Bombay High Court Dismisses Plea Challenging Constitutional Validity Of Explanations 1 and 4 Of Section 17(2) Of Income Tax Act By Banks Officers

Date:

The Bombay High Court has dismissed the plea challenging constitutional validity of Explanations 1 and 4 Of Section 17(2) Of Income Tax Act by Associations Of Officers Of Nationalised Banks.

The Petitioners are Associations/Federations of the officers of nationalised banks. They purport to represent the bank officers. In some of the Petitions, there was a prayer for a grant of leave to prosecute these Petitions in a representative capacity. However, such prayers were not pursued, possibly because the Petitioners felt that if the impugned provisions of the Income Tax Act, 1961 were struck down, then the benefit of such striking down would inure to all the bank officers and not just the bank officers whom the Petitioners expressly represent.

The Petitioners mainly challenge Explanations 1 and 4 below Section 17(2) of the IT Act by the Finance Act, 2007, which entered force with limited retrospective effect. [Explanations 1 to 3 from 1 April 2002, and explanation 4, from 1 April 2006]. 

The petitioner submitted that amendments introduced a legal fiction that an employee shall be deemed to have received a concession in the value of rentals once it was established that the employee was provided an employer-owned accommodation and the rent recoverable or payable by the employee-assessee was less than the specified percentage of such employee’s salary.

The bench of Justice M.S. Sonak and Justice Jitendra Jain has observed that it is not open for a high court to decide on the constitutional validity of economic or fiscal legislation based on such crudities and inequities. Even individual hardships are not very relevant in such matters. There is nothing arbitrary or manifestly arbitrary in linking the issue of determination of the value of the concession with the salary structure of the bank employees. 

“We cannot hold that the classification or the criteria adopted was not within the broad and flexible range available to the legislature in such matters. Such classifications or adopting such criteria do not transgress the fundamental principles of equality. The impugned amendments are not vulnerable on the grounds of discrimination merely because the burden of taxes is higher upon the employees who draw higher salaries from the bank,” the court said.

The court observed that simply because bank employees drawing higher salaries are called upon to bear a proportionately higher burden does not mean that there is any hostile discrimination within the class or any manifest arbitrariness involved in the impugned amendments. Classifications based on the economic superiority of the persons of incidence are well recognised.

The Court held that the legislative assumption cannot be condemned as irrational. It is equally well recognised that judicial veto is to be exercised only in cases that leave no room for reasonable doubt. Constitutionality is to be presumed. The question of arbitrariness cannot be decided in the abstract. These are policy decisions where the legislature has been vested with significant latitude. 

The court noted that the legislature has created a legal fiction, and further rational criteria are provided for measuring and levying the tax. Such a provision introduces certainty and clarity. Due to such a provision, there is tax efficiency, which is, in the long run, beneficial to both the taxpayer and the tax authorities. Therefore, the amendments cannot be declared ultra-vires, irrational or unconstitutional.

The court dismissed the Petitions and vacated the interim reliefs granted.

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Case Details

Case Title: All India Central Bank ] Officers Federation Versus Union of India

Case No.: Writ Petition No. 825 Of 2006

Date: 20 January 2025

Counsel For Petitioner: K. P. Anil Kumar

Counsel For Respondent: Shreyas Thakur

Mariya Paliwala
Mariya Paliwalahttps://jurishour.in/
Mariya is the Senior Editor at JurisHour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.

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