R.K. GARG v.

UNION OF INDIA

Introduction:
To start off with we all know what tax evasion is. Activities like tax evasion are being carried
out with the motive of concealing the actual estimation of one’s income that is taxable. With
the assistance of various activities that acts as an eye wash to the authorities of Government
are being carried out with the motive of lowering down the amount of tax that is payable by
the taxpayer. In the case of R.K. Garg v UOI, the constitutional validity of Special Bearer
Bonds (Immunities and Exception) Act, 1981 was challenged. The legislation was enacted by
the Indian Parliament, with the object of putting to productive use, the unaccounted money
(black money) held by citizens. In furtherance of this, the Government, proposed to issue
instruments called Special Bearer Bonds and provided incentives for people to invest in them.
The controversial provisions of this legislation were section.3 and section.4. Section 3 of the
Act provided for certain immunities to a person who had subscribed to or otherwise acquired
Special Bearer Bonds. Section 4 provided that without prejudice to the provisions of section 3
subscription or acquisition of Special Bearer Bonds by any person shall not be taken into
account for the purpose of any proceedings under the Income tax Act, 1961, the Wealth-tax
Act 1957 or the Gift-tax Act, 1958 and that no person who has subscribed to or has otherwise
acquired the said Bonds shall be entitled to claim any set-off under the Income-tax Act or to
reopen any assessment or reassessment made under that Act on the ground that he has
subscribed to or has otherwise acquired the said Bond. Any person who subscribes to these
bonds will not be required to disclose the source of money for his investment in such bonds
and he will not be interrogated or subjected to any investigation, or admissible as evidence in
any inquiry or proceedings or levied any penalty on the basis of his investment.

The Act was challenged inter alia on the ground that it made an unreasonable classification
between persons who illegally evaded payment of tax as against those who abided by the law.
It was argued that such a provision in the law was against morality as it afforded tax evaders,
immunities and exemptions, and placed them at an advantageous position in comparison to
those who abided by the law. Unfortunately, by a majority of four against one, the Bench
brushed aside this contention, and held that morality was not an element to be considered
while judging the constitutional validity of a statute. This case was an attempt to analyse the
strength of ‘morality of the legislation’ as a ground for determining its constitutional validity
as gathered from the Constitution of India. All laws of India should pass the test of
constitutional validity, that is, they are to be strictly within the constitutional framework.
Now, there are many Articles/ provisions embodied in Constitution that every legislation has
to conform with and violation of any of such provision will render such legislation as ultra
vires to the Constitution and, consequently, bad and illegal. Further, not only a legislation
passed by the State but every subordinate laws, rules, procedure and action taken thereunder
also have to obey such constitutional mandate. It was further contended that the act was
violative of Article 14 which is equality and Article 123 which is Power of President to
promulgate Ordinances. The question as to if reasonableness of the restriction imposed is
clearly tested on the basis of whether the activity offends morality or not. Those who have
broken the law and deprived the State of its legitimate dues are given benefits and
concessions placing them at an advantage over those who have observed the law
and paid the taxes due from them and this is clearly immoral and unwarranted by
the Constitution. The majority in the case of R.K.Garg, most clearly did not follow the law
and this proves to be a controversial yet important case law in the context of taxation laws.