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1967 (11) TMI 2 - SC - Income TaxExclusion of Govt. servants from the exemption given under s. 4(3)(xxi) of the IT Act, 1922, and later on under s. 10(26) of the IT Act, 1961 - exclusion of Govt. servant from exemption is violative of Art. 14 of the Constitution of India - Revenue s appeal is dismissed
Issues Involved:
1. Whether the exclusion of Government servants from the exemption under section 4(3)(xxi) of the Indian Income-tax Act, 1922, and section 10(26) of the Income-tax Act, 1961, is violative of Article 14 of the Constitution. Detailed Analysis: Issue 1: Violation of Article 14 by Excluding Government Servants The sole question in this appeal is whether the exclusion of Government servants from the exemption provided under section 4(3)(xxi) of the Indian Income-tax Act, 1922, and section 10(26) of the Income-tax Act, 1961, is violative of Article 14 of the Constitution. Both provisions are similar in nature. The respondent, a Government servant from the Mikir Scheduled Tribe residing in the United Khasi-Jaintia Hills District, challenged his income-tax assessments for the years 1959-60 to 1962-63. The Assam High Court quashed these assessments, declaring the exclusion of Government servants from the exemptions as void. The income-tax authorities and the Union of India appealed this decision. The relevant provisions, section 4(3)(xxi) of the 1922 Act and section 10(26) of the 1961 Act, exempt the income of Scheduled Tribe members residing in specified areas from income-tax, provided they are not in Government service. The appeal questions whether the legislature had the power to exclude Government servants from these exemptions. The respondent contended that the classification excluding Government servants is not valid for income-tax purposes. The High Court accepted this view, ruling that Government servants cannot be considered a separate class for income-tax purposes. The department argued that the classification was reasonable, citing administrative convenience and past legislative practice. Taxation laws must pass the test of Article 14, as established in Moopil Nair v. State of Kerala. A law is discriminatory if it operates unequally within its selected range without valid classification. The State has wide discretion in selecting objects for taxation, but the law must operate equally within its selection. The court found no substantial difference between the income of Government servants and those in private employment or professions. Exempting the income of Scheduled Tribe members residing in Khasi-Jaintia Hills, except Government servants, appears discriminatory. The Government servants' exclusion lacks a legal basis. The learned Solicitor-General argued that the classification was justified on administrative grounds, claiming it was easier to collect taxes from Government servants. However, the court found no real and substantial administrative convenience justifying this classification. The argument based on past legislative practice and history was also rejected. The court noted that the historical context of exemptions for Government servants serving outside British India did not establish a legislative practice justifying the current exclusion. The Solicitor-General's argument that Government servants are not socially and economically backward, and thus do not need the exemption, was deemed irrelevant. The exemption was granted to a class, not individuals based on their social or economic status. The court rejected the contention that the exclusionary words in the provisions were not severable from the rest. The words "provided that such member is not in the service of Government" in section 4(3)(xxi) and "who is not in the service of government" in section 10(26) were found to be easily severable. The legislature would have granted the exemption even without excluding Government servants. Conclusion The appeal was dismissed, affirming that the exclusion of Government servants from the income-tax exemption under section 4(3)(xxi) of the Indian Income-tax Act, 1922, and section 10(26) of the Income-tax Act, 1961, is violative of Article 14 of the Constitution. The court ruled that the discriminatory exclusion was not justified on any valid grounds.
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