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TMI Blog1993 (4) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ing section, enables every local authority in Tamil Nadu to levy tax on " profession, trade, calling and employment ". As per section 2(4) of the Act, "local authority" means,--- "(a) the Municipal Corporations of Madras, Madurai, Coimbatore or . . . . ; or (b) a municipal council constituted under the Tamil Nadu District Municipalities Act, 1920 ; or (c) a panchayat constituted under the Tamil Nadu Panchayats Act, 1958 ; or (d) . . . ." Earlier, different provisions in different enactments enabled the relevant corporation, municipality, panchayat or other local authority to levy such a tax. But, as per section 31 of the Act, the Act overrides those provisions on and from April 1, 1992, and the said provisions on and from the said date stand repealed. The above said levy, according to the Act, is on every person for every half year, subject to certain qualifications. As per section 2(6), "person" means any person who is engaged actively or otherwise in any profession, trade, calling or employment in the State of Tamil Nadu and includes a Hindu undivided family, firm, company, corporation or other corporate body, any society, club or association, so engaged but does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousand and five hundred rupees " and deleted the abovesaid proviso to article 276(2). The said proviso and the sub-article (3) thereof have not been extracted above since they have no relevance in the present batch of writ petitions. Thus, while prior to the abovesaid sixtieth amendment, as per article 276 read with the abovesaid entry 60 of List II, the State Legislatures were empowered to levy the abovesaid tax to the maximum extent of Rs. 250 per annum, the abovesaid amendment enables the State Legislatures to levy the said tax even up to Rs. 2,500. Subsequent to the said sixtieth amendment, the Act has been passed and as per the abovereferred to Schedule to the Act, which provides for the minimum and maximum rates of tax for every half year in respect of the abovereferred to various persons, the maximum for the half year did not exceed Rs. 1,250, (that is, Rs. 2,500 for the full year). The necessity for the incorporation of sub-article (1) to article 276 may also be stated here itself. Entry 82 of List I (Union List) of the Seventh Schedule to the Constitution enables Parliament to levy tax on (non-agriculture) income. Since that taxing power has been given to Parliament pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f enrolment from the executive authority in the prescribed manner. Further, it provides that every person, required to obtain the abovesaid certificates of registration or the abovesaid certificate of enrolment, shall within thirty days from the date of commencement of the Act, apply to the executive authority for a certificate of registration or enrolment, as the case may be, in the prescribed form and the executive authority, after making such inquiry as he may deem fit within thirty days of the receipt of the application, grant such certificate, if the said application is in order. Further, it provides that the executive authority shall specify, in every certificate of enrolment, the amount of tax payable by the holder of the certificate according to the Schedule and the date before which it shall be paid and that such certificate shall be deemed to be a notice of demand for the purpose of section 10. Further, section 5 also provides that if there is a wilful failure to apply for such registration or enrolment within the required time, the executive authority may, after giving him a reasonable opportunity of being heard, impose a penalty not exceeding rupees one hundred for each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des that if any question arises, about the interpretation of any entry in the Schedule before the commencement of assessment of an employer under section 7, the executive authority shall make a reference in the case of Municipal Corporations, to the State Government ; in the case of municipalities, to the Director of Municipal Administration ; and in the case of panchayats, to the Director of Rural Development, and the decision of the State Government, the Director of Municipal Administration, the Director of Rural Development as the case may be, on such questions shall be final. Section 16 of the Act provides for appeals if any person or employer is aggrieved by any order of the executive authority in relation to the payment of tax (including penalty and interest). Section 27 of the Act provides as follows : " Save as otherwise provided in this Act, no order passed or proceeding taken by any authority or officer under this Act shall be called in question in any court, in any suit or application and no injunction shall be granted by any court in respect of any action taken or to be taken by such authority or officer in pursuance of any power conferred by or under this Act ." