Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 and Special Bearer Bonds (Immunities and Exemptions) Act, 1981-Constitution validity of Whether infringes Art. 14-Act whether puts a premium on dishonesty.

Constitution of India, 1950.

Art. 14-Validity of classification-How to be determined.

Art. 32-Judicial review Discharge of-Principles to be followed.

Art. 123-Ordinance making power of President-Whether can extend to tax Laws.

Interpretation of statutes-Legislation on economic matters-Effect of crudities, inequities and possibilities of abuse-Whether renders legislation invalid.

The Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 was promulgated on January 12, 1981. It was repealed and replaced by the Special Bearer Bonds (Immunities and Exemptions) Act, 1981. The Act received the Presidential assent on March 27, 1981. Section 1(3) of the Act stated that the Act was deemed to have come into force on January 12, 1981. The provisions of the Ordinance and the Act were similar except section 4(2) of the Act which was worded slightly differently from the corresponding provision of the Ordinance. The Act provided for certain immunities to holders of Special Bearer Bonds, 1981, and for certain exemptions from direct taxes in relation to such Bonds and for matters connected therewith. The object and purpose for which the Act was passed was to canalise for productive purposes black money, which had become a serious threat to the national economy and to provide for certain immunities and exemptions to render it possible for persons in possession of black money to invest the same in the said Bonds.

Section 3 of the Act provided for certain immunities to a person who had subscribed to or otherwise acquired Special Bearer Bonds. Clause (a) protected such a person from being required to disclose for any purpose whatsoever the nature and source of acquisition of the Special Bearer Bonds. Clause (b) prohibited the commencement of any inquiry or investigation against a person on the ground of his having subscribed to or otherwise acquired the Special Bearer Bonds. Clause (c) provided that the fact of subscription to or acquisition of Special Beater Bonds shall not be taken into account and shall be inadmissible In evidence in any proceedings relating to any offence or the imposition of any penalty, Sub-section (2) of section (3) provided that the immunity granted under sub-section (1) shall not be available in relation to prosecution for any offence punishable under Chapter 9 or Chapter 17 of the Indian Penal Code or the Prevention of Corruption Act, 1957 or other similar law.

Section 4 provided that without prejudice to the provisions of section 3 subscription to, or acquisition of Special Bearer Bonds by any person shall not be taken into account for the purpose of any proceedings under the Income-tax Act, 1961, the Wealth-tax Act 1957 or the Gift-tax Act, 1958 and that no person who has subscribed to or has otherwise acquired the said Bonds shall be entitled to (a) claim any set-off under the Income-tax Act or to reopen any assessment or reassessment made under that Act on the ground that he has subscribed to or has otherwise acquired the said Bonds; (b) that any asset which is includible in his net wealth for any assessment year under the Wealth-tax Act has been converted into such bonds, and (c) that any asset held by him represents the consideration received for the transfer of such Bonds.

In their writ petitions to this Court assailing the constitutional validity of the Ordinance and the Act it was contended on behalf of the petitioners that: (1) since the Ordinance had the effect of amending the tax laws it was outside the competence of the President under Article 123, that the subject matter of the Ordinance was in the nature of a Money Bill which could be introduced only in the House of the People and passed according to the procedure provided in Articles 109 and 110, the President had no power under Article 123 to issue the Ordinance by passing the special procedure provided in Articles 109 and 110 for the passing of a Money Bill and (2) that the provisions of the Act were violative of Article 14 of the Constitution.

It was also contended: (a) that Special Bearer Bonds would fetch a mach higher value in the black market than that originally subscribed and this would enable a larger amount of black money to be legalised into white than what was originally invested in subscription to special bearer bonds, (b) an abuse which special bearer bonds might lead themselves to was that if special bearer bonds are sold and the sale proceeds are utilised in meeting expenditure, the assessor would not be precluded by section 4 clause (c) from explaining the source of the expenditure to be the sale consideration of special bearer bonds and by resorting to this strategy, white money can be accumulated as capital white expenditure is met out of black money received by way of consideration for sale of special bearer bonds, (c) Section 4 clause (c) operates only is relation to a period before the date of maturity of special bearer bonds and after the date of maturity the holder of special bearer bonds can sell such bonds, and, without running any risk disclose the consideration received by him as his white money, because section 4 clause (c) being out of the way, he can account for the possession of such money by showing that he has received it as consideration for sale of special bearer bonds and so for as the purchaser la concerned, if he has paid the consideration out of his black money, he can claim the immunity granted under section 3 sub-section (1) and his black money would be converted into white, (d) the Act is unconstitutional as it offends against morality by according to dishonest assessees who have evaded payment of tax, immunities and exemptions which are denied to honest tax-payers. Those who have broken the law and deprived the State of its legitimate dues are given benefits and concessions placing them at an advantage over those who have observed the law and paid the taxes due from them and this is clearly immoral and unwarranted by the Constitution.