has disclosed the source of
\nacquisition of\tthe Bonds,  these immunities  are of no use.
\nSection 4<\/a>  makes it  clear that\t the immunities conferred by
\nthe Act are of use only to those who have acquired the Bonds
\nwith unaccounted  money. Section 4<\/a> states that the fact that
\none has\t subscribed to or otherwise acquired the Bonds shall
\nnot be\ttaken into  account  in\t any  proceeding  under\t the
\nIncome-tax Act<\/a>, 1961, the Wealth-tax Act<\/a>, 1957 and the Gift-
\ntax Act,  1958 and  goes on  to provide specifically that no
\none shall be entitled to:\n<\/p>\n
     (a)  any manner  of relief\t under the Income-tax Act<\/a> on
\n\t  the ground that he has acquired the Bonds; or\n<\/p><\/blockquote>\n
     (b)  claim that any asset belonging to him which formed
\n\t  part of  his net  wealth in  any period before the
\n\t  maturity of  the Bonds,  has been  converted\tinto
\n\t  such Bonds; or\n<\/p><\/blockquote>\n
     (c)   claim that  any asset  held by  him or any sum of
\n\t  money\t credited   in\this   books  of\t account  or
\n\t  otherwise held  by him  in the aforesaid period is
\n\t  the consideration received by him for the transfer
\n\t  of the Bonds.\n<\/p><\/blockquote>\n
Mr. Salve  appearing for  the petitioners  in writ petitions
\nNos. 863 and 994 of 1981 contended that section 4(c)<\/a> did not
\nconstitute an
\n995<\/span>
\nabsolute bar  to the assessee seeking to prove that the said
\nsum or\tasset represents  the sale  price of  Special Bearer
\nBonds; on  behalf of the Union of India it was asserted that
\nthis was  an absolute  bar. In view of the conclusion I have
\nreached, I  do not  propose to\tdecide the point and I shall
\nproceed on  the basis  that it\tis an  absolute bar.  It  is
\napparent from  clauses (a)  to (c)  of section\t4<\/a>  that\t the
\nrights they  deny affect only those who have disclosed their
\nsource of  acquisition of the Bonds. Those in whose case the
\nsource of acquisition has not been detected are not affected
\nby the\tprohibition contained in section 4<\/a>. The impugned Act
\ndenies to  those who  have acquired the Bonds not with black
\nmoney any  relief under the Income-tax Act<\/a> or the Wealth-tax
\nAct<\/a> or any benefit in any other way claimed by on the ground
\nthat they  are holders\tof Special  Bearer  Bonds,  and\t the
\nrelief and  the\t benefit  denied  to  them  have  been\tmade
\navailable to  those who\t have acquired\tthe Bonds with black
\nmoney by ignoring the source of acquisition in their case.\n<\/p>\n
     The Act<\/a>  thus  distinguishes  between  two\t classes  of
\nholders of Special Bearer Bonds: tax-evaders and honest tax-
\npayers. Has  this classification  a rational relation to the
\nobject of  the Act  ? The  object, as already noticed, is to
\ncanalise  black\t  money\t for  productive  purposes  to\tmake
\neconomic and  social planning  effective. If  the exemptions
\nand  immunities\t  conferred  by\t the  Act  are\tsufficiently
\nattractive to  induce tax-evaders  to acquire Special Bearer
\nBonds, they  will remain  as attractive\t even if  all  these
\nbenefits were  granted to  those who  will pay ‘white’ money
\nfor the\t Bonds. Denial\tof these  benefits to those who have
\nacquired the  Bonds with  money which has been accounted for
\ndoes not  in any  way further  the object of canalisation of
\nblack money  for productive  purposes. The discrimination in
\nfavour of  black money therefore seems to be obvious. It was
\nhowever argued\tthat no\t one would  be\tinclined  to  invest
\n‘white’ money  for Special  Bearer Bonds  which carry only 2
\nper  cent  annual  interest.  I\t do  not  think\t this  is  a
\nconsideration which  could justify the discrimination. Apart
\nfrom that,  a return of 2 per cent simple interest per annum
\nis not\ta correct measure of the actual advantages conferred
\nby the\tAct. Taking  into account  the\tincome-tax  and\t the
\nwealth-tax savings if one did not have to pay any tax on the
\namount\twith  which  Special  Bearer  Bonds  were  acquired-
\npurchasers of the Bonds with black money did not-and the tax
\nfree premium  on the  Bonds, the actual return would be many
\ntimes more  than 2  per cent  simple interest  per annum. It
\nmust therefore be held that
\n996<\/span>
\nthe basis  on which the holders of Special Bearer Bonds have
\nbeen classified\t to give certain advantages to one class and
\ndeny them  to the  other, has  no rational  nexus  with\t the
\nobject of the Act.\n<\/p>\n
     The matter\t has another  aspect. The  classification of
\nholders of  Special Bearer  Bonds into\ttax-payers and\ttax-
\nevaders does  disclose a  basis. Would\tit be  an acceptable
\nargument to say that this basis has a relation to the object
\nof the\tAct because  the black\tmoney  invested\t in  Special
\nBearer Bonds by tax-evaders could be utilised for productive
\npurposes for  ten years\t and that  both the  conditions of a
\nvalid classification  were thus satisfied ? I am afraid not.
