Allahabad High Court
Geep Flashlight Industries Ltd. And ... vs Union Of India (Uoi) And Anr. on 14 February, 1991
Equivalent citations: [1996]218ITR638(ALL)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT B.P. Jeevan Reddy, C.J.
1. This batch of writ petitions calls in question the constitutional validity of Sub-section (8) of Section 40A of the Income-tax Act, 1961. The sub-section was inserted by the Finance Act, 1975, with effect from April 1, 1976, and omitted by the Finance Act, 1985, with effect from April 1, 1986.
2. Section 40A sets out expenses or payments not deductible in certain circumstances. For the sake of convenience, we may set out Sub-section (8). It reads :
"Where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent. of such expenditure shall not be allowed as a deduction.
Explanation. -- In this sub-section, --
(a) 'banking company' means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in Section 51 of that Act;
(b) 'deposit' means any deposit of money with, and includes any money borrowed by, a company, but does not include any amount received by the company --
(i) from the Central Government or any State Government or any local authority, or from any other source where the repayment of the amount is guaranteed by the Central Government or a State Government;
(ii) from the Government of a foreign State, or from a citizen of a foreign State, or from any institution, association or body (whether incorporated or not) established outside India;
(iii) as a loan from a banking company or from a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank);
(iv) as a loan from any institution or body specified in the list in the Tenth Schedule or such other institution or body as the Central Government may, having regard to the nature and objects of the institution or body, by notification in the Official Gazette, specify in this behalf;
(v) from any other company;
(vi) from an employee of the company by way of security deposit;
(vii) by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of, the business of the company or as advance against orders for the supply of goods or for the rendering of any service;
(viii) by way of subscription to any share, stock, bond or debenture (such bond or debenture being secured by a charge or a lien on the assets of the company) pending the allotment of the said share, stock, bond or debenture, or by way of advance payment of any moneys uncalled and unpaid upon any shares in the company, if such moneys are not repayable in accordance with the articles of association of the company;
(ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, together with the amount of any other prior debt or loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent. of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan; . . ."
3. A reading of the sub-section shows that it provides for disallowance of 15 per cent. of expenditure incurred by a company (other than a banking or a financial company) by way of interest in respect of any deposit received by it. Clauses (a) and (c) of the Explanation define the expressions "banking company" and "financial company", respectively, while Clause (b) defines the expression "deposit". The purpose of Clause (b) of the Explanation is to exclude the deposits received from the several specified sources from the ambit of the expression "deposit". Generally speaking, deposits received from Governments, local authorities, foreign agencies, banking institutions and other public financial institutions (mentioned in the then Tenth Schedule to the Act) are excluded. Similarly, deposits received from any other company, or an employee or an agent and by way of subscription to share capital, etc., as also loans raised on security are also excluded.
4. The objects and reasons behind this sub-section were set out in a memorandum accompanying the Finance Bill, 1975. It has been extracted in paragraph 8(b) of C.M.W.P. No. 175 of 1979. It reads thus (see [1975] 98 ITR (St.) 184) :
"9. Deduction in respect of interest paid by non-banking non-financial companies on public deposits, -- As a result of the general policy of credit restraint and enforcement of selective control measures by the Reserve Bank of India, non-banking non-financial companies have been increasingly resorting to acceptance of deposits from the public to meet their financial requirements. The levy of interest-tax under the Interest-tax Act, 1974, on the gross amount of interest received by scheduled banks on loans and advances made in India has had the effect of increasing, on an average, the cost of borrowings from scheduled banks by about one per cent. The levy of this tax has, therefore, made the acceptance of deposits by non-banking non-financial companies from the public all the more attractive. In order to ensure that the effectiveness of the monetary policy is not blurred by unrestricted growth of deposits in the non-banking sector, the Bill seeks to provide that 15 per cent. of the interest paid by non-banking non-financial companies on deposits received from the public will be disallowed in computing their taxable income.
