Hari Krishna Bhargav vs Union Of India And Another on 6 October, 1965 – Case Summary

In the case of Hari Krishna Bhargav vs Union of India and Another on 6 October 1965, the Supreme Court of India was presented with a challenge to the validity of the annuity deposit scheme introduced in the Indian Income-tax Act, 1961. The petitioner, Hari Krishna Bhargav, a trader from Meerut, was ordered to pay Rs. 1,800 as an annuity deposit under Chapter XXII-A of the Income-tax Act, 1961. Bhargav contested the validity of this demand, arguing that the chapter was unconstitutional and violated his fundamental rights under Article 14 of the Constitution.

The annuity deposit scheme, as outlined in Chapter XXII-A, required certain classes of taxpayers in high-income groups to make deposits at specified rates on their adjusted total income with the Central Government. The amount deposited would be returned with interest in annual installments, and the installment would be taxable in the year of refund. Taxpayers had the option not to make the deposit, but in that case, they would have to pay tax on their total income and fifty percent of the amount saved by not making the deposit. An exemption was provided for taxpayers over seventy years of age.

Bhargav’s challenge to the scheme was threefold. First, he argued that the Parliament was not competent to incorporate a provision related to borrowings by the Central Government from a class of taxpayers into the Income-tax Act. Second, he claimed that the enactment of Chapter XXII-A was a colorable exercise of legislative power, with provisions so harsh and unconscionable that they were expropriatory and hence not within the legislative competence of the Parliament. Lastly, he contended that Section 280 and Schedule II were discriminatory and infringed Article 14 of the Constitution.

The Supreme Court, however, dismissed Bhargav’s petition. The court held that the Parliament, under Article 246 read with Entry 82 in List I of the Seventh Schedule, had the power to levy taxes on income other than agricultural income. The court also found that even if the scheme was for borrowing money from taxpayers, it was still within the competence of Parliament by virtue of Entry 97 of List I of the Seventh Schedule. The court further ruled that the Parliament had not resorted to any pretense, disguise, or subterfuge with the object of trespassing upon power not vested in it by the Constitution, thereby dismissing the argument of colorable legislation. The court also rejected the claim that the scheme was expropriatory, stating that a taxing statute could not be challenged merely on the grounds of being harsh or excessive.

Regarding the claim of discrimination, the court held that the exemption of persons who had attained the age of seventy years from liability to pay additional tax could not be said to be discriminatory against taxpayers below the age of seventy years who had exercised the option. The court found the classification to be prima facie reasonable and having a rational nexus to the object sought to be achieved by Parliament.

In conclusion, the Supreme Court upheld the validity of the annuity deposit scheme introduced in the Indian Income-tax Act, 1961, dismissing the petitioner’s claims of unconstitutionality, colorable legislation, and discrimination. The court’s observations in this case underscore the broad powers of the Parliament to levy taxes and introduce financial schemes, provided they are within the bounds of the Constitution and do not infringe upon fundamental rights.