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry 82, empowering Parliament to levy tax on income. According to the said learned counsel in view of this unique provision also, the abovesaid amendment of article 276(2) of the Constitution of India would amount to amendment of entry 60 of List II itself. On the other hand, the learned senior Central Government standing counsel argues that the abovesaid entry 60 has not been changed at all and that, therefore, no ratification is necessary at all. We have considered the rival submissions in this regard. This ratification question came before the Supreme Court in Sajjan Singh v. State of Rajasthan, AIR 1965 SC 845. There, where the Constitution (Seventeenth Amendment) Act, 1964, by which article 31A, coming under Part III of the Constitution, was amended, the argument was that though Part III was not expressly included in clauses (a) to (e) of the proviso to article 368(2), the abovesaid amendment of article 31A amounted to effect a "change" in article 226, which comes under Chapter V to Part VI, one of the provisions, mentioned in clause (b) of the said proviso and that hence, required the abovesaid ratification. In repelling this argument, the Supreme Court observed that in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the component of "circumstances" was referable to other entries in addition to entry 60. Further, in Sushil Chander Anand v. State of U. P., AIR 1969 All 317 [FB] which dealt with entry 60 in relation to another enactment of Uttar Pradesh, it was held that the said Act did not tax income, but trades, callings, professions and employments and that it was within the legislative competence of the Uttar Pradesh Legislature. The following observation there is significant (at page 322) : " The present entry, as already pointed out earlier, is No. 60 of List 2. It is clearly provided therein that the tax can be imposed for the benefit of a State also in addition to that of a local body. The legislative history of the tax shows that originally it was levied only for the benefit of or for the purpose of a local body. Now it can be imposed also in order to augment the revenues of a State. That is why the expression ' for the benefit of ' has been used. " The following observation in Kamta Prasad Aggarwal v. Executive Officer, Ballabgarh, AIR 1974 SC 685, is also worth mentioning here : " A tax on profession is not necessarily connected with income. This is clear from the tax on profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations of a judge to the precise issues before him and to confine such observations, even though expressed in broad terms, in the general compass of the question before him, unless he makes it clear that he intended his remarks to have a wider ambit. It is not possible for judges always to express their judgments so as to exclude entirely the risk that in some subsequent case their language may be misapplied and an attempt at such perfection of expression can only lead to the opposite result of uncertainty and even obscurity as regards the case in hand." We have considered the abovesaid rival submissions in this regard and we see very great force in the argument of the learned Advocate General, particularly in the light of the abovereferred to observations of the Supreme Court. In view of the abovereferred to observations of the Supreme Court in Addl. District Magistrate v. Shivakant Shukla, AIR 1976 SC 1207, we do not think that the other observation in Municipal Corpora tion of Delhi v. Children Book Trust, AIR 1992 SC 1456 at page 1465 (paragraph 45) : " It is impossible for the Legislature to pass a statute for the imposition of such taxes in local areas " can be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope. It is a well-known principle that legislative powers are given the widest amplitude, unless specific limitations are found in the context of the power." Here we may further point out that the ratio laid down in Bengal and Assam Investors Ltd. v. CIT [1966] 59 ITR 547 (SC), relied on by one of the counsel for petitioners will have no application to the present case, because that only dealt with a case of "business" under the Income-tax Act. But, here we are concerned not only with the term "business", but also with a much wider term "calling". In 100 LW 450 also a Division Bench of this court pointed out thus : " The material meaning from the Oxford English Dictionary given to the word 'profession' is in a wider sense, 'any calling or occupation by which a person habitually earns his living'. In Webster's Dictionary, the meaning of the word 'profession' is given as 'the occupation, if not mechanical, agricultural or the like, to which one devotes himself, the business which one professes to understand and to follow for subsistence ; calling, vocation, and employment'. The meaning of the word 'calling' includes position, state or status in life." Then, we may also refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of legislative competence '. Even under the residuary power of legislation conferred by article 248, Parliament can only impose that tax which is not mentioned in either List III or List II." According to the said counsel, in view of the abovesaid Supreme Court decision, though on an extended construction, the abovesaid entry 26 of the Concurrent List may be taken to afford the power to levy tax on legal, medical and other professions, that power has to be taken as falling only within the residuary entry 97 of List I. We may straightaway point out that there is a fallacy in the abovesaid argument. Though entry 78 of List I refers to persons entitled to practise before the High Courts, that entry by itself would not authorise Parliament to levy "profession" tax on them, when there is a specific entry in List II (State List), viz., entry 60 dealing with taxes on professions. As early as the decision in M. P. V Sundararamier and Co. v. State of A. P., AIR 1958 SC 468, it has been held thus : " Under the scheme of the entries in the Lists, taxation is regarded as a distinct matter and is separately set out." Further, a similar submission made before the Supreme Court in rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of legislative competence '. Even under the residuary power of legislation conferred by article 248 (pursuant to which alone, the abovereferred to entry 97 