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TMI Blog1961 (7) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, to reassess him, on the net wealth of the family and in particular, on an amount of 17,000 paras of paddy which was said to have escaped assessment; the petition is to quash exhibit P-1 and to restrain the Wealth-tax Officer from proceeding with the reassessment. The petitioner in O.P. No. 684 of 1959 was the karnavan of the Namboodiri illom which was partitioned by deed said to have been executed on March 30, 1958, but registered on July 25, 1958, and was assessed to wealth-tax for the assessment year 1958-59 by order exhibit G, dated April 30, 1959, on the net wealth as on September 16, 1957, the valuation date, of his family treated as undivided; the petitioner is to quash exhibit G. The petitioner in O.P. No. 824 of 1959 was the karnavan of another Namboodiri illom, which was said to have been partitioned by deed executed on August 17, 1958, and was assessed to wealth-tax for the assessment year 1958-59, by an order, exhibit A, dated June 18, 1959, on the net wealth, as on August 16, 1957, the valuation date, of his family treated as undivided; the petition is to quash exhibit A and the notice of demand pursuant to it. O.P. No. 1155 of 1960 is also by the petitioner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try 49 in the State List reads: Taxes on lands and buildings. It was argued, that the term individuals in entry 86 of the Union List cannot, on any reasonable view, comprehend joint families or tarwads of Hindus or Mohammedans, and that constructing the entries as they must be, in their widest amplitude, but so as to reconcile them in the event of conflict, if necessary, even by restricting the scope of any of them and applying the maxim generalia specialibus non derogant, entry 49 in the State List, which must be deemed to include a tax on the capital value of lands and buildings, and entry 46, which provides specifically for a tax on agricultural income, are special or particular provision in entry 86 in the Union List which authorises a tax on the capital value of assets generally. The rules for interpreting entries in a constitutional enactment conferring legislative power, on the basis of which the above argument was advanced, appear to be too well-settled to need a restatement by us at this time of the day, and all that is necessary is to see how far the argument based on them can be sustained. In examining its soundness, the first attempt must be to ascertain, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assets and that taxes on lands and buildings within the meaning of entry 49 in the State List may include a tax thereon on the basis of their capital value. There is authority for the view that land tax can be related to the annual or capital or sales value of the land. (See Science of Public Finance by Findlay Shirras, page 208 and Encyclopedia Britannica, 1955 edition, volume XIII, page 675). A tax on the capital value of lands, as such, was not dealt with in the passage in these books which were relied on. Where, as in the present case, the content of two competing entries, entry 86 in the Union List and entry 49 in the State List, conferring legislative powers is under consideration, the distinction, real and vital as it is, between a tax on lands and buildings on the basis of their capital value, and a tax on such capital value itself treating lands and buildings as an item of asset, cannot be overlooked. This distinction was elucidated by the Bombay High Court in Municipal Commissioner v. Gordhandas*, where Gajendragadkar J. expressed himself thus: I am disposed to hold that a distinction must be made between a rate or tax which is levied on land on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on lands under entry 42 of List II should not be confused with the object with which the capital value may be determined and the use which may be made of such capital value by legislation passed under entry 55 of List I. The two rates or taxes would, despite the apparent similarity in some features, be distinct and separate. In the case of a tax whose base or object is lands and buildings, their annual or capital value is but a measure or standard adopted to ensure the justness and reasonableness of the levy, but in the case of a tax on capital value, such value is itself the base or the object of the levy. In the former, the imposition falls on one qua owner of qua occupier, but in the latter, as in the case of wealth-tax, it falls on him who is considered to posses more than ordinary wealth. In final analysis, both may fall on the same person and may thus appear to overlap, but in law there is no overlapping , being distinct an separate imposts. To allocate the legislative power to impose a tax on the capital value of lands and buildings, treating them as assets, entirely to the field covered by entry 86 in the Union List is not, as contended, to rob entry 49 in the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the U.P. Large Holdings Tax Act, 1957, enacted by the U.P. Legislature was under challenge, in so far as it imposed a tax for each agricultural year on the annual value of each holding at a rate specified in the Schedule. The contention, that such legislation was outside the purview of entry 49 in the State List was negatived upon the finding that the tax was on the holding itself, its annual or capitalised value being only the basis and not the object of taxation. Jagdish Sahai J., who wrote the leading judgment, also examined the scope of entry 86 in the Union List, though, as observed by him, it did not arise; he came to the conclusion, that it is a general provision which has to be restricted by excluding non-agricultural lands also from its ambit in order to give full scope to entry 49 in the State List. Speaking with respect, we are unable to agree that the scope of entry 86 can be so curtailed. The distinction between a tax on the capital value of lands and buildings as an asset and a tax on lands and buildings on the basis of their capital value, which was expounded by the Bombay High Court in Municipal Commissioner v. Gordhandas** was noticed by the learned judge. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy on the person himself in relation to his income. The agricultural income of a person, to put briefly, is that which is received by him by way of rent or revenue in respect of land used for agricultural purposes or that which his derived by him from such land as a result of agricultural operations or both and may be in cash or in kind. A tax on agricultural income as its base or object would fall within entry 46 in the State List, while a tax on other categories of income as its base or object would fall within entry 82 in the Union List. Upon income being earned, excluding expenses incurred in the process, the balance may form part of his assets or of his wealth at that point of time. He may afterwards spend or save, the whole or part of it, or convert the same into some other form having a saleable or marketable value. To the extent of such saving or conversion, there is an addition to his wealth and to his assets, the amount of which may vary from time to time. A tax on income is on that which is received; a tax on net wealth is on that which accumulates. At a given point of time, a tax on net wealth may fall in part on what was originally received and had accumulated and it m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perhaps also a partnership which, not being a juridical person, is, in the words of the Supreme Court in Bacha F. Guzdar v. Commissioner of Income-tax [1955] 27 I.T.R. 1, 6 (S.C.). An association of persons for carrying on the business of partnership and in law the firm name is a compendious method of describing the partners . Corporations are undoubtedly legal persons and as observed by Salmond on Jurisprudence, 11th edition, at page 358, so too, are registered trade unions and friendly societies, which are made legal entities distinct from their members and are enabled to sue or be sued in their registered names by special statutory provisions concerning them. These, according to the learned author, are the only legal persons now recognized by the English law, but that is no reason why, if case is made out, the Indian law should not add to their number. As observed in Chiranjit Lal v. Union of India [1950] S.C.R. 869, a corporation has a distinct personality of its own with rights and capacities, duties and obligations, separate from those of its individual members. For example, a company incorporated under the Companies Act is an entity distinct from the shareholders; the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -corporations or near corporations , and he relied on National Union of General and Municipal Workers v. Gillian**, where Uthwatt J., summarising the effect of Taff Vale Railway Co. v. Amalgamated Society of Railway Servants***, said that a registered trade union is recognised by the law as a body distinct from the individuals who from time to time compose it. It is not a corporation, but it is very much like one. The association is not merely the aggregate of the persons who compose it, and the presence of the corporate fiction is not necessary to secure its individuality. In an age of neologism it might be called a 'near corporation'. Earlier in the same case, Scott L.J. had adverted to the effect of the Trade Union Act of 1871 as clothing a registered union with a co-operative personality so as to give it the status of a person a juridica . It seems to follow from what has been stated above that the crucial test is whether it can be predicated that a joint family has an existence apart from and independent of its members. If it has no such existence, notwithstanding the corporate nature of the enjoyment of its properties by its members, in law it can only be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined an Ezhava tarwad. The Travancore Malayala Brahmin Act of 1106, the Cochin Nambudiri Act of 1114, the Madras Nambudiri Act of 1932, and the Kerala Nambudiri Act of 1958, have defined an illom as meaning all the members of a Nambudiri joint family with community of property. The Mappila Marumakkathayam Act of 1939 has defined a tarwad as a joint family which includes all its members with community of property governed by marumakkathayam law. In none of these definitions, which may be considered to reflect the state of the law when they were enacted, is any indication to the found, that a tarwad or illom was considered to be an entity distinct from its members and having an independent existence. If, as argued, these definitions are only descriptive and not determinative, it is not easy to understand why no definition of that character was attempted. We do not think that the provision in some of these enactments, enabling tarwads or illoms, which desire to stand out, to register themselves as imputable or denying the right to the members to alienate their undivided shares, recognized also by judicial decisions, e.g., Antherman