10. For the purpose of the new provision, moneys received by the company from the Central Government or any State Government or any local authority, as also amounts repayment of which is guaranteed by the Central Government or a State Government will not be regarded as deposits. Moneys borrowed from foreign sources, banking companies, co-operative banks and specified financial institutions and bodies will also not be regarded as deposits. The Central Government is being empowered to add to the list of such institutions or bodies by notification in the Official Gazette. Inter-corporate borrowings, security deposits made by employees, amounts received by way of security or advance from purchasing agents, selling agents, etc., and advances received against orders for the supply of goods or for the rendering of services will not be treated as deposits. Likewise, subscriptions to shares, stocks, bonds or debentures pending allotment of such shares, stocks, bonds or debentures as well as calls in advance on shares will not be regarded as deposits.
11. The proposed amendment will take effect from 1st April, 1976, and will accordingly apply in relation to the assessment year 1976-77, and subsequent years."
5. The above Statement of Objects and Reasons is self-explanatory and needs no comment or paraphrasing at our hands. Suffice it to say that this sub-section is a measure to regulate the unrestricted growth of deposits in the non-banking sector.
6. The Interest-tax Act, 1974, referred to in the objects and reasons aforesaid is Act No. 45 of 1974. It levies a tax, called interest-tax, on every scheduled bank for every assessment year commencing on or after April 1, 1975, in respect of its chargeable interest of the previous year at the rate of 7 per cent. of such chargeable interest. At this stage, we may also refer to the Companies (Acceptance of Deposits) Rules, 1975, framed by the Central Government in consultation with the Reserve Bank of India under Section 58A read with Section 642 of the Companies Act, 1956. These rules are applicable to companies which are not either banking companies or financial companies. Rule 2(b) defines the expression "deposit". The said definition is more or less in the same terms as the definition of "deposit" in Explanation (b) to Sub-section (8) impugned herein. Rule 3 places certain limits or ceilings, as they may be called, on the total amount of deposits, as also the period for which, a company may accept such deposit. Suffice it to say that these rules also represent a regulatory measure in the same direction.
7. Sri S. P. Gupta, learned counsel for the petitioners, assailed the validity of Sub-section (8) of Section 40A on the following grounds :
(1) Sub-section (8) of Section 40A is beyond the legislative competence of Parliament. It is outside the purview of entry 82 of List I in the Seventh Schedule to the Constitution. The sub-section is in no way a legislative measure relating to income. It really imposes tax on a non-existent income. In effect, it treats the 15 per cent. of the expenditure incurred by a company by way of interest as its income, while it cannot be said to be income in any sense of the term.
(2). (a) The sub-section is violative of Article 14 of the Constitution. It singles out companies and subjects them to a certain disadvantage, while leaving out firms and individuals. There is no reasonable basis upon which companies could be distinguished from others left out, nor has such distinction/classification any nexus to the object of the enactment. Moreover, Clause (b) of the Explanation excepts several agencies from the purview of the sub-section. This again is unreasonable since there is nothing to distinguish these agencies from other agencies similarly placed. No distinction is permissible on the basis of who the lender is.
(b) The sub-section is totally arbitrary and hence violative of the equality clause enshrined in Article 14. The 15 per cent. disallowance operates whatever be the rate of interest paid. By way of illustration, even if the company borrows moneys or receives deposits stipulating an interest of say one or two per cent., even then 15 per cent. cut operates. If this disallowance is examined in the light of the fact that the agencies and institutions mentioned in Clause (b) of the Explanation do not assure the requisite finance to all the needy companies, the arbitrariness of the provision becomes self-evident. In effect, Parliament is compelling these companies to borrow only from the specified agencies or institutions (those mentioned in Clause (b) of the Explanation) and they may lend on such high interest as they may choose to stipulate.
(c) The sub-section has no purpose or object underlying it. The Companies (Acceptance of Deposits) Rules, 1975, were sufficient to check the mischief. It was not necessary to enact this sub-section over and above the said rules. Moreover, there was absolutely no reason for Parliament to choke the availability of cheaper credit to companies.
