PRATAP SINGH, J.

( 1 ) THE accused in E. O. CC. 207/88 on the file of Additional Chief Metropolitan Magistrate, Economic offences, Egmore, Madras has filed this petition under Section 482 Criminal Procedure Code, praying to call for the records in the aforesaid case and quash the same.

( 2 ) THE respondent has filed the complaint against the petitioner, arraying her as accused under Section 276 DD of Income Tax Act, 1961 for failure to comply with the provisions of Section 269 55 of the Income Tax Act, 1961. The allegations in it are briefly as follows: The Accused is a cine actress. The all India Anna D. M. K. Party, Madras, granted a loan of Rs. 4,65,000/- to the accused as per the entry made in their ledger folio on 17. 4. 1986. The said loan amount was received by the accused on 18. 4. 1986. She has admitted the same in her sworn statement given before the Assistant Director of Inspection (Investigation), Madras; 34 on 23. 4. 1986. As per Section 269 SS of Income Tax Act, 1961, no person shall after 30. 6. 1984 take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of loan exceeds Rs. 10,000/ -. As the said loan received by the accused exceeded Rs. 10,000/- and as it was taken otherwise than by an account payee cheque or bank draft, the accused has violated Section 269 SS of the Income Tax Act, 1961 and therefore she is liable to be punished under Section 276 DD and hence the complaint.

( 3 ) MR. N. C. Raghavachari, the learned Senior counsel appearing for the petitioner submitted: (i) The transaction was not a borrowing made by the petitioner but it was the payment made against future performances and hence it will not fall within the ambit of Section 269 SS of Income Tax Act (which I shall hereafter referred to as I. T. Act ). (ii) The sworn statement dated 23. 4. 1986 referred to in the complaint was a wrong statement and it was obtained by compulsion and it is violative of article 20 (3) of the Constitution and hence it should not be acted upon. (iii) Section 269 SS is violative of Article 14 of the Constitution. (iv) The punishment provided in Section 276 DD of I. T. Act is draconian in nature and hence it has been repealed subsequently. Per contra, Mr. K. Ramasamy, the learned counsel appearing for the respondent submitted that it was only a borrowing made by the petitioner that statement given by the petitioner was not a wrong statement and it was not obtained by compulsion. He further submitted that Section 269 SS of LT. Act is not violative of Article 14 of the Constitution and Section 276 DD is not draconian in nature and the repeal thereof would not affect the prosecution. I have carefully considered the submissions made by rival counsels.

( 4 ) REGARDING points 1 and 2 urged by Mr. N. C. Raghavachari, it is yet to be established in the evidence that it was not a borrowing but payment against future performances and that the statement given by the petitioner was obtained by compulsion and that it contained wrong particulars. Establishment of these facts will arise only at the time of trial. That stage has not yet come. So these two points cannot be considered at the threshold:

( 5 ) REGARDING the third point, Mr. N. C. Raghavachari, submitted that the transaction of loan is a single transaction consisting of lending by one person and borrowing by another person and while so the borrower along is put under the obligation of taking the loan amount only by an account payee cheque or account payee bank draft if the amount of loan is Rs. 10,000/- or more by virtue of Section 269 SS of I. T. Act, and contravention thereof is made punishable under Section 276 DD of theand it imposes a very severe punishment of imprisonment for a term which may extend to two years and shall also be liable to fine equal to the amount of such loan, whereas the lender is not placed under any such obligation or subjected to any penalty for contravention thereof and that this is a hostile discrimination violating Article 14 of the constitution. He further submitted that in a transaction of loan, the lender will be the dominant party and the borrower who is in need of money and seeks a loan would not be the party to command the nature of payment and if we take that factor into consideration, it would further demonstrate that the discrimination is very unfair, harsh and ex-facie discriminatory. Mr. K. Ramasamy, who repelled this contention by stating that borrowers are a class by themselves and that no discrimination was shown amongst the borrowers. He would further submit that the object of section 269 SS of I. T. Act was to curb black money and there is a reasonable nexus between the purposes of legislation and classification.

