Consilience 2011: Law and Technology Conference at NLSIU

The Law and Technology Committee (elTek) of the National Law School of India University, Bangalore is hosting ‘Consilience’, a conference where contemporary issues of critical relevance in the field of law and technology are addressed. Past editions of the conference have engaged with a vast spectrum of cutting edge issues such as “Legal Aspects of Business Process Outsourcing”, “Biotechnology and the Law” and “Free and Open Source Software" drawing in on the rich experience of luminaries like Mr. Montek Singh Ahluwalia (Deputy Chairman, Planning Commission), Mr. R. Ramraj (MD and CEO, Sify Technologies Ltd.,), Mr. Richard Stallman (Founder – GNU Project). Last years' conference, the theme for which was "Internet Intermediary Liability in India" has been hailed to have made rich contribution to the evaluation of status quo and the future trajectory of intermediary liability in India by bringing in diverse perspectives from the academia, the industry and other important stakeholders. Some of the keynote speakers at the Conference included Wendy Seltzer (Founder, Chilling Effects Clearhouse and Fellow, Berkman Centre for Internet and Society), Gavin Sutter (Lecturer, University of London ) and Sunil Abraham (Executive Director, Centre for Internet and Society, Bangalore). Conference videos from last year's conference are available at www.consilience.in.

The 2011 edition of Consilience will focus on the theme of privacy and how it affects individuals and organisations. Consilience 2011 thus seeks to explore the interface between privacy and technology, the effect technology has on our understanding of privacy, and how technology shapes the contours of privacy and is in return shaped by privacy. Specific dimensions that the conference will engage with include privacy in the context of e-commerce transactions, social networking sites, upcoming gadgets, its equation with the State, (with a special focus on the UID project). Updates regarding the schedule of the conference will be posted on www.consilience.in.

Supreme Court on the Validity of Amendment to the Ninth Schedule

The Supreme Court in Glanrock Estate (Pvt.) Ltd. v. State of Tamil Nadu : MANU/SC/0689/2010 : was called upon to examine the validity of the Constitution (Thirty- fourth Amendment) Act, 1974. This Act inserted the Gudalur Janmam Estates (Abolition and Conversion into Ryotwari) Act, 1969 into the Ninth Schedule to the Constitution.

Section 3 of the Janmam Act was declared as unconstitutional by the Supreme Court in Balmadies Plantations Ltd. v. State of Tamil Nadu : (1972) 2 SCC 133. Subsequently, it was inserted into the Ninth Schedule vide the 34^th Constitutional Amendment and thus protected under Article 31B. It was contended by the petitioners that this amendment violated the principles of separation of powers, equality and rule of law. Since Section 3 of the Act allowed the State to acquire forest land by paying nominal compensation, it would lead to ‘confiscation of property’. Further, they argued that acquisition of land without resorting to the provisions of the Land Acquisition Act, 1894 would amount to violation of Articles 14 and 300A of the Constitution.

A two-step test to judge the validity of amendments to the Ninth Schedule was laid down by a nine Judge Constitution Bench in I.R. Coelho v. State of Tamil Nadu : (2007) 2 SCC 1 : as follows:

1. Whether the law inserted in the Ninth Schedule violates any Right enshrined in Part III of the Constitution?

2. If the answer to the above question is in the affirmative, whether the right violated forms a part of basic structure of the Constitution?

Kapadia C.J. and Radhakrishnan J. gave separate but concurring judgments. Based on the facts, the primary question as framed by Radhakrishnan J. was “whether the vesting of private forest in the State, by virtue of Section 3 of the [Janmam] Act, in any way, violates any of the fundamental rights guaranteed to the petitioner under Part III of the Constitution and, if that be so, whether that provision abrogates or destroys the basic structure of the Constitution, which exercise has to be undertaken in the light of the principles laid down by the Constitution Bench in Coelho's case.”

Radhakrishnan J. rejected the challenge made on grounds of violation of Articles 14 and 300A and said: “In my considered view, the plea raised alleging violation of Articles 14 and 300A cannot stand, since the petitioner is holding private forest in the Gudalur Taluk by way of janmam, which are rights of hereditary proprietorship and those rights are like the rights created by grant of jagir or inam relating to land. The object and purpose of Janmam Act is to do away with such hereditaryship. Janmam estate which takes in forests, mines and minerals, quarries, rivers and streams, tanks and irrigation work, fisheries and so on stood vested in the State free from all encumbrances. Janmies are also entitled to get ryotwari patta in respect of all lands, if they establish they have been cultivating lands for a continuous period of three agricultural years immediately before the 1st day of June, 1969. Provision for payment of compensation has also been provided under the Act.”