(3) Sub-section (8) is violative of the fundamental right guaranteed by Clause (g) of Article 19(1). It is not saved by Clause (6) inasmuch as the said restriction cannot be said to be in the interest of the general public.
(4) The sub-section is equally violative of the fundamental right guaranteed by Article 19(l)(c) inasmuch as while it imposes certain disability upon companies, no such restriction is imposed upon a firm, society or association of persons, as the case may be.
8. Before we proceed to deal with the contentions of learned counsel, we think it appropriate to mention that the Constitutional validity of this sub-section has been upheld by the Karnataka High Court in Mysore Kirloskar Ltd. v. Union of India [1986] 160 ITR 50. The special leave petition filed by the petitioners therein in the Supreme Court against the said judgment was dismissed on November 10, 1987 (see [1988] 169 ITR (St.) 13) (vide S. L. P. No. 903941 of 1986). Mr. Gupta, learned counsel for the petitioners, however, contended that since the order of the Supreme Court dismissing the special leave petition does not contain any reasons and is a mere dismissal in limine, it does not constitute the decision of the Supreme Court. According to learned counsel, it does not even amount to affirming the judgment of the Karnataka High Court. He brought to our notice certain decisions of the Supreme Court in support of his contention, While it is not necessary to cite all the authorities relied upon by him, it would be enough if we refer to the decision in Indian Oil Corporation Ltd. v. State of Bihar [1987] 167 ITR 897; AIR 1986 SC 1780. In paragraph 8 (at page 1782) of the judgment, it is observed (at page 901 of 167 ITR ) :
"It is not the policy of this court to entertain special leave petitions and grant leave under Article 136 of the Constitution save in those cases where some substantial question of law of general or public importance is involved or there is manifest injustice resulting from the impugned order or judgment. The dismissal of a special leave petition in limine by a non-speaking order does not, therefore, justify any inference that by necessary implication the contentions raised in the special leave petition on the merits of the case have been rejected by this court. It may also be observed that having regard to the very heavy backlog of work in this court and the necessity to restrict the intake of fresh cases by strictly following the criteria aforementioned, it has very often been the practice of this court to grant special leave in cases where the party cannot claim effective relief by approaching the concerned High Court under Article 226 of the Constitution. In such cases also the special leave petitions are quite often dismissed only by passing a non-speaking order especially in view of the rulings already given by this court in the two decisions aforecited, that such dismissal of the special leave petition will not preclude the party from moving the High Court for seeking relief under Article 226 of the Constitution. In such cases it would work extreme hardship and injustice if the High Court were to close its doors to the petitioner and refuse him relief under Article 226 of the Constitution on the sole ground of dismissal of the special leave petition."
9. In paragraph 9, reliance is placed upon a decision of the House of Lords in Wilson v. Colchester Justices [1985] 2 All ER 97, taking a similar view.
10. We are not sure whether the principle of the said observations would apply to a situation where the only question raised before the High Court was the Constitutional validity of a particular statutory provision and that having been upheld by the High Court, special leave petition is dismissed in limine by the Supreme Court. Would it not be permissible in such a case to infer that the Supreme Court has placed its seal of approval on the decision of the High Court upholding the Constitutional validity of the provision ? It would not be reasonable to attach any other meaning to the said order except that the Supreme Court has affirmed the judgment of the High Court. None of the cases cited by Mr. Gupta deals with a situation like the present one.
11. Notwithstanding this opinion of ours, we now proceed to deal with the several contentions of Sri Gupta for the sake of completeness and also because learned counsel addressed very elaborate arguments in support of his attack upon the Constitutional validity of the sub-section.
12. I. Parliament's competence to enact the sub-section :-
Entry 82 of List I in the Seventh Schedule to the Constitution empowers Parliament to enact laws relating to "taxes on income other than agricultural income". Entries 43 and 45 may also be noticed. They read :
"43. Incorporation, regulation and winding up of trading corporations, including banking, insurance and any financial corporations but not including co-operative societies."
