# R.K. GARG ETC. ETC v. UNION OF INDIA & ORS. ETC. October 20, 1981 and

- **Citation:** [1982] 1 S.C.R. 947
- **Court:** Supreme Court of India
- **Decided:** 1981-10-20
- **Bench:** Y.V. Chandrachud, P.N. Bhagwati, A.C. Gupta, s. MuRTAZA FAZAL Au, Amarendra Nath Sen
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/r-k-garg-etc-etc-v-union-of-india-ors-etc-october-20-1981-and-8860
- **Pages:** 56

## Headnote

947
Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 and
Special Bearer Bonds (ImmunUies 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. 123-0rdinance making power of President-Whether can extend to tax
laws.
A
B
c
D
Interpretation of statutes-Legislation on economic matters-Effect of crudiE
ties, inequities and possibililies 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 It was repealed and replaced by the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 lherewith. 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 posses5ion
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
n~ture and source of acquisition of the Special Bearer Bonds. Clause (b) prohibited the commencement of any inquiry or investi~at·on a~ainst a person 00 the
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SUPREME COURT REPORTS
(198211 s.c.11
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 (I) 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 fhe provisions of section 3
subscription to, or acquisition of Speeial 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 :
(J) 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 t

## Text

_Characters 0–39,465 of 144,311. This is a partial read: ask again with offset=39465 for what follows._

R.K. GARG ETC. ETC.
v.
UNION OF INDIA & ORS. ETC.
October 20, 1981 and November 13, 1981
(Y.V. CHANDRACHUD, C.J., P.N. BHAGWATI, A.C. GUPTA,
s. MuRTAZA FAZAL Au AND AMARENDRA NATH
SEN, JJ.]
947
Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 and
Special Bearer Bonds (ImmunUies 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. 123-0rdinance making power of President-Whether can extend to tax
laws.
A
B
c
D
Interpretation of statutes-Legislation on economic matters-Effect of crudiE
ties, inequities and possibililies 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 lherewith. 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 posses5ion
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
n~ture and source of acquisition of the Special Bearer Bonds. Clause (b) prohibited the commencement of any inquiry or investi~at·on a~ainst a person 00 the
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SUPREME COURT REPORTS
(198211 s.c.11
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 (I) 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 fhe provisions of section 3
subscription to, or acquisition of Speeial 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 :
(J) 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 1101 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 much
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 Jend themselves to was that if special bearer bonds
are sold and the sale proceeds are utilised in meeting expenditure, the asscssee
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 while expendilurc is
met out of black money received by way of consideration for sale of special
bearer bonds, (c) Section 4 clause (c) operates only in 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 se]J
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 far as the purchaser is
concerned, if he h:is paid the considerl!.tioQ out of his black money, he can claim
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l\,K. GAl\G v. UNION
949
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 dishon(!st assessees who have evaded payment of tax.
i1nmunities 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 Jaw and paid the taxes due from them and this is clearly immoral and unwarranted by the Constitution.
Dismissing the petitions,
HELD:
[Per majority Chandrachud, C.J., Bhagwati, Fa:al Ali &
Amarendra Na1h Sen, JJ.]
[Gupta, J, dissenting]
None of the provisions of the Special Bearer Bonds (Immunities and Exemption) Act, 1981 is violative of Article 14 and its constitutional validity must
·~
be upheld. [989 Bl
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J(i). There is no subs1ance in the contention that the President has no
power under Article 123 to issue an Ordinance amending or altering the tax laws
and 1hat the Ordinance was outside the legislative power of the President under
that Article. [967 El
t(ii). Under Article 123 legislative power is conferred on the President
exercisable when both Houses of Parliament are not in session. It is possible
that when neither House of Parliament is in session, a situation may arise which
needs to be dealt with immediately and for which there is no adequate provision
in the existing law and emergent legislation may be necessary to enable the executive to cope with the situation. Article 123, therefore, confers powers on the
President to promulgate a law by issuing an Ordinance to enable the executive to
deal with the emergent situation which might well include a situation created by
a law being declared void by a Court of law. The legislative power conferred
on the President under the Article is not a paraUel power of legislation. This
power is the clearest indication that the President is invested with this legislative
power only in order to enab1e the executive to tide over an emergent situation
which may arise whilst the Houses of Parliament are net in session. The con~
ferment of such power may appear to be undemocratic but it is not so, because
the executive is clearly answerable to the legislature and if the President, on the
aid and advice of the executive, promulgates an Ordinance in misuse or abuse of
this power, the legislature can not only pass a 1esolution disapproving the Ordinance but can nlso pass a vote of no confidence in the executive. There is in
the theory of Constitutional Law complete control of the legislature over the
executive, because if the executive misbehaves or forfeits the confidence of the
legislature, it can be thrown out by the legislature. [954 E-G, 965 G-966 B]
l(iii). If parliament can by enacting legislation after or amend tax la\\'S,
equally can the President do so by issuing an Ordinance under Article J 23.