\nIn State  of West Bengal v. Anwar Ali Sarkar<\/a>, (supra) Das J.
\npoints out:\n<\/p>\n
\t  “The\tdifferentia   which  is\t the  basis  of\t the
\n     classification and\t the object  of the Act are distinct
\n     things and\t what is  necessary is\tthat there must be a
\n     nexus between  them. In  short while  the Article [Art.
\n     14]<\/a>  forbids  class  legislation  in  sense  of  making
\n     improper discrimination  by  conferring  privileges  or
\n     imposing liabilities  upon persons arbitrarily selected
\n     out of  a\tlarge  number  of  other  persons  similarly
\n     situated in  relation to  the privileges  sought to  be
\n     conferred or  the liability  proposed to be imposed, it
\n     does not  forbid  classification  for  the\t purpose  of
\n     legislation.. ”\n<\/p><\/blockquote>\n
In Anwar  Ali Sarkar’s\tcase the  constitutional validity of
\nthe West  Bengal Special Courts Act (X of 1950) constituting
\nspecial courts\tand empowering the state government to refer
\n‘cases’ ‘offences’  or ‘classes\t of cases’  or\t‘classes  of
\noffences’ to  such courts was in question. The object of the
\nWest Bengal  Act<\/a> was  to provide  for the  speedier trial of
\ncertain offences. Das J. Observes further:\n<\/p>\n
\t  “To achieve this object, offences or cases have to
\n     be classified  upon the basis of some differentia which
\n     will distinguish  those offences  or cases\t from others
\n     and which\twill  have  a  reasonable  relation  to\t the
\n     recited object  of the  Act. The  differentia  and\t the
\n     object being,  as I  have said,  different elements, it
\n     follows that  the object  by itself cannot be the basis
\n     of the  classification of offences or the cases, for in
\n     the absence  of any  special  circumstances  which\t may
\n     distinguish one offence or one class of offences or one
\n     class
\n997<\/span>
\n     of cases  from another offence, or class of offences or
\n     class   of cases,\tspeedier trial\tis desirable  in the
\n     disposal of  all offences\tor classes  of\toffences  or
\n     classes of cases.”
\n     If\t  the\tdifferentia,   that   is,   the\t  basis\t  of
\nclassification, and  the object\t of  the  Act  are  distinct
\nthings,\t it   follows  that   it  is  not  enough  that\t the
\ndifferentia should  have a  nexus with\tthe object,  but  it
\nshould\talso   be  intelligible.   The\tpresence   of\tsome
\ncharacteristics in  one class which are not found in another
\nis the\tdifference between  the two  classes, but  a further
\nrequirement is\tthat this  differentia must be intelligible.\n<\/p><\/blockquote>\n
If the\tbasis  of  classification  is  on  the\tface  of  it
\narbitrary in  the sense\t that it is palpably unreasonable, I
\ndo  not\t think\tit  is\tpossible  to  call  the\t differentia
\nintelligible. The  following passage  from the\tjudgment  of
\nBose J. in Anwar Ali Sarkar’s case illustrates the point:\n<\/p>\n
\t  “I can conceive of cases where there is the utmost
\n     good faith\/and  where the\tclassification is scientific
\n     and rational  and yet  which would offend this law. Let
\n     us take  an imaginary case in which a State legislature
\n     considers\tthat   all  accused   persons  whose   skull
\n     measurements are  below  a\t certain  standard,  or\t who
\n     cannot pass a given series of intelligence tests, shall
\n     be tried  summarily whatever  the offence on the ground
\n     that the less complicated the trial the fairer it is to
\n     their   sub-standard    of\t  intelligence.\t   Here\t  is
\n     classification. It\t is scientific\tand systematic.\t The
\n     intention and  motive are good. There is no question of
\n     favouritism, and  yet I  can hardly believe that such a
\n     law would\tbe allowed  to stand.  But what would be the
\n     true basis\t of the\t decision ?  Surely simply this that
\n     the Judges would not consider that fair and proper.”\n<\/p><\/blockquote>\n
The scope  of Art.  14<\/a> was further elaborated in some of the
\nlater decisions\t of this  Court. This  is what\tBhagwati, J.