v. Kannan*, have anything to do with the present ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot uncommon for groups of persons though not incorporated to hold properties as if they were corporate entities. Castes and subcastes hold property as such, so also village communities. It is not possible to generalise from observations such as those that the law has clothed joint families, whether of Hindus or non-Hindus, with legal personality. On the contrary, in Commissioner of Income-tax v. Sarwan- kumar(4) Iqbal Ahmad C.J. described a family, though in a different context, as an association of people, a natural, as distinct from an artificial, association. In Commissioner of Income-tax v. Sodra Devi(5) Bhagwati J. observed that, there is authority for the proposition, that the word 'individual'...is wide enough to include a group of persons forming a unit . Quite recently, in Mahavirprasad Badridas v. M.S. Yagnik(6), a Bench of the Bombay High Court consisting of Shah and S.T. Desai JJ. has decided this precise question by holding that the term individuals in entry 86 in the Union List would include an association of individuals such as a Hindu undivided family . The view that a Hindu undivided family is a corporation was rejected as unsound and the argument f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, if it were otherwise, the subject-matter or the field of legislation might have been narrowed down within the restrictions imposed by the particular words . In his opinion, no legislative practice to the contrary has been established by the use of the term individual in the Indian Income-tax Act, 1922. Gurtu J. did not agree that a Hindu undivided family is a corporation or a corporate judicial entity , though at the same time, he was not prepared to lay down that it is a mere collection of individuals ; according to him, it is a peculiarity of Hindu society and it cannot be put into the framework of any of the well-known juridical concepts, namely individual person or corporation . The learned judge also derived support from what was considered by him to be the previous legislative practice in taxation legislation , according to which a Hindu undivided family is a unit of assessment, as distinct from an individual. The Indian Income- tax Act, 1922, and the Business Profits Tax Act, 1947, were referred to in this connection; but the provisions in the latter are different. It was explained, however, that if the legislative enactments in that particular field are few t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such groups of individuals would be an unfair hardship, subjecting the interest and property of some individuals who happen to be members of such groups to a greater liability than what may fall on individuals having separate properties and that, therefore, the framers of the Constitution, in their wisdom, sought to avoid such unfair hardship to a section of the citizens of the country when they did not provide for the imposition of a tax on a Hindu undivided family. On this aspect, speaking with respect, we agree with Jagdish Sahai J. that it is impossible to believe that the Constituent Assembly could not conceive of the idea of imposing a capital levy on a Hindu undivided family . The argument based on the previous legislative practice which, as observed, had been discounted by the Bombay and the Andhra Pradesh High Courts, but which seems to have weighed with two of the learned judges in the Allahabad High Court, seems to us to rest on a slender foundation, being only the provisions of the Indian Income-tax Act, 1922. The distinction maintained in the Income-tax Act, between an individual and a Hindu undivided family, is but the logical consequence of their possessing d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mappila Marumakkathayam Act, 1939, as is possible for some Hindu undivided families under the analogous statues mentioned earlier. The rule requiring entries conferring legislative powers to be construed in a very wide sense, has no such general application to other statues, particularly to taking statues which have always to be interpreted strictly. The term individual as employed in section 3 of the Act in juxtaposition with Hindu undivided families, and the other provisions in the Act, which differentiate between these two units of assessment, leave no room for doubt, that whatever be its connotation in entry 86, the term individual in the Act cannot comprehend a Hindu undivided family; if so, it cannot comprehend a Mappila marumakkathayam tarwad either. It was, however, stated before us by Shri G. Rama Iyer, the standing counsel for the department, that the practice has been for the karnavan of Mappila marumakkathayam tarwad to be assessed on their tarwad assets under the Act, and on their tarwad income under the Indian Income-tax Act, 1922. The Act came into force only on April 1, 1957. When the question is raised as to the applicability of the Act, it has to be answered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posted the case for being spoken to on July 7, 1961, when junior counsel for the petitioner in O.P. No. 674 of 1959 and counsel for the department were present. On the next court day, C.M.P. No. 3875 of 1961 was filed on behalf of the petitioner supported by an affidavit, stating that the matter had been fully argued by the opposing counsel, reiterating the stand taken at the hearing that the classification has no relation to the object of the Act and requesting the court to place on record this (the) affidavit