There have been numerous instances where the President has issued an Ordinance
replacing with retrospective effect a tax law declared void by the High Court or
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SUPREME COURT REPORTS
(1982) I s.C.l.
this Court. Even offences have been created by Ordinance issued by the Presi·
dent under Article 123 and such offences committed during the life of the
Ordinance have been held to be punishable despite the expiry of the Ordinance.
[967 B-C]
State of Punjab v. Mohar Singh [1955] J SCR 893, referred to.
2(i). Certain well established principles have been evolved by Courts as
rules of guidance in discharge of their constitutional function of judicial review.
The
first
rule is that there is always a
presumption in favour of the
constitutionality of a statute and the burden is
upon him who attacks
it to show that there has been a clear transgression of the constitutional
principles.
The presun1ption of constitutionality
is
indeed
so strong
that in order to sustain it1 the Court may take into consideration matters
of common knowledge, matters of common report, the history of the times and
may assume every state of facts which can be conceived existing at the time of
legislation. Another rule of equal importance is that Jaws relating to economic
activities should be viewed with greater latitude than laws touching civil rights
such as freedom of speech, religion etc. The court should feel more inclined to
give judicial deference to legislative judgment in the field of economic regulation
than in other areas where fundamental human rights are involved. [969 A-G]
Morey v. Dond, 354 US 457, referred to.
2(ii). The court must always remember that HJegislation is directed to
practical problems, that the economic mechanism is highly sensitive and complex,
that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by
abstract symmetry" that exact wisdom and nice adoption of remedy are not
always possible and that "judgment is largely a prophecy based on meagre and
unin1erpreted experience''. Every legislation particularly in economic matters is
essentially empiric and it is based on experimentation or what one may call trial
and error method and therefore it cannot provide for all possible situations or
anticipate all possible abuses. There may be crudities and inequities in comphcated experimental economic legislation but on that account alone it cannot
be struck down as invalid. [970 C D]
Secretary of Agriculture v. Central Reig Refining Company, 94 Lawyers'
•
Edition 381, referred to.
•
2(iii). The court must adjudge the constitutionality of legislation by the
generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provision. If any crudities, inequities or possibilitks of abuse con1c to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which
must guide and inspire tht: legislature in dealing with complex economic issues.
[970 G-H]
3(i). It is clear that Article 14 does not forbid reasonable classification of
persons, objects and transactions by the legislature for the purpose of attainine
specific ends. What is necessary in order to pass the test of permissible classification under Article 14 is that the classification n1ust not be arbitrary, artificial
or evasive but must be based on some real and substantial d1stincion bearing
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R.K. GARG V. UNION
951
a just and reasonable relation to the object sought to be achieved by the legislature.
3(ii). The validity of a classification has to be judged with reference to the
object of the legislation and if that is done, there can be no doubt that the classification made by the Act is rational and intelligible and the operation of the
provisions of the Act is rightly confined to persons in possession of black
money.
4(i). The Preamble of the Act makes it clear that the Act is intended to
canalise for productive purposes black money which has become a serious threat
to the national economy. It is an undisputed fact that there is considerable
amount of black n1oney in circulation which is unaccounted or concealed and
therefore outside the disclosed trading channels. It is largely the product of
black market transactions and evasion of tax. The abundance of black money
has in fact given rise to a parallel economy operating simultaneously and competing with the official economy. This parallel economy has over the years
grown in size and dimension and even on a conservative estimate, the amount
of black money in circulation 1uns into some thousand crores. The menace of
black money has reached such staggering proportions that it is causing havoc
to the economy of the country and poses a serious challenge to the fulfilment
of objectives of distributive justie<) and setting up of an egalitarian society.
