ASSISTANT DIRECTOR OF INSPECTION INVESTIGATION versus KUM. A.B. SHANTHI

Citation: [2002] 3 S.C.R. 764 · Decided: 03-05-2002 · Supreme Court of India · Bench: R.P. SETHI · Disposal: Case Partly allowed

Judgment (excerpt)

A 
ASSISTANT DIRECTOR OF INSPECTION INVESTIGATION 
v. 
KUM. A.B. SHANTHI 
MAY 3, 2002 
B 
[RP. SETHI AND K.G. BALAKRISHNAN, JJ.] 
Income Tax Act, I 96 I: 
Sections 269 SS and 27 I D-Prescribed mode of taking or accepting 
C loan and penalty in violation thereof-Ascertained in respect of borrower 
and not the /ender-Whether discriminatory-Held provisions are not 
discriminatory, draconian or exproprietory-Hence constitutionally valid-
Constitution of India, 1950-Article 14. 
D 
Section 269 SS-Enactment of under entry 82 in List I of Seventh 
Schedule-Legislative competence challenged-Plea that enactment is on 
the subject outside scope of Income Tax Act-Held, since law relating to tax 
can be enacted under Schedule 7, List I, Entry 82, it is within ihe competence 
of Parliament and the same is not co/ourable legislation-Enactment of any 
ancillary or subsidiary provision which transgresses over jurisdiction of 
E legislature for achieving the object of such legislation, would be a valid 
piece of legislation-Doctrine of colourable legislation. 
F 
Judicial Review-Tax legislation-Held, it is a policy decision and 
hence it is for Parliament to decide in which manner legislation should be 
made-Hence no judicial interference called for. 
Interpretation of Constitution-VII Schedule-Legislative list-Entries-
Interpretation of-Held, entries should be given their fullest meaning and 
widest amplitude and to extend to all ancillary and subsidiary matters. 
High Court quashed prosecution against the respondent holding Section 
G 269 SS of Income Tax Act, 1961 as violative of Article 14 of the Constitution. 
H 
In connected appeal, wherein constitutional validity of Sections 269 SS 
and 271 D of the Act was challenged before High Court, the matter was 
dismissed by Single Judge as well as Division Bench. 
764 
J 
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ASSISTANT DIRECTOR OF INSPECTION INVESTIGATION v. A.B. SHANTHI 
765 
In appeal to this Court, appellant contended that the policy behind A 
enactment of Secti_on 269 SS debarring and penalising the borrower and not 
the lender is illegal and violative of Article 14 of the Constitution vis-a-viz. 
the lender; and if the intention of legislature was to unearth black money it 
was really black money of the lender that was involved in the transaction, and 
thus the classification was artificial and had no nexus with objects sought to B 
be achieved by the enactment; that Parliament had no legislative competence 
to enact Section 269 SS, the source of which was traceable to entry 82 in List 
I of Seventh Schedule of the Constitution which relates only to tax on income 
other than agricultural income and expression 'income' in the Entry has to be 
interpreted according to its natural and grammatical meaning and the amount 
received may necessarily be not the income and hence treating the loan as C 
income is not a valid constitutional legislation; and that Section 276 DD and 
271 D was unconstitutional, the same being draconion and exproprietory in 
nature. 
Allowing the appeal of the Revenue and dismissing the connected appeal 
of the assessee, the Court 
D 
HELD: 1. Section 269 SS is, in any way, not violative of Article 14 of 
the Constitution and consequently quashing of the proceedings by the Single 
Judge of High Court is not legally sustainable. The object of introducing 
Section 269 SS is to ensure that a tax payer is not allowed to give false E 
explanation for his unaccounted money, or if he has given some false entries 
in his accounts, he shall not escape by giving false explanation for the same. 
During search and seizures, unaccounted money is unearthed and the tax payer 
would usually give the explanation that he had borrowed or received deposits 
from his relatives or friends and it is easy for the so-called lender also to 
manipulate his records later to suit the plea of the tax-payer. The main object F 
of Section 269 SS was to curb this menace. As regards the tax legislations, it 
is a policy matter, and it is for the Parliament to decide in which manner the 
legislation should be made. Of course, it should stand the test of constitutional 
validity. (771-G; 772-A; 770-D, E( 
S.K. Dutta, ITO v. Lawrence Singh lngty, 68 (1968) ITR 272; K.R.M V G 
Ponnuswamy NadarSons v. Union of India, 196 (1992) ITR 431 (Madras) and 
Sukhdev Rathi v. Union of India, 211 (1995) ITR 157 (Guj.), relied on. 
2.1. Section 269 SS was not enacted without legislative competence. It 
cannot be said that Section 26

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