It is interesting to note that while applying the test laid down in Coelho, the Janmam Act was not tested on grounds of violation of Article 19(1)(f). The constitutional amendment which inserted the Janmam Act into the Ninth Schedule was made in 1974 whereas the Forty-fourth amendment (which repealed Article 19(1)(f)) was brought about in 1978. It is settled that the validity of a law is tested on the basis of the law in force at the time the impugned law came into force. However, both Kapadia C.J. and Radhakrishnan J. emphasized on the fact that the fundamental right to property had been repealed and that it was merely a constitutional right.

It is submitted, with respect, that the Janmam Act should have been subjected to challenge on grounds of violation of Article 19(1)(f). Though it would not have made any difference to the conclusion arrived at by the Court. This is because assuming the Janmam was held to be violative of Article 19(1)(f), it would have survived the second test of the Coelho principle as the right to property was held to be outside the ambit of basic structure in Kesavananda Bharti v. State of Kerala : (1973) 4 SCC 225.

Further, the refusal of the Court to subject the Janmam to Article 19(1)(f) challenge may have implications on the applicability of the doctrine of eclipse to Ninth Schedule related amendments. It is established that the doctrine of eclipse applies only to pre-constitutional laws and not to post-constitutional laws (Bhikaji Narain Dhakras v. State of Madhya Pradesh : AIR 1955 SC 781 : and Mahendra Lal Jaini v. State of Uttar Pradesh : AIR 1963 SC 1019). However, based on Glanrock, it can be argued that the doctrine applies to post-constitutional laws inserted in the Ninth Schedule. For instance, assume that a law is declared to be violative of Articles 14, 19 and 21 of the Constitution but is inserted in the Ninth Schedule and thus validated under Article 31B. Subsequently, Articles 19 and 21 are repealed. A challenge to the constitutional amendment inserting the act into the Ninth Schedule is then made on the ground that it violates the basic structure of the constitution. Going by the precedent in Glanrock, it can be argued that the law inserted in the Ninth Schedule cannot be subjected to challenge under Article 19 and 21 as they have been repealed. Therefore, even though there may be a violation of Article 14, there may be no violation of basic structure and the constitutional amendment would be held valid.

Updates

In an earlier post, Mr. Padmanabhan had discussed the challenge to the Copyright Board order by SIMCA before the Madras High Court. The Madras High Court has now stayed the order, as explained in this post on Spicy IP.

V. Niranjan’s Indian Corporate Law post on the decision of the Supreme Court in BSNL v. Reliance on penaltiy and liquidated damages in Indian contract law is available here.

Does Section 14A apply when no Exempt Income is actually earned?

The Bombay High Court will shortly be hearing an interesting question of law in relation to Section 14A of the Income Tax Act – does disallowance under Section 14A arise when exempt income has not actually been earned? If certain expenditures have been incurred for the purpose of earning exempt dividend (for example), but if for some reason dividend is not actually earned, can that expenditure be disallowed under Section 14A?

The position of Section 14A after the decision in Godrej & Boyce is that for 14A disallowance there has to be a nexus between the exempt income and the expenditure. Can there be a nexus between two things when one of those does not actually exist?

A Special Bench of the Tribunal in Cheminvest had previously held that Section 14A disallowance would arise even when there is no exempt income actually earned. The Tribunal had noticed the decision of the Supreme Court in Rajendra Prasad Mody’s case, 115 ITR 522, where in the context of Section 57(iii) of the Act, the Court had held that for expenditure to be allowed, it was not necessary for any income to have actually been earned. The Tribunal applied the converse of this to hold that accordingly, for expenditure to be disallowed, it need not be necessary for any exempt income to have actually been earned. However, the relevant part of Section 57 uses the words “for the purposes of making or earning” – there, the language supports the conclusion that the only requirement is that the objective should be for making or earning income. Whether that objective is in fact successful or not is irrelevant. However, Section 14A uses the words “expenditure in relation to income which does not form part of total income”. The language in the two sections is thus different.

On the other hand, the weakness of the purely textual pro-assessee argument is magnified when one considers this. If the assessee’s argument is correct, even if a nominal sum is earned as exempt income, the entire expenditure will be disallowed. Thus, if dividend of Rs. 100 is earned, the whole expenditure incurred for earning that income is admittedly to be disallowed. What is the rational basis for saying that when that sum of Rs. 100 is not earned there should not be any disallowance whatsoever? Further, there is mild obiter in Godrej Boyce as well, saying that what matters is that the expenditure should be incurred ‘for earning’ exempt income.

This is an interesting, and close, issue; and the decision of the Bombay High Court in the next few weeks will be of interest.