4(ii). The first casualty of the evil of black money is the Revenue because
it loses the tax which should otherwise have come to the exchequer. The generation of black money through tax evasion throws a greater burden on the
honest tax payer and leads to economic inequality and concentration of wealth
in the hands of the unscrupulous few in the country. It also leads to leakage of
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foreign exchange, making balance of payments rather distorted and unreal and
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tends to defeat the economic policies of the Government by making their implementation ineffective, particularly in the field of credit and investment. Urgent
measures were required to be adopted for preventing further generation of black
money as also for unearthing existing black money so that it ean be canalised
for productive purposes with a view to effective economic and social planning.
4(iii). The Government introduced several changes in the administrative
set u!' _of th~ tax depa.rtment from time to time with a view to strengthening the
adm1n1strattve machinery for checking tax evasion. The Government also
amended section 37 of t~e. Indian Income Tax Act, 1922 with a view to conferring
power on the tax authonties to carry out searches and seizures and this power
was elaborate~ and made more effectual under the Income Tax Act, 1961. The
Voluntary ~1sclosure Scheme of 1951 was made to facilitate the disclosure of
suppressed income by affording certain immunities from penal provisions, Nearly
a decade a~d a half later a second scheme of voluntary discJosure was introduced by sect!on 68 of t~e Finance Act, 1965, popularly known as the sixty .forty
~eme which was a little more successful. Closely following 00 the heels of
~his scheme ca're another under section 24 of the Finance (No. 2) Act 1965Block Scheme ac~ording to which tax was payable at rates applicable to. the
block of concealed income disclosed and not at a flat rate as under the sixty-forty
s~heme. :hen came the Taxation Laws (Amendment and Miscellaneous Provisions) Ordinance 1965 followed by an Act which provided for exemption from
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SIJPkBMll COURT kllPORTS
(1982) I s.c.a.
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tax in certain cases of undisclosed income invested in National Defence Gold
Bonds 1980. Later on, the Voluntary Disclosure of Income and Wealth Ordinance
1975 which was followed by an Act introduced a scheme of voluntary disclosure
of income and wealth and provided certain immunities and exemptions. All
these legal and administrative measures were introduced by the Government and
did not have any appreciable effect with regard to the problem of black money
which continued unabated.
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4 (iv).
All efforts to detect black money and to uncover it having failed
and the problem of black money being an obstinate economic issue which was
defying solution, the impugned legislation providing for issue of Special Bearer
Bonds was enacted with a view to n1opping up black money and bringing it out
in the open, so that, instead of remaining concealed such money may become
available for augmenting the resources of the State and being utilised for produc~
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tive purposes so as to promote effective social and economic planning. This was
the object for which the Act was enacted and it is with reference to this object
that it is to be determined whether any impermissible differentiation is made in
the Act.
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4 (v). The whole object of the impugned Act is to induce those having
black money to convert it into white money by making it available to the State
for productive purposes, without granting in return any immunity in respect of
such black money if it could be detected through the ordinary processes of taxation laws without taking into account the fact of purchase of Special Bearer
Bonds.
4 (vi). The acquisition or possession of Special Bearer Bonds would not
therefore afford any protection to a public servant against a charge of corruption
or to a person committing any offence against property, Equally this immunity
would not be available where what is sought to be enforced is a civil liability
other than liability by way of tax. The immunity granted in respect of subscription to or acquisition of Special Bearer Bonds is a severely rc:stricted immunity and this is the bare minimum in1munity necessary in order to induce holders
of black money to bring it out in the open and invest it in Special Bearer
Bonds.
S.
Section 4(c) is calculated to act as a strong deterrent against negotiability of Special Bearer Bonds for disclosed or 'white' money. The immun.lty
granted under the provisions of the Act, limi1ed as it is, extends only to the
person who is for the time being the holder of Special Bearer Bonds and the
person who has transfe1red the Special Bearer Bonds for black money has no
immunity at all and all the provisions of tax laws are available against hin1 for
detecmining his true incon1e or wealth and therefore no one who has purchased
Special Bearer Bonds with a view to earning security against discovery of unaccounted money in his hands would ordinarily barter away that security by again
receiving black money for the Special Bearer Bonds. Even if special bearer
bonds are transferred against receipt of black n1oney it will not ha~e the effect
of legalising more black money into white because the black money of the seller
which had become white on his subscribing to or acquiring special bearer bonds
would again be converted into black money and the black 1uoney paid by the
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R.IC. GARO V. UNION
953
purchaser by way of consideration would become white by reason of being conA
verted into special bearer bonds.