\nspeaking for himself and Chandrachud and Krishna Iyer JJ, in
\nE.P. Royappa v. State of Tamil Nadu and another<\/a>(l) says:\n<\/p>\n
\t  “We cannot countenance any attempt to truncate its
\n     all-embracing scope  and meaning, for to do so would be
\n     to\t violate  its  activist\t magnitude.  Equality  is  a
\n     dynamic
\n998<\/span>
\n     concept with  many aspects and dimensions and it cannot
\n     be “cribed,  cabbined and\tconfined” within traditional
\n     and doctrinaire  limits. From  a positivistic points of
\n     view, equality  is antithetic to arbitrariness. In fact
\n     equality  and  arbitrariness  are\tsworn  enemies;\t one
\n     belongs to\t the rule  of law  in a\t republic while\t the
\n     other, to\tthe whim and caprice of an absolute monarch.
\n     Where an  act is arbitrary it is implicit in it that it
\n     is\t unequal  both\taccording  to  political  logic\t and
\n     constitutional law\t and is\t therefore violative of Art.\n<\/p><\/blockquote>\n
     14.”\n<\/p><\/blockquote>\n
Bhagwati J. reiterates in Maneka Gandhi v. Union of India<\/a>(l)
\nwhat he had said in Royappa’s case and adds:\n<\/p>\n
\t  “The principle of reasonableness, which legally as
\n     well as  philosophically, is  an essential\t element  of
\n     equality or  non-arbitrariness pervades Article 14<\/a> like
\n     a brooding omnipresence . . . “<\/p><\/blockquote>\n
     To pass  the test\tof reasonableness  if it  was enough
\nthat there  should be  a differentia  which should have some
\nconnection  with   the\tobject\t of  the   Act,\t then  these
\nobservations made  in Maneka  Gandhi and Royappa would be so
\nmuch wasted  eloquence. The  decisions of  this Court insist
\nthat the  differentia must  be intelligible  and  the  nexus
\nrational, and the observations quoted above would seem to be
\nappropriate only if we attach some significance to the words
\n‘intelligible’ and ‘rational’. The question however remains:
\nwhen is\t one justified\tin describing something as arbitrary
\nor unreasonable\t ? Terms like ‘reasonable’, ‘just’ or ‘fair’
\nderive\ttheir\tsignificance  from   the   existing   social
\nconditions. W. Friedmann in his “Legal Theory” (5th Ed. page\n<\/p>\n
80) points  out that expressions like “a reasonable and fair
\nprice” or  a “fair and equitable” restitution means nothing,
\nexcept in  conjunction with  the social\t conditions  of\t the
\ntime”. Brandeis\t J. in his opinion in Quaker City Cab Co. v.
