LORD KRISHNA BANK LIMITED Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE challenge in these petitions filed lender Article 226 of the Constitution by a public limited company, the Lord Krishna Bank Ltd., and two of its directors, is to the validity of four assessment orders passed under the Income-tax Act, 1961 (43 of 1961), for short " the Act", and relating to the years 1964-65, 1966-67, 1968-69 and 1969-70. THE orders in respect of the years 1964-65 and 1966-67 relate to reassessment and those in respect of the remaining years to the original assessment itself. THE challenge made is on the basis that Section 2(18) read with Section 2(41) and Section 104 read with Section 108 of the Act and the provisions of the Finance Act, 1964 (5 of 1964), authorising levy of super-tax at a rate higher than 25 per cent, of the total income, the Finance Act, 1966 (13 of 1966), authorising levy of income-tax at a rate higher than 55 per cent., the Finance Acts, 19 of 1968 and 14 of 1969, authorising levy of income-tax at the rate of 65 per cent, of the total income of a company which does not fall within the definition of " company in which the public are substantially interested " are void as they offend Articles 14 and 19(1)(c) and (f) of the Constitution.

(2.) THE Act makes a distinction between companies " in which the - public are substantially interested '', for short " widely held companies ", and those " in which the public are not substantially interested ", for short "closely held companies. " In respect of undistributed income all companies are under the provisions of the Act liable to pay additional income-tax, but widely held companies are excluded from such liability. For closely held companies rates higher than those for widely held companies for assessment of tax have been fixed by the Finance Acts. In the Finance Act of 1964, for all companies other than the Life Insurance Corporation of India, the rate of super-tax on the total income was fifty-five per cent. A rebate was given to widely held companies at the rate of 37'5 per cent, of the total income. No such rebate was given to closely held companies. Even among closely held companies, as regards the rates of tax, a distinction was made in the Finance Acts of 1966, 1968 and 1969 between industrial companies and other companies. In the Finance Act of 1966, while the rate of income-tax on total income fixed for a widely held company was 45 per cent, where the total income did not exceed Rs. 25,000 and 55 per cent, where the total income exceeded Rs. 25,000, for a closely held company other than an industrial company, the rate was 65 per cent, of the total income and for a closely held industrial company, 55 per cent, where the total income did not exceed Rs. 10 lakhs and 60 per cent, on the rest. In the Finance Acts of 1968 and 1969, while the rate of income-tax fixed for a widely held company was 45 per cent, where the total income did not exceed Rs. 50,000 and 33 per cent, where it exceeded Rs. 50,000, the rate fixed for a closely held company which was not an industrial company was 65 per cent, on the total income and for a closely held company which was an industrial company 55 per cent, on the total income where it did not exceed Rs. 10 lakhs and 60 per cent, on the balance.

(3.) SECTION 108 :