6. No assessee would ever admit that he incurred expenditure out of black
money received as consideration for sale of special bearer bonds because it
would be impossible for him to establish receipt of black money from the purchaser and if he is unable to do so, the amount of the expenditure, would by
reason of section 69C of the Income-tax Act, 1961 be deemed to be his concealed
income liable to tax.
Even if it is assumed that in some rare and exceptional
cases the assessee may be able to establish that he sold special bearer bonds
against receipt of black money the purchaser would straight away run into difficulties because the evidence furnished by the assessee would in such a case clearly
establish that the purchaser had black money and he paid it to the assessee by
way of consideration and he would in that event be rendered liable to tax and
penalty in respect of such black money.
7. Howsoever special bearer bonds may be transferred and for whatever
consideration only a limited amount of black money namely the amount originally subscribed for the special bearer bonds or at the most the amount representing the face value of the special bearer bonds would be legalised into white
money and the supposedly free negotiability of special bearer bonds would not
have the effect of legalising more black money into white or encouraging further
generation of black money.
8. When experience shows that the legislation as framed has proved inadequate to achieve its purpose of mitigating an evil or there are cracks and
loopholes in it which are being taken advantage of by the resourcefulness and
ingenuity of those minded to benefit themselves at the cost of the State or the
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others, the legislature can and most certainly would intervene and change the
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law. But the law cannot be condemned as invalid on the ground that after a
period of ten years it may lend itself to some possible abuse.
9. It is obvious that the Act makes a classification between holders of
black money and the rest and provides for issue of special bearer bonds with a
view to inducing persons belonging to the former class to invest their unaccounted money in purchase of special bearer bonds, so that such money which is
today lying idle outside the regular economy of the country fo canalised into
productive purposes. The object of the Act being to unearth black money for
being utilised for productive purposes with a view to effective social and econon1ic planning, there has necessarily to be a classification between persons possessing black money and others and such Classification cannot be regarded as
arbitrary or irrational.
JO. The validity of a classification has to be judged wi1h reference to the
object of the legislatWn and if that is done, there can be no doubt that the
classification made by 1hc Act is rational and intelligible and the operation of
the provisions of the Act is rightly confined to persons in possession of black
money.
11. The legislature had obvioudy only two alternatives: either to allow the
black money to remain idle and unproductive or to induc~ those in poss~ssion
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of it to bring it out in the open for being utilised for productive purposes. The
first alternative would have left no choice to the government but to resort to
deficit financing or to impose a heavy dose of taxation. The former would have
resulted in inflationary pressures affecting the vulnerable sections of the society
while the latter would have increased the burden on the honest tax payer and
perhaps led to greater tax evasion. The legislature therefore decided to adopt
the second a1ternative of coaxing persons in possession of black money to disclose it and make it available to the government for augmenting its resources
for productive purposes and with that end in view enacted the Act providing for
issue of special bearer bonds.
12. It would be ouside the province of the court to consider if any particular immunity or exemption is necessary or not for the purpose of inducing disclosure of black money. That would depend upon diverse fiscal and economic
considerations based on practical necessity and administrative expediency and
would also involve a certain amount of experimentation on which the Court
would ,b~ least fitted to ptonounce. The Court would not have the necessary
competence and expertise to adjudicate upon such an economic issue. The
Court cannot possibly assess or evaluate what would be the impact of a particular immunity or exemption and whether it would serve the purpose in view or
not. There are so many imponderables that would enter into the determination
that it would be wise for the court not to hazard an opinion where even economists may differ.
13. The court must while examining the constitutional validity of a legislation "be resilient, not rigid, forward looking, not static, liberal, not verbal" and
•
the court must always bear in mind the constitutional proposition "that courts du
not substitute their social and economic beliefs for the judgment of legislative
bodies".
14. The court must defer to legislative judgment in matters relating to
social and economic policies and must not interfere, unless the exercise of
legislative judgment appears to be palpably arbitrary.