( 6 ) IN order to appreciate the respective contentions, the relevant provisions of LT. Act need extraction and the law laid down by the apex court and High Court regarding the cases wherein violation of the Article 14 of the Constitution are complained of, need be referred to. Section 269 5s of I. T. Act reads thus: Mode of taking or accepting certain loans and deposits. 269 SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor) any loan or deposit otherwise than by an account payee cheque or account payee bank draft if. (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), in ten thousand rupees or more. Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit, taken or accepted by, (a) Government (b) Any banking company, post office savings bank or co-operative Bank; (c) any corporation established by a Central, State or Provincial Act: (d) any Government company as defined in Section 617 of the Companies Act. 1956 (1) of 1956); (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette. Section 276 DD reads as follows: Failure to comply with the provisions of Section 269 SS. 276 DD. If a person, without reasonable cause or excuse, takes or accepts any loan or deposit in contravention of the provisions of Section 269 SS, he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine equal to the amount of such loan or deposit. By a reading of the above, it is clear that failure to follow the procedure as stipulated in Section 269 SS would entail punishment under Section 276 DD. It is further clear that only the borrower is put under an obligation to take a loan by an account payee cheque or account payee bank draft, if it is for Rs. 10,000/- or more under Section 269 SS and if he violates the said provision, he would be made liable for the penalty provided in Section 276 DD. Before considering further, whether it would amount to ex-facie harsh hostile discrimination in as much as the lender was not brought within its fold, I shall refer to the rulings of the apex court and High Court touching this point.

( 7 ) BEFORE going to the merits of the rival contentions, at the outset, I shall refer to the ruling relied upon by Mr. N. C. Raghavachari to show that in a proceeding under section 482 Criminal, Procedure Code, this aspect of the case can be considered. In Rayala Corpn. v. Director of Enforcement1, in a proceeding under Section 561-A of Code of Criminal Procedure (old Code), it was contended that section 23 (1) (b) of the Foreign Exchange Regulation Act is ultra Vires Article 14 or Constitution on certain grounds. On merits, that contention was not accepted. The point is that vires of Section 23 (1) (b) of the said Act was questioned as offending Article 14 of the Constitution in a proceeding under Section 561-A of old Code of Criminal Procedure Code and it was considered. Mr. K. Ramasamy, the learned counsel appearing for the respondent, did not dispute the proposition that in a proceeding under Section 482 Criminal Procedure Code, this aspect call be considered.

