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Issues:
Constitutional validity of entry 19 of the Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976 - levy of flat rate of tax of Rs. 2,500 per annum. Detailed Analysis: The petitioners, companies engaged in hire-purchase and automobile parts businesses, challenged the constitutional validity of entry 19 of the Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976, which imposed a flat rate tax of Rs. 2,500 per annum. The grounds of attack included the contention that the tax base being profession, trade, or calling, the classification of companies without considering the nature of their activities was discriminatory. The petitioners argued that the flat rate without classification based on activities, standing, or number of employees was discriminatory, citing a Supreme Court decision in State of Kerala v. Haji K. Kutty Naha, AIR 1969 SC 378. The charging section of the Act provided for the levy on professions, trades, callings, and employments, taking into account the person carrying on the profession. The Supreme Court in State of Tamil Nadu v. M. K. Kandaswami [1975] 36 STC 191 emphasized the need for a charging provision to specify the subject, object, and quantum of tax, allowing for different tax rates based on relevant considerations. The court noted that while individuals were classified based on their professions, for companies and firms, a flat rate of tax was applied due to their composition and status in the business world. The court upheld the classification of companies as a separate class, considering their distinct legal status and capacity to pay tax. The argument that there should be no distinction between individuals and legal entities like companies based solely on the profession was dismissed. The court referred to precedents such as S. Kodar's case, AIR 1974 SC 2272, and Hoechst Pharmaceuticals' case [1985] 154 ITR 64 (SC) supporting the principle that economically superior entities can be taxed at higher rates. Regarding the petitioners' argument on classification, the court cited Murthy Match Works' case, AIR 1974 SC 497, and emphasized the wide latitude given to the legislature in tax matters. The court highlighted that a broad classification, as in the present case with a flat rate tax for companies, could be upheld without the need for extensive micro-classification. Precedents such as Avinder Singh's case, AIR 1979 SC 321, and Ganga Sugar Corporation Ltd.'s case, AIR 1980 SC 286, were referenced to support the validity of flat rate taxes based on broader classifications. Ultimately, the court found no merit in the petitioners' contentions and rejected the petitions challenging the tax levy.
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