[Per A.C. Gupta, J. dissenting]
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1. The Special Bearer Bonds (Immunities and Exemptions) Ordinance,
1981 and the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 are
invalid on the ground that they infringe Article 14 of the Constitution. (1002 A]
2. The Act puts a premium on dishonesty without even a justification of
necessity-that the situation in the country left no option. [1000 H-1001 A]
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3. The basis on which the holders of Special Bearer Bonds have been
classified to give certain advantage to one class and deny them to the other, has
no rational nexus with the object of the Act. [996 A]
4 (i). Article 14 forbids class legislation but permits classification-Permissible classification, it is well established, must satisfy two conditions viz. (i)
11
that the classification must be founded on an intelligible differentia which
distinguishes those that are grouped together from others and; (2) that the
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Ide GARG v. UNION
955
differentia must have a rational relation to the object sought to be achieved by
the Act. [993 G-994 A]
4 (ii).
The differentia that
is the basis
of classification
and the
object of the Act are distinct things, it is not enough that the differentia
should have a nexus with the object, but it should also be intelligible. The
presence of some characteristics in one class which are not found in another is
the difference between the two classes, but a further requirement is that this
differentia must be intelligible. If the basis of classification is on the face of it
arbitrary in the sense that it is palpably unreasonable it is not possible to call the
differentia intelligible. [997 B-C]
Th• Stale of West Bengal v. Anwar Ali Sarkar, [1952] SCR 284; E. P.
Royappa v. State o/Tan1il Nadu and another, (1974] 2 SCR 348 and Maneka
Gandhi v. Union of India, [1978] 2 SCR 621, referred to.
5. The preamble of the Act takes note of the fact that black money has
become a serious threat to national economy and says that to make economic
and social planning effective it is necessary to canalise this black money for productive purposes. The Act however does not define black money. [990 F]
6. The imn1unities provided by the impugned Act are clearly for the benefit of those who have acquired the Bonds with black money. Clauses (a), (b) and
(c) of section 3(1) provfrle for these immunities "notwithstanding anything contained in any other law for the time being in force". None of these immunities
is required by a person who has paid 'white' money, that is, money that has been
accounted for to acquire the Bonds. To a person who has disclosed the source
of acquisition of the Bonds, these immunities are of no use. Section 4 makes it
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clear that the immunities conferred by the Act are of use only to those who have
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acquired the Bonds with unaccounted money. [994 B-D]
7. The impugned Act denies to those who have acquired the bonds not
with black money any relief under the Income-tax Act or the Wealth-tax Act or
any benefit in any other way claimed on the ground that they are holders of
Special Bearer Bonds, and the relief and the benefit denied to them have been
made available to those who have acquired the Bonds with black money by ignoring the source of acquisition in their case. (995 C-D]
. 8. The
Act distinguishes
between
two
classes
of
holders of
~pec1al Bearer Bonds; tax ev~ders and honest tax-payers. The object is to canalise b~ack money for pro.duct1ve purposes to make economic and social planning
effect1~e. If .the exemptions and immunities conferred by the Act are sufficiently
attractive.to 1nduc~ tax-evader to acquire Special Bearer Bonds, they will remain
as attractive even 1f qll these benefits were granted to those who will pay white
money f~r the Bonds .. Denial of these benefits to those who have acquired the
Bonds with money which has been accounted for does not in any way fu th
h
object of canalisation of black money for productive purposes
Th d' r .er_t e
·
· fi
b
·
e 1scnm1oat1on 10 avour of lack money therefore seems to be obvious. [995 E-FJ
·~ . 9. T~rms like .'~easonable', 'just' or 'fair' derive their significance from the
ex1~ting social cond1t1ons. Expres'iions like a 'reasonable and ~.·
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1, ir price or air
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and equitable restitution• means nothing, except in onjunction with the social
conditions of the time. That action is called 'res lnab1e' which an informed,
intelligent, just minded civilised 1nan could rationally favour. [998 F-G]
Quaker City Cab Co. v. Commonwealth of Pt 1nsylvania 72 Law. Ed. 927,
referred to.