"45. Banking" Entry 97 is a residuary entry. It reads :
"Any other matter not enumerated in List II or List III including any tax not mentioned in either of those lists."
Entry 20 in List III reads :
"Economic and social planning."
13. The expression "income" is not defined in the Constitution, though the expression "agricultural income" is defined in Clause (1) of Article 366. The expression is also not defined in the General Clauses Act. It has, however, been defined in Clause (24) of Section 2 of the Income-tax Act, 1961. Clause (6c) of Section 2 of the Indian Income-tax Act, 1922, also defined the said expression. These definitions are inclusive definitions and are not exhaustive of the meaning of the expression "income". At all points of time, courts have found it difficult to define this expression precisely. It is unnecessary to multiply the decisions, each attempting to illustrate the meaning of the expression "income", since it would be sufficient to refer to the decision of the Supreme Court in Navinchandra Mafatlal v. CIT [1954] 26 ITR 758; AIR 1955 SC 58. Section 12B was introduced in the Indian Income-tax Act, in 1947, seeking to levy tax on capital gains. The contention of the petitioner therein was that the expression "income" occurring in entry 54 of List I of the Seventh Schedule to the Government of India Act, 1935, did not and could not include capital gain. Certain legislative history, which, according to the petitioner, established the legislative practice, was relied upon in support of the said contention. While repelling the said contention, the Supreme Court made the following observations (page 61 of AIR 1955 and page 763 of 26 ITR) :
"It should be remembered that the question before us relates to the correct interpretation of a word appearing in a Constitution Act which, as has been said, must not be construed in any narrow and pedantic sense. Gwyer, C. J.--In re Central Provinces and Berar, Saks of Motor Spirit and Lubricants Taxation Act 1938, AIR 1939 FC 1 observed at pages 4, 5 that the rules which apply to the interpretation of other statutes apply equally to the interpretation of a constitutional enactment subject to this reservation that their application is of necessity conditioned by the subject-matter of the enactment itself. It should be remembered that the problem before us is to construe a word appearing in entry 54 which is a head of legislative power.
As pointed out by Gwyer C. ). in United Provinces v. ML Atiqa Begum, AIR 1941 FC 16 at page 25, none of the items in the lists is to be read in a narrow or restricted sense and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. It is, therefore, clear--and it is acknowledged by Chief Justice Chagla--that in construing an entry in a list conferring legislative powers, the widest possible construction according to their ordinary meaning must be put upon the words used therein.
Reference to legislative practice may be admissible for cutting down the meaning of a word in order to reconcile two conflicting provisions in two legislative lists as was done in the C. P. Berar Act, AIR 1939 FC 1, or to enlarge their ordinary meaning as in the State of Bombay v. F.N. Balsara, AIR 1951 SC 318. The cardinal rule of interpretation, however, is that words should be read in their ordinary, natural and grammatical meaning subject to this rider that in construing words in a constitutional enactment conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude.
What, then, is the ordinary, natural and grammatical meaning of the word "income"? According to the dictionary it means "a thing that comes in" (See Oxford Dictionary, Vol. V. P. 162; Stroud, Vol. II, pp. 14-16). In the United States of America and in Australia both of which also are English-speaking countries the word "income" is understood in a wide sense so as to include a capital gain. Reference may be made to--Eisner v. Macomber [1919] 252 US 189-Merchants Loan and Trust Co. v. Smietanha [1920] 255 US 509 anti-United States of America v. Stewart [1940] 311 US 60 and Resch v. Federal Commissioner of Taxation [1943] 66 CLR 198. In each of these cases very wide meaning was ascribed to the word "income" as its natural meaning."
