1968 (2) TMI 19 - HC - Wealth-tax

Petitioner an owner of non-agricultural land and buildings protests against the levy of what has been called additional wealth-tax and odd made on her under clause (c) of Paragraph A read with rules 1 and 2 of Paragraph B of Part I of the Schedule to the Wealth-tax Act 1957

Summary

Issues Involved:
1. Levy of Additional Wealth-Tax
2. Alleged Discrimination under Article 14 of the Constitution
3. Justification of Tax Classification Based on Population
4. Rational Basis for Differentiation in Tax Rates

Issue-Wise Detailed Analysis:

1. Levy of Additional Wealth-Tax:
The petitioner, an owner of non-agricultural land and buildings in Mattancherry, Cochin, contested the levy of additional wealth-tax amounting to Rs. 1,800 under clause (c) of Paragraph A read with rules 1 and 2 of Paragraph B of Part I of the Schedule to the Wealth-tax Act, 1957. The legislative entry authorizing the imposition of this tax is Entry 86 of the Union List, which pertains to "Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies." The charging section of the Act, section 3, mandates that wealth-tax shall be charged in accordance with the provisions of the Act on the net wealth of every individual, Hindu undivided family, and company at the rates specified in the Schedule.

2. Alleged Discrimination under Article 14 of the Constitution:
The petitioner argued that the additional wealth-tax was discriminatory and violated Article 14 of the Constitution. The contention was that the tax imposed progressively lower rates as the population of the urban area increased, which seemed irrational. For instance, properties valued at Rs. 10 lakhs would suffer no additional wealth-tax in rural areas but would incur Rs. 7,000 in category D areas, Rs. 5,000 in category C, Rs. 4,000 in category B, and Rs. 3,000 in category A. The petitioner claimed that this differentiation had no rational basis and was discriminatory.

3. Justification of Tax Classification Based on Population:
The revenue justified the differences by arguing that the value of immovable property and the return therefrom are artificially high in urban areas due to population pressure and shortage of accommodation. This leads to unaccounted money seeking investment in urban properties, which in turn pushes up prices. The Finance Minister's speech introducing the bill emphasized the need to curb excessive investment in urban property to encourage investment in more productive directions and to place a ceiling on vast accumulations of urban property. The classification of towns for tax purposes was aligned with the classification used for granting compensatory and other allowances to Central Government employees.

4. Rational Basis for Differentiation in Tax Rates:
The court found that the fallacy in the petitioner's contention lay in assuming that capital value and market value are the same. While closely related, capital value is more dependent on productivity, whereas market value is influenced by factors like supply and demand. Generally, market value increases disproportionately to productivity as one moves from smaller to larger urban areas. The Act imposes wealth-tax uniformly on all assets but differentiates only in additional wealth-tax for lands and buildings based on the population of the area. The court noted that immovable property of the same market value fetches a higher income in urban areas compared to rural areas, justifying the total exemption for rural properties. The higher exemption limits for larger urban areas were seen as a correction to bridge the disparity between capital value and market value, making the taxable value approximate more closely to the capital value.

The court also considered that the scheme of the Act, justified by the legislative entry and clauses (b) and (c) of article 39 of the Constitution, aimed to tax excessive wealth progressively. Given the higher cost and standard of living in larger cities, it was reasonable to regard Rs. 5 lakhs worth of property in a larger city as not excessive wealth, whereas the same value in a smaller city could be considered excessive.

The petitioner failed to demonstrate hostile discrimination, and the burden of proof, especially heavy in the case of a taxing statute, was not met.

Judgment:
The petition was dismissed, and no order as to costs was made.