TaxTMI 
TaxTMI 
1961 (7) TMI 73
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....t P-1 notice dated March 24, 1959, under section 17 of the Act, to reassess him, on the net wealth of the family and in particular, on an amount of 17,000 paras of paddy which was said to have escaped assessment; the petition is to quash exhibit P-1 and to restrain the Wealth-tax Officer from proceeding with the reassessment. The petitioner in O.P. No. 684 of 1959 was the karnavan of the Namboodiri illom which was partitioned by deed said to have been executed on March 30, 1958, but registered on July 25, 1958, and was assessed to wealth-tax for the assessment year 1958-59 by order exhibit G, dated April 30, 1959, on the net wealth as on September 16, 1957, the valuation date, of his family treated as undivided; the petitioner is to quash exhibit G. The petitioner in O.P. No. 824 of 1959 was the karnavan of another Namboodiri illom, which was said to have been partitioned by deed executed on August 17, 1958, and was assessed to wealth-tax for the assessment year 1958-59, by an order, exhibit A, dated June 18, 1959, on the net wealth, as on August 16, 1957, the valuation date, of his family treated as undivided; the petition is to quash exhibit A and the notice of demand pursuant to....
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.... List reads: "Taxes on agricultural income." And entry 49 in the State List reads: "Taxes on lands and buildings." It was argued, that the term "individuals" in entry 86 of the Union List cannot, on any reasonable view, comprehend joint families or tarwads of Hindus or Mohammedans, and that constructing the entries as they must be, in their widest amplitude, but so as to reconcile them in the event of conflict, if necessary, even by restricting the scope of any of them and applying the maxim generalia specialibus non derogant, entry 49 in the State List, which must be deemed to include a tax on the capital value of lands and buildings, and entry 46, which provides specifically for a tax on agricultural income, are special or particular provision in entry 86 in the Union List which authorises a tax on the capital value of assets generally. The rules for interpreting entries in a constitutional enactment conferring legislative power, on the basis of which the above argument was advanced, appear to be too well-settled to need a restatement by us at this time of the day, and all that is necessary is to see how far the argument based on them can be sust....
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....Union List. There is no difficulty in accepting the argument that "lands and buildings" can form part of assets and that "taxes on lands and buildings" within the meaning of entry 49 in the State List may include a tax thereon on the basis of their capital value. There is authority for the view that land tax can be related to the annual or capital or sales value of the land. (See Science of Public Finance by Findlay Shirras, page 208 and Encyclopedia Britannica, 1955 edition, volume XIII, page 675). A tax on the capital value of lands, as such, was not dealt with in the passage in these books which were relied on. Where, as in the present case, the content of two competing entries, entry 86 in the Union List and entry 49 in the State List, conferring legislative powers is under consideration, the distinction, real and vital as it is, between a tax on lands and buildings on the basis of their capital value, and a tax on such capital value itself treating lands and buildings as an item of asset, cannot be overlooked. This distinction was elucidated by the Bombay High Court in Municipal Commissioner v. Gordhandas*, where Gajendragadkar J. expressed himself thus: ....
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.... and the ultimate use which is proposed to be made of this capital value in levying a tax on lands under entry 42 of List II should not be confused with the object with which the capital value may be determined and the use which may be made of such capital value by legislation passed under entry 55 of List I. The two rates or taxes would, despite the apparent similarity in some features, be distinct and separate." In the case of a tax whose base or object is lands and buildings, their annual or capital value is but a measure or standard adopted to ensure the justness and reasonableness of the levy, but in the case of a tax on capital value, such value is itself the base or the object of the levy. In the former, the imposition falls on one qua owner of qua occupier, but in the latter, as in the case of wealth-tax, it falls on him who is considered to posses more than ordinary wealth. In final analysis, both may fall on the same person and may thus appear to overlap, but "in law there is no overlapping", being distinct an separate imposts. To allocate the legislative power to impose a tax on the capital value of lands and buildings, treating them as assets, entirely t....
