1.

Whether GAAR provisions contained in Chapter X-A of the Act

are constitutionally valid ?
1. It is submitted that a law can be struck down by courts on two grounds alone, viz., (1)
lack of legislative competence and (2) violation of any of the fundamental rights
guaranteed in Part-III of the Constitution or of any other constitutional provision.72
2. However, in the instant matter none of these grounds is present to make it as being
violative of the Constitution of India because: There exists a presumption in favour of the
constitutionality of the provisions (A); Article 14 of the Constitution is not violated (B);
Article 19(1) (g) of the Constitution is not violated (C).

[A]. THERE EXISTS A PRESUMPTION IN FAVOUR OF THE CONSTITUTIONALITY

OF THE PROVISIONS.

1. In the case of ML Kamra v New India Assurance, it was held73 that there is a
presumption in favour of constitutionality of a legislation or statutory rule unless ex facie
it violates the fundamental rights guaranteed under Part III of the Constitution. The court
ought not to interpret the statutory provisions, unless compelled by their language, in
such a manner as would involve its unconstitutionality, since the legislature of the rule
making authority is presumed to enact a law which does not contravene or violate the
constitutional provisions. 1992) AIR 1072, (1992) SCR (1) 220.
2. .It is humbly submitted that as there is a presumption of constitutionality therefore the
Section 123 and 124 of Evidence Act will be deemed to be constitutional until proven
otherwise by the petitioner.
3. In the case of State of Rajasthan v. Basant Nahata it was held74 that if two meanings are
possible then the courts will reject the one which renders it unconstitutional and accept
the other upholding the validity of the impugned legislation. 2005 12 SCC 7710.
4. 66.In the present case even if court comes to the conclusion that lexical/literal
interpretation goes against any fundamental rights or constitution it should consider the
interpretation done by court which has interpreted it in accordance with the present-day
notions of democracy and constitution and is therefore constitutional.
5. The first rule is that there is always a presumption in favour of the constitutionality of a
statute and the burden is upon him who attacks it to show that there has been a clear
transgression of the constitutional principles. authority

1
 6. The court in the present case discusses that courts while dealing with economic matters
must exercise judicial self-restraint. R.K. Garg And Ors. vs Union Of India (Uoi) And
Ors. Equivalent citations: 1982 133 ITR 239 SC,
7. that the economic mechanism is highly sensitive and complex, that many problems are
singular and contingent,
8. Every legislation particularly in economic matters is essentially empiric and it is based on
experimentation or what one may call trial and error method and therefore it cannot
provide for all possible situations or anticipate all possible abuses. There, may be
crudities and inequities in complicated experimental economic legislation but on that
account alone it cannot be struck down as invalid.Secretary of Agriculture v. Central
Reig Refining Company 94 Lawyers Edition 381
9. There may even be possibilities of abuse, but that too cannot of itself be a ground for
invalidating the legislation, because it is not possible for any legislature to anticipate as if
by some divine prescience, distortions and abuses of its legislation which may be made
by those subject to its provisions and to provide against such distortions and abuses.
B]. ARTICLE 14 OF THE CONSTITUTION IS VIOLATED
1. While interpreting Article 14, the Supreme Court of Diana has held 1that “In order to pass
the test, two conditions must be fulfilled, namely, that the classification must be founded
on an intelligible differentia which distinguishes those that are grouped together from
others and that that differentia must have a rational relation to the object sought to be
achieved by the Act.
2. and administration of fiscal laws is not an exception to the general rule of fair play.2
3. The doctrine of equality under Article 14 of the Constitution has been so expanded by the
judiciary that grant of an unbridled power by the legislature to the executive has never
sustained its scrutiny.57 Prescription of guidelines circumscribing the perimeter for the
executive to act within is the general norm3 and even in the context of fiscal policy every
deviation is strenuously addressed.4

1 Constitution of India, Art. 19(1)(g).

2 Constitution of India, Art. 19(6).
3 Constitution of India, Art. 19(6); Ramlila Maidan Incident v Home Secretary, Union of India, (2012) 5 SCC 1;
H.M. Seerval, Constitutional Law of India (4th ed. 2010).
4 Oudh Sugar Mills v. Union of India, AIR 1970 SC 1070.