10. What is arbitrary and offend5 Article 14 cannot be called intelligible.
It is clear from the provisions of the Act that the advantage which the taxevaders derive from the immunities provided by the Act are not available to those
who have acquired the Bonds with 'white money'. The Act promises anonymity
and security for tax-evaders. No question can h<' asked as to the nature and
source of acquisition or possession of the Bonds. The Bonds can be transferred
freely, and passing of the Bonds from hand to hand is likely to operate as
parallel currency and be used for any kind of transection. [999 F-G]
11. The Act discloses a scheme which enables tax-evaders to convert black
money into white after 10 years and in the meantime use the Bonds as paraUel
currency initiating a chain of black money investi:1ents. There is no provision
in the Act requiring that on n1aturity of the Bond ; their holders would have to
disc1ose their identity, which means that if after 10 years black money which had
taken the shape of Special Bearer Bonds goes und !rground again and retain its
colour, there is nothing to prevent it. There is nothing in the scheme to halt
generation of black money which threatens the national economy. Some people
by successful evasion n1anoeuvres are able to th ow the burden of taxation off
their own shoulders which means a greater burden on the honest tax payers and
this leads to economic imbalance. (1000 B-D]
12. Any law that rewards law breakers an ~ tax dodgers is bound to invite
criticism. No law can be struck down only on the ground that it is unethical.
However, there cannot be and there never has be :n a complete separation of law
and morality. Historical and ideological differences concern the extent to which
the norms of the social order are absorbed into the legal order. The principle
of reasonbleness is an essential element of equality. The concept of reasonable ...
ness dOes not exclude notions of morality and ethics. It cannot be disputed
that in the circumstances of a given case consid ~rations of morality and ethics
may have a bearing on the reasonableness of the I aw in question. [1001 B-D]
ORIGINAL JURJSDIClJON : Writ Pe:ition Nos. 355, 360, 863,
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994 & 3624 of 1981.
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(Under article 32 of the Constitutio 1 of India)
Petitioner in person in WP. No. 350.'81
R.K. Garg, A.K. Gupta, Brij Bhus'1an, Miss Renu Gupta and
S.K. Jain for the Petitioner in W .P. 360/81.
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R.K. GARG v. UNION (Bhagwati, J.)
957
Soli J. Sorabjee, Harish Salve, S.K. Dholakia & Mrs. Ranjan~
Anand for the Petitioners in W.P. 863/81.
So/i J. Sorabjee, Harish Salve, P.H. Parekh, R. Karanjawala.
K.K. Lahiri & R. Swamy for the Petitioner in W.P. 994/81.
R.S. Sodhi for the Petitioner in WP 3624/81.
L.N. Sinha, Attorney General in WPs. 355 & 360/8 l.
K. Parasaran, Sol. General in WPs. 863 & 994/8 l.
K. S. Gurumoorthi & Miss A. Subhashini for the Respondents.
U.N. Banerjee for the intervener--Mr. K.B. Kastia
VJ. Francis for the intervener-All India L.I.C., Employees
Federation.
The following Judgments were delivered
BHAGWATI, J. These writ petitions raise a common question
of law relating to the constitutional validity of the Special Bearer
Bonds (Immunities and Exemptions) Ordinance, 1981 (hereinafter
referred to as the Ordinance) and the Special Bearer Bonds (Immunities and Exemptions) Act 1981 (hereinafter referred to as the Act).
The principal ground on which the constitutional validity of the
Ordinance and the Act is challenged is that they are violative of the
equality clause contained in Article 14 of the Constitution. There is
also one other ground on which the Ordinance is assailed as constitutionally invalid and it is that the President had no power under
Article 123 of the Constitution to issue the Ordinance and the
Ordinance is therefore ultra vires and void. We shall first deal with
the latter ground since it can be disposed of briefly, but before we
do so, it would be convenient to refer to the relevant provisions of
the Act. It is not necessary to make any specific reference to the
provisions of the Ordinance since the provisions of the Act are
substan.tially a reproduction of the provisions of the Ordinance.
On 12th January 1981, both Houses of Parliament not being
in session, the President issued the Ordinance in exercise of the
power conferred upon him under Article 123 of the Constitution.