finds a place in List I, Parliament can only impose that tax which is not mentioned in either List III or List II." (underlining and the words within the brackets are ours). No doubt, in Bar Council of U. P. v. State of U. P., AIR 1973 SC 231, their Lordships, while dealing with levy of stamp duty on the certificates of enrolment of advocates observed that if the said levy is part of the conditions prescribed by section 24 of the Act (Advocates Act), which an advocate must satisfy before he becomes entitled to practise, any legislation relating to it would be within the competence of Parliament, but that " if, however, it is purely a taxation measure, then it would fall within entry 44 of the Concurrent List, in which event, both Parliament and the State Legislature would be competent to enact legislation for the levy of the duty although it is only under entry 63 of List II that rates can be prescribed by the State Legislature. In other words, the charging provisions can be enacted by both Parliament and the State Legislatur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem 60 in the State List in Schedule VII to the Constitution . . . ." (emphasis supplied). The other submission of learned counsel for some of the petitioners is that the impugned enactment lacks " distributive justice " in having not given due exemption to weaker sections and in this connection he relies on the decision in Lingappa Pochanna Appalwar v. State of Maharashtra, AIR 1985 SC 389. No doubt, the concept of distributive justice in the sphere of law-making, as pointed out in the abovesaid decision itself, involves, inter alia, the removal of economic inequalities, and rectifying the injustice resulting from dealings of transactions between unequals in the society. According to the said concept, the law should be used as an instrument of distributive justice to achieve fair division of Wealth among the members of the society based upon the principle : " From each according to his capacity, to each according to his needs ". In the present enactment also, looking at the rates prescribed in the Schedule, with reference to several persons chargeable to tax, generally an attempt has been made to conform to this concept by enabling the local authorities to levy a higher tax on p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ample freedom to select and classify persons, districts, goods, properties, incomes and objects which it would tax and which it would not tax. So long as the classification made within this wide and flexible range by a taxing statute does not transgress the fundamental principles underlying the doctrine of equality, it is not vulnerable on the ground of discrimination merely because it taxes or exempts from tax some incomes or objects and not others. Nor is the mere fact that tax falls more heavily on some in the same category, by itself a ground to render the law invalid. It is only when within the range of its selection, the law operates unequally and cannot, be justified on the basis of a valid classification, that there would be a violation of article 14." (emphasis supplied). Their Lordships in Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97 (SC) after observing : " it is equally well-recognised that judicial veto is to be exercised only in cases that leave no room for reasonable doubt. Constitutionality is presumed ", also relied on the following words of James Bradley Thayer : " This rule recognises that, having regard to the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elude vigilance. It is only where statutes are passed which impose taxes on false and unjust principle, or operate to produce gross inequality, so that they cannot be deemed in any just sense proportional in their effect on those who are to bear the public charges that courts can interpose and arrest the course of legislation by declaring such enactments void.' ' Perfectly equal taxation ', it has been said, 'will remain an unattainable good as long as law and Government and man are imperfect.' ' Perfect uniformity and perfect equality of taxation ', in all the aspects in which the human mind can view it, is a baseless dream." The abovereferred to Spences Hotel Pvt. Ltd. v. State of West Bengal [1991] 2 SCC 154 also takes note of the earlier decision of the Supreme Court in Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552, which has been referred to by learned counsel for some of the writ petitioners, and holds that a legislation, classifying a particular kind of property, trade, profession or event for imposing tax equally and uniformly within such class is not violative of article 14 and that proportionate system of taxation, that is, tax at a fixed or unifor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not less than sixty days in the aggregate and is in receipt of any income from investments, shall pay the half-yearly tax. But, in this regard, learned counsel for the petitioners did not substantiate their arguments with decided authorities, regarding the territorial nexus or connection between the persons sought to be charged with tax and the State of Tamil Nadu. The general conception as to the scope of any tax is that, given sufficient territorial connection or nexus between the person sought to be charged with the tax and the State seeking to tax him, the tax may properly extend to that person (vide Wallace Bros and Co. Ltd. v. CIT [1948] 16 ITR 240, 246 (PC). In the present case, we think that there is sufficient territorial nexus when the abovereferred to persons are sought to be charged to tax under the abovesaid sections 3(2)(a)(ii) and section 3(2)(b), if we read down those provisions in the following way in the light of