\nCommonwealth   of    Pennsylvania(2)   explains\t   when\t   a
\nclassification shall  be reasonable:  ‘We call\tthat  action
\nreasonable  which  an  informed,  intelligent,\tjust-minded,
\ncivilized men could rationally favour.” Bose J. in Anwar Ali
\nSarkar’s case says much the same
\n999<\/span>
\nthing in  holing that  the West Bengal Special Courts Act of
\n1950 offends Art. 14:<\/a>\n<\/p>\n
\t  “We find men accused of heinous crimes called upon
\n     to answer\tfor their  lives and liberties. We find them
\n     picked out from their fellows, and however much the new
\n     procedure may  give them  a few crumbs of advantage, in
\n     the bulk  they are deprived of substantial and valuable
\n     privileges of  defence which others, similarly charged,
\n     are able  to claim. It matters not to me, nor indeed to
\n     them and their families and their friends, whether this
\n     be done  in good  faith, whether  it be  done  for\t the
\n     convenience of  government, whether  the process can be
\n     scientifically classified\tand labelled,  or whether it
\n     is an  experiment in  speedier trials made for the good
\n     of society\t at large.  It matters\tnot  how  lofty\t and
\n     laudable the  motives are.\t The question  with which  I
\n     charge myself is, can fair-minded, reasonable, unbiased
\n     and resolute  men, who  are not  swayed by\t emotion  or
\n     prejudice, regard\tthis with  equanimity  and  call  it
\n     reasonable, just  and fair,  regard it  as\t that  equal
\n     treatment and  protection in  the defence\tof liberties
\n     which is expected of a sovereign democratic republic in
\n     the conditions which obtain in India today ?”<\/p><\/blockquote>\n
     Keeping  in   mind\t these\t observations  on   what  is
\nreasonable, is\tthe basis  on which  the holders  of Special
\nBearer Bonds  have been\t classified into  two groups, honest
\ntax-payers and tax-evaders, intelligible ? What is arbitrary
\nand offends  Art. 14<\/a>,  cannot be  called intelligible. It is
\nclear from  the provisions  of the  Act set out earlier that
\nthe  advantages\t  which\t the  tax-evaders  derive  from\t the
\nimmunities provided  by the  Act are  not available to those
\nwho have  acquired the\tBonds with  ‘white’ money.  The\t Act<\/a>
\npromises anonymity and security for tax-evaders. No question
\ncan be\tasked as  to the nature and source of acquisition or
\npossession of  the  Bonds.  The\t Bonds\tcan  be\t transferred
\nfreely, and  the apprehension  expressed by  the petitioners
\ncannot he said to be baseless that passing from hand to hand
\nthe Bonds  are likely to operate as parallel currency and be
\nused for  any kind  of transaction.  From a  reading of\t the
\npreamble of  the Act it does not seem that the object of the
\nAct was\t only to  enable the Central Government to have some
\nuse for\t 10 years  of the  black money which is said to have
\n“become a serious threat
\n1000<\/span>
\nto the national economy”. As I read the preamble the purpose
\nof the\tAct is\tto  unearth  black  money  and\tuse  it\t for
\nproductive  purposes   for  effective  economic\t and  social
\nplanning. If  that be the object of the Act, it is difficult
\nto see\thow its\t provisions help  to  achieve  the  intended
\npurpose. The  Act<\/a>  discloses  a\t scheme\t which\tenables\t tax
\nevaders to convert black money into white after 10 years and
\nin  the\t  meantime  use\t  the  Bonds  as  parallel  currency
\ninitiating a  chain of\tblack money  investments There is no
\nprovision in the Act requiring that on maturity of the Bonds
\ntheir holders  would have  to disclose their identity, which
\nmeans that if after 10 years black money which had taken the
\nshape of  Special Bearer  Bonds goes  under-ground again and
\nretain its  colour, there is nothing to prevent it. There is
\nnothing in  the scheme\tto halt\t generation of\tblack  money
\nwhich  threatens   the\tnational  economy.  Some  people  by
\nsuccessful evasion  manoeuvres are  able to throw the burden
\nof taxation  of their  own shoulders  which means  a greater
\nburden on  the honest  tax-payers and this leads to economic
\nimbalance. On  the effect  of  giving  concessions  to\tsuch
\nunscrupulous tax-evaders  in preference\t to the\t honest tax-
\npayers, Mr. R.K. Garg appearing in person and Mr. Salve both
\nrepeated what  the Direct  Taxes Enquiry  Committee’s  final
\nreport says:  “Resorting to  such a measure would only shake
\nthe confidence\tof the\thonest tax-payers in the capacity of
\nthe Government\tto deal\t with the  law\tbreakers  and  would
\ninvite\tcontempt   for\tits   enforcement  machinery.”\t The
\npetitioners submitted further that measures like the Special
\nBearer Bonds  scheme would  tempt more people to evade taxes
\nand instead  of serving\t a legitimate  public interest would
\ngrievously damage it.\n<\/p>\n
     It has  been pointed out that there have been voluntary
\ndisclosure schemes in the past. That is so, but none of them
\nis quite  like the scheme in question which not only exempts
\nthe unaccounted\t money in  the shape of Special Bearer Bonds
\nfrom all  taxes but  provides also for a tax-free premium on
\nit. According  to the  petitioners, if\tthe earlier  schemes
\nhave  been  conciliatory,  the\tpresent\t scheme\t amounts  to
\ncapitulation to black money. I asked the Attorney General if
\nit was his case that all attempts to unearth black money had
\nfailed and  the present scheme was the only course open. His
\nanswer was  that was  not his  case The\t affidavit filed  on
\nbehalf of the Union of India also does not make such a case.