( 8 ) IN I. T. O. v. Takin Roy Rymbai2 the apex Court has held that a taxation law cannot claim immunity from the equality clause in Article 14 of the Constitution, and has to pass, like any other law, the equality test of that Article. The apex Court has laid as follows: While it is true that a taxation law cannot claim immunity from the equality clause in Article 14 of the Constitution, and has to pass, like any other law, the equality test of that Article, it must be remembered that the State has, in view of the intrinsic complexity of fiscal adjustments of diverse elements, a considerably wide discretion in the matter of classification for taxation purposes. Given legislative competence, the legislature has ample freedom, to select and classify persons, districts, goods, properties, incomes and objects which it would tax, and which it would not tax. So long as the classification made within this wide and flexible range by a taxing statute does not transgress the fundamental principles underlying the doctrine of equality, it is not vulnerable on the ground of discrimination merely because it taxes or exempts from tax some incomes or objects and not others. Nor the mere fact that a tax falls more heavily on some in the same category, is by itself a ground to render the law invalid. It is only when within the range of its selection, the law operates unequally and cannot be justified on the basis, of a valid classification, that there would be a violation of Article 14. In Nataraj v. Union of India3, the Karnataka High Court has held that provisions of compulsory audit by Chartered Accountant is a provision to prevent evasion of tax and facilitate administration nd it is not violative of articles 14 or 19 (1) of the Constitution and the provisions is valid. In that case, the validity of Section 44 AB of I. T. Act, 1961 was challenged by Income Tax Practitioners, Section 44 AB provides for compulsory or statutory audit of account of certain class of persons carrying on business or profession by Chartered Accountants who are on the Register of Members maintained by the Institute, of Chartered Accountants of India (Institute) established and functioning from 1. 7. 1949, under the Chartered Accountants Act of 1949. On the ground that the said exclusive right or privilege conferred on CAs has affected their interests, and hence Section 44 AB is violative of fundamental rights guaranteed to them by Article 14 and 19 (1) (g) of the Constitution it was challenged. It was held that Section 44 AB is a reasonable provision and that furthers the object and purpose of the and is not violative of Article 14 of the Constitution. It was held that Income Tax Practitioners who belong to a separate class cannot compare themselves with the class of Chartered Accountants who have special Qualifications and expertise to do the job of auditing more efficiently. On that finding of the fact, it was held that there is no violation of Article 14 of the Constitution. Thy learned Judges had considered it catena of cases and had deduced the proposition as follows:1. The Classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others, and (2) that differentia must have a rational relation to the object sought to be achieved by the. 2. The differentia which is the basis of the classification and the object of the are distinct things and what is necessary is that there must be a nexus between them. In short, while article 14 forbids class discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed, it does not forbid classification for the purpose of legislation provided such classification is not arbitrary in the sense above mentioned. In Muthukali Chettiar v. Insp. Asst. C. I. T. 4, the Karnataka High Court had considered the concept of Article 14 of the Constitution. The learned Judge has stated as follows:in order to appreciate the contentions, it is necessary to beat in mind the concept of article 14. Article 14 provides: The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India. The two expressions Equality before the law and equal protection of the laws may mean different things, but the entire concept is, however, fundamentally the same; that is, like should be treated alike. T This principle proceeds on the premise that men are unequal in many respects, but those who are similarly situated should be similarly treated. As different persons should be treated differently, the law has evolved a theory of reasonable classification but not class legislation. This has been well established by a string of decisions of the Supreme Court from Chiranjit Lai v. Union of India5, to Special Bearer bonds case In (A. I. R. 1968 S. C. 565), it was held that to be a valid classification, the same must not only be founded on an intelligible differentia which distinguishes persons and things that are grouped together from others left out of the group but that differentia must have a reasonable relation to the objects sought to be achieved. It was further held that the State can by classification determine who should be regarded as a class for the purpose of legislation and in relation to a law enacted on a particular subject, but the classification must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be attained and cannot be made arbitrarily and without any substantial basis.

( 9 ) IN State of Andh, Pra v. Raja Reddy7, the apex court has laid as follows (i)A statutory provision may offend Art. 14 of the Constitution both by finding differences where there are none and by making no difference where there is one. Decided cases laid down two tests to ascertain whether a classification is permissible or not. , viz. , (i) 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 (ii) that the differentia must have a rational relation to the object sought to be achieved by the statute in question. The said principles have been applied by this court to taxing statutes. In Shashikant Laxman Kale v. Union of India8, the apex court has held that there is clear distinction between legislative intention and the purpose or object of the legislation. While the purpose or object of the legislation is to provide a remedy for the malady, the legislative intention relates to the meaning or exposition of the remedy as enacted. While dealing with the validity of a classification, the rational nexus, of the differentia on which the classification is based has to exist with the purpose or object of the legislation so determined. For determining the purpose or object of the legislation, it is permissible to look into the circumstances which prevailed at the time when the law was passed and which necessitated the passing of that law.

( 10 ) FROM the above, the following Principles emerge: (i) A taxation law cannot claim immunity from equality clause in Article 14 of the Constitution, and has to pass, like any other law, the equality test of that Article. It is only when within the range of its selection, the law operates unequally and cannot be justified on the basis of a valid classification that there would be a violation of Article 14. (ii) Article 14 does not forbid reasonable classification of person, object and transactions by the legislature for the purpose of attaining specific end. What is necessary in order to pass the test of permissible classification under Article 14, is that the classification must not be arbitrary, artificial or evasion but must ,be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by the legislature. (iii) The entire concept of Article 14 is fundamentally the same viz. , like should be treated alike. (iv) The classification must be based on some real and substantial distinction bearing a just and reasonable relation lb the object sought to be attained and cannot be made arbitrarily and without any substantial basis. While dealing with the validity of a classification the reasonable nexus of the differentia on which the classification is based has to exist with the purpose of object of the legislation so determined.

