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Legislature enjoys discretion in tax matters, Courts should keep off: Supreme Court
November, 04th 2011

The Supreme Court has said that the legislature enjoys wide discretion in taxation matters and judiciary should keep their hands off unless the exercise of such discretion is palpably arbitrary.

The apex court on Thursday set aside the order of the Gujarat High Court which had held the provision of government's Kar Vivad Samadhana Scheme, 1998, as illegal as it had prescribed a cut-off date which had excluded certain category of the assessees from availing the benefits of the scheme of settlement of tax arrears.

"A power to classify being extremely broad and based on diverse considerations of executive pragmatism, the judicature cannot rush in where even the legislature warily treads. All these operational restraints on judicial power must weigh more emphatically where the subject is taxation," said a bench comprising justices HL Dattu and CK Prasad in its judgement.

It said: "Discrimination resulting from fortuitous circumstances arising out of particular situations, in which some of the tax payers find themselves, is not hit by Article 14 (Constitutional Right to Equality) if the legislation as such is of general application and does not single them out for harsh treatment.

Advantages or disadvantages to individual assesses are accidental and inevitable and are inherent in every taxing statute as it has to draw a line somewhere and some cases necessarily fall on the other side of the line."

The legislature has a broad discretion in the matter of classification. In taxation, there is a broader power of classification than in some other exercises of legislation. When the wisdom of the legislation while making classification is questioned, the role of the courts is very much limited.

It is not reviewable by the Courts unless palpably arbitrary, the bench said. It said: "It is not the concern of the courts whether the classification is the wisest or the best that could be made. However, a discriminatory tax cannot be sustained if the classification is wholly illusory."

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