2
 4. “ We would not like to hear from a litigant in this country that the government is coercing
citizens of this country to make payment of duties which the litigant is contending not to
be leviable. Government, of course, is entitled to enforce payment and for that purpose to
take all legal steps but the government, Central or State, cannot be permitted to play dirty
games with the citizens of this country to coerce them in making payments which the
citizens were not legally obliged to make. If any money is due to the government, the
government should take steps but not take extra-legal steps or maneuver.”
5. 57. The decision of a seven-judge Constitutional Bench of the Supreme Court in Delhi
Laws Act, 1912, In re AIR 1951 SC 332 declared this aspect in the nascent stages of
India as an independent nation and the principle has been followed without deviation
hence. See Abhinav Chandrachud, Due Process of Law, Eastern Book Company (2011)
at pg. 200 who laments that “Article 14, couched as an equal protection clause, has
become an overreaching ‘fairness’ provision, under which the constitutional courts test
legislative procedure and determine whether it is fair.”
Vagueness
1. It is a basic principle of legal jurisprudence that the law is void for vagueness if its
prohibitions are not clearly defined.5 In-State of Bombay v. F.N. Balsara 6, the Supreme court
struck down sections of the Bombay prohibition law that criminalized “frustrating or
defeating the provisions of the Act” by, inter alia, noting that the impugned words “are so
wide and vague that it is difficult to define or limit their scope.”
2. Also, in Shreya Singhal v. Union of India7 the supreme court struck down the Section 66A of
the Information Technology Act, 2000 and stated that it creates an offence which is ‘vague’,
and the court also points out the words like “menace”, “offensive”, “annoy” etc. which were
based on open-ended interpretations to be vague
3. .petitioners’ challenge of vagueness, the Court followed the U.S. judicial precedent, which
holds that “where no reasonable standards are laid down to define guilt in a Section which
creates an offense, and where no clear guidance is given to either law abiding citizens or to
authorities and courts, a Section which creates an offense and which is vague must be struck
down as being arbitrary and unreasonable.” [para. 52] The Court found that Section 66A

5 P.P Enterprises v. Union of India, AIR 1982 SC 1016.

6 Chintaman Rao v. State of M.P., 1950 SCR 759.
7 Akshay N. Patel v. RBI, (2022) 3 SCC 694.

3
 leaves many terms open-ended and undefined, therefore making the statute void for
vagueness.
4. As if such detailed scope of IAA was not enough, there are other provisions in the Act which
supplement (rather enlarge) the scope of IAA. The Act defines the scope of arrangements
which are deemed to lack commercial substance,8 meaning and scope of “round tripping”
(which is one of the situations which is deemed to lack commercial substance), 9besides
delineating when does a person become an “accommodating party” for the purpose of IAA,10
factors considered irrelevant to determine commercial substance in a transaction, 11etc. In
addition, another provision contains a near-exhaustive set of definitions specific to the
GAAR chapter under the Act.[17]
Arbitrariness
1. It was held in Maneka Gandhi v. UOI12 that Article 14 strikes at arbitrariness in State action.
It has been interpreted to be a guarantee against arbitrariness.
2. In a system of rule of law, discretion, when conferred upon executive authorities, must be
confined within clearly defined limits.82 Arbitrariness means vesting of uncanalised and
unguided discretion of the executive83Kumari Shrilekha Vidyarthi Etc. v. State of U.P. And
Ors, (1991) AIR 537. 83 State Of Mysore v. S. R. Jayaram, (1968) 1 SCR 349.
3. In the present case In order to ensure against its indiscriminate application and arrest
potential of abuse, the Act provides for framing of “guidelines” and stipulation of
“conditions” which may be prescribed and the GAAR provisions “shall be applied in
accordance” with such guidelines and conditions.13These guidelines are prescribed in Part
DA of the Income Tax Rules, 1962 (Rules).
4. The other provisions in the Rules provide for the show-cause notice mechanism to be issued
by the assessing officer (AO) to the taxpayer concerned before application of GAAR, 14time-
limits for various actions to be undertaken under the GAAR provisions, etc. In addition,

8 Kochuni K.K. v. State of Madras, (1960) 3 SCR 887.

9 Chintaman Rao (n 12).
10 Constitution of India, Art. 19(6).
11 Municipal Corpn. of the City of Ahmedabad v. Jan Mohd. Usmanbhai, (1986) 3 SCC 20.