( 11 ) MR. K. Ramasamy, the learned counsel appearing for the respondent submitted that the object of Section 269 SS was to curb the circulation of black money and put an effective check upon it. In such a case, if the object was to bring in a transaction of loan in regular accounts by making it obligatory to evidence the transaction of loan of Rs. 10,000/- or more only by means of an account payee cheque or by an account payee draft, such an obligation should be imposed not only on the borrower but also must be imposed on the lender. The transaction of loan is a single transaction. It is giving of money by the lender and as well taking of money by the borrower. Those two ingredients are to be necessarily present in a transaction of loan. In the absence of one ingredient, there cannot be any transaction of loan. While so, only the taker of a loan viz. , the lender is put under obligation by not taking the loan excepting by way of an account payee cheque or an account payee draft, if the loan was for Rs. 10,000/- or more. No such obligation was cast on the lender who is an integral part of a loan transaction. This differentia looks all the more hostile, harsh and discriminatory when we take into account the normal circumstance that the borrower would be at the mercy of the lender. Ordinarily, he cannot dictate terms to the lender as in what manner he should advance the loan amount to him. While so, leaving the lender out of purview of Section 269 SS and placing the borrower alone within the ambit of the same would amount to a classification which is not a rational one. It is not based on any intelligible differentia which distinguishes those that are grouped together from others viz. , the lenders. Furthermore, the differentia docs not have rational relation to the object sought to be achieved by this provision. The Principle that like should be treated aliket has been very clearly and grossly violated. The fundamental principles that those who are similarly situated should be similarly treated has not been followed. It has transgressed the fundamental principle underlying the doctrine of equality. When the lender and borrower stand on the same fooling in a transaction of loan, to some extent the borrower on a worse footing, the borrower alone was placed under an obligation, leaving the lender out of the scope of the Section and further more non compliance of Section 269 SS is made punishable under Section 276 DD of the I. T. Act which provides a very stringent punishment viz. , imprisonment for a period of upto two years and fine equivalent to the amount of borrowing. While so, it clearly infringes Article 14 of the Constitution and hence ultra vires.

( 12 ) MR. K. Ramasamy, submitted that no distinction was made amongst the borrowers and that lenders are a class by themselves. I am unable to accept this argument for the simple reason that what is intended to be dealt with is a transaction of loan and a transaction of a loan cannot exist without a lender and both lender and borrower are integral parts of a single transaction of loan. Considering the object of the Section, as has been stated by Mr. Ramasamy, this contention would not hold good.

( 13 ) IN W. P. 3919/85 and batch of writ petitions, a division Bench of this court had occasion to consider the question as to whether Section 269 SS is unconstitutional. The only ground taken by the petitioners for attacking section 269 SS as unconstitutional was that Section 269 SS imposes an obligation on the part of a person who should accept a loan or deposit over and above Rs. 10,000/- otherwise than by an account payee cheque or account payee bank draft will be punishable under Section 276 DD find this does not even provide a reasonable cause and straightaway a punishment is sought to be imposed and therefore the said Section is draconian in its nature. This argument was repealed by the advocate appearing for the Income Tax Department who stated that Section 276 AA provides for reasonable cause and even otherwise the power to prosecute has been conferred upon the highest functionary of Income Tax Department under Section 279 and there are sufficient safeguards and one cannot say that section 269 SS is draconian in nature or arbitrary in character. Section 276 AA provides that notwithstanding anything contained in Section 276 DD, no person shall be punished for any failure referred to in the said provision if he proves that there was reasonable cause for such failure. Section 279 provides that a person can be proceeded with for offence under Section 276 DD, only at the instance of the Chief Commissioner or Commissioner. So it was held that there was provision of reasonable cause and that there was a safeguard against unjustifiable prosecution and so the contention put forth for the petitioners does not hold good. The point now taken before me viz. , Section 269 SS is violative of Article 14 was not taken in those batch of writ petitions nor that aspect was touched upon. The petitioner herein was not a party in those writ proceedings. So the ruling rendered in that batch of writ petitions will not be a bar for consideration of the present contention put forth before me.

