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TMI Blog2001 (7) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... first respondent in the writ petition placing reliance on the Explanation to the definition of the "person" under clause (j) of section 2 as well as Explanation 1 of the First Schedule to the Act issued the notice G.I. No.-/97, dated -/12/1997 totally demanding payment of a sum of Rs. 3,42,000 (rupees three lakhs and forty-two thousand only) towards the tax payable under the Act at the rate of Rs. 2,500 in respect of 68 branches of the petitioner-company for the assessment year 1996-97 and at the rate of Rs. 2,500 in respect of 69 branches of the petitioner-company for the assessment year 1997-98 within seven (7) days from the date of receipt of the notice. By the same notice, the first respondent also informed the petitionercompany that it is liable to pay penalty of Rs. 30 for each day of delay. In those circumstances, the writ petition was presented in this Court on January 19, 1998 praying for the following relief: "For the reasons stated in the accompanying affidavit, it is prayed that the honourable court may be pleased to issue a writ of mandamus or any other appropriate writ or order or direction declaring the Explanation to the definition of the "person" and as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and proper in the circumstances of the case." 4.. In W.P. No. 17683 of 1997, the petitioner is the Karnataka Bank Limited, a banking company registered under the provisions of the Indian Companies Act, 1913, and its registered and head office is at Mangalore in Karnataka State. The petitioner-company is the banking company engaged in banking activities and having a network of over 300 branches spread throughout India of which 17 branches are in the State of Andhra Pradesh. The petitionercompany has obtained certificate of enrolment from the Deputy Commissioner of Commercial Taxes, Hyderabad and as the principal place of the business of the bank is in Hyderabad, the profession tax is being paid regularly by the bank in respect of the said branch. When the matter stood thus, according to the petitioner, the Deputy Commissioner of Commercial Taxes, Hyderabad, who is the assessing authority under the Act directed the Branch Manager of the Hyderabad branch of the petitioner-bank to see that all the branches of the bank in the State of Andhra Pradesh should get registered under section 60 of the Act separately and that each branch should pay profession tax of Rs. 2,500 per annum on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative Societies Act, 1964 and it is engaged in banking. Its operations are mainly in the twin cities of Hyderabad and Secunderabad and it has got 23 branches at present and these branches are located at different places of the twin cities. The Profession Tax Officer, N.S. Road Circle, Hyderabad, the second respondent herein, served a notice dated September 17, 1998 on the petitioner, requiring the petitioner to pay profession tax for the period 1987 to 1999 in respect of each of its branch at the rate prescribed under the Act. The second respondent demanded the tax at the rate of Rs. 250 per annum in respect of each branch of the petitioner for the years 1987-88 to 1995-96 and at the rate of Rs. 2,500 per annum in respect of each branch for the years 1996-97, 1997-98 and 199899 totalling to Rs. 2,00,750. Under those circumstances, the petitioner filed W.P. No. 28498 of 1998 in this Court on October 12, 1998 for the following relief: "For the reasons stated in the accompanying affidavit, it is therefore prayed that this honourable Court may be pleased to issue a writ of mandamus or any other appropriate writ, direction or directions, declaring the provisions of the explanation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a person is clearly violative of the mandate of article 276(2) of the Constitution. The learned counsel would submit that the word "person" in the context means a single legal entity and in the instant cases, the petitioners in W.P. No. 1304 of 1998 being a company registered under the Companies Act, 1956 is one legal person for all practical and legal purposes. Similarly, the petitioner in W.P. No. 4364 of 2001, being a registered firm, it should alone be treated as a legal person for all practical and legal purposes. The learned counsel would stress upon the phrase "any one person" occurring in article 276(2) of the Constitution and would distinguish that phrase from the phrase "any person". The learned counsel would maintain in view of the clear language used in the article 276(2) of the Constitution, the Explanation I of the First Schedule to the Act and also the Explanation to the definition of word "person" and treating every branch as a separate "person" is totally violative of article 276(2) mandate. The learned counsel would conclude by contending that under no circumstance, the tax payable by each of the petitioners can be more than Rs. 2,500 in aggregate because each of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not defined in the Constitution, whereas the said term as well as the term "assessee" are defined under the Act. In treating each of the branches of the petitioners in terms of the Explanation to the definition of "person" in section 2(j) and Explanation I of the First Schedule to the Act, the provisions of article 276(2) of the Constitution are not violated as contended by learned counsel for the petitioners. The learned counsel would maintain that the definition of the word "person" defined in General Clauses Act has no application in interpreting the provisions of the Act for the term "person" is defined under the Act itself. The learned Special Government Pleader would maintain that it is always open to the Legislature to define a "person" or a "thing" artificially for the purpose of taxation and such definition need not be in conformity with the definitions as understood in ordinary parlance nor they should be in conformity with the jurisprudential meaning of those terms. The learned counsel point out that incidence of tax in the Act is not on income proper, but status and profession-cum-income. 