the definition of the term "person" under section 2(6). As per section 2(6), the term "person" (which no doubt includes a company) means " any person who is engaged actively or otherwise in any profession, trade, calling or employment in the State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment ". In Venkataramaiya's Law Lexicon with Legal Maxims, Volume I, as against the term " calling ", it is mentioned that the word " calling " is very wide and according to its dictionary meaning, it means one's usual occupation, vocation, business or trade. We have also referred to in paragraph 19, the relevant observations of 100 LW 450 in this regard. Regarding the term " investment " also, the abovesaid Law Lexicon mentions that, as a financial term, investment embraces purchases of stocks, exchange, securities, or deposits of money in banks, buildings, or societies,or other financial institutions. Further, in the said Law Lexicon, the following quotation also has been quoted from the words of Edwards J. : " There is no statutory definition of the word 'investment'. The word must therefore be read in its popular meaning. That popular meaning embraces, I think, every mode of application of money which is intended to return interest, income, or profit.... " So viewed, we think a person receiving " income from investments " would also come under the term "person" engaged actively or otherwise in any profession, trade, calling or employment," within the meaning of that ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where the employer or the other person concerned wilfully fails to apply for registration or enrolment within the required time. Then, section 6(3) provides for imposition of a penalty not exceeding Rs. 25 for each day of delay, where the employer, without reasonable cause, has failed to file the return to the executive authority, showing the salaries paid by him to the employees and the amount of to be deducted by him in respect of such employees, within the required time. The contention is that these penalties together with the tax levied are likely to exceed the abovereferred to constitutional limit of Rs. 2,500 per year under article 276 of the Constitution, and so, section 5(6) and section 6 (3) are against article 276(2) of the Constitution of India. But, as rightly contended by the learned Advocate-General, penalty for the abovesaid failure, cannot be equated with the tax and the limit that is spoken to in article 276(2). In this connection, we may point out the following passages in R. S. Joshi v. Ajit Mills Ltd., AIR 1977 SC 2279 : " On a scrutiny of all the decisions it is clear that the Legislature has power to levy a penalty for the proper enforcement of the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rited by him. We find that there is some force in this argument. But, we find from a corresponding section in the Income-tax Act, viz., section 159, that there too in a similar situation, the legal representative of the deceased assessee is personally liable for any tax payable by him in his capacity as a legal representative, if, while certain liability for tax remains undischarged, he creates a charge on, or disposes of, or parts with, any assets of the estate of the deceased which are in, or may come into his possession, and such personal liability, however, shall be limited to the value of the assets so charged, disposed of, or parted with. In the above circumstances, if likewise we read down the abovesaid section 11 of the Act also, there will be no infirmity. So, we also hold that the section 11 should be read down so. With reference to section 21 of the Act which provides for search and seizure of the accounts and documents in any premises where any profession, trade, calling or employment, which is liable to tax under the Act, is carried on or is suspected to be carried on, the attack is that even when there is mere suspicion that in the abovesaid premises, the said profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inality, even a regular civil suit could be filed in certain cases as has been held in Dhulabhai v. State of M. P. [1968] 68 ITR (Sh. N.) 25 ; AIR 1969 SC 78. The following relevant observation therein is worth-mentioning (at page 89 of AIR 1969 SC) " Where the statute gives a finality to the orders of the special Tribunals the civil court's jurisdiction must be held to be excluded if there is adequate remedy to do what the civil courts would normally do in a suit. Such provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory Tribunal has not acted in conformity with the fundamental principles of judicial procedure. " (emphasis supplied). One of us (Abdul Hadi J.) has also followed the said Supreme Court decision in an unreported decision dated November 25, 1992, in V. Ganesan v. Sakthimani (S. A. No. 514 of 1982). Therefore, there is no infirmity in section 27 of the Act. As against the faint attack made against the provision relating to reference and appeals, viz., sections 15 and 16, the learned Advocate-General has pointed out that there are sufficient safeguards therein and he has also relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the members of the legal profession made on the basis of their standing at the Bar and the potentiality of the area-where they practise, for the purpose of levy of profession tax cannot be said to be either arbitrary or unreasonable. " We also adopt the same reasoning not only with regard to legal practitioners, but also with regard to other medical practitioners mentioned above. No doubt, in the Andhra enactment, the potentiality of the area where the legal practitioners are practising, is also taken into account. But,simply