The Ordinance was later replaced by the Act which received the
assent of the President OP. 77!1\ Mar91J 1981, b11t wl!i9h w~s l>rought
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SUPREME COURT REPORTS
[1982) 1 s.c.R.
into force with retrospective effect from 12th January 1981 being the
date of promulgation of the Ordinance. The Act is a brief piece
of legislation with only a few sections but the ascertainment of their
true meaning and legal effect has given rise to considerable controversy between the parties and hence it is necessary to examine
the provisions of the Act in some detail. The long title of the Act
describes it as an Act "to provide for certain immunities to holders
of Special Bearer Bonds 1991 and for certain exemptions from
direct taxes in relation to such Bonds and for matters connected
therewith" and the provisions enacted in the Act are preceeded by a
Preamble which indicates the object and purpose of the Act in the
following words :
Whereas for effective economic and social planning it
is necessary to canalise for
productive purposes black
money which has become a serious threat to the national
economy;
And whereas with a view to such canalisation the
Central Government has decided to issue at par certain
bearer bonds to be known as the Special Bearer Bonds, 1991,
of the face value of ten thousand rupees and redemption
value, after ten years, of twelve thousand rupees;
And whereas it is expedient .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;
Sections 3 and 4 are extremely material since on their true interpretation depends to a large extent the determination of the question
relating to the constitutional validity of the Act and they may be
reproduced as follows :
3.
(I) Notwithstanding anything contained in any other law
for the time being in force :-
(a) no person who has subscribed to or has otherwise
acquired Special Bearer Bonds shall be required to
disclose, for any purpose whatsoever, the nature and
source of acquisition of such Bonds;
(b) no inquiry or investigation &hall be commenced against
any person under any such law on the ground that
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R.K. GARG v. UNION (Bhagwati, J.)
959
such person has subscribed to or has otherwise acquired
Special Bearer Bonds; and
(c) the fact that a person has subscribed to or has otherwise acquired Special Bearer Bonds shall not be taken
into account and shall be inadmissible as evidence in
any proceedings relating to any offence or the imposition of any penalty nuder any such law.
(2) Nothing in sub-section (1) shall apply in relation to prosecution for any offence punishable under Chapter IX or Chapter XVII
of the Indian Penal Code, the Prevention of Corruption Act, 1947
or any offence which is punishable under any other law and which
is similar to an offence punishable under either of those Chapters
or under that Act or for the purpose of enforcement of any civil
liability.
Explanation : For the purposes of this sub-section "civil liability"
does not include liability by way of tax under any
law for the time being in force.
4.
Without prejudice to the generality of the provisions of
section 3, the subscription to, or acquisition of, Special Bearer Bonds
by any person shall not be taken into account for the purpose of
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any proceedings under the Income-tax Act, 1961 (hereinafter referred
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to as the Income-tax Act), the Wealth-tax Act 1957 (hereinafter
referred to as the Wealth-tax Act), or the Gift-tax Act, 1958
(hereinafter referred to as the Gift-tax Act) and, in particular, no
person who has subscribed to, or has otherwise acquired, the said
Bonds shall be entitled-
(a) to claim any set-off or relief in any assessment,
reassessment appeal,
reference or other proceeding
under the Income-tax Act or to reopen any assessment
or reassessment made under that Act on the ground
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that he has subscribed to or has otherwise acquired the
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said Bonds;
(b) to claim, in relation to any period before the date of
maturity of the said Bonds, that any asset which is
includible in his net wealth for any assessment year
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under the Wealth-tax Act has been converted into the
said Bonds: or
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SUPREME COURT REPORTS
[1982] I s.c.R.
(c) to claim, in relation to any period before the date of
maturity of the said Bonds, that any asset held by him
or any sum credited in his books of account or otherwise held by him represents the consideration received
by him for the transfer of the said Bonds.
We shall analyse the provisions of these two sections when we deal
with the arguments advanced on behalf of the parties and that will
largely decide the fate of the challenge against the constitutional
validity of the Act, but in the meanwhile we may proceed to
summarise the remaining provisions of the Act.
Section 5 amends
the Income-tax Act 1961 by providing that the definition of "capital
asset" in section 2 clause (14) shall not include that Special Bearer
Bonds issued under the Act so that any profit arising on sale of the
Special Bearer Bonds would not be liable to capital gains tax and
it also excludes from the computation of the total income of the
assessee, premium on redemption of the Special Bearer Bonds by
introducing a new sub-clause in section IO clause (15). Section 5
sub-section (I) of the Wealth Tax Act 1957 is also amended by
section 6 so as to exclude the Special Bearer Bonds from the net
wealth of the assessee liable to wealth tax.
Section 7, by amending
s~ction 5 sub-section (I) of the Gift-tax Act 1958 exempts gifts of
Special Bearer Bonds from the incidence of gift tax.