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.... reliance was placed on the decision of a Full Bench of the Allahabad High Court in Oudh Sugar Mills Ltd. v. State of U.P.*, in which the U.P. Large Holdings Tax Act, 1957, enacted by the U.P. Legislature was under challenge, in so far as it imposed a tax for each agricultural year on the annual value of each holding at a rate specified in the Schedule. The contention, that such legislation was outside the purview of entry 49 in the State List was negatived upon the finding that the tax was on the holding itself, its annual or capitalised value being only the basis and not the object of taxation. Jagdish Sahai J., who wrote the leading judgment, also examined the scope of entry 86 in the Union List, though, as observed by him, it did not arise; he came to the conclusion, that it is a general provision which has to be restricted by excluding non-agricultural lands also from its ambit in order to give full scope to entry 49 in the State List. Speaking with respect, we are unable to agree that the scope of entry 86 can be so curtailed. The distinction between a tax on the capital value of lands and buildings as an asset and a tax on lands and buildings on the basis of their capital va....
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....e allowance for expenses incurred by him in earning such receipts or it may be deemed to be a levy on his right to receive the same. In another view, it may be considered to be a levy on the person himself in relation to his income. The agricultural income of a person, to put briefly, is that which is received by him by way of rent or revenue in respect of land used for agricultural purposes or that which his derived by him from such land as a result of agricultural operations or both and may be in cash or in kind. A tax on agricultural income as its base or object would fall within entry 46 in the State List, while a tax on other categories of income as its base or object would fall within entry 82 in the Union List. Upon income being earned, excluding expenses incurred in the process, the balance may form part of his assets or of his wealth at that point of time. He may afterwards spend or save, the whole or part of it, or convert the same into some other form having a saleable or marketable value. To the extent of such saving or conversion, there is an addition to his wealth and to his assets, the amount of which may vary from time to time. A tax on income is on that which is re....
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....e comprehended in the term "individuals" in entry 86. It was not disputed that the term "individuals" is wide enough to include a group, or a collection or body of individuals, and perhaps also a partnership which, not being a juridical person, is, in the words of the Supreme Court in Bacha F. Guzdar v. Commissioner of Income-tax [1955] 27 I.T.R. 1, 6 (S.C.). "An association of persons for carrying on the business of partnership and in law the firm name is a compendious method of describing the partners". Corporations are undoubtedly legal persons and as observed by Salmond on Jurisprudence, 11th edition, at page 358, so too, are registered trade unions and friendly societies, which are made "legal entities distinct from their members" and are enabled to sue or be sued in their registered names by special statutory provisions concerning them. These, according to the learned author, are the only legal persons now recognized by the English law, but that is no reason why, if case is made out, the Indian law should not add to their number. As observed in Chiranjit Lal v. Union of India [1950] S.C.R. 869, a corporation has a distinct personality o....
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....n individual who is a natural person and a corporation which is a legal or artificial person in the contemplation of law, there can exist other entities who may well be regarded as persons, say, quasi-corporations or "near corporations", and he relied on National Union of General and Municipal Workers v. Gillian**, where Uthwatt J., summarising the effect of Taff Vale Railway Co. v. Amalgamated Society of Railway Servants***, said that "a registered trade union is recognised by the law as a body distinct from the individuals who from time to time compose it. It is not a corporation, but it is very much like one. The association is not merely the aggregate of the persons who compose it, and the presence of the corporate fiction is not necessary to secure its individuality. In an age of neologism it might be called a 'near corporation'." Earlier in the same case, Scott L.J. had adverted to the effect of the Trade Union Act of 1871 as clothing a registered union with a "co-operative personality so as to give it the status of a person a juridica". It seems to follow from what has been stated above that the crucial test is whether it can be predica....
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.... 1100, and the Cochin Nair Acts of 1075 and of 1113, have defined a Nair tarwad to mean and include all members of a joint family with community or property governed by the marumakkathayam law. The Travancore Ezhava Act of 1100, has similarly defined an Ezhava tarwad. The Travancore Malayala Brahmin Act of 1106, the Cochin Nambudiri Act of 1114, the Madras Nambudiri Act of 1932, and the Kerala Nambudiri Act of 1958, have defined an illom as meaning all the members of a Nambudiri joint family with community of property. The Mappila Marumakkathayam Act of 1939 has defined a tarwad as a joint family which includes all its members with community of property governed by marumakkathayam law. In none of these definitions, which may be considered to reflect the state of the law when they were enacted, is any indication to the found, that a tarwad or illom was considered to be an entity distinct from its members and having an independent existence. If, as argued, these definitions are only descriptive and not determinative, it is not easy to understand why no definition of that character was attempted. We do not think that the provision in some of these enactments, enabling tarwads or illom....