12 State of T.N. v. K. Shyam Sunder, (2011) 8 SCC 737.

13 Sharma Transport v. Govt. of A.P., (2002) 2 SCC 188.
14 Chintaman Rao (n 12).

4
 certain administrative clarifications15 have been issued by the Income Tax Department which
explain its perspective on the interpretation and application of GAAR provisions.
5. This takes us back to the Act which prescribes a detailed procedure for applying GAAR.[25]
It is stipulated that in a situation where the AO considers that the transaction may be an IAA,
he is required to a make a reference to the Principal Commissioner of Income Tax, who, if he
agrees, shall issue a notice to the taxpayer concerned and issue necessary directions after
hearing the response. In the event the explanation of the taxpayer is not found satisfactory,
then a reference has to be made to an approval panel which would, after hearing both the
taxpayer and the tax officer, pass directions determining whether a case for IAA is made out.
The approval panel would comprise of three members; the chairperson being a serving or
former High Court Judge, one senior Indian Revenue Service member and one member who
“shall be an academic or scholar having special knowledge of matters, such as direct taxes,
business accounts and international trade practices”.
● [22] R. 10-U, Income Tax Rules, 1962.

(C) THERE IS NO VIOLATION OF ARTICLE 19(1)(G).

1. Article 19(1)(g) 16 of the Constitution guarantees right to practice any profession, or to carry
on any occupation, trade or business. The provision has to be read with clause 19(6)17 which
states that reasonable restrictions on the exercise of the right conferred by Article 19(1)(g)
can be put in the interests of the general public and to maintain public order and health.18
2. It is humbly submitted that in order to constitute a ‘reasonable’ restriction the law must
satisfy the test of reasonableness.19 It connotes that the limitation imposed on a person’s
enjoyment of the right should not be arbitrary or of an excessive nature 20, beyond what is
required in the interests of the general public21 and should be in the “least restrictive

15 Maneka Gandhi (n 79).

16 Kartar Singh v. State of Punjab, (1994) 4 SCC 134 (India).
17 State of Bombay v. F.N. Balsara, 1951 AIR 318.
18 Shreya Singhal v. Union of India, (2013) 12 SCC 73.

19 Anwar Ali Sarkar v. State of West Bengal, AIR 1952 SC 75.

20 J.K. Industries Ltd. v. Union of India (2007) 13 SCC 673

21 Alok Kumar Banerjee v. Union of India (1984) 3 SCC 127

5
 manner”22 with a reasonable relation to the objective23. This formulation involves a
balancing of private interest vis-à-vis public interest.24

1] THE RESTRICTIONS ARE NOT ARBITRARY IN NATURE.

3. The word arbitrary has been defined by the Supreme Court to mean ‘in an unreasonable
manner,25as fixed or done capriciously or at pleasure, without adequate determining
principle.”26 It must strike a balance between the freedom guaranteed in Article 19(1)(g)
and the social control permitted by Article 19(6).27

2] THE RESTRICTIONS DO NOT GO BEYOND WHAT IS REQUIRED IN THE INTERESTS OF THE

GENERAL PUBLIC. ⁷

4. reasonable restrictions on the exercise of the rights conferred under Art. 19(1)(g) of the
Constitution, in the interest of the general public.The expression ‘in the interest of general
public’ in Article 19(6)28 is of wide import comprehending public order, public health,
public security, morals, economic welfare of the community and the objects mentioned in
Part IV of the Constitution.29
5. In the State of Madras v. V. G. Row (1) Pattanjali Sastri, C. J., lays down the following
test of reasonableness "The nature of the right alleged to have been infringed, the
underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to
be remedied thereby, the disproportion of the imposition, the prevail- ing conditions at the
time, should all enter into the judicial verdict (1) (1952) S.C.R. 597.

[3] THERE EXISTS REASONABLE RELATION OF THE RESTRICTIONS WITH THE OBJECT IT SEEKS

TO ACHIEVE.

22 Dabur India Ltd. v. State of Uttar Pradesh (1990) 4 SCC 113

23 S. 97(1), Income Tax Act, 1961.
24 S. 97(2), Income Tax Act, 1961.
25 S. 97(3), Income Tax Act, 1961.
26 S. 97(4), Income Tax Act, 1961.
27 S. 101, Income Tax Act, 1961
28 R. 10-UB, Income Tax Rules, 1962
29 For illustration, see Circular No. 7 of 2017 dated 27-1-2017, available HERE .

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 6. The object sought to be achieved was to prevent the prevalent abuse, namely, evasion of tax
by an individual doing business under a partnership nominally entered with his wife or
minor children. The scope of the provisions is limited only to a few
7. Balaji vs Income-Tax Officer, Special ... on 4 August, 1961 Equivalent citations: 1962
AIR 123, 1962 SCR (2) 983 but that is offset, to a large extent, by the beneficent results that
flow therefrom to the public, namely, the prevention of evasion of income-tax,

D) THERE IS NO VIOLATION OF ARTICLE 21 OF THE CONSTITUTION