12.. Article 276 reads: "Art. 276: Taxes on professions, trades, callings an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1964 (Act No. 2 of 1964). The above local authorities were administering these Acts. With a view to rationalise the levy and collections of profession tax, the Andhra Pradesh State Legislature brought about a single comprehensive legislation by enacting the Act for the levy and collection of the profession tax. The administration of the Act is entrusted to the Commercial Tax Department. The local authorities, after the commencement of the Act, were prevented by virtue of section 32 of the Act from levying any tax on professions, trades, callings and employments. Certain provisions of the enactments through which profession tax was being levied prior to commencement of the Act were amended to the extent specified in the Second Schedule of the Act as provided under section 33 of the Act. To compensate the loss occurred to the local authorities consequent upon the enactment of the Act, provision is made under section 35 of the Act for an annual grant of an amount based on the highest collection of tax, penalties and interest in any year during the three years immediately preceding the commencement of the Act. As stated above, article 276 of the Constitution of India provides that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also treated to be a separate person for the purpose of taxation. 15.. The only question that arises for decision is that whether the Explanation to the definition of the term "person" defined under section 2(j) of the Act and Explanation I of the First Schedule to the Act are unconstitutional being violative of article 276(2) of the Constitution. Before dealing with this question, it is appropriate to notice the salient features, parameters and scope of judicial review where the vires of a statute is assailed. 16.. In India, the doctrine of "power to tax" is embodied in article 265 of the Constitution. The Legislature is omnipotent in the exercise of the taxing prerogative, however, subject to the provisions of the Constitution. The right to impose taxes and to determine the circumstances under which they will be done is always a privilege of the concerned Legislature. Article 265 mandates that no tax shall be levied or collected except by authority of law. The power to tax is an incident of sovereignty. Apart from the limitation by the division of the taxing power between the Union and the State Legislature by the relevant entries in the legislative Lists, the taxing power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cance should be given to the language used by the Legislature in various entries. In interpreting the fiscal statutes, we must also remember the provisions in a fiscal statute are not to be so construed as to furnish a chance of escape and a means of evasion as held by the Full Bench of the Karnataka High Court in C. Arunachalam v. Commissioner of Income-tax [1985] 151 ITR 172; ILR (1984) 2 Kar 1387. A Full Bench of this Court in Sri Lakshmi Venkateswara Trading Co. v. State of Andhra Pradesh [1974] 33 STC 192 has opined that the power to tax includes the power to pick and choose objects and persons for the purpose of taxation and to grant exemptions. In the matter of taxation laws, as held by apex Court in Steelworth Ltd. v. State of Assam [1962] 13 STC 233; [1962] Supp (2) SCR 589, Gopal Narain v. State of Uttar Pradesh AIR 1964 SC 370, Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh [1980] 45 STC 36 (SC); AIR 1980 SC 286, Mafatlal Industries Ltd. v. Union of India [1998] 111 STC 467 (SC); (1997) 5 SCC 536, Khyerbari Tea Co. Ltd. v. State of Assam AIR 1964 SC 925 and State of Kerala v. Aravind Ramakant Modawdakar AIR 1999 SC 2970; (1999) 7 SCC 400, the courts permit a grea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is restricted in two ways. A law made by the Parliament or the Legislatures can be struck down by courts on two grounds and two grounds alone, viz., (1) lack of legislative competence and (2) violation of any of the fundamental rights guaranteed in Part III of the Constitution or of any other constitutional provision. There is no third ground. We do not wish to enter into a discussion of the concepts of procedural unreasonableness and substantive unreasonableness-concepts inspired by the decisions of United States Supreme Court. Even in U.S.A., these concepts and in particular the concept of substantive due process have proved to be of unending controversy, the latest thinking tending towards a severe curtailment of this ground (substantive due process). The main criticism against the ground of substantive due process being that it seeks to set up the courts as arbiters of the wisdom of the Legislature in enacting the particular piece of legislation. It is enough for us to say that by whatever name it is characterised, the ground of invalidation must fall within the four corners of the two grounds mentioned above. In other words, say, if an enactment is challenged as violative o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t' or 'Ordinance' is unconstitutional and a consequential direction restraining the State and its officers or the concerned statutory authorities, as the case may be, from interfering or giving effect to the provisions of such unconstitutional law. It is also trite law that the presumption is always in favour of the constitutionality of an enactment, and the burden is upon him who attacks it to show that there has been a clear transgression of constitutional principles and limits, whether it is a pre-constitution or post-Constitution law. This position is wellsettled by the judgments of the apex Court in Chiranjit Lal Chowdhuri v. Union of India (1950) SCR 869. In Madhu Limaye v. Sub-Divisional Magistrate AIR 1971 SC 2486 and in Cf Rao Bahadur v. State of U.P. (1953) SCR 1188, the Supreme Court held that the burden of proving all the facts which are requisite for the constitutional invalidity is upon the person who challenges the same. However, it is not to state that by reason of the presumption in considering the validity of the impugned law, the court will be restricted to the pleadings only. The court would be free to satisfy