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....are corporate bodies, but these, as explained by the Bombay High Court in a case to be referred to presently, are only by way of analogy. For example, in Chakkra Kannan v. Kunhi Pokker(2) Srinivasa Ayyangar J. observed that(3) "In India it is not uncommon for groups of persons though not incorporated to hold properties as if they were corporate entities. Castes and subcastes hold property as such, so also village communities." It is not possible to generalise from observations such as those that the law has clothed joint families, whether of Hindus or non-Hindus, with legal personality. On the contrary, in Commissioner of Income-tax v. Sarwan- kumar(4) Iqbal Ahmad C.J. described a family, though in a different context, as an association of people, a natural, as distinct from an artificial, association. In Commissioner of Income-tax v. Sodra Devi(5) Bhagwati J. observed that, "there is authority for the proposition, that the word 'individual'...is wide enough to include a group of persons forming a unit". Quite recently, in Mahavirprasad Badridas v. M.S. Yagnik(6), a Bench of the Bombay High Court consisting of Shah and S.T. Desai JJ. has decided this pr....
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.... body of persons or individuals comprehended in the term "individuals" in the legislative entry, on the principle which was deduced from decided cases, that in a constitution "general words are intentionally used, so that a constitution may remain useful for all times and the progress of a nation be not halted" and that, if it were otherwise, "the subject-matter or the field of legislation might have been narrowed down within the restrictions imposed by the particular words". In his opinion, no legislative practice to the contrary has been established by the use of the term "individual" in the Indian Income-tax Act, 1922. Gurtu J. did not agree that a Hindu undivided family is a corporation or "a corporate judicial entity", though at the same time, he was not prepared to lay down that it is "a mere collection of individuals"; according to him, it is "a peculiarity of Hindu society and it cannot be put into the framework of any of the well-known juridical concepts, namely individual person or corporation". The learned judge also derived support from what was considered by him to be the previous legislative practic....
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.... We are not too sire, whether this concession, such as it was by the department,was not based on the term "individual" as used in the Act, rather than on the scope of entry 86. Before us, none of the counsel who appeared in these petitions contended, that the term "individuals" in entry 86, could not envisage a group or association of individuals. We also find ourselves unable to go the whole length with Upadhya J. that the "levy of tax on such groups of individuals would be an unfair hardship, subjecting the interest and property of some individuals who happen to be members of such groups to a greater liability than what may fall on individuals having separate properties" and that, therefore, "the framers of the Constitution, in their wisdom, sought to avoid such unfair hardship to a section of the citizens of the country when they did not provide for the imposition of a tax on a Hindu undivided family." On this aspect, speaking with respect, we agree with Jagdish Sahai J. that "it is impossible to believe that the Constituent Assembly could not conceive of the idea of imposing a capital levy on a Hindu undivided family". The argum....
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....e net wealth of the tarward, and by alleging, that the petitioner himself had submitted a return as individual and had been assessed as such. As in the case of a Hindu undivided family, which, in a given case, may be a marumakkathayam tarwad, so too in the case of a Mappila marumakkathayam tarwad, there is no basis for holding that its properties vest in the karnavan as owner, not does it make any difference, as stated in the counter, that the tarwad is registered as impartible under the provisions of the Mappila Marumakkathayam Act, 1939, as is possible for some Hindu undivided families under the analogous statues mentioned earlier. The rule requiring entries conferring legislative powers to be construed in a very wide sense, has no such general application to other statues, particularly to taking statues which have always to be interpreted strictly. The term "individual" as employed in section 3 of the Act in juxtaposition with Hindu undivided families, and the other provisions in the Act, which differentiate between these two units of assessment, leave no room for doubt, that whatever be its connotation in entry 86, the term "individual" in the Act cannot com....