14. The same idea was again repeated in Navnit Lal C. Javeri v. K.K. Sen, AAC of Income-tax [1965] 56 ITR 198; AIR 1965 SC 1375 in the following words (at page 204) :
"(8) In dealing with this point, it is necessary to consider what exactly is the denotation of the word 'income' used in the relevant entry. It is hardly necessary to emphasise that the entries in the lists cannot be read in a narrow or restricted sense, and as observed by Gwyer C. ). In United Provinces v. Atiqa Begum, [1940] FCR 110; AIR 1941 FC 16 'each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it'. What the entries in the lists purport to do is to confer legislative powers on the respective Legislatures in respect of areas or fields covered by the said entries; and it is an elementary rule of construction that the widest possible construction must be put upon their words. This doctrine does not, however, mean that Parliament can choose to tax as income an item which in no rational sense can be regarded as a citizen's income. The item taxed should rationally be capable of being considered as the income of a citizen. But in considering the question as to whether a particular item in the hands of a citizen can be regarded as his income or not, it would be inappropriate to apply the tests traditionally prescribed by the Income-tax Act as such."
15. We may conclude by referring to yet another decision of the Supreme Court in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521. After an examination of the decisions dealing with the meaning and content of the said expression, the Supreme Court summarised its conclusions in the following words (at page 530) :
"The said decisions lead to the following result; Income-tax is a tax on the real income, i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act. The real profit can be ascertained only by making the permissible deductions . . . Another distinction that shall be borne in mind is that between the real and the statutory profits, i.e., between the commercial profits and statutory profits. The latter are statutorily fixed for a specified purpose."
16. In the light of these decisions, it is idle to contend that the expression "income" occurring in entry 82 of List I should be construed in the sense "Gross profits minus expenses is equal to income". The Income-tax Act is full of provisions, which provide what income is; it also prescribes what the permissible deductions are. In many cases, a deduction is granted more than the actual expenditure and, correspondingly, several items of actual expenditure are disallowed either wholly or partly. These rules may be called artificial, but so long as they have some rational relation to the income, they cannot be said to be outside the purview of entry 82. It is equally beyond doubt that Parliament can provide several incentives and disincentives either for encouraging a particular type of industrial/ commercial activity or to discourage it, as the case may be. This much is conceded by Mr. Gupta as well, but what he contends is that while it is open to Parliament to prescribe a ceiling on certain expenditure or to disallow certain expenditure, it is not open to it to provide the disallowance of the kind contained in the impugned Sub-section (8). We are unable to see the logic behind this argument. The objects and reasons aforementioned make it evident that Sub-section (8) was enacted as a measure of credit restraint upon non-banking and non-financial companies in the matter of receiving deposits. It recites that by virtue of the Interest-tax Act, 1974, the cost of borrowings from scheduled banks has gone up by about 1 per cent., which has made the acceptance of deposits by non-banking and non-financial companies from the public all the more attractive. This was sought to be remedied by enacting Sub-section (8). The subsection provides that 15 per cent. of the amount paid by way of interest shall be disallowed.
17. Mr. Gupta then argued that 15 per cent. disallowance operates whatever be the rate of interest. To wit, he suggested, if a company receives deposits at the rate of 1 or 2 per cent., even then the 15 per cent. cut operates. This argument, in our opinion, ignores the realities of the situation. One must take a realistic view of the situation. We cannot judge the constitutionality of an enactment by taking a hypothetical or an unrealistic example. In the real world, no person would deposit moneys with a company unless it pays more than a scheduled bank or, at any rate, unless it pays what a scheduled bank does.
18. In this context, we must refer to the well-accepted principles enunciated by the Supreme Court relevant on the question of validity of taxing enactments. It has been repeatedly held that in the case of a taxing enactment, the Legislature has got a large elbow room in selecting persons, in prescribing rates and in providing for incidental matters. The Legislature must be presumed to know the needs of the citizens and the economy of the nation. The court cannot substitute its wisdom for that of the Legislature.