\nClearly, the  impugned Act  puts  a  premium  on  dishonesty
\nwithout even a justi-\n<\/p>\n
1001<\/span><\/p>\n
fication of necessity-that the situation in the country left
\nno  option.\n<\/p>\n
     The Act<\/a>  has been\tcriticised as immoral and unethical.
\nAny law\t that rewards  law breakers and tax dodgers is bound
\nto invite  such criticism.  Should the\tcourt concern itself
\nwith questions\tof morality  and ethics\t in considering\t the
\nconstitutional validity\t of an Act ? of course no law can be
\nstruck down only on the ground that it is unethical. However
\nas Friedmann  in his  “Legal Theory”  (page 43) says: “There
\ncannot be-and  there never has been-a complete separation of
\nlaw and\t morality. Historical  and  ideological\t differences
\nconcern the  extent to\twhich the norlns of the social order
\nare absorbed  into the\tgeneral\t order.” It has been held by
\nthis Court  in Royappa\tand Maneka Gandhi that the principle
\nof reasonableness  is an  essential element of equality. The
\nconcept\t of  reasonableness  does  not\texclude\t notions  of
\nmorality and  ethics. I\t do not\t see how  it can be disputed
\nthat in\t the circumstances of a given case considerations of
\nmorality and ethics may have a bearing on the reasonableness
\nof the law in question.\n<\/p>\n
     Having regard  to the  provisions of  the impugned\t Act
\nwhich I\t have discussed\t above and  the object of the Act to
\nwhich I\t have referred,\t is it\tpossible to  say that  it is
\nreasonable to classify the E holders of Special Bearer Bonds
\ninto honest  tax-payers and  tax-evaders for  the purpose of
\nconferring benefits  on the  tax-evaders and denying them to
\nthose who  have honestly paid their taxes, especially when a
\nmeasure appeasing  the tax-evaders  to the extent the scheme
\nin question  does  is  not  claimed  as\t unavoidable  ?\t The
\ninformed, fair-minded,\tcivilized man on whose judgment both
\nBrandeis J.  and Bose J. rely, would he have found the basis
\nof the\tclassification intelligible  ? The  questions answer
\nthemselves, the\t arbitrary character  of the differentiation
\nis so  obvious. I  do not  think it  is possible to take the
\nrhetoric of  Royappa and  Maneka Gandhi\t seriously and\tfind
\nthat the Act passes the test of reasonableness.\n<\/p>\n
     What I  have said\tabove on  the Special  Bearer  Bonds
\nscheme should not be read as an expression of opinion on the
\nwisdom of  the government  policy-that the scheme is not the
\nbest in\t circumstances. My  conclusion is  based not on what
\nthe policy  of the  government is  but on  what the equality
\nelause in Art. 14<\/a> requires.\n<\/p>\n
1002<\/span><\/p>\n
     Having held  that the  Special Bearer Bonds (Immunities
\nand Exemptions) ordinance, 1981 and the Special Bearer Bonds
\n(Immunities and\t Exemptions) Act,  1981 are  invalid on\t the
\nground that  they infringe Art. 14<\/a> of the Constitution, I do
\nnot find  it necessary\tto consider  whether Special  Bearer
\nBonds (Immunities and Exemptions) ordinance, 1981 is outside
\nthe ordinance  making power  of the President under Art. 123<\/a>
\nof the Constitution.\n<\/p>\n
N.V.K.\t\t\t\t  Petitions dismissed.\n1003<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India R.K. Garg Etc. Etc vs Union Of India & Ors. Etc on 20 October, 1981 Equivalent citations: 1981 AIR 2138, 1982 SCR (1) 947 Author: A Gupta Bench: Chandrachud, Y.V. (Cj), Bhagwati, P.N., Gupta, A.C., Fazalali, Syed Murtaza, Sen, Amarendra Nath (J) PETITIONER: R.K. GARG ETC. ETC. Vs. RESPONDENT: UNION OF […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-267065","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nR.K. Garg Etc. Etc vs Union Of India & Ors. 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