because that is not taken into account in the Act, we do not think that the relevant provision is violative of article 14 of the Constitution of India. That apart, the learned Advocate-General also brought to our notice that the Legislature itself is now proposing to amend the law in this regard, whereby the original minimum and maximum rates prescribed under the Act are going to be reduced in respect of the abovesaid legal and medical practitioners, including the practitioners of ayurvedic and other systems of medicine. Further, the learned Advocate-General also points out that the Legislature is also proposing to make amendment of the law, by whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fields of profession or calling. No doubt, chartered accountants do not come under the abovereferred to entry 2(c) of the Schedule to the Karnataka Act and there is a separate entry 2(b) relating to chartered accountants and actuaries. Here again, the tax is levied only if the standing in the said profession is of two years or more. There is also a further upward gradation in the said entry. Likewise, in the case of the abovereferred to agents, like life insurance agents, the relevant entry, viz., entry 2A of the Schedule to the Karnataka Act levies tax only if the annual income of such person is not less than Rs. 18,000. Further, the allegations in the affidavit in support of Writ Petition No. 15528 of 1992, wherein there are about 80 writ petitioners, who are working as Life Insurance Corporation agents are : .... majority of them are small insurance agents having a very meagre income of Rs. 10,000 to Rs. 15,000 per year. A detailed statement is enclosed along with this writ petition, which goes to show the nature of income of all the petitioners. As per the provisions of the impugned Act, now each of the petitioners has to shell out Rs. 2,500 per year, which almost constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, etc., and, therefore, by treating a particular trade, profession or calling as a single unit, without further classifying it into different categories, cannot be per se discriminatory. In the sphere of taxation, the Legislature has a wide discretion to choose the subject of taxation ; microscopic classification of the subject depending upon the capacity is not absolutely necessary. The alleged discrimination should be established as patently arbitrary and hostile to the very subject of taxation before it can be struck down. " Similarly, in Sri Banashankari Leasing Co. Ltd. v. State of Karnataka [1992] 194 ITR 650 (Kar), the Karnataka High Court, while upholding the constitutional validity of the profession tax levied under the abovesaid Karnataka enactment at a flat rate on companies, made the following observation : " It is well-settled in law that equality means treating equals as equals and not unequals as equals. Once this position is arrived at, in that a company is a person distinct from individuals, no principle of equality can ever arise. Then again, the law of equality is not one of arithmetic exactitude as El Dorado will put it. Therefore, it is not open to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitutes' Association, learned counsel for the petitioner submits that the proprietors of such commerce institutes or typewriting institutes did not at all figure as one of the specified categories of persons in the Schedule to the Act and that even though no notification pursuant to the abovereferred to residuary entry 21 of the said Schedule has been published so far certificates of enrolment in Form No. IV have been issued under rule 5(3) of the Rules, to the petitioners and their members, demanding profession tax. In other words, according to the said counsel, even though no notification pursuant to entry 21 has been issued and even though the Rules have come into force only on September 11, 1992, and no resolution contemplated under rule 3 has been passed, the demand has been made illegally pursuant to entry 21. Unless the abovesaid notification has been issued, there is no possibility of fixing the rate of tax, according to the said counsel. With reference to this submission, we have only to declare that the local authority must conform to the relevant provisions of the Act and the Rules before they levy tax. It is not brought to our notice that any notification pursuant to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to proceed further, it cannot rely on such notification issued prior to the commencement of the Rules, but must issue a fresh notification, conforming to the Act and the Rules. Another plea taken by one of learned counsel for the petitioners is that rule 2(3) in so far as it defines " municipal authority " is inconsistent with the definition of " local authority " in the Act in section 2(4), has no merit. Section 2(4) defines " local authority ", and sub-rule (3) of rule 2 only identifies by defining what " municipal authority " means. The restricted definition of " municipal authority ", in the Rules cannot in any manner be said to be inconsistent with the definition of " local authority " in the Act since it is only when the definition in the Rules exceeds the ambit of the definition contained in the Act, the question of inconsistency will arise. We find that in this case no such inconsistency exists. In the result, entries 2(d) and (e), 5 and 20 of the Schedule to the Act, as they stand now, are struck down as unconstitutional. To that extent, such of those writ petitions, in which those persons specified in entries 2(d) and (e), 5 and 20 are sought to be made assessable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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