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....tute but a negligible minority in the country compared to the large number of Hindu undivided families which may be found throughout India. Shri M.K. Nambiar replied and we heard Shri K.V. Suryanarayana Iyer again on June 27, 1961, when arguments were concluded, and judgment was reserved. However, on going through the affidavit in support of O.P. No. 684 of 1959, we felt that the objection under article 14 had not been taken in the form in which it was presented to us and had not, therefore, been met in the counter by the department. We then posted the case for being spoken to on July 7, 1961, when junior counsel for the petitioner in O.P. No. 674 of 1959 and counsel for the department were present. On the next court day, C.M.P. No. 3875 of 1961 was filed on behalf of the petitioner supported by an affidavit, stating that the matter had been fully argued by the opposing counsel, reiterating the stand taken at the hearing that the classification has no relation to the object of the Act and requesting the court "to place on record this (the) affidavit also and dispose of the matter in issue in the light of what is stated therein". Shri G. Rama Iyer, the standing counsel for....
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....ia v. Mr. Justice Tendolkar**, it was argued that the presumption being in favour of constitutionality, the burden is always upon him who impugns to establish his objection. But the case is also authority for holding that*** "if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the court on which the classification may reasonably be regarded as based, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile or discriminating legislation." The wealth-tax as disclosed by the statement of objects and reasons "is a constituent of an integrated tax structure...Apart from the fact that a composite tax system of this type helps to satisfy the criterion of the ability to pay, it is consistent with the avowed goal of the attainment of a socialistic pattern of society". Apart from this, the only basis of classification which has a direct relation to the object of the Act as disclosed by it, is the possession of wealth; but that is a different classification. The Act does not dis....
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....above the limit of four lakhs of rupees, which is the limit of exemption under Part I of the schedule of the Act in the case of Hindu undivided families. If the department set much store by the contention that such tarwads constitute such an insignificant number that their existence can be ignored, information as to their number at least in this State could easily have been furnished or collected; if, as the standing counsel stated at the hearing, and as the Wealth-tax Officer averred in the counter to C.M.P. No. 3875 of 1961, the practice of the department had been to assess such tarwads under the Act as individuals, or as might well be the case, as associations of persons or as individuals under the Indian Income-tax Act, 1922, such information must already be available with it. After all that had been argued by both counsel on the merits of this controversy, and after time had been granted to it by our order dated July 10, 1961, with a direction that the counter to be filed will meet the objection under article 14, we venture to think that it behoved the department to furnish at least this minimum information to sustain this contention. On the rule in Ram Krishna Dalmia's ca....
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....rge powers of distinguishing and classifying the persons or things to be brought under the operation of such laws, provided the basis of such classification has a just and reasonable relation to the object which the legislature has in view"; and Mukherjea J., as he then was, said**: "......there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is the same." The learned counsel then relied on the observations of Bhagwati J. in Sakhawat Ali v. State of Orissa that "legislation enacted for the achievement of a particular object or purpose need not be all embracing". In that case, legislation imposing a ban on a legal practitioner appearing against a municipality from standing for municipal election was held to be not bad for discrimination, although persons who had litigations against the municipality were not subject to it. It has to be observed, that the court treated the latter as pertaining to a category by themselves; it was on that basis, that the observations quoted above were made. The principle was stated thus***: "It is for the legislature to determine what categor....
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....stands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds", though a limit has also been set to this presumption in another passage in the judgment (clause (f) at page 297 of the report) which has been extracted above. It was on the above principle, that the American Court evolved the rule in Middleton v. Texas Power and Light Company(7) that "the equal protection clause does not require that State laws shall cover the entire field of proper legislation in a single enactment", the court also holding, that the exclusion of certain categories of employees from the scope of the statute was for reasons which the legislature deemed sufficient and was neither arbitrary nor unreasonable. We have discussed above the cases which were relied on by Sri K.V. Suryanarayana Iyer on this aspect of his contention. But we fail to see how the principles on which they were decided can have any application to a taxing statute, like the Act before us, the purpose of which, as far as we are able to gather, is to tap what the legislature perhaps considered to be....