2001 (7) TMI 1267 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of the Explanation to the definition of "person" in clause (j) of section 2 of the Andhra Pradesh Tax on Professions, Trades, Callings and Employments Act, 1987.
2. Constitutional validity of Explanation No. I of the First Schedule to the said Act as amended by Act No. 29 of 1996.
3. Whether treating each branch of a firm, company, corporation, or other corporate body as a separate "person" for taxation purposes violates Article 276(2) of the Constitution of India.
4. Whether the Andhra Pradesh State Legislature has the legislative competence to enact such provisions.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Explanation to the Definition of "Person" in Clause (j) of Section 2 of the Act:
The petitioners argued that the Explanation to the definition of "person" under section 2(j) of the Act, which treats every branch of a firm, company, corporation, or other corporate body as a separate person, is unconstitutional. They contended that this definition violates Article 276(2) of the Constitution, which limits the total amount payable in respect of any one person to Rs. 2,500 per annum. The respondents countered that the term "person" is not defined in the Constitution and can be defined artificially by the State Legislature for taxation purposes. The court upheld the respondents' view, stating that the Legislature has the competence to define "person" for the purposes of the Act and that such a definition does not violate Article 276(2).

2. Constitutional Validity of Explanation No. I of the First Schedule to the Act as Amended by Act No. 29 of 1996:
The petitioners challenged the validity of Explanation No. I of the First Schedule, which also treats each branch as a separate assessee for the purpose of profession tax. They argued that this provision is unreasonable and unconstitutional. The court, however, found that the Legislature has wide discretion in classifying objects, persons, and things for taxation purposes. The court noted that the Legislature can adopt different devices for fixing the ceiling limit and that the definition of "person" in the General Clauses Act does not restrict the Legislature's power to define "person" differently for the purposes of the Act. The court concluded that the Explanation No. I of the First Schedule is constitutionally valid.

3. Whether Treating Each Branch as a Separate "Person" Violates Article 276(2):
The petitioners argued that treating each branch as a separate "person" for taxation purposes results in a tax liability exceeding the limit prescribed by Article 276(2). The court rejected this argument, stating that the fiction introduced by the Legislature does not violate the mandate of Article 276(2). The court emphasized that the Legislature has the power to define "person" and create artificial units for taxation purposes. The court held that the Explanation to the definition of "person" and Explanation No. I of the First Schedule do not result in a tax liability exceeding Rs. 2,500 per annum for any one person, as each branch is treated as a separate person.

4. Legislative Competence of the Andhra Pradesh State Legislature:
The petitioners contended that the Andhra Pradesh State Legislature lacked the competence to enact the provisions in question. The court disagreed, stating that the power to tax includes the power to define the subjects of taxation and to create artificial units for taxation purposes. The court cited several precedents to support the view that the Legislature has the competence to define "person" and to introduce fictions for taxation purposes. The court concluded that the Andhra Pradesh State Legislature acted within its legislative competence and did not violate any constitutional provisions in enacting the challenged provisions.

Conclusion:
The court dismissed the writ petitions, holding that the Explanation to the definition of "person" in section 2(j) and Explanation No. I of the First Schedule to the Act are constitutionally valid. The court found that the Andhra Pradesh State Legislature has the competence to define "person" and to treat each branch of a firm, company, corporation, or other corporate body as a separate person for taxation purposes. The court also held that these provisions do not violate Article 276(2) of the Constitution and that the Legislature acted within its powers in enacting them.

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