( 14 ) MR. K. Ramasamy, made a faint plea that the lender is also covered by the penal provision viz. 276 DD. I have no hesitation to reject this contention because on a plain reading of that section it would be obvious that only a borrower viz. , a taker of a loan is made liable. A Giver of the loan viz. , the lender is not brought within Section 276 DD.

( 15 ) MR. K. Ramasamy relied upon (184 I. T. R. 141 (Statutes) In it, the constitutional validity of sub-clause (10c) of Section 10 of Income-tax Act 1961 was considered. The employees of private sector undertakings challenged, the constitutional validity of the said sub-clause (1oc) which provides that any payment received by an employee of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Government may having regard to the economic viability of such company and other relevant circumstances, provide in this behalf; shall not be included in his total income for the purposes of income-tax, on the ground of discrimination, arbitrariness and lack of nexus with the object since an employee of a private sector company who was similarly placed and who gets a benefit under similar circumstances was denied that benefit. The apex court has observed that they see no reason why insertion of sub-clause (1oc) in Section 10 cannot also be described as an incentive for growth and modernization being a measure for improvement of the public sector and obviously, the incentive given thereby is to the employees of the public sector companies to resort more readily to the voluntary retirement scheme which would enable improvement of the public sector by streamlining its staff. The learned Judges had further observed that keeping in view the true object of the impugned enactment, there is no doubt that employees of the private sector who are left out of the am bit of the impugned provision do not fall in the same class as employees of the public sector and benefit or the fall-out of the provision being available only to public sector employees cannot render the classification invalid or arbitrary. Thus on the facts of that case, it was found that the classification is quite valid, in view of the avowed object of that enactment. The case before me stands on an entirely different footing. The transaction concerned is loan of which the two limbs are the lender and borrower and one is left out for no obvious reason. So this ruling would not- be relevant to the facts of the case before me.

( 16 ) MR. K. Ramasamy, further relied upon T. S. Nataraj v. Union of India (S. L. P. Civil Nos. 9828,9838 of 1985) in which the Special leave Petition against the judgment of the Karnataka High Court which was reported in (155 I. T. R. 81) referred to supra was dismissed by the apex court, holding that there was no discrimination against the petitioners. He further relied upon the judgment of the apex court which is referred to at (190 I. T. R. 322 (statutes ). The apex Court had dismissed several appeals by various assesses against judgments of High Courts holding that section 40a (3) of Income-tax Act, 1961 and Rule 6 DD of Income-tax Rules, 1962 had to be read together, and so read, the provisions (which provide that any payment made by an assessee in excess of Rs. 2,500/- which was not by crossed cheque or demand draft would not be allowed as a deduction in computing his income) were not ultra vires and did not curtail the freedom of trade or business of the assessee. This ruling does not have any relevancy to the facts of the case before me.

( 17 ) THE fourth plea put forth by Mr. N. C. Raghavachari viz. , that the punishment provided in Section 276 DD is draconian in nature is to be negatived in view of the finding in the batch of writ petitions viz. , WP 3919185 and others, which I have referred to supra, where this question was raised and negatived.

( 18 ) IN view of my acceptance of point No. 3 put forth by Mr. N. C. Raghavachari, the prosecution against the petitioner is quashed and this petition is allowed accordingly. Mr. K. Ramasamy, the learned counsel appearing for the respondent makes an oral application under Article 134-A of the Constitution for a certificate under Article 132 (1) stating that the case involves a substantial question of law as to, the interpretation of the Constitution. For hearing in this regard post on 22. 4. 1992. Mr. K. Ramasamy states that this is the first time it is held that Section 269 (SS) of Income tax Act, 1961, is violative of Article 14 of the Constitution and hence ultra-vires and that this involves a substantial question of law as to the interpretation of the Constitution. I accept his submission and grant the request made by him in his oral application and hereby grant the certificate under the Article 134 (A) of the Constitution. Petition allowed.