19. In this connection, we may also state that an enactment may be relatable to more than one entry in the Seventh Schedule. There is no rule that an enactment must relate to only one entry in the Seventh Schedule. In the case of a Parliamentary enactment, it may be relatable to more than one entry in List I and/or to an entry or entries in List III. Even if it can be suggested by any distant process of reasoning that the sub-section is not strictly within the purview of entry 82 of List I, it can be justified with reference to entry 45 of List I and entry 20 of List III, read with entry 82 of List I. Entry 45 empowers Parliament to make laws relating to banking. It must be stressed again that the expression "banking" must be understood in its widest amplitude and not as confined to banking institutions alone. Any activity akin to banking would come under the expression. By this token, the acceptance of deposits by non-banking and non-financial companies would also fall within the said expression. Moneys so received are evidently used for the purposes of the company or for such other purposes as the company may decide. In any event, the sub-section is, without a doubt, relatable to entry 20 of List III read with entry 82 in List I, as a measure of "economic planning". To reiterate, the sub-section is a measure of credit control, conceived in the interest of country's economy. In the present day world, Parliament has to, and must be presumed to, keep track of the evolving economic, financial and monetary scenario. It must have the power to regulate, control and channelise it in proper lines. More than one kind of regulation may be called for. There may be many ways an object can be achieved; it is for Parliament to choose that which it thinks best. The court cannot sit in judgment over the choices made by Parliament, so long as it is within its competence and does not violate any constitutional provision. Accordingly, the first contention urged by the learned counsel is rejected. In this view of the matter, it is unnecessary for us to deal with the contention of Mr. Katju (for the State) that the sub-section can be justified with reference to entry 97 of List I.
20. II. Attack based upon Article 14.--The attack mounted by Mr. S.P. Gupta based upon Article 14 runs in three streams, set out by us as (a), (b) and (c) of ground 2 hereinbefore. The first contention is that singling out companies and subjecting them to the impugned disallowance, while leaving out firms and individuals, is discriminatory. It is argued that the distinction made is unreasonable and has no nexus to the object of the enactment. We are unable to agree. But before we proceed to deal with the contention, let us remind ourselves of the principles enunciated by the Supreme Court in the matter of application of Article 14 to taxing statutes. In one of the earliest cases Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552, the relevant principles were stated in the following words (at page 557) :
"The guarantee of equal protection of the laws must extend even to taxing statutes. It has not been contended otherwise. It does not mean that every person should be taxed equally. But it does mean that if property of the same character has to be taxed, the taxation must be by the same standard, so that the burden of taxation may fall equally on all persons holding that kind and extent of property. If the taxation, generally speaking, imposes a similar burden on every one with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground of inequality, even though the result of the taxation may be that the total burden on different persons may be unequal. Hence, if the Legislature has classified persons of properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. Similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, Article 14 will not be in the way of such a classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incidence of taxation, which results in inequality, the law may be stuck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Article 14 though the courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the court might think more just and equitable."
21. Now, there is a well-marked and well-understood distinction between companies on the one hand and firms and individuals and other associations on the other. This is not a distinction created by the impugned sub-section. The incorporated companies constitute a class by themselves. By virtue of their size, clout and reputation, their creditworthiness is several times more than individuals or firms. The very fact that a year earlier--in 1975-the Central Government framed Rules, called Companies (Acceptance of Deposits) Rules, 1975, regulating the said activity, shows that receipt of deposits by companies by promising attractive rates of interest had become quite an established fact, which called for certain regulation and control in the interest of the general public. It is for this purpose that several limits were placed upon the total amount of deposits that may be received by a company, the interest it can pay thereon, the period for which it can receive deposits, and so on. The impugned sub-section is yet another measure of credit control and/or economic planning, mainly intended to check the flight of deposits to these companies, away from the scheduled banks. The scheduled banks had been placed at a disadvantage because of the levy of interest tax under the Interest-tax Act, 1974. It was driving the deposits away from the scheduled banks. In the interest of the general public and the nation's economy, it was necessary to rectify the imbalance, consistent with the need to raise revenues.