itself whether under any provision of the Constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e legislative enactments unconstitutional and void in some cases, but not because the judicial power is superior in degree or dignity to the legislative. The court while declaring a law as invalid or unconstitutional is only enforcing the legislative will and the limits imposed by the Constitution on the law-making bodies. No court can declare a statute unconstitutional and void, solely on the ground of unjust and harsh provisions, or because it is supposed to violate some natural, social, political or economic rights of the citizen, unless it can be shown that such injustice is, in fact, prohibited or such rights guaranteed or protected by the Constitution. Strictly speaking, the courts are not guardians of all kinds of rights of the people of the State, unless those rights are secured and protected by some constitutional provision which comes within the judicial cognizance. In 'A Treatise on the Constitutional Limitations' by Thomas M. Cooley, it is stated that the court cannot run a race of opinions upon points of right, reason, and expediency with the law-making power, and that any legislative act which does not encroach upon the power apportioned to the other organs of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to levy tax on deemed sales falling within the ambit of article 366(29A)(b) by prescribing a uniform rate of tax for all goods involved in the execution of a works contract even though different rates of tax are prescribed for sale of such goods. The learned counsel for the contractors have urged that it would not be permissible to impose two different rates of tax in respect of sale of the same article, one rate when the article is sold separately and a different rate when there is deemed sale in connection with the execution of a works contract. On behalf of the States it has been submitted that it is permissible for the State to impose a particular rate of tax on all goods involved in the execution of a works contract which may be different from the rates of tax applicable to those goods when sold separately. In the field of taxation the decisions of this Court have permitted the Legislature to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes." 21.. In the premise of the above well-settled principles governing judicial review of the constitutionality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel for the petitioners, then only the mandate of article 276(2) would be violated and it would become necessary for the court to declare by writ of mandamus that the Explanation to the definition of the word "person" and the Explanation I of the First Schedule to the Act as unconstitutional. Therefore, the primary question for our consideration is whether the Andhra Pradesh State Legislature has the legislative competence to introduce the fiction in the Explanation to the definition of the word "person" and also Explanation I of the First Schedule to the Act or whether by introducing such fiction, it has exceeded its legislative power and thereby transgressed the constitutional limitation. 23.. In answering the above question, to repeat again, the court should always remember that the State has wide discretion in respect of classification of objects, persons and things for the purpose of taxation. It must also be remembered that the Legislature can devise classes for the purpose of taxing or not taxing, exempting or not exempting, granting incentives and prescribing rates of tax, benefits and concessions. Essentially, the question as to what article is to be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imit with regard to the lands held by the various persons as defined in the Act. It is competent for the Legislature to define a person in the Act and create an artificial unit. The definition of a 'person' in General Clauses Act, would not restrict the powers of the State Legislature to define 'a person' and adopt a meaning different from or in excess of the ordinary acceptation of the word or as defined in the General Clauses Act". 25.. In Inder Singh v. State of Punjab AIR 1967 SC 1776, it was contended that under Hindu Law every coparcener in a Hindu undivided family acquires a right in the property of such coparcenary on birth and is entitled to a right of joint possession and enjoyment of its entire property, that section 32-KK deprived such a coparcener of his right of property in that that it took away the rights of the descendants of the landowner to claim for themselves the permissible area and vest them in the head of the family alone so that there was not only an infringement of the right to hold property but also discretion in favour of the head of the family infringing thereby article 14. It was also contended that the said section infringed the provisions of articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne a "person" so as to include even a branch of a firm, company, corporation or other corporate body, any society, club or association. In taking this view, we are also fortified by the judgment of the Calcutta High Court in Dayamaya Devi v. State of West Bengal (1974) 78 Cal WN 639 and also the judgment of the Karnataka High Court in Bhaskar Krishnaji v. State of Karnataka AIR 1975 Kar 55. We are therefore unable to agree with the submission of the learned counsel for the petitioners that the Explanation to the word "person" as defined under section 2(j) of the Act and Explanation I of the First Schedule to the Act offend the provisions of clause (2) of article 276 of the Constitution. 27.. We also do not find any merit in the contention of Sri Vedula Srinivas that the Andhra Pradesh State Legislature in enacting the Explanation to definition of the word "person" and also Explanation I of the First Schedule to the Act acted arbitrarily and irrationally violating article 14 postulates of the Constitution, and therefore, they are liable to be struck down as unconstitutional. Firstly, it is well-settled law that no statute enacted by a competent Legislature can be struck down by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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