also and dispose of the matter in issue in the light of what is stated therein . Shri G. Rama Iyer, the standing counsel for the department, then wanted time till July 14, for filing a counter-affidavit. Granting the time asked for, we ordered that the counter-affidavit to be filed will deal with the objection raised under article 14. The counteraffidavit actually filed, purported to give a summary of the arguments already advanced on behalf of the respondent as set forth above, invoked the presumption in favour of constitutionality, affirmed that certain points of difference in the constitution of a Mappila family had been dealt with at the hearing and without stating a ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for subjecting certain individuals or corporations to hostile or discriminating legislation. The wealth-tax as disclosed by the statement of objects and reasons is a constituent of an integrated tax structure...Apart from the fact that a composite tax system of this type helps to satisfy the criterion of the ability to pay, it is consistent with the avowed goal of the attainment of a socialistic pattern of society . Apart from this, the only basis of classification which has a direct relation to the object of the Act as disclosed by it, is the possession of wealth; but that is a different classification. The Act does not disclose any basis having a relation to its object for the classification now sought to be maintained, between Hindu and nonHindu undivided families; nor have we succeeded in discovering any, in the surrounding circumstances. Shri K.V. Suryanarayana Iyer has been able only to point out, that in certain respects the law governing the members of a Mappila marumakkathayam tarwad does not correspond in all respects to the members of a Hindu undivided family, but in our opinion, he has not succeeded in establishing any basis whatever for distinguishing for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tarwads under the Act as individuals, or as might well be the case, as associations of persons or as individuals under the Indian Income-tax Act, 1922, such information must already be available with it. After all that had been argued by both counsel on the merits of this controversy, and after time had been granted to it by our order dated July 10, 1961, with a direction that the counter to be filed will meet the objection under article 14, we venture to think that it behoved the department to furnish at least this minimum information to sustain this contention. On the rule in Ram Krishna Dalmia's case*, we think, that the presumption of constitutionality cannot be carried to the extent of holding that the number of such Mappila or Mohammedan marumakkathayam tarwads is so insignificant as to be negligible. We are, therefore, of the view that the argument of the learned counsel for the department, based on mere numerical strength, cannot prevail. The next contention was based on the following observations of S.R. Das J., as he then was, in Chiranjit Lal v. Union of India**: If there is a classification, the court will not hold it invalid merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion enacted for the achievement of a particular object or purpose need not be all embracing . In that case, legislation imposing a ban on a legal practitioner appearing against a municipality from standing for municipal election was held to be not bad for discrimination, although persons who had litigations against the municipality were not subject to it. It has to be observed, that the court treated the latter as pertaining to a category by themselves; it was on that basis, that the observations quoted above were made. The principle was stated thus***: It is for the legislature to determine what categories it would embrace within the scope of legislation and merely because certain categories which would stand on the same footing......are left out would not render legislation...violative of...article 14 of the Constitution. There is also the principle, that the legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest , as recognised in Ram Krishna Dalmia's case#. In West Coast Hotel Company v. Parrish##, applying the same principle, a legislation which provided for the establishment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of certain categories of employees from the scope of the statute was for reasons which the legislature deemed sufficient and was neither arbitrary nor unreasonable. We have discussed above the cases which were relied on by Sri K.V. Suryanarayana Iyer on this aspect of his contention. But we fail to see how the principles on which they were decided can have any application to a taxing statute, like the Act before us, the purpose of which, as far as we are able to gather, is to tap what the legislature perhaps considered to be superfluous or excessive wealth in the hands of a few for the ultimate benefit of all. If, on the contrary, the contention were to prevail and were to be pushed to its logical conclusion unsupported by the above principles, nothing in article 14 might preclude the legislature from imposing a tax on, say Hindu Mitakshara families to the exclusion of Hindu marumakkathayam tarwads, e.g., of Ezhava and Nair tarwads, as are to be found in this State more than in others; such classification may perhaps be multiplied. In our view, this case has to be decided on the rule in Budhan Choudhry v. State of Bihar*, decided by a Bench of the Supreme Court which consisted ..... 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