Law:

Section:

Section 2(18) read with sections 2(41), 104 and 108 of the Income-tax Act, 1961 - Company in which public are substantially interested - Whether provisions of section 2(18) read with section 2(41), and section 104, read with section 108, which makes a distinction between companies "in which public are substantially interested" and "in which public are not substantially interested" in respect of levy of rates of income-tax are voilative of articles 14 and 19(1)(c) of Constitution of India - Held, no FACTS The petitioner challenged the validity of assessments made on it on the basis that section 2(18), read with section 2(41) and section 104, read with section 108 of the Act and the provisions of the Finance Act, 1964, authorising levy of super-tax at a rate higher than 25 per cent of the total income, the Finance Act, 1966, authorising levy of income-tax at a rate higher than 55 per cent the Finance Acts 1968 and 1969 authorising levy of Income-tax at the rate of 65 per cent of the total income of company, which does not fall within the definition of "company in which the public are substantially interested" are void as they offend articles 14 and 19(1)(c ) and (f) of the Constitution. The petitioner contended that the Act makes a distinction between companies "in which the public are substantially interest", ("widely held companies") and those "in which the public are not substantially interested", ("Closely held companies"). It was further contended that in respect of undistributed income all companies are under the provisions of the Act liable to pay additional income-tax, but widely held companies are excluded from such liability, that for closely held companies rates higher than those for widely held companies for assessment of tax have been fixed by the Finance Act. HELD It was clear from various decisions of the Supreme Court that in order to pass the test of permissible classification under article 14 of the Constitution two conditions have to be fulfilled. They are, that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and that that…

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