22. It was then argued by Mr. Gupta that Sub-section (8) exempts deposits/ loans received from the specified sources from its operation. (The expression "specified sources" refers to various Governments, institutions and agencies set out in Clauses (i) to (viii) of Clause (b) of the Explanation to Sub-section (8)). The contention of learned counsel is that this again is a case of unreasonable classification. It is argued that by this method, Parliament is compelling the companies to borrow only from the specified sources, and not from others, In the context of the fact that the specified sources do not assure all the credit that may be required by a company, this restriction is uncalled for, he says. We are not impressed. A look at Sub-clauses (i) to (viii) of Clause (b) of the Explanation would show that specified sources are Governments, local authorities and other public financial institutions. Similarly, they also include deposits received from any other company or from employees of a company and/or agents of a company as well as certain other types of receipts. We must again say that the sub-section, being a measure of economic planning, designed to discourage the flight of capital to non-banking and non-financial companies, with a view to regulate the availability of credit in the market, it must be left to Parliament to select the persons to be subjected to regulation--selective control. Parliament must be conceded a wide choice in this behalf. In any event, it is clear that the enumeration of sources specified in Clause (b) of the Explanation is consistent with the above object. It cannot be said that there is no rationale behind the said enumeration.
23. Mr. Gupta then contended that no distinction can be made with reference to the nature or character of the lending agency. He sought to rely upon certain observations of the Supreme Court in P. Vajravelu Mudaliar v. Special Deputy Collector for Land Acquisition, AIR 1965 SC 1017. In particular, paras 19 and 20 in the said judgment were relied upon. That was a case where the impugned Madras Amendment to the Land Acquisition Act provided that where the land is acquired for housing purposes, the compensation shall be paid on the basis of market value of the land as on the date of notification under Section 4 or the average market value during the preceding five years, whichever is less. Solatium was also limited to five per cent. as against 15 per cent. under the Land Acquisition Act. The court found that land could be acquired for housing purposes even under the main enactment (Land Acquisition Act, 1894), in which case, the compensation will be determined on the basis of the market rate prevailing on the date of the notification under Section 4 and solatium would also be 15 per cent. In this context, the Supreme Court observed that from the point of view of the owner of the land, it is immaterial for what purpose his land is acquired and that he is only concerned to see that he gets a fair and full compensation. The main reasoning related to two procedures being available to the State, one more drastic than the other. It is on the basis of the said theory that the impugned Madras Amendment was struck down. It is well known that the said line of reasoning, which was initially employed in the Income-tax Investigation Commission cases and carried through the Northern India Caterers (P.) Ltd. v. State of Punjab, AIR 1967 SC 1581, was later given up and overruled in Maganlal Chhagganlal (P.) Ltd. v. Municipal Corporation of Greater Bombay, AIR 19,74 SC 2009. The said theory is no long extant. In any event, we see no relevance of the said observations to the case on hand.
24. Similarly, the argument that the said provision is arbitrary also does not impress us. The contention of learned counsel is that so long as Parliament does not assure all the credit needed by companies from the specified sources, the choking of other sources of credit is arbitrary. In our opinion, this argument is really beside the point. We have already explained the underlying object of the sub-section. May be that Parliament could have devised some other method for achieving the same purpose, whether under the Income-tax Act or some other enactment, but that is not relevant for our purposes. What we have to see is whether the provision made by Parliament is so inherently arbitrary and/or discriminatory that it violates the equal protection clause enshrined in Article 14. We fail to see any such defect in the impugned provision. Accordingly, it must be held that the impugned sub-section does not in any manner violate the guarantee enshrined in Article 14.
25. III. Argument based on Article 19(1)(g).--The argument of learned counsel that the impugned sub-section is violative of Article 19(1)(g) is without force. The restriction contained in the impugned sub-section is in the interest of the general public and is saved by Clause (6) of Article 19. It is not suggested that the restriction is disproportionate or excessive. We have set out the objective of the sub-section at more than one place hereinbefore. We need not repeat it again.
26. IV. Attack based on Article 19(1)(c).--The argument based on Article 19(1)(c) was not pressed before us, though it was raised as one of the contentions at the inception of the arguments.
27. Conclusion.--For the above reasons, the writ petitions are dismissed with costs.